VARIABLE INTEREST ENTITIES

3 Months Ended

Mar. 31, 2014

Variable Interest Entity [Line Items]

VARIABLE INTEREST ENTITIES

VARIABLE INTEREST ENTITIES

In general, a VIE is an entity that does not have sufficient equity to finance its operations without additional subordinated financial support, or an entity for which the risks and rewards of ownership are not directly linked to voting interests. The Company has variable interests in VIEs through its management contracts and investments in various securitization entities, including CDO issuers. Since the Company serves as the asset manager for the investment entities it sponsored and manages, the Company is generally deemed to have the power to direct the activities of the VIE that most significantly impact the entity's economic performance. In the case of an interest in a VIE managed by the Company, the Company will perform an additional qualitative analysis to determine if its interest (including any investment as well as any management fees that qualify as variable interests) could absorb losses or receive benefits that could potentially be significant to the VIE. This analysis considers the most optimistic and pessimistic scenarios of potential economic results that could reasonably be experienced by the VIE. Then, the Company compares the benefits it would receive (in the optimistic scenario) or the losses it would absorb (in the pessimistic scenario) as compared to benefits and losses absorbed by the VIE in total. If the benefits or losses absorbed by the Company were significant as compared to total benefits and losses absorbed by all variable interest holders, then the Company would conclude it is the primary beneficiary.

Consolidated VIE - RSO

The Company prepared a quantitative analysis to measure the management/incentive fees and the Company’s equity ownership position in RSO relative to the anticipated economic performance of RSO and determined that its benefits could be significant to RSO. Accordingly, management concluded that the Company is the primary beneficiary and should consolidate RSO. However, the assets of RSO are held solely to satisfy RSO’s obligations and the creditors of RSO have no recourse against the assets of the Company.

The following reflects the assets and liabilities and operations of RSO which was consolidated by the Company:

RSO Balance Sheets Detail (in thousands):
	March 31, 2014			December 31, 2013
ASSETS (1)
Cash and cash equivalents	$	166,686		$	262,270
Restricted cash	115,952			63,309
Subtotal- Cash and cash equivalents	282,638			325,579
Investment securities, trading	9,987			11,558
Investment securities available-for-sale, pledged as collateral, at fair value	159,051			162,608
Investment securities available-for-sale, at fair value	74,500			52,598
Subtotal - Investments, at fair value	243,538			226,764
Loans, pledged as collateral and net of allowances of $6.6 million and $13.8 million	1,596,731			1,369,526
Loans receivable–related party	6,498			6,966
Loans held for sale	15,389			21,916
Subtotal - Loans, before eliminations	1,618,618			1,398,408
Eliminations	(558		)	(950		)
Subtotal - Loans	1,618,060			1,397,458
Property available-for-sale	35,256			25,346
Investment in real estate	19,971			29,778
Investments in unconsolidated entities	62,053			69,069
Subtotal, Investments in real estate and unconsolidated entities	117,280			124,193
Line items included in "other assets":
Linked transactions, net at fair value	34,829			30,066
Derivatives, at fair value	556			—
Interest receivable	10,503			8,965
Deferred tax asset	5,048			5,212
Principal paydown receivable	1			6,821
Intangible assets	11,283			11,822
Prepaid expenses	4,155			2,871
Other assets	13,459			10,726
Subtotal - Other assets, before eliminations	79,834			76,483
Eliminations	(15		)	(16		)
Subtotal - Other assets	79,819			76,467
Total assets (excluding eliminations)	$	2,341,908		$	2,151,427
Total assets (including eliminations)	$	2,341,335		$	2,150,461
LIABILITIES (2)
Borrowings	$	1,502,089		$	1,319,810
Eliminations	177			205
Subtotal Borrowings	1,502,266			1,320,015
Distribution payable	27,601			27,023
Accrued interest expense	3,848			1,693
Derivatives, at fair value	10,242			10,586
Accrued tax liability	387			1,629
Deferred tax liability	4,036			4,112
Accounts payable and other liabilities	13,511			12,650
Subtotal - Other liabilities, before eliminations	59,625			57,693
Eliminations	(2,691		)	(2,446		)
Subtotal - Other liabilities	56,934			55,247
Total liabilities (before eliminations)	$	1,561,714		$	1,377,503
Total liabilities (after eliminations)	$	1,559,200		$	1,375,262

RSO Balance Sheets Detail (in thousands):
	March 31, 2014		December 31, 2013
(1) Assets of consolidated RSO's VIEs included in the total assets above:
Restricted cash	$	113,362	$	61,372
Investments securities available-for-sale, pledged as collateral, at fair value	116,429		105,846
Loans held for sale	272		2,376
Loans, pledged as collateral and net of allowances of $5.1 million and $8.8 million	1,305,377		1,219,569
Interest receivable	6,626		5,627
Prepaid expenses	163		247
Principal receivable	1		6,821
Total assets of consolidated VIEs	$	1,542,230	$	1,401,858
(2) Liabilities of consolidated RSO's VIEs included in the total liabilities above:
Borrowings	$	1,183,468	$	1,070,339
Accrued interest expense	1,356		918
Derivatives, at fair value	9,841		10,191
Accounts payable and other liabilities	4,150		1,604
Total liabilities of consolidated VIEs	$	1,198,815	$	1,083,052

The following table presents detail of noncontrolling interests attributable to RSO:

	March 31, 2014			December 31, 2013
Total stockholders' equity per RSO balance sheet	$	780,194		$	773,924
Eliminations	(30,202		)	(30,560		)
Noncontrolling interests attributable to RSO	$	749,992		$	743,364

RSO Income Statement Detail (in thousands):
	Three Months Ended
	March 31,
	2014			2013
REVENUES
Interest income:
Loans	$	20,229		$	27,812
Securities	4,004			3,642
Interest income − other	2,852			1,866
Total interest income	27,085			33,320
Interest expense	9,637			11,165
Net interest income	17,448			22,155
Rental income	5,152			6,174
Dividend income	136			16
Equity in net earnings (losses) of unconsolidated subsidiaries	2,014			(425		)
Fee income	2,756			1,410
Net realized gain on sales of investment securities available-for-sale and loans	3,680			391
Net realized and unrealized (loss) gain on investment securities, trading	(1,560		)	1,116
Unrealized gain (loss) and net interest income on linked transactions, net	2,305			(259		)
Revenues from consolidated VIE - RSO	31,931			30,578
OPERATING EXPENSES
Management fees − related party	3,080			2,978
Equity compensation − related party	1,667			3,591
Rental operating expense	3,396			3,937
General and administrative	8,105			3,481
Depreciation and amortization	836			1,138
Income tax expense	16			1,762
Net impairment losses recognized in earnings	—			21
(Benefit) provision for loan losses	(3,960		)	1,042
Total operating expenses	13,140			17,950
Reclassification of income tax expense	(16		)	(1,762		)
Expenses of consolidated VIE - RSO	13,124			16,188
Adjusted operating income	18,807			14,390
OTHER REVENUE (EXPENSE)
Other expenses	(1,262		)	—
Loss on the extinguishment of debt	(69		)	—
Other expense, net, from consolidated VIE - RSO	(1,331		)	—
Income from continuing operations	17,476			14,390
Income tax provision - RSO	16			1,762
NET INCOME	17,460			12,628
Net income allocated to preferred shares	(2,400		)	(1,311		)
Net income allocated to noncontrolling interests	56			209
NET INCOME ALLOCABLE TO RSO COMMON SHAREHOLDERS	$	15,116		$	11,526

RSO Cash Flow Detail (in thousands)	Three Months Ended
	March 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	17,460		$	12,628
Items included in "Change in cash attributable to consolidated VIE - RSO":
Provision for loan losses	(3,960		)	1,042
Depreciation of investments in real estate and other	392			666
Amortization of intangible assets	444			532
Amortization of term facilities	534			221
Accretion of net discounts on loans held for investment	(574		)	(4,079		)
Accretion of net discounts on securities available-for-sale	(769		)	(731		)
Amortization of discounts on convertible notes	422			—
Amortization of discount on notes of securitizations	12			876
Amortization of debt issuance costs on notes of securitizations	796			1,176
Amortization of stock-based compensation	1,667			3,591
Amortization of terminated derivative instruments	70			55
Accretion of interest-only available-for-sales securities	(137		)	(247		)
Deferred income tax benefits	(89		)	(115		)
Mortgage loans held for sale, net	(877		)	—
Purchase of securities, trading	—			(10,044		)
Principal payments on securities, trading	42			21
Proceeds from sales of securities, trading	—			3,089
Net realized and unrealized loss (gain) on investment securities, trading	1,560			(1,116		)
Net realized gains on sales of investment securities available-for-sale and loans	(3,680		)	(391		)
Loss on early extinguishment of debt	69			—
Net impairment losses recognized in earnings	—			12
Linked Transactions fair value adjustments	(1,763		)	592
Equity in net (earnings) losses of unconsolidated subsidiaries	(2,014		)	425
Change in operating assets and liabilities, net of acquisitions	9,563			15,096
Subtotal - consolidated VIE - RSO operating activity	1,708			10,671
Change in consolidated VIE - RSO cash for the period	95,584			17,617
Subtotal - Change in cash attributable to consolidated VIE - RSO before eliminations	97,292			28,288
Elimination of intercompany activity	(28		)	(654		)
Subtotal - Change in cash attributable to consolidated VIE - RSO	97,264			27,634
Non-cash incentive compensation to RAI	—			(1		)
Elimination of intercompany activity	—			1
Non-cash incentive compensation to RAI, after eliminations	—			—
Net cash provided by operating activities (excluding eliminations)	19,168			23,298

	Three Months Ended
	March 31,
	2014		2013
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans	(169,380	)	(146,699	)
Purchase of securities available-for-sale	(48,321	)	(63,292	)
Subtotal - Purchase of loans and securities by consolidated VIE - RSO, before eliminations	(217,701	)	(209,991	)
Principal payments received on loans	90,948		209,107
Proceeds from sale of loans	15,974		58,148
Principal payments on securities available-for-sale	17,325		7,944
Proceeds from sale of securities available-for-sale	12,314		—
Subtotal - principal payments and proceeds from sales received by consolidated VIE - RSO, before eliminations	136,561		275,199
Increase in restricted cash	(12,849	)	(19,241	)
Items included in "Other -VIE, investing activity":
Proceeds from (investment in) unconsolidated entity	5,650		(4,431	)
Acquisition of Moselle CLO S.A.	(30,433	)	—
Distributions from investments in real estate	—		253
Improvements in investments in real estate	—		(321	)
Investment in loans - related parties	(285	)	—
Principal payments received on loans – related parties	753		464
Purchase of furniture and fixtures	(38	)	—
Acquisition of property and equipment	(269	)	—
Subtotal - Other consolidated VIE - investing activity, before eliminations	(24,622	)	(4,035	)
Eliminations	(391	)	—
Subtotal - Other consolidated VIE - investing activity	(25,013	)	(4,035	)
Net cash (used in) provided by investing activities (excluding eliminations)	(118,611	)	41,932

	Three Months Ended
	March 31,
	2014			2013
CASH FLOWS FROM FINANCING ACTIVITIES:
Items included in "Net borrowings (repayments) of debt by consolidated VIE - RSO"
Proceeds from borrowings:
Repurchase agreements	75,589			37,145
Warehouse agreements	34,007			—
Payments on borrowings:
Collateralized debt obligations	(59,668		)	(141,341		)
Warehouse agreements	(33,719		)	—
Subtotal - net (repayments) borrowings of debt by consolidated VIE - RSO	16,209			(104,196		)
Distributions paid on common stock	(25,536		)	(20,978		)
Elimination of dividends paid to RAI	572			556
Distribution paid on common stock, after elimination	(24,964		)	(20,422		)
Net proceeds from dividend reinvestment and stock purchase plan (net of offering costs of $0 and $19)	245			17,995
Proceeds from issuance of 8.5% Series A redeemable preferred shares (net of offering costs of $0 and $0)	4,440			—
Proceeds from issuance of 8.25% Series B redeemable preferred shares (net of offering costs of $565 and $707)	10,975			26,867
Subtotal - net proceeds from issuance of stock by consolidated VIE	15,660			44,862
Payment of debt issuance costs	(8		)	(140		)
Payment of equity to third party sub-note holders	(307		)	(1,461		)
Distributions paid on preferred stock	(2,159		)	(934		)
Subtotal - Other consolidated VIE - RSO financing activity, before elimination	(2,474		)	(2,535		)
Elimination	—			—
Subtotal - Other consolidated VIE - RSO financing activity after elimination	(2,474		)	$	(2,535	)
Net cash provided by (used in) financing activities (excluding eliminations)	$	3,859		$	(82,847	)
NET INCREASE IN CASH AND CASH EQUIVALENTS	(95,584		)	(17,617		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	262,270			85,278
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	166,686		$	67,661
SUPPLEMENTAL DISCLOSURE:
Interest expense paid in cash	$	8,576		$	10,188
Income taxes paid in cash	$	1,774		$	7,635

Summary of Significant Accounting Policies - RSO

Investment Securities

RSO classifies its investment portfolio as trading or available-for-sale.  RSO, from time to time, may sell any of its investments due to changes in market conditions or in accordance with its investment strategy.

RSO’s investment securities, trading and investment securities available-for-sale are reported at fair value. To determine fair value, RSO uses an independent third-party valuation firm utilizing data available in the market as well as appropriate prepayment default, and recovery rates. These valuations are validated utilizing dealer quotes or bids. If there is a material difference between the value indicated by the third-party valuation firm and the dealer quote or bid, RSO will evaluate the difference which could result in an updated valuation from the third-party or a revised dealer quote. Based on a prioritization of inputs used in valuation of each position, RSO categorizes these investments as either Level 2 or Level 3 in the fair value hierarchy. Any changes in fair value to RSO's investment securities, trading are recorded in RSO's consolidated statements of income as net realized and unrealized (loss) gain on investment securities, trading. Any changes in fair value to RSO's investment securities available-for-sale are recorded in RSO's consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders' equity.

On a quarterly basis, RSO evaluates its available-for-sale investments for other-than-temporary impairment.  An available-for-sale investment is impaired when its fair value has declined below its amortized cost basis.  An impairment is considered other-than-temporary when the amortized cost basis of the investment or some portion thereof will not be recovered.  In addition, RSO’s intent to sell as well as the likelihood that RSO will be required to sell the security before the recovery of the amortized cost basis is considered.  Where credit quality is believed to be the cause of the other-than-temporary impairment, that component of the impairment is recognized as an impairment loss in RSO's consolidated statements of income.  Where other market components are believed to be the cause of the impairment, that component of the impairment is recognized as other comprehensive loss.

RSO performs an on-going review of third-party reports and updated financial data on the underlying properties in order to analyze current and projected security performance. Rating agency downgrades are considered with respect to RSO's income approach when determining other-than-temporary impairment and, when inputs are subjected to testing for economic changes within possible ranges, the resulting projected cash flows reflect a full recovery of principal and interest indicating no impairment:

• the length of time the market value has been less than amortized cost;

• the severity of the impairment;

• the expected loss of the security as generated by a third-party valuation model;

• original and current credit ratings from the rating agencies;

• underlying credit fundamentals of the collateral backing the securities;

• whether, based upon RSO's intent, it is more likely than not that RSO will sell the security before the recovery of the amortized cost basis; and

• third-party support for default, for recovery, prepayment speed and reinvestment price assumptions.

