VARIABLE INTEREST ENTITIES

3 Months Ended

Mar. 31, 2015

Variable Interest Entity [Line Items]

VARIABLE INTEREST ENTITIES

NOTE 19 - 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, nor do creditors of the Company have recourse against the assets of RSO.

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

RSO Balance Sheets Detail (in thousands):
	March 31, 2015			December 31, 2014
ASSETS (1)
Cash and cash equivalents	$	217,361		$	79,905
Restricted cash	26,768			122,138
Subtotal - Cash and cash equivalents	244,129			202,043
Investment securities, trading	29,770			20,786
Investment securities available-for-sale, pledged as collateral, at fair value	161,971			197,800
Investment securities available-for-sale, at fair value	122,099			77,920
Subtotal - Investments, at fair value	313,840			296,506
Loans, pledged as collateral and net of allowances of $7.4 million and $4.6 million	1,960,250			1,925,980
Loans receivable–related party	1,229			1,277
Loans held for sale	248,254			111,736
Subtotal - Loans, before eliminations	2,209,733			2,038,993
Eliminations	(558		)	(558		)
Subtotal - Loans	2,209,175			2,038,435
Property held for sale	180			180
Investments in unconsolidated entities	55,488			59,827
Subtotal, Investments in real estate and unconsolidated entities	55,668			60,007
Line items included in "other assets":
Linked transactions, net at fair value	—			15,367
Derivatives, at fair value	14,036			5,304
Interest receivable	18,111			16,260
Deferred tax asset	12,579			12,634
Principal paydown receivable	26,906			40,920
Direct financing leases	1,951			2,109
Intangible assets	9,229			9,736
Prepaid expenses	4,263			4,196
Other assets	22,761			24,604
Subtotal - Other assets, before eliminations	109,836			131,130
Eliminations	(2		)	(109		)
Subtotal - Other assets	109,834			131,021
Total assets (excluding eliminations)	$	2,933,206		$	2,728,679
Total assets (including eliminations)	$	2,932,646		$	2,728,012
LIABILITIES (2)
Borrowings	$	1,924,598		$	1,716,871
Eliminations	334			205
Subtotal Borrowings	1,924,932			1,717,076
Distribution payable	25,521			30,592
Accrued interest expense	5,437			2,123
Derivatives, at fair value	8,860			8,476
Accrued tax liability	6,982			9,219
Accounts payable and other liabilities	13,091			9,287
Subtotal - Other liabilities, before eliminations	59,891			59,697
Eliminations	(2,684		)	(2,446		)
Subtotal - Other liabilities	57,207			57,251
Total liabilities (before eliminations)	$	1,984,489		$	1,776,568
Total liabilities (after eliminations)	$	1,982,139		$	1,774,327

RSO Balance Sheets Detail (in thousands):
	March 31, 2015			December 31, 2014
(1) Assets of consolidated Variable Interest Entities ("VIE") included in total assets above:
Cash and cash equivalents	$	133		$	25
Restricted cash	25,262			121,247
Investments securities available-for-sale, pledged as collateral, at fair value	94,658			119,203
Loans held for sale	73,892			282
Loans, pledged as collateral and net of allowances of $4.2 million and $3.3 million	1,445,136			1,261,137
Interest receivable	9,895			8,941
Prepaid expenses	193			221
Principal paydown receivable	26,700			25,767
Other assets	(742		)	(12		)
Total assets of consolidated RSO VIEs	$	1,675,127		$	1,536,811
(2) Liabilities of consolidated VIEs included in total liabilities above :
Borrowings	$	1,170,687		$	1,046,494
Accrued interest expense	1,329			1,000
Derivatives, at fair value	7,305			8,439
Unsettled loan purchases	—			(529		)
Accounts payable and other liabilities	56			(386		)
Total liabilities of consolidated RSO VIEs	$	1,179,377		$	1,055,018

RSO Income Statement Detail (in thousands):
	For the Three Months Ended
	March 31,
	2015			2014
REVENUES
Interest income:
Loans	$	32,663		$	20,229
Securities	4,052			4,004
Leases	95			—
Interest income − other	832			2,852
Total interest income	37,642			27,085
Interest expense	14,902			9,628
Net interest income	22,740			17,457
Rental income	—			5,152
Dividend income	16			136
Fee income	1,605			2,500
Revenues from consolidated VIE-RSO	24,361			25,245
OPERATING EXPENSES
Management fees − related party	3,560			3,080
Equity compensation − related party	995			1,667
Rental operating expense	6			3,396
Lease operating	23			—
General and administrative - Corporate	4,783			2,840
General and administrative - PCM	7,079			3,426
Depreciation and amortization	565			836
Impairment losses	59			—
Provision (recovery) for loan losses	3,990			(3,960		)
Total operating expenses	21,060			11,285
Expenses of consolidated VIE-RSO	21,060			11,285
Adjusted operating income	3,301			13,960
OTHER INCOME (EXPENSE)
Equity in earnings of unconsolidated subsidiaries	706			2,014
Net realized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	14,423			2,088
Net realized and unrealized gains (loss) on investment securities, trading	2,074			(1,560		)
Unrealized gain (loss) and net interest income on linked transactions, net	235			2,305
(Loss) on reissuance/ gain on extinguishment of debt	(900		)	(69		)
(Loss) gain on sale of real estate	(22		)	—
Other income (expense)	—			(1,262		)
Other income, net, from consolidated VIE - RSO	16,516			3,516
Income from continuing operations	19,817			17,476
Income tax (expense) benefit - RSO	(1,847		)	(16		)
NET INCOME (LOSS)	17,970			17,460
Net (loss) income allocated to preferred shares	(6,091		)	(2,400		)
Net (income) loss allocable to non-controlling interest, net of taxes	(2,477		)	56
NET INCOME (LOSS) ALLOCABLE TO RSO COMMON SHAREHOLDERS	$	9,402		$	15,116

RSO Cash Flow Detail (in thousands)	Three Months Ended
	March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	17,970		$	17,460
Items included in "Change in cash attributable to consolidated VIE-RSO":
Provision (recovery of) for loan losses	3,990			(3,960		)
Depreciation of investments in real estate and other	139			392
Amortization of intangible assets	507			444
Amortization of term facilities	115			534
Accretion (amortization) of net discounts (premiums) on loans held for investment	(338		)	(574		)
Accretion (amortization) of net discounts (premiums) on securities available-for-sale	837			(769		)
Amortization (accretion) of discount (premium) on notes of securitization	463			434
Amortization of debt issuance costs on notes of securitizations	1,066			796
Amortization of stock-based compensation	995			1,667
Amortization of (accretion) of terminated derivative instruments	67			70
Accretion (amortization) of interest-only available-for-sales securities	873			(137		)
Deferred income tax (benefit) expense	(48		)	(89		)
Purchase of mortgage loans held for sale, net	(58,136		)	(877		)
Purchase of securities, trading	(16,268		)	—
Principal payments on securities, trading	—			42
Proceeds from sales of securities, trading	8,095			—
Net realized and unrealized loss (gain) on investment securities, trading	(2,074		)	1,560
Net realized (gains) loss on sales of investment securities available-for-sale and loans	(14,423		)	(3,680		)
Loss (gain) on reissuance (extinguishment) of debt	900			69
Loss (gain) on sale of real estate	22			—
Settlement of derivative instruments	82			—
Net impairment losses recognized in earnings	59			—
Linked transactions fair value adjustments	(235		)	(1,763		)
Equity in net (earnings) losses of unconsolidated subsidiaries	(706		)	(2,014		)
Changes in operating assets and liabilities, net of acquisitions	65,786			9,563
Net cash (used in) provided by operating activities	(8,232		)	1,708
Change in consolidated VIE-RSO cash for the period	(137,456		)	95,584
Subtotal - Change in cash attributable to consolidated VIE-RSO before eliminations	(145,688		)	97,292
Elimination of intercompany activity	(27		)	(28		)
Subtotal - Adjustments to reconcile net income and operating cash flows to net income of consolidated VIE-RSO	(145,715		)	97,264
Net cash provided by operating activities of consolidated VIE-RSO (excluding eliminations)	9,738			19,168

	Three Months Ended
	March 31,
	2015		2014
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans	(207,983	)	(169,380	)
Purchase of securities available-for-sale	(4,000	)	(48,321	)
Subtotal - Purchase of loans and securities by consolidated VIE-RSO, before eliminations	(211,983	)	(217,701	)
Principal payments received on loans	91,294		90,948
Proceeds from sale of loans	16,922		15,974
Principal payments on securities available-for-sale	37,860		17,325
Proceeds from sale of securities available-for-sale	7,113		12,314
Principal payments received on loans - related parties	—		753
Subtotal - principal payments and proceeds from sales received by consolidated VIE-RSO, before eliminations	153,189		137,314
(Increase) decrease in restricted cash	33,230		(12,849	)
Items included in "Other investing activity of consolidated VIE-RSO":
Return of capital from (investment in) unconsolidated entity	4,391		5,650
Acquisition of controlling interest in Moselle CLO S.A.	—		(30,433	)
Investment in loans - related parties	(903	)	(285	)
Purchase of furniture and fixtures	—		(38	)
Acquisition of property and equipment	(171	)	(269	)
Subtotal - Other investing activity of consolidated VIE-RSO, before eliminations	3,317		(25,375	)
Eliminations	—		(391	)
Subtotal - Other investing activity of consolidated VIE-RSO	3,317		(25,766	)
Net cash used in investing activities of consolidated VIE-RSO (excluding eliminations)	(22,247	)	(118,611	)

