10-Q 1 rexi-20150331x10q.htm 10-Q REXI QTR ENDED MARCH 31, 2015 REXI-2015.03.31-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 0-4408
RESOURCE AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
72-0654145
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
One Crescent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, PA  19112
(Address of principal executive offices) (Zip code)
(215) 546-5005
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer   
þ
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The number of outstanding shares of the registrant’s common stock on May 1, 2015 was 22,976,718 shares.



RESOURCE AMERICA, INC. AND SUBSIDIARIES
INDEX TO QUARTELY REPORT
ON FORM 10-Q
 
 
Page
PART I
 
 
 
 
 
Item 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
PART II
 
 
 
 
 
Item 2:
 
 
 
Item 6:
 
 
 






PART I
ITEM 1.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
RESOURCE AMERICA, INC
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
March 31,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Cash
$
24,909

 
$
27,542

Restricted cash
798

 
725

Receivables
714

 
636

Loans and receivables from managed entities and related parties, net
26,787

 
30,303

Investments in real estate, net
16,833

 
17,097

Investment securities, at fair value
9,785

 
9,540

Investments in unconsolidated loan manager (see Note 8)
40,292

 
39,655

Investments in unconsolidated entities (see Note 8)
13,105

 
13,089

Assets of consolidated variable interest entity ("VIE")-RSO (see Note 19):
 
 
 
     Cash and cash equivalents (including restricted cash)
244,129

 
202,043

     Investments, at fair value
313,840

 
296,506

     Loans
2,209,175

 
2,038,435

     Investments in real estate and unconsolidated entities
55,668

 
60,007

Other assets
109,834

 
131,481

Total assets of consolidated VIE-RSO
2,932,646

 
2,728,472

 
 
 
 
Property and equipment, net
5,739

 
5,063

Deferred tax assets, net
22,015

 
23,304

Other assets
8,684

 
5,416

Total assets
$
3,102,307

 
$
2,900,842

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accrued expenses and other liabilities
$
21,631

 
$
22,279

Payables to managed entities and related parties
2,165

 
3,015

Borrowings
21,174

 
20,412

Liabilities of consolidated VIE-RSO (see Note 19):
 
 
 
     Borrowings
1,924,932

 
1,717,132

     Other liabilities
57,207

 
57,561

Total liabilities of consolidated VIE-RSO
1,982,139

 
1,774,693

Total liabilities
2,027,109

 
1,820,399

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Equity:
 
 
 
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none outstanding
—

 
—

Common stock, $.01 par value, 49,000,000 shares authorized;
34,975,726 and 34,489,568 shares issued (including nonvested restricted stock of 1,165,119 and 833,082), respectively
338

 
335

Additional paid-in capital
308,877

 
308,134

Accumulated deficit
(24,632
)
 
(23,663
)
Treasury stock, at cost; 12,001,772 and 11,764,417 shares, respectively
(122,305
)
 
(120,182
)
Accumulated other comprehensive loss
(1,139
)
 
(1,030
)
Total stockholders’ equity
161,139

 
163,594

Noncontrolling interests
313

 
306

Noncontrolling interests attributable to consolidated VIE-RSO
913,746

 
916,543

Total equity
1,075,198

 
1,080,443

Total liabilities and equity
$
3,102,307

 
$
2,900,842



RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
Three Months Ended
 
March 31,
 
2015
 
2014
REVENUES:
 
 
 
Real estate (includes revenues of $2,752 and $2,683 related to RSO)
$
16,966

 
$
13,275

Financial fund management (includes revenues of $1,537 and $207 related to RSO)
5,137

 
7,075

Commercial finance (includes no revenues related to RSO)
(2
)
 
(99
)
 
22,101

 
20,251

Revenues from consolidated VIE-RSO (see Note 19)
24,361

 
25,245

Elimination of consolidated VIE-RSO revenues attributed to operating segments
(4,273
)
 
(2,880
)
Total revenues
42,189

 
42,616

COSTS AND EXPENSES:
 
 
 
Real estate
11,499

 
8,875

Financial fund management
2,990

 
4,389

Commercial finance
579

 
103

General and administrative
3,297

 
3,154

Provision for credit losses
402

 
1,208

Depreciation and amortization
457

 
451

 
19,224

 
18,180

Expenses from consolidated VIE-RSO (see Note 19)
21,060

 
11,285

Elimination of consolidated VIE-RSO expenses attributed to
operating segments
(3,368
)
 
(2,819
)
Total expenses
36,916

 
26,646

OPERATING INCOME
5,273

 
15,970

 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
Interest expense
(421
)
 
(483
)
Other income, net
(164
)
 
165

 
(585
)
 
(318
)
Other income, net, from consolidated VIE-RSO (see Note 19)
16,516

 
3,516

Elimination of consolidated VIE-RSO other income, net attributed to operating segments
11

 
18

 
15,942

 
3,216

Income from continuing operations before taxes
21,215

 
19,186

Income tax provision
1,244

 
1,069

Income tax provision-RSO
1,847

 
16

Net income
18,124

 
18,101

Net loss attributable to noncontrolling interests
8

 
40

Net income attributable to noncontrolling interests of consolidated VIE-RSO
(17,795
)
 
(17,151
)
Net income attributable to common shareholders
$
337

 
$
990

 
 
 
 
Basic earnings per share:
 
 
 
Net income
$
0.01

 
$
0.05

Weighted average shares outstanding
22,965

 
20,252

 
 
 
 
Diluted earnings per share:
 
 
 
Net income
$
0.01

 
$
0.04

Weighted average shares outstanding
23,239

 
22,027


The accompanying notes are an integral part of these statements
4


RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
 
 
March 31,
 
 
2015
 
2014
 
 
 