Investment security transactions are recorded on the trade date. Realized gains and losses on investment securities are determined on the specific identification method.

Investment Interest Income Recognition

Interest income on RSO’s mortgage-backed and other asset-backed securities is accrued using the effective yield method based on the actual coupon rate and the outstanding principal amount of the underlying mortgages or other assets.  Premiums and discounts are amortized or accreted into interest income over the lives of the securities also using the effective yield method, adjusted for the effects of estimated prepayments.  For an investment purchased at par, the effective yield is the contractual interest rate on the investment.  If the investment is purchased at a discount or at a premium, the effective yield is computed based on the contractual interest rate increased for the accretion of a purchase discount or decreased for the amortization of a purchase premium.  The effective yield method requires RSO to make estimates of future prepayment rates for its investments that can be contractually prepaid before their contractual maturity date so that the purchase discount can be accreted, or the purchase premium can be amortized, over the estimated remaining life of the investment.  The prepayment estimates that RSO uses directly impact the estimated remaining lives of its investments.  Actual prepayment estimates are reviewed as of each quarter end or more frequently if RSO becomes aware of any material information that would lead it to believe that an adjustment is necessary.  If prepayment estimates are incorrect, the amortization or accretion of premiums and discounts may have to be adjusted, which would have an impact on future income.

Allowance for Loan Loss

RSO maintains an allowance for loan loss. For RSO's bank and CRE loan portfolios, loans held for investment are first individually evaluated for impairment to determine whether a specific reserve is required. Loans that are not determined to be impaired individually are then evaluated for impairment as a homogeneous pool of loans with substantially similar characteristics so that a general reserve can be established, if needed.  The reviews are performed at least quarterly.

RSO considers a loan to be impaired if one of two conditions exists.  The first condition is if, based on current information and events, management believes it is probable that RSO will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The second condition is if the loan is deemed to be a troubled-debt restructuring (“TDR”) where a concession has been given to a borrower in financial difficulty.  These TDRs may not have an associated specific loan loss allowance if the principal and interest amount is considered recoverable based on current market conditions, expected collateral performance and/or guarantees made by the borrowers.

When a loan is impaired under either of these two conditions, the allowance for loan losses is increased by the amount of the excess of the amortized cost basis of the loan over its fair value.  Fair value may be determined based on the present value of estimated cash flows; on market price, if available; or on the fair value of the collateral less estimated disposition costs.  When a loan, or a portion thereof, is considered uncollectible and pursuit of collection is not warranted, RSO will record a charge-off or write-down of the loan against the allowance for loan losses.

An impaired loan may remain on accrual status during the period in which RSO is pursuing repayment of the loan; however, the loan would be placed on non-accrual status at such time as (i) RSO's management believes that scheduled debt service payments will not be met within the coming 12 months; (ii) the loan becomes 90 days delinquent; (iii) RSO's management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (iv) the net realizable value of the loan’s underlying collateral approximates RSO’s carrying value for such loan.  While on non-accrual status, RSO recognizes interest income only when an actual payment is received. When a loan is placed on non-accrual, previously accrued interest is reversed from interest income.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. RSO's management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impaired loans are carried at fair value and are measured on a nonrecurring basis. The fair value is determined using unobservable inputs including estimates of selling costs (Level 3).

For RSO's residential mortgage loans, the allowance is based upon management's review of the collectability of the loans in light of historical experience, the nature and amount of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of specific and general components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also identified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan. A general component is maintained to cover uncertainties that could affect RSO management's estimate of probable losses. The general component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Investments in Real Estate

Investments in real estate are carried net of accumulated depreciation.  Costs directly related to the acquisition are expensed as incurred.  Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred.  Costs related to the improvement of the real property are capitalized and depreciated over their useful lives.

Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under ASC Topic 805, “Business Combinations.”  RSO allocates the purchase price of its investments in real estate to land, building, site improvements, the value of in-place leases and the value of above or below market leases. The value allocated to above or below market leases is amortized over the remaining lease term as an adjustment to rental income. RSO amortizes the value allocated to in-place leases over the weighted average remaining lease term to depreciation and amortization expense.  RSO depreciates real property using the straight-line method over the estimated useful lives of the assets as follows:

Category	Term
Building	25 - 40 years
Site improvements	Lesser of the remaining life of building or useful lives

Long-Lived and Intangible Assets

Long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.  The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the long-lived asset’s use and eventual disposition.  If impairment has occurred, the loss will be measured as the excess of the carrying amount of the asset over the fair value of the asset.

There were no impairment charges recorded with respect to RSO's investments in real estate or intangible assets during the three months ended March 31, 2014 and 2013.

Linked Transactions

If RSO finances the purchase of securities with repurchase agreements with the same counterparty from whom the securities are purchased and both transactions are entered into contemporaneously or in contemplation of each other, the transactions are presumed not to meet sale accounting criteria and RSO will account for the purchase of such securities and the repurchase agreement on a net basis and record a forward purchase commitment to purchase securities (each, a “Linked Transaction”) at fair value on RSO's consolidated balance sheets in the line item Linked Transactions, at fair value. Changes in the fair value of the assets and liabilities underlying the Linked Transactions and associated interest income and expense are reported as unrealized (loss) gain and net interest income on linked transactions, net on RSO's consolidated statements of income.

Reclassifications

Certain reclassifications have been made to RSO's 2013 consolidated financial statements to conform to the 2014 presentation.

Variable Interest Entities - RSO

RSO has evaluated its securities, loans, investments in unconsolidated entities, liabilities to subsidiary trusts issuing preferred securities (consisting of unsecured junior subordinated notes) and its CDOs in order to determine if they qualify as VIEs. RSO monitors these investments and, to the extent it has determined that it owns a material investment in the current controlling class of securities of a particular entity, analyzes the entity for potential consolidation. RSO will continually analyze investments and liabilities, including when there is a reconsideration event, to determine whether such investments or liabilities are VIEs and whether such VIE should be consolidated. This analysis require considerable judgment in determining the primary beneficiary of a VIE and could result in the consolidation of an entity that would otherwise not have been consolidated or the non-consolidation of an entity that otherwise would have been consolidated.

Consolidated VIEs (RSO is the primary beneficiary)

Based on RSO management’s analysis, RSO is the primary beneficiary of nine VIEs at March 31, 2014: Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, Whitney CLO I, RCC CRE Notes 2013 and Moselle CLO. In performing the primary beneficiary analysis for seven of these VIEs (other than Whitney CLO I and Moselle CLO, which are discussed below), it was determined that the parties that have the power to direct the activities that are most significant to each of these VIEs and RSO who has the right to receive benefits and the obligation to absorb losses that could potentially be significant to these VIEs, are a related party group. It was then determined that RSO was the party within that group that is more closely associated to each such VIE considering the design of the VIE, the principal-agency relationship between RSO and other members of the related-party group, and the relationship and significance of the activities of the VIE to RSO compared to the other members of the related-party group..

These securitizations were formed on behalf of RSO (except for Whitney CLO I and Moselle CLO) to invest in real estate-related securities, Commercial Mortgage Backed Securities ("CMBS"), property available-for-sale, bank loans, corporate bonds and asset-backed securities, and were financed by the issuance of debt securities. The Manager manages these entities on behalf of RSO. By financing these assets with long-term borrowings through the issuance of bonds, RSO seeks to generate attractive risk-adjusted equity returns and to match the term of its assets and liabilities. The primary beneficiary determination for each of these VIEs was made at each VIE’s inception and is continually assessed.

Moselle CLO is a European securitization in which RSO purchased a $41.5 million interest in the form of subordinate notes representing 100% of the Class 1 Subordinated Notes and 67.9% of the Class 2 Subordinated Notes in February 2014. The CLO is managed by an independent third-party and such collateral management activities were determined to be the activities that most significantly impact the economic performance of the CLO. Though neither RSO nor one of its related parties manage the CLO, due to certain unilateral kick-out rights within the collateral management agreement, it was determined that RSO had the power to direct the activities that most significantly impact the economic performance of Moselle CLO. Having both the power to direct the activities that most significantly impact Moselle CLO and a financial interest that is expected to absorb both positive and negative variability in the CLO that could potentially be significant, RSO was determined to be the primary beneficiary of Moselle CLO and, therefore, consolidated the CLO.

Whitney CLO I is a securitization in which RSO acquired rights to manage the collateral assets held by the entity in February 2011. For a discussion on the primary beneficiary analysis for Whitney, see “- Unconsolidated VIEs - Resource Capital Asset Management,” below. For a discussion of RSO’s securitizations, see “Borrowings” below.

For CLOs in which RSO does not own 100% of the subordinated notes, RSO imputes an interest rate using expected cash flows over the life of the CLO and records the third party's share of the cash flows as interest expense on the consolidated statements of income.

RSO has exposure to losses on its securitizations to the extent of its subordinated debt and preferred equity interests in them. RSO is entitled to receive payments of principal and interest on the debt securities it holds and, to the extent revenues exceed debt service requirements and other expenses of the securitizations, distributions with respect to its preferred equity interests. As a result of consolidation, debt and equity interests RSO holds in these securitizations have been eliminated, and RSO’s consolidated balance sheets reflects both the assets held and debt issued by the securitizations to third parties and any accrued expense to third parties. RSO's operating results and cash flows include the gross amounts related to the securitizations' assets and liabilities as opposed to RSO's net economic interests in the securitizations. Assets and liabilities related to the securitizations are disclosed, in the aggregate, on RSO's consolidated balance sheets.

The creditors of RSO’s nine consolidated VIEs have no recourse to the general credit of RSO. However, in its capacity as manager, RSO has voluntarily supported two credits in one of its commercial real estate CDOs as the credits went through a restructuring in order to maximize their future cash flows. For the three months ended March 31, 2014 and 2013, RSO has provided financial support of $539,000 and $1.2 million, respectively. RSO has provided no other financial support to any other of its VIEs nor does it have any requirement to do so, although it may choose to do so in the future to maximize future cash flows on such investments by RSO. There are no explicit arrangements or implicit variable interests that obligate RSO to provide financial support to any of its consolidated VIEs, although RSO may choose to do so in the future.

The following table shows the classification and carrying value of assets and liabilities of consolidated VIEs as of March 31, 2014 (in thousands):

	Apidos I			Apidos III		Apidos Cinco		Apidos VIII		Whitney CLO I		RREF 2006		RREF 2007		RCC CRE Notes 2013		Moselle		Total
ASSETS
Restricted cash (1)	$	11,951		$	7,217	$	48,362	$	134	$	160	$	18	$	250	$	4,805	$	40,465	$	113,362
Investment securities available-for-sale, pledged    as collateral, at fair value	7,250			3,922		13,940		—		—		9,996		67,015		—		14,306		116,429
Loans, pledged as collateral	70,988			112,953		284,373		—		—		159,797		228,686		298,575		150,005		1,305,377
Loans held for sale	97			175		—		—		—		—		—		—		—		272
Interest receivable	(193		)	513		1,044		—		6		1,825		2,111		1,320		—		6,626
Prepaid assets	20			20		36		—		—		50		37		—		—		163
Principal paydown receivable	—			—		1		—		—		—		—		—		—		1
Total assets (2)	$	90,113		$	124,800	$	347,756	$	134	$	166	$	171,686	$	298,099	$	304,700	$	204,776	$	1,542,230
LIABILITIES
Borrowings	$	73,815		$	112,511	$	319,797	$	—	$	133	$	100,184	$	147,866	$	256,866	$	172,296	$	1,183,468
Accrued interest expense	255			56		299		—		—		48		115		205		378		1,356
Derivatives, at fair value	—			—		—		—		—		1,504		8,337		—		—		9,841
Accounts payable and    other liabilities	133			18		22		284		519		4		1		—		3,169		4,150
Total liabilities	$	74,203		$	112,585	$	320,118	$	284	$	652	$	101,740	$	156,319	$	257,071	$	175,843	$	1,198,815

(1) Includes $51.3 million available for reinvestment in certain of the securitizations.

(2) Assets of each of the consolidated VIEs may only be used to settle the obligations of each respective VIE.

Unconsolidated VIEs (RSO is not the primary beneficiary, but has a variable interest)

Based on RSO management’s analysis, RSO is not the primary beneficiary of the VIEs discussed below since it does not have both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Accordingly, the following VIEs are not consolidated in RSO’s financial statements as of March 31, 2014. RSO’s maximum exposure to risk for each of these unconsolidated VIEs is set forth in the “Maximum Risk Exposure,” column in the table below.

LEAF Commercial Capital, Inc. ("LEAF")

In the November 16, 2011 formation of LEAF, in exchange for its prior interests in its lease-related investments, RSO received 31,341 shares of Series A Preferred Stock, 4,872 shares of newly issued 8% Series B Redeemable Preferred Stock and 2,364 shares of newly issued Series D Redeemable Preferred Stock, collectively representing, on a fully-diluted basis assuming conversion, a 26.7% interest in LEAF. RSO’s investment in LEAF was valued at $36.3 million based on a third-party valuation. Several approaches were used, including discounted expected cash flows, market approach and comparable sales transactions to estimate the fair value of its investment in LEAF as a result of the transaction. These approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the current economic environment and credit market conditions. RSO recorded a loss of $2.2 million in conjunction with the transaction. RSO's resulting interest is accounted for under the equity method. During 2013, RSO entered into a third stock purchase agreement with LEAF to purchase 3,682 shares of newly issues Series A-1 Preferred Stock for $3.7 million and 4,445 shares of newly issued Series E Preferred Stock for $4.4 million. The Series E Preferred Stock has priority over all other classes of preferred stock. As of March 31, 2014, RSO's fully-diluted interest in LEAF assuming conversion is 27.5%. RSO's investment in LEAF was recorded at $40.4 million and $41.0 million as of March 31, 2014 and December 31, 2013, respectively.

RSO determined that it is not the primary beneficiary of LEAF because it does not participate in any management or portfolio decisions, holds only two of six board positions, and only controls 27.5% of the voting rights in the entity. Furthermore, a third-party investor holds consent rights with respect to significant LEAF actions, including incurrence of indebtedness, consummation of a sale of the entity, liquidation or initiating a public offering.

Unsecured Junior Subordinated Debentures

RSO has a 100% interest in the common shares of Resource Capital Trust I (“RCT I”) and RCC Trust II (“RCT II”), valued at $1.5 million in the aggregate (or 3% of each trust). RCT I and RCT II were formed for the purposes of providing debt financing to RSO, as described below. RSO completed a qualitative analysis to determine whether or not it is the primary beneficiary of each of the trusts and determined that it was not the primary beneficiary of either trust because it does not have the power to direct the activities most significant to the trusts, which include the collection of principal and interest and protection of collateral through servicing rights. Accordingly, neither trust is consolidated into RSO’s consolidated financial statements.

RSO records its investments in RCT I and RCT II’s common shares as investments in unconsolidated trusts using the cost method and records dividend income when declared by RCT I and RCT II. The trusts each hold subordinated debentures for which RSO is the obligor in the amount of $25.8 million for RCT I and $25.8 million for RCT II. The debentures were funded by the issuance of trust preferred securities of RCT I and RCT II. RSO will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.