	Three Months Ended
	March 31,
	2015			2014
CASH FLOWS FROM FINANCING ACTIVITIES:
Items included in "Net borrowings (repayments) of debt by consolidated VIE-RSO"
Proceeds from borrowings:
Repurchase agreements, net of repayments	—			75,877
Senior secured revolving credit facility, net of repayments	21,500			—
CRE Securitization	282,127			—
Reissuance of debt	8,100			—
Convertible senior notes	99,000			—
Payments on borrowings:
Collateralized debt obligations	(161,713		)	(59,668		)
Repurchase agreements, net of borrowings	(64,812		)	—
Subtotal - net borrowings of debt by consolidated VIE-RSO	184,202			16,209
Distributions paid on common stock	(26,563		)	(25,536		)
Elimination of dividends paid to RAI	478			572
Distributions paid on common stock of consolidated VIE-RSO, after eliminations	(26,085		)	(24,964		)
Net proceeds from issuances of common stock (net of offering costs of $0 and $0)	—			245
Net proceeds from dividend reinvestment and stock purchase plan (net of offering costs of $0 and $0)	106			—
Repurchase of common stock	(5		)	—
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 $111 and $565)	3,002			10,975
Subtotal - net proceeds from issuance of stock by consolidated VIE-RSO	3,103			15,660
Payment of debt issuance costs	(6,639		)	(8		)
Settlement of derivative instruments	3,091			—
Distributions paid to non-controlling interests	(2,987		)	—
Proceeds received from non-controlling interests	1,802			—
Payment of equity to third party sub-note holders	—			(307		)
Distributions paid on preferred stock	(6,044		)	(2,159		)
Subtotal - Other consolidated financing activity of consolidated VIE-RSO, before eliminations	(10,777		)	(2,474		)
Eliminations	100			—
Subtotal - Other consolidated financing activity of consolidated VIE-RSO	(10,677		)	(2,474		)
Net cash provided by financing activities of consolidated VIE-RSO, excluding eliminations	149,965			3,859
Net increase (decrease) in cash and cash equivalents	137,456			(95,584		)
Cash and cash equivalents, beginning of year of consolidated VIE-RSO	79,905			262,270
Cash and cash equivalents, end of period of consolidated VIE-RSO	$	217,361		$	166,686
Supplemental disclosures:
Interest expense paid in cash	$	9,378		$	8,576
Income taxes paid in cash	$	1,739		$	1,774

Summary of Significant Accounting Policies - RSO

Reclassifications

Certain reclassifications have been made to RSO's 2014 consolidated financial statements to conform to the 2015 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 securitizations in order to determine if they are variable interests in VIEs. RSO monitors these legal interests and, to the extent it has determined that it has a variable interest, analyzes the entity for potential consolidation. A VIE is required to be consolidated by its primary beneficiary. RSO will continually analyze entities in which it holds variable interests, including when there is a reconsideration event, to determine whether such entities are VIEs and whether such potential VIEs should be consolidated or deconsolidated. This analysis requires considerable judgment in determining the primary beneficiary of a VIE and could result in 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 twelve VIEs at March 31, 2015: 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, RCC 2014-CRE2, RCC 2015-CRE3, Moselle CLO and RCM Global, LLC. In performing the primary beneficiary analysis for Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, RCC CRE Notes 2013, RCC 2014-CRE2, RCC 2015-CRE3 and RCM Global, LLC, it was determined that the parties that have the power to direct the activities that are most significant to each of these VIEs and who have 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 with 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.

Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, RCC CRE Notes 2013, RCC 2014-CRE2 and RCC 2015-CRE3 and RCM Global, LLC were formed on behalf of RSO to invest in real estate-related 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 and CVC Credit Partners manage 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 was a European securitization in which RSO purchased a $30.4 million interest in the form of subordinate notes representing 100% of the Class 1 Subordinated Notes and 67.9% Class 2 subordinated Notes in February 2014. The CLO was managed by an independent third-party and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the CLO. Though neither RSO nor one of its related parties managed 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 impacted the economic performance of Moselle CLO. Having both the power to direct the activities that most significantly impacted Moselle CLO and a financial interest that was 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. During the fourth quarter of 2014, the CLO began the liquidation process and all assets were sold as of March 31, 2015.

Whitney CLO I was 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.

On July 9, 2014, RCC Residential, together with RSO, the Company and certain of its employees, acquired through RCM Global a portfolio of securities from JP Morgan for $23.5 million.  The portfolio, is managed by the Company. RCC Residential contributed $15.0 million for a 63.8% membership interest. Each of the members of RCM Global will be allocated the revenue/expenses of RCM Global in accordance with its or his membership interest. RCM Global was determined to be a VIE based on the equity holders' inability to direct the activities that are most significant to the entity. RSO was determined to be the primary beneficiary of RCM Global and, therefore, consolidated the entity. RSO's ownership interest was 53.2% as of March 31, 2015.

In September 2014, RSO contributed $17.5 million of capital to Pelium Capital, for an 80.4% interest. Pelium Capital is a specialized credit opportunity fund managed by the Company. RSO will receive 10% of the carried interest in the partnership for the first five years, which can increase to 20% if RSO's capital contributions aggregate $40.0 million. Pelium Capital was determined not to be a VIE as there was sufficient equity at risk, RSO does not have disproportionate voting rights and Pelium's members have all of the following characteristics (1) the power to direct the activities (2) the obligation to absorb losses and (3) the right to receive residual returns. However, Pelium Capital was consolidated as a result of RSO's majority ownership and the Company's unilateral kick-out rights. The non-controlling interest in this vehicle is owned by Resource America. In February 2015, RSO made an additional capital contribution of $2.5 million. RSO's ownership interest in Pelium decreased 71.8% as of March 31, 2015.

For consolidated 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 RSO's 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 twelve consolidated VIEs have no recourse to the general credit of RSO or the Company. However, RSO 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 future cash flows from the CDO. For the three months ended March 31, 2015 and 2014, RSO has provided financial support of $0 and $539,000, 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 that obligate RSO to provide financial support to any of its consolidated VIEs.

The following table shows the classification and carrying value of assets and liabilities of RSO's consolidated VIEs as of March 31, 2015 (in thousands):

	Apidos I		Apidos III			Apidos Cinco		Whitney CLO I		RREF 2006-1		RREF 2007-1		RCC CRE Notes 2013		RCC 2014-CRE2		RCC 2015-CRE3		Moselle		RCM Global, LLC			Total
ASSETS
Cash and cash equivalents	$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	133		$	133
Restricted cash (1)	76		4,519			17,227		116		18		250		2,514		—		5		537		—			25,262
Investment securities available-for-sale, pledged as collateral, at fair value	—		2,856			10,891		—		5,777		57,930		—		—		—		—		17,204			94,658
Loans, pledged as collateral	153		(79		)	223,524		—		125,373		199,987		204,181		350,362		341,635		—		—			1,445,136
Loans held for sale	—		71,611			2,281		—		—		—		—		—		—		—		—			73,892
Interest receivable	—		433			744		—		2,485		2,081		1,081		1,377		1,285		—		409			9,895
Prepaid assets	—		15			40		—		47		48		43		—		—		—		—			193
Principal paydown receivable	—		—			—		—		—		5,775		20,925		—		—		—		—			26,700
Other assets	—		—			—		—		—		—		—		9		—		—		(751		)	(742		)
Total assets (2)	$	229	$	79,355		$	254,707	$	116	$	133,700	$	266,071	$	228,744	$	351,748	$	342,925	$	537	$	16,995		$	1,675,127
LIABILITIES
Borrowings	$	—	$	67,028		$	229,644	$	—	$	52,958	$	131,717	$	179,547	$	231,662	$	278,011	$	120	$	—		$	1,170,687
Accrued interest expense	—		45			234		—		42		148		289		195		376		—		—			1,329
Derivatives, at fair value	—		—			—		—		608		6,697		—		—		—		—		—			7,305
Accounts payable and other liabilities	—		33			13		—		4		1		—		—		3		—		2			56
Total liabilities	$	—	$	67,106		$	229,891	$	—	$	53,612	$	138,563	$	179,836	$	231,857	$	278,390	$	120	$	2		$	1,179,377

(1) Includes $2.8 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.

(3) In October 2013, RSO liquidated Apidos CLO VIII and all of the assets were sold. However, RSO still owns its share of beneficial interests that caused it to consolidate it.

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, 2015. RSO’s maximum exposure to risk for each of these unconsolidated VIEs is set forth in the “Maximum Exposure to Loss,” column in the table below.

LEAF Commercial Capital, Inc.