Resource Capital Asset Management CLOs

In February 2011, RSO purchased a company that managed $1.9 billion of bank loan assets through five CLOs. As a result, RSO became entitled to collect senior, subordinated and incentive management fees from these CLOs. The purchase price of $22.5 million resulted in an intangible asset that was allocated to each of the five CLOs and is amortized over the expected life of each CLO. The unamortized balance of the intangible asset was $10.8 million and $11.2 million at March 31, 2014 and December 31, 2013, respectively. RSO recognized fee income of $1.7 million and $1.4 million for the three months ended March 31, 2014 and 2013, respectively. With respect to four of these CLOs, RSO determined that it does not hold a controlling interest and, therefore, is not the primary beneficiary. One of the CLOs was liquidated in February 2013. With respect to the fifth CLO, Whitney CLO I, in October 2012, RSO purchased 66.6% of its preferred equity. Based upon that purchase, RSO determined that it did have an obligation to absorb losses and/or the right to receive benefits that could potentially be significant to Whitney CLO I and that a related party had the power to direct the activities that are most significant to the VIE. As a result, together with the related party, RSO had both the power to direct and the right to receive benefits and the obligation to absorb losses. It was then determined that, between RSO and the related party, RSO was the party within that group that was more closely associated with Whitney CLO I because of its preferred equity interest in Whitney CLO I. RSO, therefore, consolidated Whitney CLO I. In May 2013, RSO purchased additional equity in this CLO which increased its equity ownership to 68.3% of the outstanding preferred equity of the CLO. In September 2013, RSO liquidated Whitney CLO I, and, as a result, substantially all of the assets were sold.

The following table shows the classification, carrying value and maximum exposure to loss with respect to RSO’s unconsolidated VIEs as of March 31, 2014 (in thousands):

	Unconsolidated Variable Interest Entities
	LEAF		Unsecured Junior Subordinated Debentures			Resource Capital Asset Management CDOs		Total		Maximum Exposure to Loss
Investment in unconsolidated entities	$	40,421	$	1,548		$	—	$	41,969	41,969
Intangible assets	—		—			10,790		10,790		10,790
Total assets	40,421		1,548			10,790		52,759
Borrowings	—		51,054			—		51,054		N/A
Total liabilities	—		51,054			—		51,054		N/A
Net asset (liability)	$	40,421	$	(49,506	)	10,790		$	1,705	N/A

Other than RSO's commitments to fund its real estate joint ventures, there were no explicit arrangements or implicit variable interests that could require RSO to provide financial support to any of its unconsolidated VIEs.

Supplemental cash flow information - RSO

Supplemental disclosure of cash flow information (in thousands):

	Three Months Ended
	March 31,
	2014		2013
Non-cash financing activities include the following:
Distributions on common stock declared but not paid	$	25,663	$	21,634
Distribution on preferred stock declared but not paid	$	2,520	$	1,311
Issuance of restricted stock	$	640	$	35

Investment securities, trading - RSO

The following table summarizes RSO's structured notes and residential mortgage-backed securities (“RMBS”) which are classified as investment securities, trading and carried at fair value (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2014
Structured notes, trading	$	8,057	$	3,082	$	(1,590	)	$	9,549
RMBS	1,909		—		(1,471		)	438
Total	$	9,966	$	3,082	$	(3,061	)	$	9,987
December 31, 2013
Structured notes, trading	$	8,057	$	4,050	$	(1,000	)	$	11,107
RMBS	1,919		—		(1,468		)	451
Total	$	9,976	$	4,050	$	(2,468	)	$	11,558

RSO did not purchase or sell securities during the three months ended March 31, 2014. RSO held eight investment securities, trading as of both March 31, 2014 and December 31, 2013.

Investment securities available-for-sale - RSO

RSO pledges a portion of its CMBS as collateral against its borrowings under repurchase agreements and derivatives. CMBS that are accounted for as components of linked transactions are not reflected in the tables set forth in this note, as they are accounted for as derivatives.

The following table summarizes RSO's investment securities, including those pledged as collateral and classified as available-for-sale, which are carried at fair value (in thousands):

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value
March 31, 2014
CMBS	$	186,703	$	7,465	$	(12,877	)	181,291
Asset-backed securities ("ABS")	35,648		1,519		(328		)	36,839
Structured notes	12,841		—		—			12,841
Corporate bonds	2,603		24		(47		)	2,580
Total	$	237,795	$	9,008	$	(13,252	)	$	233,551
December 31, 2013:
CMBS	$	185,178	$	7,570	$	(12,030	)	$	180,718
ABS	25,406		1,644		(394		)	26,656
Structured notes	5,369		—		—			5,369
Corporate bonds	2,517		16		(70		)	2,463
Total	$	218,470	$	9,230	$	(12,494	)	$	215,206

(1) As of March 31, 2014 and December 31, 2013, $159.1 million and $162.6 million, respectively, of securities were pledged as collateral security under related financings.

The following table summarizes the estimated maturities of RSO’s investment securities according to their estimated weighted average life classifications (in thousands, except percentages):

Weighted Average Life	Fair Value			Amortized Cost		Weighted Average Coupon
March 31, 2014
Less than one year	$	39,393	(1)	$	49,991	4.31	%
Greater than one year and less than five years	138,699			132,935		5.04	%
Greater than five years and less than ten years	38,152			37,319		1.43	%
Greater than ten years	17,307			17,550		9.24	%
Total	$	233,551		$	237,795	4.64	%
December 31, 2013:
Less than one year	$	39,256	(1)	$	40,931	5.25	%
Greater than one year and less than five years	139,700			141,760		4.69	%
Greater than five years and less than ten years	26,526			25,707		1.10	%
Greater than ten years	9,724			10,072		7.90	%
Total	$	215,206		$	218,470	4.49	%

(1) RSO expects that the maturity date of these CMBS will either be extended or the CMBS will be paid in full.

The contractual maturities of the CMBS investment securities available-for-sale range from April 2014 to January 2025.  The contractual maturities of the ABS investment securities available-for-sale range from November 2015 to August 2022. The contractual maturities of the corporate bond investment securities available-for-sale range from December 2015 to December 2019.

The following table shows the fair value, gross unrealized losses and number of securities aggregated by investment category and length of time, of those individual investment securities available-for-sale that have been in a continuous unrealized loss position during the periods specified (in thousands, except number of securities):

	Less than 12 Months						More than 12 Months						Total
	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities
March 31, 2014
CMBS	$	51,979	$	(8,478	)	28	$	13,308	$	(4,399	)	12	$	65,287	$	(12,877	)	40
ABS	—		—			—	4,337		(328		)	8	4,337		(328		)	8
Corporate Bonds	—		—			—	891		(47		)	1	891		(47		)	1
Total temporarily impaired securities	$	51,979	$	(8,478	)	28	$	18,536	$	(4,774	)	21	$	70,515	$	(13,252	)	49
December 31, 2013:
CMBS	$	52,012	$	(7,496	)	34	$	14,159	$	(4,534	)	10	$	66,171	$	(12,030	)	44
ABS	143		(1		)	1	6,692		(393		)	9	6,835		(394		)	10
Corporate Bonds	865		(70		)	1	—		—			—	865		(70		)	1
Total temporarily impaired securities	$	53,020	$	(7,567	)	36	$	20,851	$	(4,927	)	19	$	73,871	$	(12,494	)	55

The unrealized losses in the above table are considered to be temporary impairments due to market factors and are not reflective of credit deterioration.

The determination of other-than-temporary impairment is a subjective process, and different judgments and assumptions could affect the timing of loss realization. RSO reviews its portfolios and makes other-than-temporary impairment determinations at least quarterly. RSO considers the following factors when determining if there is an other-than-temporary impairment on a security:

• the length of time the market value has been less than amortized cost;

• the severity of the impairment;

• the expected loss of the security as generated by a third-party valuation model;

• original and current credit ratings from the rating agencies;

• underlying credit fundamentals of the collateral backing the securities;

• whether, based upon RSO's intent, it is more likely than not that RSO will sell the security before the recovery of the amortized cost basis; and

• third-party support for default, for recovery, prepayment speed and reinvestment price assumptions.

RSO performs an on-going review of third-party reports and updated financial data on the properties underlying these securities in order to analyze current and projected security performance.  Rating agency downgrades are considered with respect to RSO’s income approach when determining other-than-than temporary impairment and, when inputs are subjected to testing for economic changes within possible ranges, the resulting projected cash flows reflect a full recovery of principal and interest indicating no impairment. During the three months ended March 31, 2014 and 2013, RSO recognized other-than-temporary impairment losses of $0 and $21,000, respectively, on positions that supported RSO's CMBS investments.

The following table summarizes RSO's sales of investment securities available-for-sale during the period indicated, (in thousands, except number of securities):

	Positions Sold	Par Amount Sold		Realized Gain (Loss)
March 31, 2014
CMBS position	3	$	12,500	$	(298	)
March 31, 2013
Corporate bond position	2	$	700	$	18

The amounts above do not include redemptions. During the three months ended March 31, 2014, RSO had one corporate bond position redeemed with a total par value of $630,000, and recognized a loss of approximately $1,000. During the three months ended March 31, 2014, RSO had one ABS position redeemed with a total par of $2.5 million, and recognized a gain of $25,500. There were no such redemptions during the three months ended March 31, 2013.

Changes in interest rates may also have an effect on the rate of principal prepayments and, as a result, prepayments on RSO’s investment portfolio. The aggregate discount (premium) due to interest rate changes were as follows (in thousands):

	March 31, 2014		December 31, 2013
CMBS	$	6,170	$	6,583
ABS	$	2,174	$	2,394
Corporate bond	$	103	$	(68	)

Investments real estate - RSO

The table below summarizes RSO's investments in real estate (in thousands, except number of properties):

	As of March 31, 2014				As of December 31, 2013
	Book Value			Number of Properties	Book Value			Number of Properties
Multi-family property	$	22,109		1	$	22,107		1
Office property	—			—	10,273			1
Subtotal	22,109				32,380
Less:  Accumulated depreciation	(2,138		)		(2,602		)
Investments in real estate	$	19,971			$	29,778

During the three months ended March 31, 2014, RSO made no acquisitions. RSO has two assets classified as property available-for-sale at March 31, 2014. RSO confirmed the intent and ability to sell its office property in its present condition during the three months ended March 31, 2014. This property qualified for held for sale accounting treatment upon meeting all applicable criteria on or prior to March 31, 2014, at which time depreciation and amortization were ceased. As such, the assets associated with this property, with a carrying value of $9.6 million, are separately classified and included in property available-for sale on RSO's consolidated balance sheets at March 31, 2014. However, the anticipated sale of this property did not qualify for discontinued operations and therefore, the operations for all periods presented continue to be classified within continuing operations on RSO's consolidated statements of income. RSO expects the sale to close in the next 12 months. The gain from the sale of this property will be recorded in gain on sale of real estate on RSO's consolidated statements of income. Pre-tax earnings recorded on this property for the three months ended March 31, 2014 and 2013 were losses of $16,000 and $77,000, respectively. RSO's hotel property, which was classified as available-for-sale at March 31, 2014 and December 31, 2013, sold during the second quarter of 2014.

During the year ended December 31, 2013, RSO made no acquisitions and sold one of its multi-family properties for a gain of $16.6 million, which was recorded in gain on sale of real estate on RSO's consolidated statements of income. RSO also confirmed the intent and ability to sell one of its other investments in real estate. This asset has been reclassified to property available-for-sale on RSO's consolidated balance sheets at December 31, 2013.

Loans held for investments - RSO

The following is a summary of RSO’s loans held for investment (in thousands):

Loan Description	Principal			Unamortized (Discount) Premium (1)			Carrying Value (2)
March 31, 2014
Commercial real estate loans:
Whole loans	$	837,514		$	(3,661	)	$	833,853
B notes	16,242			(74		)	16,168
Mezzanine loans	64,390			(91		)	64,299
Total commercial real estate loans	918,146			(3,826		)	914,320
Bank loans (3)	690,494			(3,068		)	687,426
Residential mortgage loans (4)	16,960			—			16,960
Subtotal loans before allowances	1,625,600			(6,894		)	1,618,706
Allowance for loan loss	(6,585		)	—			(6,585		)
Total	$	1,619,015		$	(6,894	)	$	1,612,121
December 31, 2013
Commercial real estate loans:
Whole loans	$	749,083		$	(3,294	)	$	745,789
B notes	16,288			(83		)	16,205
Mezzanine loans	64,417			(100		)	64,317
Total commercial real estate loans	829,788			(3,477		)	826,311
Bank loans (3)	566,056			(4,033		)	562,023
Residential mortgage loans (4)	16,915			—			16,915
Subtotal loans before allowances	1,412,759			(7,510		)	1,405,249
Allowance for loan loss	(13,807		)	—			(13,807		)
Total	$	1,398,952		$	(7,510	)	$	1,391,442

(1) Amounts include deferred amendment fees of $200,000 and $216,000 and deferred upfront fees of $127,000 and $141,000 being amortized over the life of the bank loans as of March 31, 2014 and December 31, 2013, respectively.  Amounts include loan origination fees of $3.7 million and $3.3 million and loan extension fees of $62,000 and $73,000 being amortized over the life of the commercial real estate loans as of March 31, 2014 and December 31, 2013, respectively.

(2) Substantially all loans are pledged as collateral under various borrowings at March 31, 2014 and December 31, 2013 , respectively.

(3) Amounts include $272,000 and $6.9 million of bank loans held for sale at March 31, 2014 and December 31, 2013, respectively.

(4) Amount includes $15.1 million and $15.0 million of residential mortgage loans held for sale at March 31, 2014 and December 31, 2013, respectively.

At March 31, 2014 and December 31, 2013, approximately 36.5% and 39%, respectively, of RSO’s commercial real estate loan portfolio was concentrated in California; approximately 10.7% and 6.4%, respectively, in Arizona; approximately 13.2% and 14.6%, respectively, in Texas. At March 31, 2014 and December 31, 2013, approximately 13.3% and 15.8%, respectively, of RSO’s bank loan portfolio was concentrated in the collective industry grouping of healthcare, education and childcare. At March 31, 2014, approximately 70% of RSO's residential mortgage loans were originated in Georgia, 10% in North Carolina, 8% in Alabama and 5% each in Tennessee and Virginia. At December 31, 2013 approximately 66% of the Company's residential mortgage loans were originated in Georgia, 9% in North Carolina, 7% each in Tennessee and Virginia and 6% in Alabama.

At March 31, 2014, RSO’s bank loan portfolio consisted of $686.7 million (net of allowance of $741,000) of floating rate loans, which bear interest ranging between the three month LIBOR plus 0.5%, and the three month LIBOR plus 13.0% with maturity dates ranging from March 2014 to March 2024.

At December 31, 2013, RSO’s bank loan portfolio consisted of $558.6 million (net of allowance of $3.4 million) of floating rate loans, which bore interest ranging between the three month LIBOR plus 1.5%, and the three month LIBOR plus 10.5% with maturity dates ranging from January 2014 to December 2021.

The following is a summary of the weighted average life of RSO’s bank loans held for investment, at amortized cost (in thousands):

	March 31, 2014		December 31, 2013
Less than one year	$	44,852	$	36,985
Greater than one year and less than five years	489,068		379,874
Five years or greater	153,506		145,164
	$	687,426	$	562,023

The following is a summary of RSO’s commercial real estate loans held for investment (in thousands):

Description	Quantity	Amortized Cost		Contracted Interest Rates	Maturity Dates(3)
March 31, 2014
Whole loans, floating rate (1) (4) (5)	55	$	833,853	LIBOR plus 2.13% to LIBOR plus 12.14%	April 2014 to February 2019
B notes, fixed rate	1	16,168		8.68%	April 2016
Mezzanine loans, floating rate	1	12,467		LIBOR plus 15.32%	April 2016
Mezzanine loans, fixed rate (6)	3	51,832		0.50% to 18.71%	September 2014 to September 2021
Total (2)	60	$	914,320
December 31, 2013
Whole loans, floating rate (1) (4)	51	$	745,789	LIBOR plus 2.68% to LIBOR plus 12.14%	March 2014 to February 2019
B notes, fixed rate	1	16,205		8.68%	April 2016
Mezzanine loans, floating rate	1	12,455		LIBOR plus 15.32%	April 2016
Mezzanine loans, fixed rate (6)	3	51,862		0.50% to 18.72%	September 2014 to September 2019
Total (2)	56	$	826,311

(1) Whole loans had $23.1 million and $13.7 million in unfunded loan commitments as of March 31, 2014 and December 31, 2013, respectively.  These unfunded commitments are advanced as the borrowers formally request additional funding as permitted under the loan agreement and any necessary approvals have been obtained.

(2) The total does not include an allowance for loan loss of $5.8 million and $10.4 million as of March 31, 2014 and December 31, 2013, respectively.

(3) Maturity dates do not include possible extension options that may be available to the borrowers.

(4) As of March 31, 2014, floating rate whole loans includes $783,000 and $12.6 million mezzanine components of two whole loans, which have a fixed rate of 15.0% and 12.0%, respectively.

(5) Floating rate whole loans include a $799,000 junior mezzanine tranche of a whole loan that has a fixed rate of 10.0% as of March 31, 2014.

(6) Fixed rate mezzanine loans include a mezzanine loan that was modified into two tranches, which both currently pay interest at 0.50%. In addition, the subordinate tranche accrues interest at LIBOR plus 18.50% which is deferred until maturity.

The following is a summary of the weighted average life of RSO’s commercial real estate loans, at amortized cost (in thousands):

Description	2014		2015		2016 and Thereafter		Total
March 31, 2014
B notes	$	—	$	—	$	16,168	$	16,168
Mezzanine loans	5,711		—		58,588		64,299
Whole loans	5,110		17,967		810,776		833,853
Total (1)	$	10,821	$	17,967	$	885,532	$	914,320
December 31, 2013
B notes	$	—	$	—	$	16,205	$	16,205
Mezzanine loans	5,711		—		58,606		64,317
Whole loans	—		17,949		727,840		745,789
Total (1)	$	5,711	$	17,949	$	802,651	$	826,311

(1) Weighted average life of commercial real estate loans assumes full exercise of extension options available to borrowers.

The following is a summary of the allocation of the allowance for loan loss with respect to RSO’s commercial real estate and bank loans (in thousands, except percentages) by asset class:

Description	Allowance for Loan Loss		Percentage of Total Allowance
March 31, 2014
B notes	$	132	2.00%
Mezzanine loans	524		7.96%
Whole loans	5,188		78.79%
Bank loans	741		11.25%
Total	$	6,585
December 31, 2013
B notes	$	174	1.26%
Mezzanine loans	559		4.05%
Whole loans	9,683		70.13%
Bank loans	3,391		24.56%
Total	$	13,807

As of March 31, 2014, RSO had recorded an allowance for loan losses of $6.6 million consisting of a $741,000 allowance on RSO’s bank loan portfolio and a $5.8 million allowance on RSO’s commercial real estate portfolio as a result of the provisions taken on one bank loan as well as the maintenance of a general reserve with respect to these portfolios.  The bank loan allowance decreased $2.7 million from $3.4 million as of December 31, 2013 to $741,000 as of March 31, 2014 as a result of improved credit conditions and the write-off of three loans that were previously in specific reserve. The whole loan allowance decreased $4.5 million from $9.7 million as of December 31, 2013 to $5.2 million as of March 31, 2014 as a result of the reversal of all of the specific reserves previously taken on one commercial real estate loan that RSO expects to fully recover.

As of December 31, 2013, RSO had recorded an allowance for loan losses of $13.8 million consisting of a $3.4 million allowance on RSO’s bank loan portfolio and a $10.4 million allowance on RSO’s commercial real estate portfolio as a result of the provisions taken on three bank loans and one commercial real estate loan as well as the maintenance of a general reserve with respect to these portfolios.

Investments in unconsolidated entities - RSO

The following table shows RSO's investments in unconsolidated entities as of March 31, 2014 and December 31, 2013 and equity in net earnings (losses) of unconsolidated subsidiaries for the three months ended March 31, 2014 and 2013 (in thousands):

		Balance as of		Balance as of		For the three months ended			For the three months ended
	Ownership %	March 31, 2014		December 31, 2013		March 31, 2014			March 31, 2013
Varde Investment Partners, L.P.	7.5%	$	673	$	674	$	(1	)	$	24
RRE VIP Borrower, LLC	3% to 5%	—		—		866			(113		)
Investment in LEAF Preferred Stock	27.5%	40,421		41,016		(594		)	(336		)
Investment in RCT I and II (1)	3%	1,548		1,548		(589		)	(593		)
Investment in Preferred Equity (2)	various	2,400		8,124		1,228			239
Investment in CVC Global Opps Fund	34.4%	17,011		16,177		834			—
Investment in Life Care Funding (3)	30%	—		1,530		(75		)	—
Total		$	62,053	$	69,069	$	1,669		$	(779	)

(1) For the three months ended March 31, 2014 and 2013, these amounts are recorded in interest expense on RSO's consolidated statements of income.

(2) For the three months ended March 31, 2014 and 2013, these amounts are recorded in interest income on loans on RSO's consolidated statements of income.

(3) For the three months ended March 31, 2014, RSO recorded equity in net earnings (losses) of unconsolidated subsidiaries on RSO's consolidated statements of income for two months before LCF was consolidated.

In May, June and July 2013, RSO invested $15.0 million into CVC Global Credit Opportunities Fund, L.P. ("the Partnership"), a Delaware limited partnership which generally invests in assets through a master-feeder fund structure ("the Master Fund"). The General Partner of the Partnership and the Master Fund is CVC Global Credit Opportunities Fund GP, LLC, a Delaware limited liability company. The investment manager of the Partnership and the Master Fund is CVC Credit Partners, LLC ("CVC Credit Partners"). CVC Capital Partners SICAV-FIS, S.A. ("CVC"), together with its affiliates, and the Company, own a majority and a significant minority, respectively, of the investment manager. The fund pays the investment manager a quarterly management fee in advance calculated at the rate of 1.5% annually based on the balance of each limited partner's capital account. RSO's management fee was waived upon entering the agreement given that RSO is a related party of CVC Credit Partners.

In January 2013, LTCC invested $2.0 million into LCF for the purpose of originating and acquiring life settlement contracts. RSO began consolidating LCF during the three months ended March 31, 2014.

On June 19, 2012, RSO entered into a joint venture with Värde Investment Partners, LP acting as lender, to purchase two condominium developments.  RSO purchased a 7.5% equity interest in the venture. RREM was appointed as the asset manager of the venture to perform lease review and approval, debt service collection, loan workout, foreclosure, disposition and permitting, as applicable.  RREM is also responsible for engaging third parties to perform day-to-day property management, property leasing, rent collection, maintenance, and capital improvements.  RREM receives an annual asset management fee equal to 1% of outstanding contributions. For the three months ended March 31, 2014 and 2013, RSO paid RREM management fees of $0 and $16,000, respectively. All of the condominiums were sold as of December 31, 2013.

RSO's resulting interest from the November 16, 2011 formation of LEAF is accounted for under the equity method.

On December 1, 2009, RSO purchased a membership interest in RRE VIP Borrower, LLC (an unconsolidated VIE that holds an interest in a real estate joint venture) from the Company at book value. RREM acts as asset manager of the venture and receives a monthly asset management fee equal to 1% of the combined investment calculated as of the last calendar day of the month. For the three months ended March 31, 2014 and 2013, RSO paid RREM management fees of $5,000 and $8,000, respectively.

RSO has a 100% interest valued at $1.5 million in the common shares (3% of the total equity) in two trusts, RCT I and RCT II. RSO records its investments in RCT I and RCT II’s common shares of $774,000 each as investments in unconsolidated trusts using the cost method and records dividend income upon declaration by RCT I and RCT II.  For the three months ended March 31, 2014 and 2013, RSO recognized $589,000 and $593,000, respectively, of interest expense with respect to the subordinated debentures it issued to RCT I and RCT II which included $49,000 and $47,000, respectively, of amortization of deferred debt issuance costs.

Financing receivables - RSO

The following tables show the allowance for loan losses and recorded investments in loans for the years indicated (in thousands):

	Commercial Real Estate Loans			Bank Loans			Residential Mortgage Loans		Loans Receivable-Related Party		Total
March 31, 2014
Allowance for Loan Losses:
Allowance for losses at January 1, 2014	$	10,416		$	3,391		$	—	$	—	$	13,807
Provision for loan loss	(4,572		)	612			—		—		(3,960		)
Loans charged-off	—			(3,262		)	—		—		(3,262		)
Allowance for losses at March 31, 2014	$	5,844		$	741		$	—	$	—	$	6,585
Ending balance:
Individually evaluated for impairment	$	—		$	441		$	—	$	—	$	441
Collectively evaluated for impairment	$	5,844		$	300		$	—	$	—	$	6,144
Loans acquired with deteriorated credit quality	$	—		$	—		$	—	$	—	$	—
Loans:
Ending balance:
Individually evaluated for impairment	$	196,883		$	1,566		$	—	$	6,498	$	204,947
Collectively evaluated for impairment	$	717,437		$	685,248		$	16,960	$	—	$	1,419,645
Loans acquired with deteriorated credit quality	$	—		$	612		$	—	$	—	$	612
December 31, 2013:
Allowance for Loan Losses:
Allowance for losses at January 1, 2013	$	7,986		$	9,705		$	—	$	—	$	17,691
Provision for loan loss	2,686			334			—		—		3,020
Loans charged-off	(256		)	(6,648		)	—		—		(6,904		)
Allowance for losses at December 31, 2013	$	10,416		$	3,391		$	—	$	—	$	13,807
Ending balance:
Individually evaluated for impairment	$	4,572		$	2,621		$	—	$	—	$	7,193
Collectively evaluated for impairment	$	5,844		$	770		$	—	$	—	$	6,614
Loans acquired with deteriorated credit quality	$	—		$	—		$	—	$	—	$	—
Loans:
Ending balance:
Individually evaluated for impairment	$	194,403		$	3,554		$	—	$	6,966	$	204,923
Collectively evaluated for impairment	$	631,908		$	548,219		$	16,915	$	—	$	1,197,042
Loans acquired with deteriorated credit quality	$	—		$	—		$	—	$	—	$	—

Credit quality indicators

Bank Loans

RSO uses a risk grading matrix to assign grades to bank loans.  Loans are graded at inception and updates to assigned grades are made continually as new information is received.  Loans are graded on a scale of 1-5 with 1 representing RSO’s highest rating and 5 representing its lowest rating.  RSO also designates loans that are sold after the period end as held for sale at the lower of their fair market value or cost, net of any allowances and costs associated with the loan sales.  RSO considers metrics such as performance of the underlying company, liquidity, collectability of interest, enterprise valuation, default probability, ratings from rating agencies and industry dynamics in grading its bank loans.

Credit risk profiles of bank loans were as follows (in thousands):

	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of March 31, 2014
Bank loans	$	618,896	$	47,742	$	17,340	$	998	$	2,178	$	272	$	687,426
As of December 31, 2013
Bank loans	$	488,004	$	42,476	$	18,806	$	2,333	$	3,554	$	6,850	$	562,023

All of RSO’s bank loans were performing with the exception of one loans with an amortized cost of $1.6 million as of March 31, 2014. During the three months ended March 31, 2014, due to the consolidation of Moselle CLO, RSO acquired five loans with deteriorated credit quality with an amortized cost of $612,000. As of December 31, 2013, all of RSO’s bank loans were performing with the exception of three loans with an amortized cost of $3.6 million, one of which defaulted in 2012, one of which defaulted as of March 31, 2013, and one of which defaulted as of June 30, 2013.

Commercial Real Estate Loans

RSO uses a risk grading matrix to assign grades to commercial real estate loans.  Loans are graded at inception and updates to assigned grades are made continually as new information is received.  Loans are graded on a scale of 1-4 with 1 representing RSO’s highest rating and 4 representing its lowest rating.  RSO designates loans that are sold after the period ends at the lower of their fair market value or cost, net of any allowances and costs associated with the loan sales.  In addition to the underlying performance of the loan collateral, RSO considers metrics such as the strength of underlying sponsorship, payment history, collectability of interest, structural credit enhancements, market trends and loan terms in grading its commercial real estate loans.

Credit risk profiles of commercial real estate loans were as follows (in thousands):

	Rating 1		Rating 2		Rating 3		Rating 4		Held for Sale		Total
As of March 31, 2014
Whole loans	$	768,243	$	32,500	$	33,110	$	—	$	—	$	833,853
B notes	16,168		—		—		—		—		16,168
Mezzanine loans	51,832		12,467		—		—		—		64,299
	$	836,243	$	44,967	$	33,110	$	—	$	—	$	914,320
As of December 31, 2013
Whole loans	$	680,718	$	32,500	$	32,571	$	—	$	—	$	745,789
B notes	16,205		—		—		—		—		16,205
Mezzanine loans	51,862		12,455		—		—		—		64,317
	$	748,785	$	44,955	$	32,571	$	—	$	—	$	826,311

All of RSO’s commercial real estate loans were performing as of March 31, 2014 and December 31, 2013.

Residential Mortgage Loans

Residential mortgage loans are reviewed periodically for collectability in light of historical experience, the nature and amount of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing underlying conditions. RSO also designates loans that are sold after the period ends as held for sale at the lower of their fair market value or cost.