On November 16, 2011, RSO and LEAF Financial, Inc. ("LEAF Financial"), a subsidiary of the Company, and LEAF Commercial Capital, Inc. ("LEAF"), another subsidiary of the Company, entered into a stock purchase agreement and related agreements (collectively the “SPA”) with Eos Partners, L.P., a private investment firm, and its affiliates (“Eos”). In exchange for its prior interests in its lease related investments, RSO received 31,341 shares of Series A Preferred Stock (the "Series A Preferred Stock"), 4,872 shares of newly issued 8% Series B Redeemable Preferred Stock (the "Series B Preferred Stock") and 2,364 shares of newly issued Series D Redeemable Preferred Stock (the "Series D Preferred Stock"), collectively representing, on a fully-diluted basis assuming conversion, a 26.7% interest in LEAF. At the time of investment, RSO's investment in LEAF was valued at $36.3 million based on a third-party valuation at that time.  During 2013, RSO entered into a third stock purchase agreement with LEAF to purchase 3,682 shares of newly issued Series A-1 Preferred Stock (the "Series A-1 Preferred Stock") for $3.7 million and 4,445 shares of newly issued Series E Preferred Stock (the "Series E Preferred Stock") for $4.4 million. The Series E Preferred Stock has priority over all other classes of preferred stock. RSO's fully-diluted interest in LEAF assuming conversion was 28.4% at March 31, 2015. RSO's investment in LEAF was recorded at $39.5 million and $39.4 million as of March 31, 2015 and December 31, 2014, 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 28.4% of the voting rights in the entity. Furthermore, Eos 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's 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 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 $9.0 million and $9.4 million at March 31, 2015 and December 31, 2014, respectively. RSO recognized fee income of $965,000 and $1.7 million for the three months ended March 31, 2015 and 2014, respectively. With respect to four of these CLOs, RSO determined that it does not hold a controlling financial 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, which resulted in consolidation. Based upon that purchase, RSO determined that it had 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 Whitney CLO I. In September 2013, RSO liquidated Whitney CLO I, and, as a result, 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, 2015 (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	$	39,469	$	1,548		$	—	$	41,017		41,017
Intangible assets	—		—			8,990		8,990			8,990
Total assets	39,469		1,548			8,990		50,007
Borrowings	—		51,256			—		51,256			N/A
Total liabilities	—		51,256			—		51,256			N/A
Net asset (liability)	$	39,469	$	(49,708	)	8,990		$	(1,249	)	N/A

As of March 31, 2015, 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 is summarized for the periods indicated (in thousands):

	Three Months Ended
	March 31,
	2015		2014
Non-cash investing activities include the following:
Conversion of linked transactions assets to CMBS (1)	$	48,605	$	—
Non-cash financing activities include the following:
Distributions on common stock declared but not paid	$	21,423	$	25,663
Distributions on preferred stock declared but not paid	$	6,116	$	2,520
Issuance of restricted stock	$	1,163	$	640
Conversion of linked transaction liabilities to repurchase agreement borrowings (1)	$	33,377	$	—

(1) As a result of an accounting standards update adopted on January 1, 2015, RSO unlinked their previously linked transactions, resulting in non-cash increases in both their CMBS and related purchase borrowings balances.

Investment securities, trading - RSO

The following table summarizes RSO's structured notes and RMBS that are classified as investment securities, trading and carried at fair value (in thousands). Structured notes are CLO debt securities collateralized by syndicated bank loans, and RMBS is a type of mortgage-backed debt obligation whose cash flows come from residential debt.

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
As of March 31, 2015:
Structured notes	$	30,308	$	2,063	$	(2,601	)	$	29,770
RMBS	1,896		—		(1,896		)	—
Total	$	32,204	$	2,063	$	(4,497	)	$	29,770
As of December 31, 2014:
Structured notes	$	22,876	$	1,098	$	(3,188	)	$	20,786
RMBS	1,896		—		(1,896		)	—
Total	$	24,772	$	1,098	$	(5,084	)	$	20,786

RSO sold twelve securities during the three months ended March 31, 2015, for a net realized gain of $432,000. RSO held 45 and 37 investment securities, trading as of March 31, 2015 and December 31, 2014, respectively.

Investment securities available-for-sale - RSO

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
As of March 31, 2015:
CMBS	$	188,052	$	6,450	$	(734	)	$	193,768
RMBS	28,964		1,192		—			30,156
ABS	45,889		12,233		(387		)	57,735
Corporate bonds	2,417		14		(20		)	2,411
Total	$	265,322	$	19,889	$	(1,141	)	$	284,070
As of December 31, 2014:
CMBS	$	168,669	$	4,938	$	(3,202	)	$	170,405
RMBS	29,814		937		—			30,751
ABS	55,617		16,876		(336		)	72,157
Corporate bonds	2,415		10		(18		)	2,407
Total	$	256,515	$	22,761	$	(3,556	)	$	275,720

(1) As of March 31, 2015 and December 31, 2014, $162.0 million and $197.8 million, respectively, of investment securities available-for-sale were pledged as collateral under related financings.

The following table summarizes the estimated maturities of RSO’s CMBS, RMBS, ABS and corporate bonds according to their estimated weighted average life classifications (in thousands, except percentages):

Weighted Average Life	Fair Value			Amortized Cost		Weighted Average Coupon
As of March 31, 2015:
Less than one year	$	84,119	(1)	$	82,983	4.97	%
Greater than one year and less than five years	125,176			113,882		8.34	%
Greater than five years and less than ten years	16,808			14,358		10.86	%
Greater than ten years	57,967			54,099		6.50	%
Total	$	284,070		$	265,322	7.12	%
As of December 31, 2014:
Less than one year	$	78,095	(1)	$	79,649	4.13	%
Greater than one year and less than five years	115,302			100,909		4.64	%
Greater than five years and less than ten years	20,177			17,516		16.45	%
Greater than ten years	62,146			58,441		7.86	%
Total	$	275,720		$	256,515	6.08	%

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

At March 31, 2015, the contractual maturities of the CMBS investment securities available-for-sale range from May 2015 to December 2022.  The contractual maturity date of RMBS investment securities available-for-sale is June 2029. The contractual maturities of the ABS investment securities available-for-sale range from May 2015 to October 2050. The contractual maturities of the corporate bond investment securities available-for-sale range from May 2016 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		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities
As of March 31, 2015:
CMBS	$	25,380	$	(220	)	19	$	16,396	$	(514	)	12	$	41,776	$	(734	)	31
ABS	197		(1		)	1	1,388		(386		)	9	1,585		(387		)	10
Corporate Bonds	1,447		(20		)	1	—		—			—	1,447		(20		)	1
Total temporarily impaired securities	$	27,024	$	(241	)	21	$	17,784	$	(900	)	21	$	44,808	$	(1,141	)	42
As of December 31, 2014:
CMBS	$	35,860	$	(555	)	22	$	25,583	$	(2,647	)	13	$	61,443	$	(3,202	)	35
ABS	1,000		(278		)	8	958		(58		)	3	1,958		(336		)	11
Corporate Bonds	1,447		(18		)	1	—		—			—	1,447		(18		)	1
Total temporarily impaired securities	$	38,307	$	(851	)	31	$	26,541	$	(2,705	)	16	$	64,848	$	(3,556	)	47

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

During the three months ended March 31, 2015 and 2014, RSO did not recognize other-than-temporary impairment on positions that supported RSO's CMBS investments.

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

	For the Three Months Ended
	Positions Sold	Par Amount Sold		Realized Gain (Loss)
March 31, 2015
ABS	4	$	9.411	$	2.669
March 31, 2014
CMBS	3	$	12,500	$	(298	)

The amounts above do not include redemptions. During the three months ended March 31, 2015, RSO did not redeem any corporate bond positions. 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. In addition, during the three months ended March 31, 2015, RSO redeemed two ABS position with a total par value of $2.5 million, and recognized a gain of $3.6 million. During the three months ended March 31, 2014, RSO had one ABS position redeemed with a total par value of $2.5 million, and recognized a gain of $26,000.

Loans - RSO

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

Loan Description	Principal			Unamortized (Discount) Premium (1)			Carrying Value (2)
As of March 31, 2015:
Commercial real estate loans:
Whole loans	$	1,370,303		$	(7,921	)	$	1,362,382
B notes	16,070			(39		)	16,031
Mezzanine loans	67,535			(64		)	67,471
Total commercial real estate loans	1,453,908			(8,024		)	1,445,884
Bank loans	225,216			(899		)	224,317
Middle market loans	295,478			(685		)	294,793
Residential mortgage loans, held for investment	2,641			—			2,641
Subtotal loans before allowances	1,977,243			(9,608		)	1,967,635
Allowance for loan loss	(7,385		)	—			(7,385		)
Total loans held for investment, net of allowances	1,969,858			(9,608		)	1,960,250
Bank loans held-for-sale	73,892			—			73,892
Residential mortgage loans held-for-sale, at fair value (3)	174,559			(197		)	174,362
Total loans held-for-sale	248,451			(197		)	248,254
Total loans, net	$	2,218,309		$	(9,805	)	$	2,208,504
As of December 31, 2014:
Commercial real estate loans:
Whole loans	$	1,271,121		$	(7,529	)	$	1,263,592
B notes	16,120			(48		)	16,072
Mezzanine loans	67,446			(80		)	67,366
Total commercial real estate loans	1,354,687			(7,657		)	1,347,030
Bank loans	332,058			(1,410		)	330,648
Middle market loans	250,859			(746		)	250,113
Residential mortgage loans, held for investment	2,802			—			2,802
Subtotal loans before allowances	1,940,406			(9,813		)	1,930,593
Allowance for loan loss	(4,613		)	—			(4,613		)
Total loans, net of allowances	1,935,793			(9,813		)	1,925,980
Bank loans held-for-sale	282			—			282
Residential mortgage loans held-for-sale, at fair value (3)	111,454			—			111,454
Total loans held-for-sale	111,736			—			111,736
Total loans, net	$	2,047,529		$	(9,813	)	$	2,037,716

(1) Amounts include deferred amendment fees of $110,000 and $88,000 and deferred upfront fees of $68,000 and $82,000 being amortized over the life of the bank loans as of March 31, 2015 and December 31, 2014, respectively.  Amounts include loan origination fees of $8.0 million and $7.6 million as of March 31, 2015 and December 31, 2014, respectively.