Loan Portfolios Aging Analysis

The following table shows the loan portfolio aging analysis as of the dates indicated at cost basis (in thousands):

	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
March 31, 2014
Whole loans	$	—	$	—	$	—	$	—	$	833,853	$	833,853	$	—
B notes	—		—		—		—		16,168		16,168		—
Mezzanine loans	—		—		—		—		64,299		64,299		—
Bank loans	—		—		612		612		686,814		687,426		—
Residential mortgage loans	258		—		—		258		16,702		16,960		—
Loans receivable-related party	—		—		—		—		6,498		6,498		—
Total loans	$	258	$	—	$	612	$	870	$	1,624,334	$	1,625,204	$	—
December 31, 2013
Whole loans	$	—	$	—	$	—	$	—	$	745,789	$	745,789	$	—
B notes	—		—		—		—		16,205		16,205		—
Mezzanine loans	—		—		—		—		64,317		64,317		—
Bank loans	—		—		3,554		3,554		558,469		562,023		—
Residential mortgage loans	234		91		268		593		16,322		16,915		—
Loans receivable-related party	—		—		—		—		6,966		6,966		—
Total loans	$	234	$	91	$	3,822	$	4,147	$	1,408,068	$	1,412,215	$	—

Impaired Loans

The following tables show impaired loans as of the dates indicated (in thousands):

	Recorded Balance		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
March 31, 2014
Loans without a specific valuation allowance:
Whole loans	$	158,811	$	158,811	$	—		$	156,694	$	12,103
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	—		$	38,072	$	1,916
Bank loans	$	612	$	612	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	5,372	$	5,372	$	—		$	—	$	—
Loans with a specific valuation allowance:
Whole loans	$	—	$	—	$	—		$	—	$	—
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	1,566	$	1,566	$	(441	)	$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Total:
Whole loans	$	158,811	$	158,811	$	—		$	156,694	$	12,103
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		—			38,072		1,916
Bank loans	2,178		2,178		(441		)	—		—
Residential mortgage loans	—		—		—			—		—
Loans receivable - related party	5,372		5,372		—			—		—
	$	204,433	$	204,433	$	(441	)	$	194,766	$	14,019

	Recorded Balance		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
December 31, 2013:
Loans without a specific valuation allowance:
Whole loans	$	130,759	$	130,759	$	—		$	123,495	$	8,439
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	—		$	38,072	$	1,615
Bank loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	315	$	268	$	—		$	—	$	—
Loans receivable - related party	$	5,733	$	5,733	$	—		$	—	$	—
Loans with a specific valuation allowance:
Whole loans	$	25,572	$	25,572	$	(4,572	)	$	24,748	$	1,622
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	3,554	$	3,554	$	(2,621	)	$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Total:
Whole loans	$	156,331	$	156,331	$	(4,572	)	$	148,243	$	10,061
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		—			38,072		1,615
Bank loans	3,554		3,554		(2,621		)	—		—
Residential mortgage loans	315		268		—			—		—
Loans receivable - related party	5,733		5,733		—			—		—
	$	204,005	$	203,958	$	(7,193	)	$	186,315	$	11,676

Troubled- Debt Restructurings

RSO had no troubled-debt restructurings during the three months ended March 31, 2014.

The following tables show troubled-debt restructurings in RSO's loan portfolio (in thousands) during the three months ended March 31, 2013:

	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Whole loans	6	$	153,958	$	136,672
B notes	—	—		—
Mezzanine loans	1	38,072		38,072
Bank loans	—	—		—
Residential mortgage loans	—	—		—
Loans receivable	1	7,797		7,797
Total loans	8	$	199,827	$	182,541

As of March 31, 2014 and 2013, there were no troubled-debt restructurings that subsequently defaulted.

Intangible assets - RSO

Intangible assets represent identifiable intangible assets acquired as a result of RSO’s acquisition of RCAM in February 2011, its conversion of loans to investments in real estate in June 2011, and the acquisition of real estate in August 2011.  RSO amortizes identified intangible assets to expense over their estimated lives or period of benefit using the straight-line method.  RSO evaluates intangible assets for impairment as events and circumstances change.  In October 2012, RSO purchased 66.6% of the preferred equity of, and began consolidating, Whitney CLO I, one of the RCAM CLOs. As a result of this transaction and the consolidation of Whitney CLO I, RSO wrote-off the unamortized balance of $2.6 million, the intangible asset associated with this CLO, which was recorded in gain (loss) on consolidation in RSO's consolidated statement of income during the year ended December 31, 2012. In May 2013, RSO purchased additional equity, increasing its ownership percentage to 68.3%. Due to an event whereby a second CLO liquidated in early 2013, RSO accelerated the amortization of the remaining balance of its intangible asset and recorded a $657,000 charge to depreciation and amortization on RSO's consolidated statement of income during the year ended December 31, 2012. Upon acquisition of Primary Capital Advisors, LLC ("PCA"), RSO recognized an intangible asset of $600,000 related to its wholesale-correspondent relationships, which have a finite life of approximately two years.

RSO expects to record amortization expense on intangible assets of approximately $2.1 million for the year ended December 31, 2014, $2.0 million for the year ended December 31, 2015, $1.8 million for the years ended December 31, 2016 and 2017 and $1.6 million for the year ended December 31, 2018.  The weighted average amortization period was 7.5 years and 7.7 years at March 31, 2014 and December 31, 2013, respectively and the accumulated amortization was $11.5 million and $12.5 million at March 31, 2014 and December 31, 2013, respectively.

The following table summarizes intangible assets at December 31, 2013 and 2012 (in thousands).

	Asset Balance		Accumulated Amortization			Net Asset
March 31, 2014
Investment in RCAM	$	21,213	$	(10,424	)	$	10,789
Investments in real estate:
In-place leases	920		(920		)	—
Above (below) market leases	29		(29		)	—
Investment in PCA:
Wholesale or correspondent relationships	600		(106		)	494
Total intangible assets	$	22,762	$	(11,479	)	$	11,283
December 31, 2013
Investment in RCAM	$	21,213	$	(9,980	)	$	11,233
Investments in real estate:
In-place leases	2,461		(2,430		)	31
Above (below) market leases	29		(29		)	—
Investment in PCA:
Wholesale or correspondent relationships	600		(42		)	558
Total intangible assets	$	24,303	$	(12,481	)	$	11,822

For the three months ended March 31, 2014 and 2013, RSO recognized $1.7 million and $1.4 million, respectively, of fee income related to the investment in RCAM.

On October 31, 2013, RSO through its taxable REIT subsidiary, RCC Residential, Inc. acquired PCA, an Atlanta based company that originates and services residential mortgage loans, for approximately $7.6 million in cash. The total incremental expenses of the acquisition including legal and other professional fees were $333,000. All legal and professional fees were expensed as incurred. RSO’s acquisition of PCA represents a return to the residential mortgage investment market by providing a residential mortgage origination platform.    

As part of this transaction, a key employee of PCA was granted approximately $800,000 of RSO’s restricted stock. The grant is accounted for as compensation and is being amortized to equity compensation expense over three years, the vesting period. Dividends declared on the stock while unvested are recorded as compensation expense. Dividends declared after the stock vests will be recorded as a distribution. For the year ended December 31, 2013, $48,000 of amortization of this stock grant was recorded to equity compensation expense on RSO's consolidated statement of income and $27,000 of compensation expense related to dividends on unvested shares was recorded to general and administrative expense on RSO’s consolidated statement of income.

The purchase price has been allocated to the assets acquired and liabilities assumed based upon RSO’s best estimate of fair value, with any shortage under the net tangible and intangible assets acquired allocated to gain on bargain purchase. The gain on bargain purchase resulted from the stock grant described above being accounted for as compensation under GAAP and was recorded as other income (expense) on RSO's consolidate statement of income.

The valuation of the identified intangibles, including wholesale and correspondent relationship assets, totaling $600,000, which relates to PCA’s operations, was determined based upon estimated net profits, after taxes, to be received as a result of those relationships. The wholesale correspondent relationships are being amortized over their estimated useful life, two years.

The following table sets forth the allocation of the purchase price as of December 31, 2013 (in thousands):

Assets acquired:
Cash and cash equivalents	$	1,233
Loans held for sale	15,021
Loans held for investment	2,071
Wholesale and correspondent relationships	600
Other assets	5,828
Total assets	24,753
Less: Liabilities assumed:
Borrowings	14,584
Other liabilities	2,165
Total liabilities	16,749
Gain on bargain purchase	391
Total cash purchase price	$	7,613

Although no further purchase price adjustments for PCA are anticipated, RSO has not yet completed the process of estimating the fair value of assets acquired and liabilities assumed on this investment. Accordingly, RSO's preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as RSO completes the process. In accordance with FASB ASC Topic 805, changes, if any, to the preliminary estimates and allocation will be reported in RSO's consolidated financial statements, retrospectively.

Borrowings - RSO

RSO historically has financed the acquisition of its investments, including investment securities, loans and lease receivables, through the use of secured and unsecured borrowings in the form of CDOs, CLOs securitized notes, repurchase agreements, secured term facilities, warehouse facilities and trust preferred securities issuances.  Certain information with respect to RSO’s borrowings at March 31, 2014 and December 31, 2013 is summarized in the following table (in thousands, except percentages):

	Outstanding Borrowings		Unamortized Issuance Costs and Discounts		Principal Outstanding		Weighted Average Borrowing Rate	Weighted Average Remaining Maturity	Value of Collateral		Date Securitization Closed
March 31, 2014
RREF CDO 2006-1 Senior Notes	$	100,184	$	129	$	100,313	1.86%	32.4 years	$	169,809	August 2006
RREF CDO 2007-1 Senior Notes	147,866		509		148,375		0.91%	32.5 years	297,703		June 2007
RCC CRE Notes 2013	256,866		3,974		260,840		2.02%	14.7 years	303,410		December 2013
Apidos CDO I Senior Notes	73,815		—		73,815		1.66%	3.3 years	88,532		August 2005
Apidos CDO III Senior Notes	112,511		40		112,551		0.94%	6.5 years	124,677		May 2006
Apidos Cinco CDO Senior Notes	319,797		703		320,500		0.74%	6.1 years	345,029		May 2007
Whitney CLO I Senior Notes (1)	133		—		133		—%	N/A	157		N/A
Moselle CLO S.A. Senior Notes	167,181		—		167,181		0.95%	5.8 years	202,247		October 2005
Moselle CLO S.A. Securitized Borrowings	5,116		—		5,116		—%	N/A	—		N/A
Unsecured Junior Subordinated Debentures (2)	51,054		494		51,548		4.18%	22.6 years	—		May/Sept 2006
6.0% Convertible Senior Notes	107,130		7,870		115,000		6.00%	4.7 years	—		October 2013
CRE - Term Repurchase Facilities (3)	99,726		743		100,469		2.63%	18 days	153,895		N/A
CMBS - Term Repurchase Facility (4)	36,819		—		36,819		1.37%	18 days	44,386		N/A
Residential Mortgage Financing Agreements	14,686		—		14,686		4.23%	147 days	16,728		N/A
CMBS - Short Term Repurchase Agreements	9,205		—		9,205		1.40%	24 days	13,246		N/A
Total	$	1,502,089	14,462		1,516,551		1.83%	10.9 years	$	1,759,819

	Outstanding Borrowings		Unamortized Issuance Costs and Discounts		Principal Outstanding		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity	Value of Collateral		Date Securitization Closed
December 31, 2013
RREF CDO 2006-1 Senior Notes	$	94,004	$	205	$	94,209	1.87	%	32.6 years	$	169,115	August 2006
RREF CDO 2007-1 Senior Notes	177,837		719		178,556		0.84	%	32.8 years	318,933		June 2007
RCC CRE Notes 2013	256,571		4,269		260,840		2.03	%	15.0 years	305,586		December 2013
Apidos CDO I Senior Notes	87,131		—		87,131		1.68	%	3.6 years	103,736		August 2005
Apidos CDO III Senior Notes	133,209		117		133,326		0.88	%	6.7 years	145,930		May 2006
Apidos Cinco CDO Senior Notes	321,147		853		322,000		0.74	%	6.4 years	342,796		May 2007
Whitney CLO I Securitized Borrowings (1)	440		—		440		—	%	N/A	885		N/A
Unsecured Junior Subordinated Debentures (2)	51,005		543		51,548		4.19	%	22.8 years	—		May/Sept 2006
6.0% Convertible Senior Notes	106,535		8,465		115,000		6.00	%	4.9 years	—		October 2013
CRE - Term Repurchase Facilities (3)	29,703		1,033		30,736		2.67	%	21 days	48,186		N/A
CMBS - Term Repurchase Facility (4)	47,601		12		47,613		1.38	%	21 days	56,949		N/A
Residential Mortgage Financing Agreements	14,627		—		14,627		4.24	%	216 days	16,487		N/A
Total	$	1,319,810	$	16,216	$	1,336,026	1.87	%	13.1 years	$	1,508,603

(1) The securitized borrowings are collateralized by the same assets as the Apidos CLO VIII Senior Notes and the Whitney CLO I Securitized Borrowings, respectively.

(2) Amount represents junior subordinated debentures issued to RCT I and RCT II in May 2006 and September 2006, respectively.

(3) Amount also includes accrued interest costs of $98,000 and $26,000 related to CRE repurchase facilities as of March 31, 2014 and December 31, 2013, respectively.

(4) Amount also includes accrued interest costs of $18,000 and $22,000 related to CMBS repurchase facilities as of March 31, 2014 and December 31, 2013, respectively.

Securitizations

RCC CRE Notes 2013

In December 2013, RSO closed RCC CRE Notes 2013("CRE Notes 2013"), a $307.8 million CRE securitization transaction that provided financing for transitional commercial real estate loans. The investments held by CRE Notes 2013 securitized the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders. CRE Notes 2013 issued a total of $260.8 million of senior notes at par to unrelated investors. RCC Real Estate purchased 100% of the Class D senior notes (rated BBB:DBRS), Class E senior notes (rated BB:DBRS) and Class F senior notes (rated B:DBRS) for $30.0 million. In addition, RCC CRE Notes 2013 Investor, LLC, a subsidiary of RCC Real Estate, purchased a $16.9 million equity interest representing 100% of the outstanding preference shares. The senior notes purchased by RCC Real Estate are subordinated in right of payment to all other senior notes issued by CRE Notes 2013 but are senior in right of payment to the preference shares. The equity interest is subordinated in right of payment to all other securities issued by CRE Notes 2013. There is no reinvestment period for CRE Notes 2013, which will result in the sequential pay down of notes as underlying collateral matures and pays down. As of March 31, 2014 and December 31, 2013, none of the notes have been paid down.

At closing, the senior notes issued to investors by CRE Notes 2013 consisted of the following classes: (i) $136.9 million of Class A notes bearing interest at one-month LIBOR plus 1.30%; (ii) $78.5 million of Class A-S notes bearing interest at one-month LIBOR plus 2.15%; (iii) $30.8 million of Class B notes bearing interest at one-month LIBOR plus 2.85%; (iv) $14.6 million of Class C notes bearing interest at one-month LIBOR plus 3.50%; (v) $13.8 million of Class D notes bearing interest at one-month LIBOR plus 4.50%; (vi) $9.2 million of Class E notes bearing interest at one-month LIBOR plus 5.50%; (vii) and $6.9 million of Class F notes bearing interest at one-month LIBOR plus 6.50%. All of the notes issued mature in December 2028, although RSO has the right to call the notes anytime after January 2016 until maturity. The weighted average interest rate on all notes issued to outside investors was 2.02% at March 31, 2014.

As a result of RSO’s ownership of senior notes, the notes retained at the CRE securitization's closing eliminate in consolidation.

Resource Real Estate Funding CDO 2007-1

In June 2007, RSO closed RREF CDO 2007-1, a $500.0 million CDO transaction that provided financing for commercial real estate loans and commercial mortgage-backed securities.  The investments held by RREF CDO 2007-1 collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  RREF CDO 2007-1 issued a total of $265.6 million of senior notes at par to unrelated investors.  RCC Real Estate purchased 100% of the Class H senior notes (rated  BBB+:Fitch), Class K senior notes (rated BBB-:Fitch), Class L senior notes (rated BB:Fitch) and Class M senior notes (rated B: Fitch) for $68.0 million.  In addition, Resource Real Estate Funding 2007-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $41.3 million equity interest representing 100% of the outstanding preference shares.  The senior notes purchased by RCC Real Estate are subordinated in right of payment to all other senior notes issued by RREF CDO 2007-1 but are senior in right of payment to the preference shares.  The equity interest is subordinated in right of payment to all other securities issued by RREF CDO 2007-1. The reinvestment period for RREF 2007-1 ended in June 2012, which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of March 31, 2014, $93.6 million of Class A-1 notes have been paid down and $50.0 million of the Class A-1R notes have been paid down.