(2) Substantially all loans are pledged as collateral under various borrowings at March 31, 2015 and December 31, 2014, respectively.

(3) Residential mortgage loans held for sale, at fair value consisted of $58.3 million and $116.1 million of agency-conforming and jumbo mortgage loans, respectively, as of March 31, 2015. Residential mortgage loans held for sale, at fair value consisted of $28.9 million and $82.6 million of agency-conforming and jumbo mortgage loans, respectively, as of December 31, 2014. Unamortized discount includes an unrealized mark to market loss of $197,000 as of March 31, 2015.

Description	Quantity	Amortized Cost		Contracted Interest Rates	Maturity Dates(3)
As of March 31, 2015:
Whole loans, floating rate (1) (4) (5)	74	$	1,362,382	LIBOR plus 1.75% to LIBOR plus 15.00%	May 2015 to February 2019
B notes, fixed rate	1	16,031		8.68%	April 2016
Mezzanine loans, floating rate	1	12,659		LIBOR plus 15.32%	April 2016
Mezzanine loans, fixed rate (6)	3	54,812		0.50% to 18.71%	January 2016 to September 2019
Total (2)	79	$	1,445,884
As of December 31, 2014:
Whole loans, floating rate (1) (4) (5)	73	$	1,263,592	LIBOR plus 1.75% to LIBOR plus 15.00%	May 2015 to February 2019
B notes, fixed rate	1	16,072		8.68%	April 2016
Mezzanine loans, floating rate	1	12,558		LIBOR plus 15.32%	April 2016
Mezzanine loans, fixed rate (6)	3	54,808		0.50% to 18.71%	January 2016 to September 2019
Total (2)	78	$	1,347,030

(1) Whole loans had $96.8 million and $105.1 million in unfunded loan commitments as of March 31, 2015 and December 31, 2014, 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 $4.0 million and $4.0 million as of March 31, 2015 and December 31, 2014, respectively.

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

(4) Floating rate loans include two whole loans with a combined $12.0 million mezzanine component that have fixed rates of 12.0% and two whole loans with a combined $4.2 million mezzanine component that have fixed rates of 15% as of March 31, 2015 and December 31, 2014, 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, 2015 and December 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 maturity of RSO’s commercial real estate loans, at amortized cost (in thousands):

Description	2015		2016		2017 and Thereafter		Total
As of March 31, 2015:
B notes	$	—	$	16,031	$	—	$	16,031
Mezzanine loans	—		16,739		50,732		67,471
Whole loans	—		27,678		1,334,704		1,362,382
Total (1)	$	—	$	60,448	$	1,385,436	$	1,445,884
	2015		2016		2017 and Thereafter		Total
As of December 31, 2014:
B notes	$	—	$	16,072	$	—	$	16,072
Mezzanine loans	—		16,736		50,630		67,366
Whole loans	—		27,665		1,235,927		1,263,592
Total (1)	$	—	$	60,473	$	1,286,557	$	1,347,030

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

At March 31, 2015, RSO’s bank loan portfolio consisted of $298.2 million (net of allowance of $720,000) of floating rate loans, which bear interest ranging between the three month LIBOR plus 1.50%, and the three month LIBOR plus 8.75% with maturity dates ranging from April 2015 to February 2024.

At December 31, 2014, RSO’s bank loan portfolio consisted of $330.4 million (net of allowance of $570,000) of floating rate loans, which bear interest ranging between the three month LIBOR plus 1.75%, and the three month LIBOR plus 8.75% with maturity dates ranging from January 2015 to February 2024.

The following is a summary of the weighted average maturity of RSO’s bank loans, at amortized cost and loans held-for-sale, at the lower of cost or market (in thousands):

	March 31, 2015		December 31, 2014
Less than one year	$	1,625	$	7,829
Greater than one year and less than five years	282,658		274,332
Five years or greater	13,926		48,769
	$	298,209	$	330,930

At March 31, 2015, RSO’s middle market loan portfolio consisted of $292.3 million (net of allowance of $2.5 million) of floating rate loans, which bear interest ranging between the one or three month LIBOR plus 5.50%, and one or three month LIBOR plus 11.75% with maturity dates ranging from December 2016 to November 2022.

At December 31, 2014, RSO’s bank loan portfolio consisted of $250.1 million of floating rate loans, which bore interest ranging between the three month LIBOR plus 5.50%, and the three month LIBOR plus 9.25% with maturity dates ranging from December 2016 and November 2022.

The following is a summary of the weighted average maturity of RSO’s middle market loans, at amortized cost (in thousands):

	March 31, 2015		December 31, 2014
Less than one year	$	—	$	—
Greater than one year and less than five years	158,183		132,353
Five years or greater	136,610		117,760
	$	294,793	$	250,113

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

Description	Allowance for Loan Loss		Percentage of Total Allowance
As of March 31, 2015:
B notes	$	22	0.30%
Mezzanine loans	98		1.33%
Whole loans	3,923		53.12%
Bank loans	720		9.75%
Middle market loans	2,512		34.01%
Residential mortgage loans	110		1.49%
Total	$	7,385
As of December 31, 2014:
B notes	$	55	1.19%
Mezzanine loans	230		4.99%
Whole loans	3,758		81.47%
Bank loans	570		12.36%
Total	$	4,613

Principal paydown receivables represent the portion of RSO loan portfolio for which indication has been provided through its various servicers, trustees, or its asset management group that a payoff or paydown of a loan has been received but which, as of period end, RSO has not received and applied such cash to the outstanding loan balance. At March 31, 2015, principal paydown receivables relating to RSO's commercial real estate loan portfolio totaled $26.9 million, the entirety of which RSO received in cash during April 2015.

At March 31, 2015 and December 31, 2014, approximately 26.9% and 27.4%, respectively, of RSO’s commercial real estate loan portfolio was concentrated in California; approximately 6.8% and 7.3%, respectively, in Arizona, and approximately 26.5% and 27.3%, respectively, in Texas. At March 31, 2015 and December 31, 2014, approximately 16.7% and 17.5%, respectively, of RSO’s bank loan portfolio was concentrated in the collective industry grouping of healthcare, education and childcare. At March 31, 2015 and December 31, 2014, approximately 11.5% and 13.1%, respectively, of RSO's middle market loan portfolio was concentrated in the collective industry grouping of hotels, motels, inns, and gaming and 10.3% and 13.7%, respectively, of RSO's middle market loan portfolio was concentrated in the collective industry grouping of personal, food and miscellaneous service. During the quarter ended March 31, 2015, approximately 44.0% of RSO's residential mortgage loans were originated in Georgia, 12.0% in Utah, 9.0% in Virginia, 5.0% in Maryland and 5.0% in North Carolina. At December 31, 2014, approximately 56.0% of RSO's residential mortgage loans were originated in Georgia, 8.0% in Utah, 7.0% in Virginia, 5.0% in Alabama, and 4.0% in Tennessee.

Investments in unconsolidated entities - RSO

The following table shows RSO's investments in unconsolidated entities as of March 31, 2015 and December 31, 2014 and equity in net earnings (losses) of unconsolidated subsidiaries for the three months ended March 31, 2015 and 2014 (in thousands):

						Equity in Net Earnings (Losses) of Unconsolidated Subsidiary
		Balance as of		Balance as of		For the three months ended		For the three months ended
	Ownership %	March 31, 2015		December 31, 2014		March 31, 2015		March 31, 2014
Värde Investment Partners, L.P.	7.5%	$	654	$	654	$	—	$	(1	)
RRE VIP Borrower, LLC (1)	3% to 5%	—		—		46		866
Investment in LEAF Preferred Stock	28.4%	39,469		39,416		52		(594		)
Investment in CVC Global Credit Opportunities Fund	20.6%	13,817		18,209		608		834
Investment in Life Care Funding (2)	50.2%	—		—		—		(75		)
Investment in School Lane House (1)		—		—		—		984
Subtotal		53,940		58,279		706		2,014
Investment in RCT I and II (3)	3%	1,548		1,548		593		589
Investment in Preferred Equity (1)(4)		—		—		—		1,228
Total		$	55,488	$	59,827	$	1,299	$	3,831

(1) Investment in School Lane House, Investment in RRE VIP Borrower and the Investment in Preferred Equity were sold or repaid as of December 31, 2014.

(2) In January 2013, Long Term Care Conversion ("LTCC") invested $2.0 million into Life Care Funding, LLC ("LCF") for the purpose of originating and acquiring life settlement contracts. In February 2014, RSO invested an additional $1.4 million which resulted in the consolidation of LCF during the first quarter of 2014. Ownership percentage represents ownership after consolidation.

(3) For the three months ended March 31, 2015 and 2014, these amounts are recorded in interest expense on RSO's consolidated statements of income.

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

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			Middle Market Loans			Residential Mortgage Loans			Loans Receivable-Related Party			Total
As of March 31, 2015:
Allowance for Loan Losses:
Allowance for losses at January 1, 2015	$	4,043		$	570		$	—		$	—		$	—		$	4,613
Provision (recovery) for loan losses	—			1,415			2,566			197			(188		)	3,990
Loans charged-off	—			(1,265		)	(54		)	(197		)	188			(1,328		)
Recoveries	—			—			—			110			—			110
Allowance for losses at March 31, 2015	$	4,043		$	720		$	2,512		$	110		$	—		$	7,385
Ending balance:
Individually evaluated for impairment	$	2,202		$	86		$	2,512		$	—		$	—		$	4,800
Collectively evaluated for impairment	$	1,841		$	634		$	—		$	110		$	—		$	2,585
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—
Loans:
Ending balance: (1)
Individually evaluated for impairment	$	166,180		$	215		$	294,793		$	—		$	1,229		$	462,417
Collectively evaluated for impairment	$	1,279,704		$	297,994		$	—		$	2,641		$	—		$	1,580,339
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—
As of December 31, 2014:
Allowance for Loan Losses:
Allowance for losses at January 1, 2014	$	10,416		$	3,391		$	—		$	—		$	—		$	13,807
Provision for loan losses	(3,758		)	4,173			92			—			1,297			1,804
Loans charged-off	(2,615		)	(6,994		)	(92		)	—			(1,297		)	(10,998		)
Allowance for losses at December 31, 2014	$	4,043		$	570		$	—		$	—		$	—		$	4,613
Ending balance:
Individually evaluated for impairment	$	—		$	570		$	—		$	—		$	—		$	570
Collectively evaluated for impairment	$	4,043		$	—		$	—		$	—		$	—		$	4,043
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—
Loans:
Ending balance: (1)
Individually evaluated for impairment	$	166,180		$	1,350		$	250,113		$	—		$	1,277		$	418,920
Collectively evaluated for impairment	$	1,180,850		$	329,580		$	—		$	2,802		$	—		$	1,513,232
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—

(1) Loan balances as of March 31, 2015 and December 31, 2014 include loans held for sale.

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, 2015:
Bank loans	$	200,966	$	16,081	$	5,257	$	1,798	$	215	$	73,892	$	298,209
As of December 31, 2014:
Bank loans	$	291,214	$	32,660	$	5,424	$	—	$	1,350	$	282	$	330,930

All of RSO’s bank loans were performing with the exception of one loan with an amortized cost of $215,000 as of March 31, 2015. As of December 31, 2014, all of RSO’s bank loans were performing with the exception of two loans with an amortized cost of $1.4 million, one of which defaulted as of March 31, 2014, and the other of defaulted as of September 30, 2014.

Middle Market Loans

RSO uses a risk grading matrix to assign grades to middle market loans.  At inception, all middle market loans are graded at a 2 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.  A loan with a rating of a 2 is considered performing within expectations. RSO considers metrics such as performance of the underlying company, liquidity, collectability of interest and principal payments, enterprise valuation, default probability, and industry dynamics in grading its middle market loans.

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

	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of March 31, 2015:
Middle market loans	$	—	$	284,937	$	4,900	$	—	$	4,956	$	—	$	294,793
As of December 31, 2014:
Middle market loans	$	—	$	240,245	$	9,868	$	—	$	—	$	—	$	250,113

All of RSO’s middle market loans were performing as of March 31, 2015 and December 31, 2014.

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 end 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, 2015:
Whole loans	$	1,329,882	$	32,500	$	—	$	—	$	—	$	1,362,382
B notes	16,031		—		—		—		—		16,031
Mezzanine loans	45,417		22,054		—		—		—		67,471
	$	1,391,330	$	54,554	$	—	$	—	$	—	$	1,445,884
As of December 31, 2014:
Whole loans	$	1,231,092	$	32,500	$	—	$	—	$	—	$	1,263,592
B notes	16,072		—		—		—		—		16,072
Mezzanine loans	45,432		21,934		—		—		—		67,366
	$	1,292,596	$	54,434	$	—	$	—	$	—	$	1,347,030

All of RSO’s commercial real estate loans were current as of March 31, 2015 and December 31, 2014.

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 end as held for sale at the lower of their fair market value or cost.

During the first quarter of 2015, RSO recorded a recovery of loan losses in the amount of $110,000 related to two loans at par for which it had previously recognized a provision for loan losses.

Loans Receivable - Related Party

RSO did not record an allowance for loan loss or any related party loans during the three months ended March 31, 2015. During the year ended December 31, 2014, RSO recorded a provision for loan losses on one related party loan of $1.3 million before extinguishing the loan and bring direct financing leases in the amount of $2.1 million on RSO's books in lieu of the loan receivable.

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
As of March 31, 2015:
Whole loans	$	—	$	—	$	—	$	—	$	1,362,382	$	1,362,382	$	—
B notes	—		—		—		—		16,031		16,031		—
Mezzanine loans	—		—		—		—		67,471		67,471		—
Bank loans (1)	—		—		215		215		297,994		298,209		—
Middle market loans	—		—		—		—		294,793		294,793		—
Residential mortgage loans (2)	420		—		88		508		176,692		177,200		—
Loans receivable-related party	—		—		—		—		1,229		1,229		—
Total loans	$	420	$	—	$	303	$	723	$	2,216,592	$	2,217,315	$	—
As of December 31, 2014:
Whole loans	$	—	$	—	$	—	$	—	$	1,263,592	$	1,263,592	$	—
B notes	—		—		—		—		16,072		16,072		—
Mezzanine loans	—		—		—		—		67,366		67,366		—
Bank loans (1)	—		—		1,350		1,350		329,580		330,930		—
Middle market loans	—		—		—		—		250,113		250,113		—
Residential mortgage loans (2)	443		82		119		644		113,612		114,256		—
Loans receivable-related party	—		—		—		—		1,277		1,277		—
Total loans	$	443	$	82	$	1,469	$	1,994	$	2,041,612	$	2,043,606	$	—

(1) Contains $73.9 million and $282,000 of bank loans held for sale at March 31, 2015 and December 31, 2014, respectively.

(2) Contains $174.6 million and $111.5 million of residential mortgage loans held for sale at March 31, 2015 and December 31, 2014, respectively.

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
As of March 31, 2015:
Loans without a specific valuation allowance:
Whole loans	$	128,108	$	128,108	$	—		$	130,445	$	13,617
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	—		$	38,072	$	3,186
Bank loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	2,641	$	2,641	$	—		$	2,641	$	21
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Loans with a specific valuation allowance:
Whole loans	$	—	$	—	$	—		$	—	$	—
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	215	$	215	$	(86	)	$	—	$	—
Middle market loans	$	4,956	$	4,956	$	(2,512	)	$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Total:
Whole loans	$	128,108	$	128,108	$	—		$	130,445	$	13,617
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		—			38,072		3,186
Bank loans	215		215		(86		)	—		—
Middle market loans	4,956		4,956		(2,512		)	—		—
Residential mortgage loans	2,641		2,641		—			2,641		21
Loans receivable - related party	—		—		—			—		—
	$	173,992	$	173,992	$	(2,598	)	$	171,158	$	16,824

	Recorded Balance		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
As of December 31, 2014:
Loans without a specific valuation allowance:
Whole loans	$	128,108	$	128,108	$	—		$	130,445	$	12,679
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	—		$	38,072	$	2,859
Bank loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	2,082	$	2,082	$	—		$	2,082	$	148
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Loans with a specific valuation allowance:
Whole loans	$	—	$	—	$	—		$	—	$	—
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	1,350	$	1,350	$	(570	)	$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Total:
Whole loans	$	128,108	$	128,108	$	—		$	130,445	$	12,679
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		—			38,072		2,859
Bank loans	1,350		1,350		(570		)	—		—
Middle market loans	—		—		—			—		—
Residential mortgage loans	2,082		2,082		—			2,082		148
Loans receivable - related party	—		—		—			—		—
	$	169,612	$	169,612	$	(570	)	$	170,599	$	15,686

Troubled- Debt Restructurings

The following tables show troubled-debt restructurings in RSO's loan portfolio (in thousands):

	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Three Months Ended March 31, 2015:
Whole loans	2	$	67,459	$	67,459
B notes	—	—		—
Mezzanine loans	—	—		—
Bank loans	—	—		—
Middle market loans	—	—		—
Residential mortgage loans	—	—		—
Loans receivable - related party	—	—		—
Total loans	2	$	67,459	$	67,459

RSO had no troubled-debt restructurings during the three months ended March 31, 2014. As of March 31, 2015 and 2014, there were no commercial real estate loan troubled-debt restructurings that subsequently defaulted.

Business Combinations- RSO

On February 27, 2014, RSO made an additional capital contribution to LCF which gave RSO majority ownership of 50.2%. As a result, RSO began consolidating the LCF joint venture. The joint venture was established for the purpose of originating and acquiring life settlement contracts through a financing facility.    

As of March 31, 2015, RSO engaged a third party expert to assist in determining the fair values of the assets and liabilities assumed on this investment. Based on the final valuation, which determined an enterprise value of LCF of approximately $4.1 million, and in accordance with FASB ASC Topic 805, RSO confirmed that no further adjustments are necessary

Intangible assets - RSO

For the three months ended March 31, 2015, RSO recorded amortization expense of $507,000. RSO expects to record amortization expense of on intangible assets of approximately, $2.0 million for the year ended December 31, 2015, $1.8 million for the years ended December 31, 2016, $1.8 million for the year ended 2017, $1.6 million December 31, 2018, and $1.0 million for the year ended December 31, 2019.  The weighted average amortization period was 6.4 years and 6.6 years at March 31, 2015 and December 31, 2014, respectively.

The following table summarizes intangible assets (in thousands).