At closing, the senior notes issued to investors by RREF CDO 2007-1 consist of the following classes: (i) $180.0 million of Class A-1 notes bearing interest at one-month LIBOR plus 0.28%; (ii) $50.0 million of unissued Class A-1R notes, which allow the CDO to fund future funding obligations under the existing whole loan participations that have future funding commitments; the undrawn balance of the Class A-1R notes accrued a commitment fee at a rate per annum equal to 0.18%, the drawn balance bore interest at one-month LIBOR plus 0.32%; (iii) $57.5 million of Class A-2 notes bearing interest at one-month LIBOR plus 0.46%; (iv) $22.5 million of Class B notes bearing interest at one-month LIBOR plus 0.80%; (v) $7.0 million of Class C notes bearing interest at a fixed rate of 6.423%; (vi) $26.8 million of Class D notes bearing interest at one-month LIBOR plus 0.95%; (vii) $11.9 million of Class E notes bearing interest at one-month LIBOR plus 1.15%; (viii) $11.9 million of Class F notes bearing interest at one-month LIBOR plus 1.30%; (ix) $11.3 million of Class G notes bearing interest at one-month LIBOR plus 1.55%; (x) $11.3 million of Class H notes bearing interest at one-month LIBOR plus 2.30%; (xi) $11.3 million of Class J notes bearing interest at one-month LIBOR plus 2.95%; (xii) $10.0 million of Class K notes bearing interest at one-month LIBOR plus 3.25%; (xiii) $18.8 million of Class L notes bearing interest at a fixed rate of 7.50% and (xiv) $28.8 million of Class M notes bearing interest at a fixed rate of 8.50%.  All of the notes issued mature in September 2046, although RSO has the right to call the notes anytime after July 2017 until maturity.  The weighted average interest rate on all notes issued to outside investors and net of repurchased notes was 0.91% and 0.84% at March 31, 2014 and December 31, 2013, respectively.

During the three months ended March 31, 2014 and the year ended December 31, 2013, RSO did not repurchase any notes.

As a result of RSO’s ownership of senior notes, both the notes repurchased subsequent to closing and those retained at the CDO’s closing eliminate in consolidation.

Resource Real Estate Funding CDO 2006-1

In August 2006, RSO closed RREF CDO 2006-1, a $345.0 million CDO transaction that provided financing for commercial real estate loans.  The investments held by RREF CDO 2006-1 collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  RREF CDO 2006-1 issued a total of $308.7 million of senior notes at par to investors of which RCC Real Estate purchased 100% of the Class J senior notes (rated BB: Fitch) and Class K senior notes (rated B:Fitch) for $43.1 million.  In addition, Resource Real Estate Funding 2006-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $36.3 million equity interest representing 100% of the outstanding preference shares.  The senior notes purchased by RCC Real Estate are subordinated in right of payment to all other senior notes issued by RREF CDO 2006-1 but are senior in right of payment to the preference shares.  The equity interest is subordinated in right of payment to all other securities issued by RREF CDO 2006-1.  The reinvestment period for RREF 2006-1 ended in September 2011 which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of March 31, 2014, $110.7 million of Class A-1 notes have been paid down.

The senior notes issued to investors by RREF CDO 2006-1 consist of the following classes:  (i) $129.4 million of Class A-1 notes bearing interest at one-month LIBOR plus 0.32%; (ii) $17.4 million of Class A-2 notes bearing interest at one-month LIBOR plus 0.35%; (iii) $5.0 million of Class A-2 notes bearing interest at a fixed rate of 5.842%; (iv) $6.9 million of Class B notes bearing interest at one-month LIBOR plus 0.40%; (v) $20.7 million of Class C notes bearing interest at one-month LIBOR plus 0.62%; (vi) $15.5 million of Class D notes bearing interest at one-month LIBOR plus 0.80%; (vii) $20.7 million of Class E notes bearing interest at one-month LIBOR plus 1.30%; (viii) $19.8 million of Class F notes bearing interest at one-month LIBOR plus 1.60%; (ix) $17.3 million of Class G notes bearing interest at one-month LIBOR plus 1.90%; (x) $12.9 million of Class H notes bearing interest at one-month LIBOR plus 3.75%, (xi) $14.7 million of Class J notes bearing interest at a fixed rate of 6.00% and (xii) $28.4 million of Class K notes bearing interest at a fixed rate of 6.00%.  As a result of RSO’s ownership of the Class J and K senior notes, these notes eliminate in consolidation.  All of the notes issued mature in August 2046, although RSO has the right to call the notes anytime after August 2016 until maturity.  The weighted average interest rate on all notes issued to outside investors and net of repurchased notes was 1.86% and 1.87% at March 31, 2014 and December 31, 2013, respectively.

During the three months ended March 31, 2014 and the year ended December 31, 2013, RSO did not repurchase any notes.

As a result of RSO’s ownership of senior notes, both the notes repurchased subsequent to closing and those retained at the CDO’s closing eliminate in consolidation.

Moselle CLO S.A.

           In February 2014, RSO purchased 100% of the Class 1 Subordinated Notes and 67.9% of the Class 2 Subordinated Notes, which represented 88.6% of the subordinated notes in the European securitization Moselle CLO S.A. Due to RSO's economic interest combined with its contractual, unilateral kick-out rights acquired upon its purchase of a majority of the subordinate notes, RSO determined that it had a controlling financial interest and consolidated Moselle CLO.  The notes purchased by RSO are subordinated in right of payment to all other notes issued by Moselle CLO. 

               The balances of the senior notes issued to investors when RSO acquired a controlling financial interest in February 2014 were as follows: (i) €24.9 million of Class A-1E notes bearing interest at LIBOR plus 0.25% (ii) $24.9 million of Class A-1L notes bearing interest at LIBOR  plus 0.25% (iii) €10.3 million of Class A-1LE notes bearing interest at LIBOR  plus 0.31% (iv) $10.3 million of Class A-1LE USD notes bearing interest at LIBOR  plus 0.31% (v) €13.8 million of Class A-2E notes bearing interest at LIBOR  plus 0.40%: (vi) $13.8 million of Class A-2L notes bearing interest at LIBOR plus 0.40%; (vii) €6.8 million of Class A-3E notes bearing interest at LIBOR plus 0.70%; (viii) $6.8 million of Class A-3L notes bearing interest at LIBOR plus 0.75%; (ix) €16.0 million of Class B-1E notes bearing interest at LIBOR plus 1.80%; and (x) $16.0 million of Class B-1L notes bearing interest at LIBOR plus 1.85%.

All notes issued mature on January 6, 2020. RSO has the right to call the notes anytime after January 6, 2010 until maturity. The weighted average interest rate on all notes was 0.95% at March 31, 2014.

Whitney CLO I

In February 2011, RSO acquired the rights to manage the assets held by Whitney CLO I. In October 2012, RSO purchased a $20.9 million preferred equity interest at a discount of 42.5% which represented 66.6% of the outstanding preference shares in Whitney CLO I. In May 2013, RSO purchased an additional $550,000 equity interest in Whitney CLO I and as of March 31, 2014 held 68.3% of the outstanding preference shares. Based upon those purchases, RSO determined that it had a controlling interest and consolidated Whitney CLO I. The preferred equity interest is subordinated in right of payment to all other securities issued by Whitney CLO I. In 2013, RSO liquidated Whitney CLO I, and as a result substantially all of the assets were sold.

Apidos CLO VIII

In October 2011, RSO closed Apidos CLO VIII, a $350.0 million CLO transaction that provides financing for bank loans.  The investments held by Apidos CLO VIII collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos CLO VIII issued a total of $317.6 million of senior notes at a discount of 4.4% to investors and Resource TRS III purchased a $15.0 million interest representing 43% of the outstanding subordinated debt.  The remaining 57% of subordinated debt was owned by unrelated third parties.  The reinvestment period for Apidos CLO VIII will end in October 2014.  The subordinated debt interest is subordinated in right of payment to all other securities issued by Apidos CLO VIII. In 2013, Apidos CLO VIII was called and liquidated and, as a result, all of the assets were sold. Total proceeds from the sale of these assets, plus proceeds from previous sales and paydowns in the CLO, were used to pay down the notes in full.

Apidos Cinco CDO

In May 2007, RSO closed Apidos Cinco CDO, a $350.0 million CDO transaction that provides financing for bank loans.  The investments held by Apidos Cinco CDO collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos Cinco CDO issued a total of $322.0 million of senior notes at par to investors and RCC commercial purchased a $28.0 million equity interest representing 100% of the outstanding preference shares.  The reinvestment period for Apidos Cinco CDO ends in May 2014.  The equity interest is subordinated in right of payment to all other securities issued by Apidos Cinco CDO.

The senior notes issued to investors by Apidos Cinco CDO consist of the following classes: (i) $37.5 million of Class A-1 notes bearing interest at LIBOR plus 0.24%; (ii) $200.0 million of Class A-2a notes bearing interest at LIBOR plus 0.23%; (iii) $22.5 million of Class A-2b notes bearing interest at LIBOR plus 0.32%; (iv) $19.0 million of Class A-3 notes bearing interest at LIBOR plus 0.42%; (v) $18.0 million of Class B notes bearing interest at LIBOR plus 0.80%; (vi) $14.0 million of Class C notes bearing interest at LIBOR plus 2.25% and (vii) $11.0 million of Class D notes bearing interest at LIBOR plus 4.25%. All of the notes issued mature on May 14, 2020, although RSO has the right to call the notes anytime after May 14, 2011 until maturity.  The weighted average interest rate on all notes was 0.74% and 0.74% at March 31, 2014 and December 31, 2013, respectively.

Apidos CDO III

In May 2006, RSO closed Apidos CDO III, a $285.5 million CDO transaction that provides financing for bank loans.  The investments held by Apidos CDO III collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos CDO III issued a total of $262.5 million of senior notes at par to investors and RCC Commercial purchased a $23.0 million equity interest representing 100% of the outstanding preference shares.  The equity interest is subordinated in right of payment to all other securities issued by Apidos CDO III.

At closing, the senior notes issued to investors by Apidos CDO III consist of the following classes:  (i) $212.0 million of Class A-1 notes bearing interest at 3-month LIBOR plus 0.26%; (ii) $19.0 million of Class A-2 notes bearing interest at 3-month LIBOR plus 0.45%; (iii) $15.0 million of Class B notes bearing interest at 3-month LIBOR plus 0.75%; (iv) $10.5 million of Class C notes bearing interest at 3-month LIBOR plus 1.75%; and (v) $6.0 million of Class D notes bearing interest at 3-month LIBOR plus 4.25%.  All of the notes issued mature on September 12, 2020, although RSO has the right to call the notes anytime after September 12, 2011 until maturity.  The weighted average interest rate on all notes was 0.94% and 0.88% at March 31, 2014 and December 31, 2013, respectively. The reinvestment period for Apidos CDO III ended in June 2012 which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of March 31, 2014, $149.9 million of Class A-1 notes have been paid down.

Apidos CDO I

In August 2005, RSO closed Apidos CDO I, a $350.0 million CDO transaction that provides financing for bank loans.  The investments held by Apidos CDO I collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos CDO I issued a total of $321.5 million of senior notes at par to investors and RCC Commercial purchased a $28.5 million equity interest representing 100% of the outstanding preference shares.  The equity interest is subordinated in right of payment to all other securities issued by Apidos CDO I.

At closing, the senior notes issued to investors by Apidos CDO I consist of the following classes:  (i) $259.5 million of Class A-1 notes bearing interest at 3-month LIBOR plus 0.26%; (ii) $15.0 million of Class A-2 notes bearing interest at 3-month LIBOR plus 0.42%; (iii) $20.5 million of Class B notes bearing interest at 3-month LIBOR plus 0.75%; (iv) $13.0 million of Class C notes bearing interest at 3-month LIBOR plus 1.85%; and (v) $8.0 million of Class D notes bearing interest at a fixed rate of 9.25%.  All of the notes issued mature on July 27, 2017, although RSO has the right to call the notes anytime after July 27, 2010 until maturity.  The weighted average interest rate on all notes was 1.66% and 1.68% and at March 31, 2014 and December 31, 2013, respectively. The reinvestment period for Apidos CDO I ended in July 2011 which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of March 31, 2014, $245.7 million of Class A-1 Notes have been paid down.

During the three months ended March 31, 2014 and the year ended December 31, 2013, RSO did not repurchase any notes.

6.0% Convertible Senior Notes

On October 21, 2013, RSO issued and sold in a public offering $115.0 million aggregate principal amount of its 6.0% Convertible Senior Notes due in 2018, ("6.0% Convertible Senior Notes"). After deducting the underwriting discount and the estimated offering costs, RSO received approximately $111.1 million of net proceeds. The discount of $4.9 million on the 6.0% Convertible Senior Notes reflects the difference between the stated value of the debt and the fair value of the notes as if they were issued without a conversion feature and at a higher rate of interest that RSO estimated would have been applicable without the conversion feature. The discount will be amortized on a straight-line basis as additional interest expense through maturity on December 1, 2018. Interest on the 6.0% convertible senior notes is paid semi-annually and the 6.0% Convertible Senior Notes mature on December 1, 2018. Prior to December 1, 2018, the 6.0% Convertible Senior Notes are not redeemable at RSO's option, except to preserve RSO's status as a REIT. On or after December 1, 2018, RSO may redeem all or a portion of the 6.0% Convertible Senior Notes at a redemption price equal to the principal amount plus accrued and unpaid interest. Holders of 6.0% Convertible Senior Notes may require RSO to repurchase all or a portion of the 6.0% Convertible Senior Notes at a purchase price equal to the principal amount plus accrued and unpaid interest on December 1, 2018, or upon the occurrence of certain defined fundamental changes. The 6.0% Convertible Senior Notes are convertible at the option of the holder at a current conversion rate of 150.1502 common shares per $1,000 principal amount of 6.0% Convertible Senior Notes (equivalent to a current conversion price of $6.66 per common share). Upon conversion of 6.0% Convertible Senior Notes by a holder, the holder will receive cash, RSO common shares or a combination of cash and RSO common shares, at RSO's election.

Unsecured Junior Subordinated Debentures

In May 2006 and September 2006, RSO formed RCT I and RCT II, respectively, for the sole purpose of issuing and selling capital securities representing preferred beneficial interests.  Although RSO owns $774,000 of the common securities of RCT I and RCT II, RCT I and RCT II are not consolidated into RSO’s consolidated financial statements because RSO is not deemed to be the primary beneficiary of these entities.  In connection with the issuance and sale of the capital securities, RSO issued junior subordinated debentures to RCT I and RCT II of $25.8 million each, representing RSO’s maximum exposure to loss.  The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II are included in borrowings and are being amortized into interest expense in RSO's consolidated statements of income using the effective yield method over a ten year period.

The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at March 31, 2014 were $236,000 and $258,000, respectively.  The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at December 31, 2013, were $261,000 and $282,000, respectively.  The rates for RCT I and RCT II, at March 31, 2014, were 4.18% and 4.19%, respectively.  The rates for RCT I and RCT II, at December 31, 2013, were 4.20% and 4.19%, respectively.

The rights of holders of common securities of RCT I and RCT II are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities.  The capital and common securities of RCT I and RCT II are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each.  Unless earlier dissolved, RCT I will dissolve on May 25, 2041 and RCT II will dissolve on September 29, 2041.  The junior subordinated debentures are the sole assets of RCT I and RCT II, mature on September 30, 2036 and October 30, 2036, respectively, and may be called at par by RSO any time after September 30, 2011 and October 30, 2011, respectively.  RSO records its investments in RCT I and RCT II’s common securities of $774,000 each as investments in unconsolidated entities and records dividend income upon declaration by RCT I and RCT II.