	Asset Balance		Accumulated Amortization			Net Asset
As of March 31, 2015:
Investment in RCAM	$	21,213	$	(12,223	)	$	8,990
Investments in PCM:
Wholesale or correspondent relationships	600		(361		)	239
Total intangible assets	$	21,813	$	(12,584	)	$	9,229
As of December 31, 2014:
Investment in RCAM	$	21,213	$	(11,779	)	$	9,434
Investments in PCM:
Wholesale or correspondent relationships	600		(298		)	302
Total intangible assets	$	21,813	$	(12,077	)	$	9,736

For the three months ended March 31, 2015 and 2014, RSO recognized $965,000 and $1.7 million, respectively, of fee income related to the investment in RCAM.

Mortgage Servicing Rights

Through RSO's wholly-owned residential mortgage originator PCM, residential mortgage loans are sold through one of the following methods: (i) sales to or pursuant to programs sponsored by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and Government National Mortgage Association, or (ii) sales to private investors. RSO may have continuing involvement in mortgage loans sold by retaining servicing rights and servicing obligations. 

The total servicing portfolio consists of loans associated with capitalized mortgage servicing rights (“MSRs”) and loans held for sale.  The total servicing portfolio was $1.2 billion and $894.8 million as of March 31, 2015 and December 31, 2014, respectively.  MSRs recorded in RSO's consolidated balance sheets are related to the capitalized servicing portfolio and are created through the sale of originated loans.

The activity in the loan servicing portfolio associated with capitalized servicing rights consisted of (in thousands):

	March 31, 2015		December 31, 2014
Balance, beginning of period	$	894,767	$	433,153
Additions	212,390		519,915
Payoffs, sales and curtailments	53,151		(58,301		)
Balance, end of period	$	1,160,308	$	894,767

The activity in capitalized MSRs is recorded in other assets and consists of the followings (in thousands):

	March 31, 2015			December 31, 2014
Balance, beginning of period	$	9,374		$	4,885
Amortization	(825		)	(1,957		)
Additions	2,936			6,446
Sales	—			—
Balance, end of period	11,485			9,374
Temporary fair value adjustment	(1,050		)	—
Balance, end of period	$	10,435		$	9,374

RSO expects to recognize amortization related to its mortgage servicing rights portfolio in the amount of $2.0 million for the year ended December 31, 2015, $2.0 million for the years ended December 31, 2016, $1.8 million for the year ended December 31, 2017, $1.7 million December 31, 2018, and $1.1 million for the year ended December 31, 2019.  The weighted average amortization period was 1.3 years and 1.4 years at March 31, 2015 and December 31, 2014, respectively.

The value of MSRs is driven by the net positive, or in some cases net negative, cash flows associated with servicing activities.  These cash flows include contractually specified servicing fees, late fees and other ancillary servicing revenue and were recorded within fee income as follows (in thousands):

	For the Three Months Ended
	March 31,
	2015		2014
Servicing fees from capitalized portfolio	$	551	$	308
Late fees	$	23	$	22
Other ancillary servicing revenue	$	3	$	4

Borrowings - RSO

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

	Principal Outstanding		Unamortized Issuance Costs and Discounts		Outstanding Borrowings		Weighted Average Borrowing Rate	Weighted Average Remaining Maturity	Value of Collateral
As of March 31, 2015:
RREF CDO 2006-1 Senior Notes	$	52,957	$	—	$	52,957	2.31%	31.4 years	$	130,727
RREF CDO 2007-1 Senior Notes	131,780		63		131,717		1.14%	31.5 years	258,175
RCC CRE Notes 2013 Senior Notes	182,040		2,493		179,547		2.28%	13.7 years	205,386
RCC 2014-CRE2 Senior Notes	235,344		3,682		231,662		1.47%	17.1 years	349,063
RCC 2015-CRE3 Senior Notes	282,127		4,116		278,011		2.07%	17.0 years	339,654
Apidos CDO III Senior Notes	67,028		—		67,028		1.28%	5.5 years	78,957
Apidos Cinco CDO Senior Notes	229,716		72		229,644		0.87%	5.1 years	252,826
Moselle CLO S.A. Securitized Borrowings, at fair value (1)	120		—		120		N/A	N/A	537
Unsecured Junior Subordinated Debentures (2)	51,548		292		51,256		4.21%	21.6 years	—
6.0% Convertible Senior Notes	115,000		6,182		108,818		6.00%	3.7 years	—
8% Convertible Senior Notes	100,000		7,052		92,948		8.00%	4.8 years	—
CRE - Term Repurchase Facilities (3)	93,734		1,583		92,151		2.21%	18 days	135,951
CMBS - Term Repurchase Facility (4)	29,391		—		29,391		1.37%	18 days	35,977
Residential Investments - Term Repurchase Facility	104,547		125		104,422		2.43%	25 days	121,472
Residential Mortgage Financing Agreements	74,648		—		74,648		2.78%	130 days	95,479
CMBS - Short Term Repurchase Agreements (5)	67,785		—		67,785		1.63%	18 days	94,857
Senior Secured Revolving Credit Agreement	135,000		2,507		132,493		2.68%	2.5 years	292,453
Total	$	1,952,765	$	28,167	$	1,924,598	2.46%	10.8 years	$	2,391,514

	Principal Outstanding		Unamortized Issuance Costs and Discounts		Outstanding Borrowings		Weighted Average Borrowing Rate	Weighted Average Remaining Maturity	Value of Collateral
As of December 31, 2014:
RREF CDO 2006-1 Senior Notes	$	61,423	—		$	61,423	2.12%	31.6 years	$	139,242
RREF CDO 2007-1 Senior Notes	130,340		133		130,207		1.19%	31.8 years	271,423
RCC CRE Notes 2013 Senior Notes	226,840		2,683		224,157		2.11%	14.0 years	249,983
RCC 2014-CRE2 Senior Notes	235,344		3,687		231,657		1.45%	17.3 years	346,585
Apidos CDO III Senior Notes	74,646		—		74,646		1.18%	5.7 years	85,553
Apidos Cinco CDO Senior Notes	255,664		201		255,463		0.81%	5.4 years	272,512
Moselle CLO S.A. Senior Notes, at fair value (6)	63,321		—		63,321		1.49%	5.0 years	93,576
Moselle CLO S.A. Securitized Borrowings, at fair value (1)	5,619		—		5,619		1.49%	5.0 years	—
Unsecured Junior Subordinated Debentures (2)	51,548		343		51,205		4.19%	21.8 years	—
6.0% Convertible Senior Notes	115,000		6,626		108,374		6.00%	3.9 years	—
CRE - Term Repurchase Facilities (3)	207,640		1,958		205,682		2.43%	20 days	297,571
CMBS - Term Repurchase Facility (4)	24,967		—		24,967		1.35%	20 days	30,180
Residential Investments - Term Repurchase Facility (6)	22,248		36		22,212		1.16%	1 day	27,885
Residential Mortgage Financing Agreements (7)	102,576		—		102,576		2.78%	207 days	147,472
CMBS - Short Term Repurchase Agreements (5)	44,225		—		44,225		1.63%	17 days	62,446
Senior Secured Revolving Credit Agreement	113,500		2,363		111,137		2.66%	2.7 years	262,687
Total	$	1,734,901	$	18,030	$	1,716,871	2.09%	10.0 years	$	2,287,115

(1) The securitized borrowings were collateralized by the same assets as the Moselle CLO Senior Notes.

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

(3) Amounts also include accrued interest expense of $75,000 and $198,000 related to CRE repurchase facilities as of March 31, 2015 and December 31, 2014, respectively.

(4) Amounts also include accrued interest expense of $13,000 and $12,000 related to CMBS repurchase facilities as of March 31, 2015 and December 31, 2014, respectively. Amounts do not reflect CMBS repurchase agreement borrowings that are components of linked transactions as of December 31, 2014.

(5) Amounts also includes accrued interest expense of $39,000 and $31,000 related to CMBS short term repurchase facilities as of March 31, 2015 and December 31, 2014.

(6) The fair value option was elected for the borrowings associated with Moselle CLO. As such, the outstanding borrowings and principal outstanding amounts are stated at fair value. The unpaid principal amounts of these borrowings were $63.3 million at December 31, 2014

(7) Amounts also includes interest expense of $20,000 related to residential investment repurchase facilities as of December 31, 2014.

Securitizations

The following table sets forth certain information with respect to RSO's securitizations:

Securitization	Closing Date	Maturity Dates	Reinvestment Period End	Total Note Paydowns as of March 31, 2015
				(in millions)
RREF CDO 2006-1 Senior Notes	August 2006	August 2046	September 2011	$	194.2
RREF CDO 2007-1 Senior Notes	June 2007	September 2046	June 2012	$	209.2
RCC CRE Notes 2013 Senior Notes	December 2013	December 2028	N/A	$	78.8
RCC 2014-CRE2 Senior Notes	July 2014	April 2032	N/A	$	—
RCC 2015-CRE3 Senior Notes	February 2015	March 2032	N/A	$	—
Apidos CDO III Senior Notes	May 2006	September 2020	June 2012	$	195.5
Apidos Cinco CDO Senior Notes	May 2007	May 2020	May 2014	$	92.3
Moselle CLO S.A. Securitized Borrowings	October 2005	January 2020	January 2012	$	5.0

In November 2014, RSO called Moselle CLO S.A. substantially liquidating the securitization's assets. Proceeds from the sale of these assets, plus proceeds from previous sales and paydowns in the CLO were used to pay down$167.2 millionof Senior Notes in full, and$5.0 millionof the Securitized Borrowings as ofMarch 31, 2015.

The investments held by RSO's securitizations collateralized the securitization's borrowings and, as a results, are not available to RSO, its creditors, or stockholders. All senior notes retained at closing or subsequently repurchased by RSO as of March 31, 2015, eliminate in RSO consolidation.

RCC 2015-CRE3

In February 2015, RSO closed RCC 2015-CRE3, a $346.2 million CRE securitization transaction that provided financing for transitional commercial real estate loans. RCC 2015-CRE3 issued a total of $282.1 million of senior notes at par to unrelated investors.  RCC Real Estate purchased 100% of the Class E and Class F senior notes for $20.8 million and $15.6 million, respectively.  In addition, Resource Real Estate Funding 2015-CRE3 Investor, LLC, a subsidiary of RCC Real Estate, purchased a $27.7 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 RCC 2015-CRE3, 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 RCC 2015-CRE3.

At closing, the senior notes issued to investors by RCC 2015-CRE3 consisted of the following classes: (i) $193.9 million of Class A notes bearing interest at one-month LIBOR plus 1.40%; (ii) $17.3 million of Class A-S notes bearing interest at one-month LIBOR plus 1.65%; (iii) $19.5 million of Class B notes bearing interest at one-month LIBOR plus 2.40%; (iv) $20.8 million of Class C notes bearing interest at one-month LIBOR plus 3.15%; (v) $30.7 million of Class D notes bearing interest at one-month LIBOR plus 4.00%; (vi) $20.8 million of Class E notes bearing interest at one-month LIBOR plus 4.75%; (vii) and $15.6 million of Class F notes bearing interest at one-month LIBOR plus 5.50%.  All of the notes issued mature in March 2032, although RSO has the right to call the notes anytime after March 2017 until maturity. There is no reinvestment period in RCC 2015-CRE3, although the indenture does not allow for principal repayments within a permitted funded companion participation acquisition period, ending in February 2017, to be designated as cash to purchase future funding participations of existing collateral held outside the securitization.

Moselle CLO S.A.

RSO exercised its right in to call the notes of Moselle CLO S.A. in November 2014, substantially liquidating the securitization's assets. Proceeds from the sale of these assets, plus proceeds from previous sales and paydowns in the CLO, were used to pay down the Senior Notes in full, and$5.0 millionof the Securitized Borrowings as ofMarch 31, 2015.

8% Convertible Senior Notes

In January 2015, RSO issued and sold in a public offering $100.0 million aggregate principal amount of its 8.0% Convertible Senior Notes due 2020, ("8.0% Convertible Senior Notes"). After deducting a $1.0 million underwriting discount and deferred issuance costs totaling $2.1 million, RSO received approximately $97.0 million of net proceeds. The discount and deferred issuance costs will be amortized on a straight-line basis as additional interest expense through maturity on January 15, 2020. Interest on the 8.0% Convertible Senior Notes is paid semi-annually.

The 8.0% Convertible Senior Notes are convertible at the option of the holder at a current conversion rate of 187.4414 common shares per $1,000 principal amount of 8.0% Convertible Senior Notes (equivalent to an initial conversion price of $5.34 per common share). Upon conversion of 8.0% Convertible Senior Notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at RSO's election.

Repurchase and Credit Facilities

Borrowings under the repurchase agreements were guaranteed by RSO or one of its subsidiaries. The following table sets forth certain information with respect to RSO's borrowings (dollars in thousands):

	March 31, 2015							December 31, 2014
	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	$	29,391		$	35,977	34	1.37%	$	24,967	$	30,180	33	1.35%
CRE Term Repurchase Facilities
Wells Fargo Bank (1)	92,296			135,951		5	2.21%	179,762		258,223		15	2.38%
Deutsche Bank AG (2)	(145		)	—		—	—%	25,920		39,348		2	2.78%
Short-Term Repurchase Agreements - CMBS
Deutsche Bank Securities, LLC	53,249			70,928		8	1.62%	33,783		44,751		8	1.62%
Wells Fargo Securities, LLC	14,536			23,929		1	1.59%	10,442		17,695		1	1.66%
Residential Investment Term Repurchase Facility
Wells Fargo Bank (3)	104,422			121,472		146	2.43%	22,212		27,885		6	1.16%
Residential Mortgage Financing Agreements
New Century Bank	46,419			53,689		231	2.80%	41,387		51,961		158	2.82%
Wells Fargo Bank	28,229			41,790		78	2.75%	61,189		95,511		104	2.75%
Totals	$	368,397		$	483,736			$	399,662	$	565,554

(1) The Wells Fargo CRE term repurchase facility borrowing includes $1.4 million and $1.7 million of deferred debt issuance costs as of March 31, 2015 and December 31, 2014, respectively.

(2) The Deutsche Bank term repurchase facility includes $145,000 and $268,000 of deferred debt issuance costs as of March 31, 2015 and December 31, 2014, respectively.

(3) The Wells Fargo resident investments term repurchase facility includes $125,000 and $36,000 of deferred debt issuance costs as of March 31, 2015 and December 31, 2014, respectively.

As the result of an accounting standards update adopted on January 1, 2015, RSO unlinked its previously linked transactions and disclosed affected asset, liability, income and expense balances at their gross values in its consolidated financial statements. Accordingly, RSO had no repurchase agreements being accounted for as linked transactions as of March 31, 2015.

The assets in the following table were accounted for as linked transactions as of December 31, 2014 (in thousands). These linked repurchase agreements are not included in borrowings on RSO consolidated balance sheets.

	As of December 31, 2014
	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	$	4,941	$	6,371	7	1.67%
Short-Term Repurchase Agreements - CMBS
JP Morgan Securities, LLC	—		—		—	—%
Wells Fargo Securities, LLC	4,108		6,233		2	1.37%
Deutsche Bank Securities, LLC	24,348		36,001		10	1.57%
Totals	$	33,397	$	48,605

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
As of March 31, 2014:
CMBS Term Repurchase Facility
Wells Fargo Bank, National Association	$	6,176	18	1.37%
RMBS Term Repurchase Facility
Wells Fargo Bank, National Association	$	16,804	25	2.43%
CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	42,763	18	2.21%
Short-Term Repurchase Agreements - CMBS
Wells Fargo Securities, LLC	$	8,964	6	1.59%
Deutsche Bank Securities, LLC	$	17,452	21	1.62%
Residential Mortgage Financing Agreements
Wells Fargo Bank	$	13,561	93	2.75%
New Century Bank	$	7,270	152	2.80%
As of December 31, 2014:
CMBS Term Repurchase Facility
Wells Fargo Bank, National Association	$	6,486	20	1.35%
Residential Investment Term Repurchase Facility
Wells Fargo Bank, National Association	$	5,017	1	1.16%
CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	76,148	20	2.38%
Deutsche Bank Securities, LLC	$	13,017	19	2.78%
Short-Term Repurchase Agreements - CMBS
Wells Fargo Securities, LLC	$	2,127	9	1.66%
Deutsche Bank Securities, LLC	$	11,810	20	1.62%
Residential Mortgage Financing Agreements
New Century Bank	$	853	242	2.82%
Wells Fargo Bank	$	6,902	183	2.75%

(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.

RSO is in compliance with all financial covenants as defined in the respective agreements as of March 31, 2015.

Residential Investments - Term Repurchase Facility

In June 2014, RSO's wholly-owned subsidiaries, RCC Resi Portfolio and RCC Resi TRS (the “Sellers”) entered into a master repurchase and securities contract (the “2014 Facility”) with Wells Fargo.  Under the 2014 Facility, from time to time the parties may enter into transactions in which the Sellers and Wells Fargo agree to transfer from the Sellers to Wells Fargo all of their right, title and interest to certain residential mortgage backed securities and other assets against the transfer of funds by Wells Fargo to the Sellers, with a simultaneous agreement by Wells Fargo to transfer back to the Sellers such assets at a date certain or on demand, against the transfer of funds from the Sellers to Wells Fargo.

In January 2015, the Sellers amended the agreement with Wells Fargo to classify trust certificates as assets eligible for sale and repurchase under the Facility. The maximum borrowing amounts of the 2014 Facility under the amended agreement are $110.0 million with respect to purchased residential mortgage backed securities, and $165.0 million with respect to trust certificates collateralized by jumbo mortgage loans. The 2014 Facility's maximum pricing margins are 1.45% plus 3.00% on residential mortgage backed securities and jumbo mortgage loans, respectively. The 2014 Facility has a current scheduled termination date of June 22, 2015, and RSO has a one year option to extend at its discretion.

Residential Mortgage Financing Agreements

PCM has a master repurchase agreement with New Century Bank d/b/a Customer's Bank ("New Century") and Wells Fargo Bank, NA ("Wells Fargo") to finance the acquisition of residential mortgage loans. At March 31, 2015, PCM received waivers from both New Century and Wells Fargo on a covenant that requires PCM to maintain a minimum liquidity of $7.5 million. The waivers removed the minimum liquidity requirement and all existing defaults for the period March 1, 2015 through April 30, 2015. PCM was in compliance with all other financial covenant requirements under the agreement as of March 31, 2015.