Repurchase and Credit Facilities

Borrowings under the repurchase and mortgage finance facilities agreements were guaranteed by RSO or one of its subsidiaries. The following table sets forth certain information with respect to RSO's borrowings at March 31, 2014 and December 31, 2013 (dollars in thousands):

	March 31, 2014						December 31, 2013
	Outstanding Borrowings		Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate	Outstanding Borrowings			Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate
CMBS Term Repurchase Facility
Wells Fargo Bank (1)	$	36,819	$	44,386	48	1.37%	$	47,601		$	56,949	44	1.38%
CRE Term Repurchase Facilities
Wells Fargo Bank (2)	96,140		148,312		7	2.62%	30,003			48,186		8	2.67%
Deutsche Bank AG (3)	3,586		5,583		1	3.03%	(300		)	—		—	—%
Short-Term Repurchase Agreements - CMBS
Wells Fargo Securities, LLC	—		—		—	—%	—			—		—	—%
Deutsche Bank Securities, LLC	9,205		13,246		4	1.40%	—			—		—	—%
Residential Mortgage Financing Agreements
New Century Bank	10,275		11,145		72	4.19%	11,916			13,089		74	4.17%
ViewPoint Bank, NA	4,411		5,584		25	4.46%	2,711			3,398		17	4.58%
Totals	$	160,436	$	228,256			$	91,931		$	121,622

(1) The Wells Fargo CMBS term facility borrowing includes zero and $12,000 of deferred debt issuance costs as of March 31, 2014 and December 31, 2013, respectively.

(2) The Wells Fargo CRE term repurchase facility borrowing includes $577,000 and $732,000 of deferred debt issuance costs as of March 31, 2014 and December 31, 2013, respectively.

(3) The Deutsche Bank term repurchase facility includes $166,000 and $300,000 of deferred debt issuance costs as of March 31, 2014 and December 31, 2013, respectively.

The assets in the following table are accounted for as linked transactions. These linked repurchase agreements are not included in borrowings on RSO's consolidated balance sheets.

	March 31, 2014						December 31, 2013
	Borrowings Under Linked Transactions (1)		Value of Collateral Under Linked Transactions		Number of Positions as Collateral Under Linked Transactions	Weighted Average Interest Rate of Linked Transactions	Borrowings Under Linked Transactions (1)		Value of Collateral Under Linked Transactions		Number of Positions as Collateral Under Linked Transactions	Weighted Average Interest Rate of Linked Transactions
CMBS Term    Repurchase    Facility
Wells Fargo Bank	$	6,156	$	7,994	7	1.64%	$	6,506	$	8,345	7	1.65%
CRE Term    Repurchase    Facility
Wells Fargo Bank	—		—		—	—%	—		—		—	—%
Short-Term    Repurchase    Agreements -    CMBS
JP Morgan Securities, LLC	12,006		18,342		4	0.83%	17,020		24,814		4	0.99%
Wells Fargo Securities, LLC	19,621		27,982		8	1.19%	21,969		30,803		9	1.19%
Deutsche Bank Securities, LLC	33,883		51,840		14	1.41%	18,599		29,861		9	1.43%
Totals	$	71,666	$	106,158			$	64,094	$	93,823

The following table shows information about the amount at risk under the repurchase facilities (dollars in thousands):

	Amount at Risk (1)		Weighted Average Maturity in Days	Weighted Average Interest Rate
March 31, 2014
CMBS Term Repurchase Facility
Wells Fargo Bank, National Association (2)	$	8,822	18	1.37%
CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	57,882	18	2.62%
Deutsche Bank Securities, LLC	$	9,155	18	3.03%
Short-Term Repurchase Agreements - CMBS
JP Morgan Securities, LLC (3)	$	6,403	14	0.83%
Wells Fargo Securities, LLC	$	8,411	6	1.19%
Deutsche Bank Securities, LLC	$	18,176	24	1.14%
December 31, 2013
CMBS Term Repurchase Facility
Wells Fargo Bank, National Association (2)	$	10,796	21	1.38%
CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	20,718	21	2.67%
Short-Term Repurchase Agreements - CMBS
JP Morgan Securities, LLC (3)	$	7,882	11	0.99%
Wells Fargo Securities, LLC	$	8,925	2	1.19%
Deutsche Bank Securities, LLC	$	11,418	22	1.43%

(1) Equal to the estimated fair value of securities or loans sold, plus accrued interest income, minus the sum of repurchase agreement liabilities plus accrued interest expense.

(2) $6.2 million and $6.5 million of linked repurchase agreement borrowings are being included as derivative instruments as of March 31, 2014 and December 31, 2013, respectively.

(3) $12.0 million and $17.0 million of linked repurchase agreement borrowings are being included as derivative instruments as of March 31, 2014 and December 31, 2013, respectively.

CMBS - Term Repurchase Facility

In February 2011, RSO's wholly-owned subsidiaries, RCC Commercial Inc. and RCC Real Estate, Inc. (collectively, the "RCC Subsidiaries"), entered into a master repurchase and securities contract (the “2011 Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”).  Under the 2011 Facility, from time to time, the parties may enter into transactions in which the RCC Subsidiaries and Wells Fargo agree to transfer from the RCC Subsidiaries to Wells Fargo all of their right, title and interest to certain commercial mortgage backed securities and other assets (the “Assets”) against the transfer of funds by Wells Fargo to the RCC Subsidiaries, with a simultaneous agreement by Wells Fargo to transfer back to the RCC Subsidiaries such Assets at a date certain or on demand, against the transfer of funds from the RCC Subsidiaries to Wells Fargo.  The maximum amount of the 2011 Facility is $100.0 million which has a two year term with a one year option to extend, and an interest rate equal to the one-month LIBOR plus 1.00% plus a 0.25% initial structuring fee and a 0.25% extension fee upon exercise. The 2011 Facility has a current maturity date of January 31, 2015. The RCC Subsidiaries may enter into interest rate swaps and cap agreements for securities whose average life exceeds two years to mitigate interest rate risk under the 2011 Facility.

The 2011 Facility contains customaryevents of default, including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, and the institution of bankruptcy or insolvency proceedings that remain unstayed.  The remedies for such events of default are also customary for this type of transaction and include the acceleration of all obligations of the RCC Subsidiaries to repay the purchase price for purchased assets.

 The 2011 Facility also contains margin call provisions relating to a decline in the market value of a security. Under such circumstances, Wells Fargo may require the RCC Subsidiaries to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.

 Under the terms of the 2011 Facility and pursuant to a guarantee agreement dated February 1, 2011 (the “2011 Guaranty”), RSO agreed to unconditionally and irrevocably guarantee to Wells Fargo the prompt and complete payment and performance of (a) all payment obligations owing by the RCC Subsidiaries to Wells Fargo under or in connection with the 2011 Facility and any other governing agreements and any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (b) all expenses, including, without limitation, reasonable attorneys' fees and disbursements, that are incurred by Wells Fargo in the enforcement of any of the foregoing or any obligation of the registrant; and (c) any other obligations of the RCC Subsidiaries with respect to Wells Fargo under each of the governing documents.  The 2011 Guaranty includes covenants that, among other things, limit RSO's leverage and debt service ratios and require maintenance of certain levels of cash and net worth. RCC Real Estate and RCC Commercial were in compliance with all debt covenants under the 2011 Facility and 2011 Guaranty as of March 31, 2014.

CRE - Term Repurchase Facilities

On February 27, 2012, RCC Real Estate entered into a master repurchase and securities agreement (the "2012 Facility") with Wells Fargo to finance the origination of commercial real estate loans.  The facility had a maximum amount of $150.0 million and an initial 18 month term.  RSO paid an origination fee of 37.5 basis points (0.375%). On April 12, 2013, RCC Real Estate entered into an amendment which increased the size to $250.0 million and extended the current term of the 2012 Facility to February 27, 2015. The amendment also provides two additional one year extension option at RCC Real Estate's discretion. RCC Real Estate paid structuring fees of $101,000 and an extension fee of $938,000 in connection with the amendment and will amortize the additional fees over the term of the extension.

This 2012 Facility contains customaryevents of default, including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, and the institution of bankruptcy or insolvency proceedings that remain unstayed.  The remedies for such events of default are also customary for this type of transaction and include the acceleration of all obligations of RSO to repay the purchase price for purchased assets.

 The 2012 Facility also contains margin call provisions relating to a decline in the market value of a security. Under these circumstances, Wells Fargo may require RSO to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.

 Under the terms of the 2012 Facility and pursuant to a guarantee agreement dated February 27, 2012 (the “2012 Guaranty”), RSO agreed to unconditionally and irrevocably guarantee to Wells Fargo the prompt and complete payment and performance of (a) all payment obligations owing by RSO to Wells Fargo under or in connection with the 2012 Facility and any other governing agreements and any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (b) all expenses, including, without limitation, reasonable attorneys' fees and disbursements, that are incurred by Wells Fargo in the enforcement of any of the foregoing or any obligation of RSO; and (c) any other obligations of RSO with respect to Wells Fargo under each of the governing documents.  The 2012 Guaranty includes covenants that, among other things, limit RSO's leverage and debt service ratios and require maintenance of certain levels of cash and net worth. RCC Real Estate was in compliance with all debt covenants as of March 31, 2014.

On July 19, 2013, RCC Real Estate's wholly owned subsidiary, RCC Real Estate SPE 5 ("SPE 5") entered into a master repurchase and securities agreement (the "DB Facility") with Deutsche Bank AG, Cayman Islands Branch ("DB") to finance the origination of commercial real estate loans.  The DB Facility has a maximum amount of $200.0 million and an initial 12 month term, ending on July 19, 2014, with twoone-year extensions at the option of SPE 5 and subject further to the right of SPE 5 to repurchase the assets held in the facility earlier. RSO paid a structuring fee of 0.25% of the maximum facility amount, as well as other reasonable closing costs. RSO guaranteed SPE 5's performance of its obligations under the DB Facility. There were outstanding borrowings of $9.2 million and zero under this facility as of March 31, 2014 and December 31, 2013, respectively.

The DB Facility contains provisions that provide DB with certain rights if certain credit events have occurred with respect to one or more assets financed on the DB Facility to require SPE 5 to either repay a portion of the advance on such asset(s) or repay such advance in full (by repurchase of such asset(s). Depending on the nature of the credit event, such repayment may be required notwithstanding the availability of interest and principal payments from assets financed on the DB Facility, or may only be required to the extent of the availability of such payments.

The DB Facility contains events of default (subject to certain materiality thresholds and grace periods) customary for this type of financing arrangement, including but not limited to: payment defaults; bankruptcy or insolvency proceedings; a change of control of SPE 5 or RSO; breaches of covenants and/or certain representations and warranties; performance defaults by RSO; a judgment in an amount greater than $100,000 against SPE 5 or $5.0 million in the aggregate against RSO; or a default involving the failure to pay or acceleration of a monetary obligation in excess of $100,000 of SPE 5 or $5.0 million of RSO. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the DB Facility and the liquidation by DB of assets then subject to the DB Facility. RSO and SPE 5 were in compliance with all debt covenants as of March 31, 2014.

Short-Term Repurchase Agreements - CMBS

On November 6, 2012, RCC Real Estate entered into a master repurchase and securities agreement with JP Morgan Securities LLC to finance the origination of CMBS.  There is no stated maximum amount of the facility and the repurchase agreement has no stated maturity. Interest rates reset monthly.

On February 14, 2012, RCC Real Estate entered into a master repurchase and securities agreement with Wells Fargo Securities, LLC to finance the purchase of CMBS.  There is no stated maximum amount of the facility and the repurchase agreement has no stated maturity date with monthly resets of interest rates.  RSO guaranteed RCC Real Estate’s performance of its obligations under the repurchase agreement.

On March 8, 2005, RCC Real Estate entered into a master repurchase and securities agreement with Deutsche Bank Securities Inc. to finance the purchase of CMBS and the origination of commercial real estate loans.  There is no stated maximum amount of the facility and the repurchase agreement has an initial 12 month term with monthly resets of interest rates.  RSO guaranteed RCC Real Estate’s performance of its obligations under the repurchase agreement.

Residential Mortgage Financing Agreements

PCA has a master repurchase agreement with New Century Bank d/b/a Customer's Bank ("New Century") to finance the acquisition of residential mortgage loans. The facility has a maximum amount of $30.0 million and a termination date of July 2, 2014, which was amended from the original terms over the course of four amendments. At March 31, 2014, PCA had borrowed $10.3 million under this facility. The facility bears interest at one-month LIBOR plus 3.50%.

The New Century facility contains provisions that provide New Century with certain rights if certain credit events have occurred with respect to one or more assets financed on the New Century facility to require PCA to either repay a portion of the advance on such asset(s) or repay such advance in full (by repurchase of such asset(s)). Depending on the nature of the credit event, such repayment may be required notwithstanding the availability of interest and principal payments from assets financed on the New Century facility, or may only be required to the extent of the availability of such payments.

The New Century facility contains events of default (subject to certain materiality thresholds and grace periods) customary for this type of financing arrangement, including but not limited to: payment defaults; bankruptcy or insolvency proceedings; a change in the nature of PCA's business as a mortgage banker as presently conducted or a change in senior management, including the employment of two senior members of PCA's management staff; breaches of covenants and/or certain representations and warranties; performance defaults by PCA; a judgment in an amount greater than $10,000 against PCA or $50,000 in the aggregate against PCA. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the New Century facility and the liquidation by New Century of assets then subject to the New Century facility. The agreement requires PCA to maintain a minimum maintenance balance account at all times of $1.5 million and PCA was in compliance as of March 31, 2014. PCA was in compliance with all financial debt covenants as of March 31, 2014.

PCA has a loan participation agreement with ViewPoint Bank, NA ("ViewPoint") to finance the acquisition of residential mortgage loans. The facility has a maximum amount of $15.0 million and a termination date of December 30, 2014, which was amended from the original terms over the course of five amendments. At March 31, 2014, PCA had borrowed $4.4 million. The facility bears interest at one-month LIBOR with a 4.00% floor.

The ViewPoint facility contains provisions that provide ViewPoint with certain rights if certain credit events have occurred with respect to one or more assets financed on the ViewPoint facility to require either PCA to repay a portion of the advance on such asset(s) or repay such advance in full (by repurchase of such asset(s)). Depending on the nature of the credit event, such repayment may be required notwithstanding the availability of interest and principal payments from assets financed on the ViewPoint facility, or may only be required to the extent of the availability of such payments. The agreement requires PCA to maintain a minimum balance in a deposit account at all times of $1.0 million and PCA was in compliance as of March 31, 2014.

PCA received a waiver on a covenant due to an event of default that requires PCA to maintain consolidated net income of at least one dollar for the preceding twelve month period and not allow PCA's consolidated net income to be a negative number for three consecutive months. The waiver removed all existing defaults and waived the net income covenant requirement until September 30, 2014. PCA was in compliance with all other financial covenant requirements under the agreement as of March 31, 2014.