Senior Secured Revolving Credit Facility

Effective September 18, 2014, RSO, Northport LLC, closed a $110.0 million syndicated senior secured revolving credit facility with JP Morgan as the agent bank. The accordion feature of the facility was exercised in September 2014 to bring the facility capacity to $225.0 million and $15.0 million was secured through the addition of Customer's Bank to the syndicate, bringing the effective commitment to $125.0 million. In March 2015, ING Capital LLC agreed to a commitment increase of $15.0 million, bringing the effective commitment to $140.0 million as of March 31, 2015.

Related party transactions - RSO

On November 7, 2013, RSO, through a wholly-owned subsidiary, purchased all of the membership interests in Elevation Home Loans, LLC, a start-up residential mortgage company, from an employee of RSO for $830,000, paid in the form of 136,659 shares of restricted RSO common stock.  The restricted stock vests in full on November 7, 2016, and includes dividend equivalent rights.

Relationship with LEAF Commercial Capital. LEAF 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 and funded 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 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 to 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 a further amendment to extend the maturity to February 15, 2015. At the end of 2014, RSO recorded a provision for loan loss on the $1.3 million before extinguishing the loan and bring direct financing leases in the amount of $2.1 million on RSO's books in lieu of the loan receivable. During the three months ended March 31, 2015, RSO recorded a partial recovery of $188,000. As of March 31, 2015, RSO held $2.0 million of direct financing leases.

On November 16, 2011, RSO, together with LEAF Financial and LEAF, entered into the SPA with Eos. RSO’s resulting interest is accounted for under the equity method.  For the three months ended March 31, 2015 and 2014, RSO recorded a gain of $52,000 and loss of $594,000, respectively, which was recorded in equity in net earnings (losses) of unconsolidated subsidiaries on the consolidated statement of income.  RSO’s investment in LEAF was $39.5 million and $39.5 million as of March 31, 2015 and December 31, 2014, respectively.

Relationship with CVC Credit Partners.On April 17, 2012, Apidos Capital Management (“ACM”), a former subsidiary of Resource America, was sold to CVC Credit Partners, LLC ("CVC Credit Partners"), a joint venture entity in which Resource America 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 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, 2015 and 2014, CVC Credit Partners earned subordinated fees of $237,000 and $370,000, respectively. In October 2012, RSO purchased 66.6% of the preferred equity in one of the RCAM CLOs. In May 2013, RSO purchased additional equity 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. which generally invests in assets through 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, 2015 and 2014, RSO recorded earnings of $608,000 and $834,000, respectively, which was recorded in equity in net earnings (losses) of unconsolidated subsidiaries on RSO's consolidated statements of income. In March 2015, RSO elected to withdraw $5.0 million from the fund bringing RSO's investment balance to $13.8 million as of March 31, 2015 as compared to $18.2 million as of December 31, 2014. The investment 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, 2015 and 2014, RSO paid Ledgewood $274,000 and $38,000, respectively, in connection with legal services rendered to RSO.

Fair value of financial instruments

The following table presents information about RSO’s assets and liabilities 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
As of March 31, 2015
Assets:
Investment securities, trading	$	—	$	—	$	29,770	$	29,770
Investment securities available-for-sale	—		32,567		251,503		284,070
Derivatives (net)	7,015		384		6,636		14,035
Total assets at fair value	$	7,015	$	32,951	$	287,909	$	327,875
Liabilities:
Derivatives (net)	$	—	$	1,319	$	7,541	$	8,860
Total liabilities at fair value	$	—	$	1,319	$	7,541	$	8,860
As of December 31, 2014
Assets:
Investment securities, trading	$	—	$	—	$	20,786	$	20,786
Investment securities available-for-sale	—		33,158		242,562		275,720
CMBS - linked transactions	—		—		15,367		15,367
Derivatives (net)	3,429		7		1,868		5,304
Total assets at fair value	$	3,429	$	33,165	$	280,583	$	317,177
Liabilities:
Moselle CLO Notes	$	—	$	—	$	68,940	$	68,940
Derivatives (net)	$	—	$	—	$	8,476	$	8,476
Total liabilities at fair value	$	—	$	—	$	77,416	$	77,416

Additionally, as of March 31, 2015, RSO had $174.4 million in residential mortgage loans, held for sale for which it has elected the fair value option. RSO's residential mortgage loan portfolio was comprised of both agency loans and non-agency jumbo loans. The fair values of RSO's agency loan portfolio is generally classified as Level 2 in the fair value hierarchy as those values are determined based on quoted market prices or upon other observable inputs. The fair values of RSO's jumbo loan portfolio is generally classified as Level 3 in the fair value hierarchy as those values are generally based upon valuation techniques that utilize unobservable inputs that reflect the assumptions that a market participant would use in pricing those assets. As of March 31, 2015, $61.4 million of residential mortgage loans, held for sale was classified as Level 2 and $113.0 million was classified as Level 3 in the fair value hierarchy.

As of March 31, 2015, except for a note balance of $120,000, Moselle CLO paid off all of RSO's outstanding CLO notes.

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			Structured Finance Securities			Warrant			Interest Rate Lock Commitments			Total
Beginning balance, January 1, 2015	$	185,772		$	72,157		$	20,786		$	898		$	970		$	280,583
Included in earnings	—			1,255			1,331			(39		)	11,823			14,370
Unlined transactions	33,239			—			—			—			—			33,239
Purchases	4,000			—			13,337			—			—			17,337
Sales	—			—			(5,230		)	—			—			(5,230		)
Paydowns	(30,983		)	(720		)	(454		)	—			—			(32,157		)
Issuances	—			—			—			—			—			—
Settlements	—			(11,216		)	—			—			(10,032		)	(21,248		)
Included in OCI	1,740			(4,597		)	—			—			—			(2,857		)
Transfers into Level 3	—			856			—			—			—			856
Ending balance, March 31, 2015	$	193,768		$	57,735		$	29,770		$	859		$	2,761		$	284,893

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

	Interest rate swaps
Beginning balance, January 1, 2015	$	8,680
Unrealized gains - included in accumulated other comprehensive income	(1,142		)
Included in earnings	—
Ending balance, March 31, 2015	$	7,538

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
As of March 31, 2015:
Assets:
Loans held for sale	$	—	$	73,892	$	—	$	73,892
Impaired loans	—		2,445		—		2,445
Total assets at fair value	$	—	$	76,337	$	—	$	76,337
As of December 31, 2014:
Assets:
Loans held for sale	$	—	$	36,956	$	—	$	36,956
Impaired loans	—		1,678		137,811		139,489
Total assets at fair value	$	—	$	38,634	$	137,811	$	176,445

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 amounts of nonrecurring fair value losses for specifically impaired loans for the three months ended March 31, 2015 and 2014 were $2.5 million and $440,000, respectively. The amounts of nonrecurring fair value losses for loans held for sale for the three months ended March 31, 2015 and 2014 was $721,000 and $0, respectively.

In accordance with FASB ASC Topic 820-10-50-2-bbb, RSO is not required to disclose quantitative information with respect to unobservable inputs contained in fair value measurements that are not developed by RSO. As such, RSO has not disclosed such information associated with fair values obtained from third-party pricing sources.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2015, the significant unobservable inputs used in the fair value measurements were as follows (in thousands):

	Fair Value at March 31, 2015		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Interest rate swap agreements	$	7,538	Discounted cash flow	Weighted average credit spreads	4.78	%

Additionally, as of March 31, 2015, RSO also classified the valuation of its warrant derivative in Level 3 of the fair value hierarchy. The value of the warrant was determined using a Black-Scholes model using the following significant unobservable inputs: market capitalization of $112.5 million and volatility of 50.0%.

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.

Loans held-for-investment:  The fair value of RSO’s Level 2 Loans held-for-investment are primarily measured using a third-party pricing service.  The fair value of RSO’s Level 3 Loans held-for-investment are 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. Moselle CLO is valued using a third-party pricing specialist.

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 their consolidated balance sheets are reported in the following table (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)
As of March 31, 2015:
Loans held-for-investment	$	1,960,250	$	1,951,974	$	—	$	515,227	$	1,436,747
Loans receivable-related party	$	1,229	$	1,229	$	—	$	—	$	1,229
CDO notes	$	1,770,686	$	1,098,171	$	—	$	—	$	1,098,171
Junior subordinated notes	$	51,256	$	17,750	$	—	$	—	$	17,750
Repurchase agreements	$	368,397	$	368,397	$	—	$	—	$	368,397
Senior secured revolving credit agreement	$	132,493	$	132,493	$	—	$	—	$	132,493
As of December 31, 2014:
Loans held-for-investment	$	1,925,980	$	1,909,019	$	—	$	570,071	$	1,338,948
Loans receivable-related party	$	1,277	$	1,277	$	—	$	—	$	1,277
CDO notes	$	1,046,493	$	975,762	$	—	$	—	$	975,762
Junior subordinated notes	$	51,205	$	17,699	$	—	$	—	$	17,699
Repurchase agreements	$	399,662	$	399,662	$	—	$	—	$	399,662
Senior secured revolving credit agreement	$	111,137	$	111,137	$	—	$	—	$	111,137

RAI - Other VIEs

VIEs not consolidated

The Company’s investments in the structured finance entities that hold investments in trust preferred assets (the “Trapeza entities”) and asset-backed securities (the "Ischus entities”), and RREGPS 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.  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, 2015.

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, 2015 (in thousands):

	Receivables from Managed Entities and Related Parties, Net (1)		Investments		Maximum Exposure to Loss in Non-consolidated VIEs
Ischus entities	$	158	$	—	$	158
Trapeza entities	—		714		714
RREGPS	—		716		716
	$	158	$	1,430	$	1,588

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