Mortgage Payable

On August 1, 2011, RSO, through RCC Real Estate, purchased Whispertree Apartments, a 504 unit multi-family property located in Houston, Texas, for $18.1 million.  The property was 95% occupied at acquisition.  In conjunction with the purchase of the property, RSO entered into a seven year mortgage of $13.6 million with a lender.  The mortgage bore interest at a rate of one-month LIBOR plus 3.95%.   At December 31, 2013, there were no outstanding borrowings under this agreement as the property was sold and the underlying mortgage was repaid in 2013.

Related party transactions - RSO

Relationship with LEAF.LEAF Financial originated and managed equipment leases and notes on behalf of RSO. On March 5, 2010, RSO entered into agreements with Lease Equity Appreciation Fund II, L.P. (“LEAF II”) (an equipment leasing partnership sponsored by LEAF Financial and of which a LEAF Financial subsidiary is the general partner), pursuant to which RSO provided an $8.0 million credit facility to LEAF II.  The credit facility initially had a one year term at 12% per year, payable quarterly, and was secured by all the assets of LEAF II, including its entire ownership interest in LEAF II Receivables Funding.  RSO received a 1% origination fee in connection with establishing the facility.  The facility originally matured on March 3, 2011 and was extended until September 3, 2011 with a 1% extension fee paid on the outstanding loan balance.  On June 3, 2011, RSO entered into an amendment to extend the maturity to February 15, 2012 and decrease the interest rate from 12% to 10% per annum resulting in a troubled-debt restructuring under current accounting guidance.  On February 15, 2012, the credit facility was further amended to extend the maturity to February 15, 2013 with a 1% extension fee accrued and added to the amount outstanding.  On January 11, 2013, RSO entered into another amendment to extend the maturity to February 15, 2014 with an additional 1% extension fee accrued and added to the amount outstanding. On December 17, 2013, RSO entered into another amendment to extend the maturity to February 15, 2015. Principal payments of $361,000 were made during three months ended March 31, 2014. The loan amount outstanding at March 31, 2014 and December 31, 2013 was $5.4 million and $5.7 million, respectively.

RSO's resulting interest from the formation of LEAF is accounted for under the equity method. For the three months ended March 31, 2014 and 2013, RSO recorded a loss of $594,000 and $336,000, respectively, which was recorded in equity in net earnings (losses) of unconsolidated subsidiaries on RSO's consolidated statement of income.  RSO’s investment in LEAF was valued at $40.4 million and $41.0 million as of March 31, 2014 and December 31, 2013, respectively.

Relationship with CVC Credit Partners.On April 17, 2012,ACM, a former subsidiary of the Company, was sold to CVC Credit Partners, a joint venture entity in which the Company owns a 33% interest.  CVC Credit Partners manages internally and externally originated bank loan assets on RSO’s behalf.  On February 24, 2011, a subsidiary of RSO purchased 100% of the ownership interests in Churchill Pacific Asset Management LLC ("CPAM") from Churchill Financial Holdings LLC for $22.5 million.  CPAM subsequently changed its name to Resource Capital Asset Management ("RCAM"). Through RCAM, RSO was initially entitled to collect senior, subordinated and incentive fees related to five CLOs holding approximately $1.9 billion in assets managed by RCAM.  RCAM is assisted by CVC Credit Partners in managing these CLOs.  CVC Credit Partners is entitled to 10% of all subordinated fees and 50% of the incentive fees received by RCAM.  For the three months ended March 31, 2014 and 2013, CVC Credit Partners incurred subordinated fees of $370,000 and $181,000, respectively. In October 2012, RSO purchased 66.6% of the preferred equity in one of the RCAM CLOs. In May 2013, RSO purchased an additional equity interest in this CLO, increasing its ownership to 68.3%. In September 2013, this CLO was called and the notes were paid down in full. Another RCAM-managed CLO also elected to redeem its outstanding notes in whole in February 2013.

In May, June and July 2013, RSO invested a total of $15.0 million into a limited partnership agreement with CVC Global Credit Opportunities Fund, L.P. ("the Partnership"), a Delaware limited partnership which generally invests in assets through a master-feeder fund structure ("the Master Fund"). The fund will pay the investment manager a quarterly management fee in advance calculated at the rate of 1.5% annually based on the balance of each limited partner's capital account. RSO's management fee was waived upon entering the agreement given that RSO is a related party of CVC Credit Partners. For the three months ended March 31, 2014, RSO recorded earnings of $834,000, which was recorded in equity in net earnings (losses) of unconsolidated subsidiaries on RSO's consolidated statements of income. No such earnings were recorded for the three months ended March 31, 2013. The fund's investment balance of $17.0 million and $16.2 million as of March 31, 2014 and December 31, 2013, respectively, is recorded as an investment in unconsolidated entities on RSO's consolidated balance sheets using the equity method.

Relationship with Ledgewood.  Until 1996, Edward E. Cohen, a director who was RSO’s Chairman from its inception until November 2009, was of counsel to Ledgewood, P.C., a law firm.  In addition, one of RSO’s executive officers, Jeffrey F. Brotman, was employed by Ledgewood until 2007.  Mr. E. Cohen receives certain debt service payments from Ledgewood related to the termination of his affiliation with Ledgewood and its redemption of his interest in the firm.  Mr. Brotman also receives certain debt service payments from Ledgewood related to the termination of his affiliation with the firm.  For the three months ended March 31, 2014 and 2013, RSO paid Ledgewood $38,000 and $46,000, respectively, in connection with legal services rendered to RSO.

Fair value of financial instruments

In analyzing the fair value of its investments accounted for on a fair value basis, RSO follows the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  RSO determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment.  The hierarchy followed defines three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment.  RSO evaluates its hierarchy disclosures each quarter; depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.  However, RSO expects that changes in classifications between levels will be rare.

Certain assets and liabilities are measured at fair value on a recurring basis.  The following is a discussion of these assets and liabilities as well as the valuation techniques applied to each for fair value measurement.

RSO reports its investment securities available-for-sale at fair value. To determine fair value, RSO uses an independent third-party valuation firm utilizing data available in the market as well as appropriate prepayment, default, and recovery rates. These valuations are validated utilizing dealer quotes or bids. If there is a material difference between the value indicated by the third-party valuation firm and the dealer quote or bid, RSO will evaluate the difference which could result in an updated valuation from the third party or a revised dealer quote. Based on a prioritization of inputs used in the valuation of each position, RSO categorizes these investments as either Level 2 or Level 3 in the fair value hierarchy.

RSO reports its investment securities, trading at fair value, based on an independent third-party valuation. RSO evaluates the reasonableness of the valuation it receives by using a dealer quote. If there is a material difference between the value indicated by the third party and a quote RSO receives, RSO's management will evaluate the difference. Any changes in fair value are recorded on RSO’s results of operations as net unrealized (loss) gain on investment securities, trading.

The CMBS underlying RSO’s Linked Transactions are valued using the same techniques as those used for RSO’s other CMBS. The value of the underlying CMBS is then netted against the carrying amount (which approximates fair value) of the repurchase agreement borrowing at the valuation date. The fair value of Linked Transactions also includes accrued interest receivable on the CMBS and accrued interest payable on the underlying repurchase agreement borrowings. RSO’s Linked Transactions are classified as Level 2 or Level 3 in the fair value hierarchy.

Derivatives (interest rate swaps and interest rate caps), both assets and liabilities, are reported at fair value, and are valued by a third-party pricing agent using an income approach with models that use, as their primary inputs, readily observable market parameters.  This valuation process considers factors including interest rate yield curves, time value, credit factors and volatility factors.  Although RSO has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by RSO and its counterparties.  RSO assesses the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and, if material, categorizes those derivatives within Level 3 of the fair value hierarchy.

The following table presents information about RSO’s assets (including derivatives that are presented net) measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by RSO to determine such fair value as follows (in thousands):

	Level 1		Level 2		Level 3		Total
March 31, 2014
Assets:
Investment securities, trading	$	—	$	—	$	9,987	$	9,987
Investment securities available-for-sale	1,764		816		230,971		233,551
CMBS - linked transactions	—		—		34,829		34,829
Derivatives (net)	—		556		—		556
Total assets at fair value	$	1,764	$	1,372	$	275,787	$	278,923
Liabilities:
Derivatives (net)	—		401		9,841		10,242
Total liabilities at fair value	$	—	$	401	$	9,841	$	10,242
December 31, 2013
Assets:
Investment securities, trading	$	—	$	—	$	11,558	$	11,558
Investment securities available-for-sale	2,370		92		207,375		209,837
CMBS - linked transactions	—		—		30,066		30,066
Total assets at fair value	$	2,370	$	92	$	248,999	$	251,461
Liabilities:
Derivatives (net)	—		395		10,191		10,586
Total liabilities at fair value	$	—	$	395	$	10,191	$	10,586

The following table presents additional information about assets which are measured at fair value on a recurring basis for which RSO has utilized Level 3 inputs (in thousands):

	CMBS Including Linked Transactions			ABS			RMBS			Structured Finance			Total
Beginning balance, January 1, 2014	$	210,785		$	26,656		$	451		$	11,107		$	248,999
Total gains or losses (realized or unrealized):
Included in earnings	103			214			—			—			317
Purchases	33,402			14,306			—			12,841			60,549
Sales	(12,314		)	(2,494		)	—			—			(14,808		)
Paydowns	(17,188		)	(1,785		)	(10		)	—			(18,983		)
Included in OCI	1,332			(59		)	(2		)	(1,558		)	(287		)
Transfers out of Level 2	—			—			—			—			—
Transfers into level 3	—			—			—			—			—
Ending balance, March 31, 2014	$	216,120		$	36,838		$	439		$	22,390		$	275,787

RSO is not able to obtain significant observable inputs and market data points due to a change in methodology whereby RSO began using a third party valuation firm to determine fair value. As a result, $94.9 million of CMBS (including certain CMBS accounted for as linked transactions, were reclassified to Level 3 during the year ended December 31, 2013.

The following table presents additional information about liabilities which are measured at fair value on a recurring basis for which RSO has utilized Level 3 inputs (in thousands):

	Level 3
Beginning balance, January 1, 2014	$	10,191
Unrealized losses – included in accumulated other comprehensive income	(350		)
Ending balance, March 31, 2014	$	9,841

RSO had $0 and $21,000 of losses included in earnings due to the other-than-temporary impairment charges of during the three months ended March 31, 2014 and 2013, respectively. These losses are included in RSO's consolidated statements of operations as net impairment losses recognized in earnings.

Loans held for sale consist of bank loans and CRE loans identified for sale due to credit concerns.  Interest on loans held for sale is recognized according to the contractual terms of the loan and included in interest income on loans.  The fair value of bank loans held for sale and impaired bank loans is based on what secondary markets are currently offering for these loans.  As such, RSO classifies these loans as nonrecurring Level 2.  For RSO’s CRE loans where there is no primary market, fair value is measured using discounted cash flow analysis and other valuation techniques and these loans are classified as nonrecurring Level 3. The amount of nonrecurring fair value losses for impaired loans for the three months ended March 31, 2014 and 2013 was $440,000 and $1.3 million, respectively, and is included in the consolidated statements of operations as provision for loan and lease losses.

The following table summarizes the financial assets and liabilities measured at fair value on a nonrecurring basis and indicates the fair value hierarchy of the valuation techniques utilized by RSO to determine such fair value as follows (in thousands):

	Level 1		Level 2		Level 3		Total
March 31, 2014
Assets:
Loans held for sale	$	—	$	272	$	15,117	$	15,389
Impaired loans	—		1,125		—		1,125
Total assets at fair value	$	—	$	1,397	$	15,117	$	16,514
December 31, 2013
Assets:
Loans held for sale	$	—	$	6,850	$	15,066	$	21,916
Impaired loans	—		225		—		225
Total assets at fair value	$	—	$	7,075	$	15,066	$	22,141

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows (in thousands):

	Fair Value at March 31, 2014		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Interest rate swap agreements	$	9,841	Discounted cash flow	Weighted average credit spreads	5.11	%

RSO is required to disclose the fair value of financial instruments for which it is practicable to estimate that value.  The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, principal paydown receivable, interest receivable, distribution payable and accrued interest expense approximates their carrying value on the consolidated balance sheets.  The fair value of RSO’s investment securities-trading is reported in section D. "Investment securities - trading" above. The fair value of RSO’s investment securities available-for-sale is reported in section E. "Investment securities available-for-sale" above. 

Loans held-for-investment:  The fair value of RSO’s Level 2 Loans held-for-investment was primarily measured using a third-party pricing service.  The fair value of RSO’s Level 3 Loans held-for-investment was measured by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Loans receivable-related party are estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

CDO notes are valued using the dealer quotes, typically the dealer who underwrote the CDO in which the notes are held.

Junior subordinated notes are estimated by obtaining quoted prices for similar assets in active markets.

The fair values of RSO’s remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported below (in thousands):

			Fair Value Measurements
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets of Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2014
Loans held-for-investment	$	1,596,731	$	1,591,875	$	—	$	687,086	$	904,789
Loans receivable-related party	$	6,498	$	6,498	$	—	$	—	$	6,498
CDO notes	$	1,183,469	$	1,066,399	$	—	$	1,066,399	$	—
Junior subordinated notes	$	51,054	$	17,548	$	—	$	—	$	17,548
Repurchase agreements	$	160,436	$	160,436	$	—	$	—	$	160,436
December 31, 2013
Loans held-for-investment	$	1,369,526	$	1,358,434	$	—	$	545,352	$	813,082
Loans receivable-related party	$	6,966	$	6,966	$	—	$	—	$	6,966
CDO notes	$	1,070,339	$	653,617	$	—	$	653,617	$	—
Junior subordinated notes	$	51,005	$	17,499	$	—	$	—	$	17,499
Repurchase agreements	$	77,304	$	77,304	$	—	$	—	$	77,304

RAI - Other VIEs

In March 2014, the Company made a payment under a guarantee on behalf of a VIE that it does not consolidate (see Note 17). As a result of the payment, the Company re-evaluated the VIE for consolidation and determined to exclude it on the basis of immateriality to the consolidated financial statements.

VIEs not consolidated

The Company’s investments in RRE Opportunity REIT I and II and its investments in the structured finance entities that hold investments in trust preferred assets (“Trapeza entities”) and asset-backed securities (“Ischus entities”), and a new real estate investment fund that the Company sponsored and manages in Australia, RRE Global Opportunity Fund, were all determined to be VIEs that the Company does not consolidate as it does not have the obligation of, or right to, losses or earnings that would be significant to those entities.  With respect to RRE Opportunity REIT II, the Company has advanced offering costs that are being reimbursed as the REIT raises additional equity which is included in Receivables from managed entities and related parties, net on the Consolidated Balance Sheets.  Except for those advances, the Company has not provided financial or other support to these VIEs and has no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at March 31, 2014.

The following table presents the carrying amounts of the assets in the Company's consolidated balance sheets that relate to the Company's variable interests in identified nonconsolidated VIEs and the Company's maximum exposure to loss associated with these VIEs in which it holds variable interests at March 31, 2014 (in thousands):

	Receivables from Managed Entities and Related Parties, Net (1)		Investments		Maximum Exposure to Loss in Non-consolidated VIEs
RRE Opportunity REIT I	$	—	$	2,549	$	2,549
RRE Opportunity REIT II	1,649		200		1,849
Ischus entities	210		—		210
Trapeza entities	—		1,009		1,009
RRE Global Opportunity Fund	—		675		675
	$	1,859	$	4,433	$	6,292

(1) Exclusive of expense reimbursements due to the Company.