 
 
 
Net income
$
18,124

 
$
18,101

 
 
 
 
 
 
Other comprehensive income (loss):
 

 
 

 
Unrealized gains on investment securities available-for-sale, net of tax of $150 and $19
127

 
28

 
  Less: reclassification for gains realized, net of tax of $(172) and $0
(285
)
 
—

 
 
(158
)
 
28

 
Minimum pension liability adjustments, net of tax of $9 and $0
(9
)
 
—

 
Reclassification for losses realized, net of tax of $50 and $33
56

 
36

 
 
47

 
36

 
Unrealized gains on hedging contracts, net of tax of $0 and $1
—

 
1

 
 
 
 
 
 
Foreign currency translation gain, net of tax of $2 and $0
2

 
2

 
Subtotal - activity related to RAI
(109
)
 
67

 
 
 
 
 
 
Activity related to consolidated VIE-RSO:
 
 
 
 
Reclassification for (gains) losses on available-for-sale securities realized
(6,258
)
 
1,465

 
Unrealized gains (losses) on available-for-sale securities, net
3,123

 
(1,754
)
 
Reclassification for realized losses from interest rate hedges
90

 
70

 
Unrealized gains on derivatives, net
1,142

 
387

 
Foreign currency translation losses
429

 
(196
)
 
Subtotal - activity related to consolidated VIE-RSO
(1,474
)
 
(28
)
 
Subtotal - other comprehensive (loss) income
(1,583
)
 
39

 
Comprehensive income
16,541

 
18,140

 
Less: Comprehensive income attributable to noncontrolling interests
(16,313
)
 
(17,083
)
 
Comprehensive income attributable to common shareholders
$
228

 
$
1,057

 


The accompanying notes are an integral part of these statements
5


RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2015
(dollars in thousands)
(unaudited)
 
Common Stock Shares
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Equity
 
Noncontrolling Interests
 
Noncontrolling
interests -
RSO
 
Total Equity
Balance, December 31, 2014
22,725,151

 
$
335

 
$
308,134

 
$
(23,663
)
 
$
(120,182
)
 
$
(1,030
)
 
$
163,594

 
$
306

 
$
916,543

 
$
1,080,443

Net income
—

 
—

 
—

 
337

 
—

 
—

 
337

 
(8
)
 
17,795

 
18,124

Treasury shares issued
14,933

 
—

 
(15
)
 
—

 
150

 
—

 
135

 
—

 
—

 
135

Stock-based compensation
486,158

 
3

 
758

 
—

 
—

 
—

 
761

 
—

 
—

 
761

Repurchases of common stock
(252,288
)
 
—

 
—

 
—

 
(2,273
)
 
—

 
(2,273
)
 
—

 
—

 
(2,273
)
Dividends declared on common stock
—

 
—

 
—

 
(1,306
)
 
—

 
—

 
(1,306
)
 
—

 
—

 
(1,306
)
Change in noncontrolling interests in consolidated VIE-RSO
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(19,118
)
 
(19,118
)
Other
—

 
—

 
—

 
—

 
—

 
—

 
—

 
15

 
—

 
15

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(109
)
 
(109
)
 
—

 
(1,474
)
 
(1,583
)
Balance, March 31, 2015
22,973,954

 
$
338

 
$
308,877

 
$
(24,632
)
 
$
(122,305
)
 
$
(1,139
)
 
$
161,139

 
$
313

 
$
913,746

 
$
1,075,198

 

The accompanying notes are an integral part of these statements
6


RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended
 
March 31,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
18,124

 
$
18,101

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 

 
 

Depreciation and amortization
475

 
494

Provision for credit losses
402

 
1,208

Unrealized (gain) loss on trading securities
(20
)
 
71

Equity in earnings of unconsolidated entities
(1,844
)
 
(631
)
Distributions from unconsolidated entities
2,151

 
1,510

Loss (gain) on sales of investment securities, net
15

 
(188
)
Deferred income tax provision
1,339

 
1,069

Equity-based compensation issued
744

 
404

Trading securities purchases and sales, net
—

 
(442
)
Changes in operating assets and liabilities
(1,532
)
 
(4,980
)
Adjustments to reconcile net income and operating cash flows to net income of consolidated VIE-RSO
(145,715
)
 
97,264

Net cash (used in) provided by operating activities
(125,861
)
 
113,880

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(997
)
 
(42
)
Investments in real estate and unconsolidated real estate entities
(21
)
 
(79
)
Principal payments on leases and loans
3

 
—

Purchase of loans and securities by consolidated VIE-RSO
(211,983
)
 
(217,701
)
Principal payments and proceeds from sales of loans and securities by consolidated VIE-RSO
153,189

 
136,561

Purchase of loans and investments
(1,321
)
 
(678
)
Increase in restricted cash of consolidated VIE-RSO
33,230

 
(12,849
)
Other investing activity of consolidated VIE-RSO
3,317

 
(25,013
)
Net cash used in investing activities
(24,583
)
 
(119,801
)
 
 
 
 

The accompanying notes are an integral part of these statements
7


RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
(unaudited)
 
Three Months Ended
 
March 31,
 
2015
 
2014
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Increase in borrowings
881

 
—

Principal payments on borrowings
(120
)
 
(117
)
Net borrowings of debt by consolidated VIE-RSO
184,202

 
16,209

Dividends paid
(1,312
)
 
(980
)
Dividends paid on common stock by consolidated VIE-RSO
(26,085
)
 
(24,964
)
Proceeds from issuance of common stock
1

 
—

Net proceeds from issuance of common stock by consolidated VIE-RSO
3,103

 
15,660

Repurchases of common stock
(2,108
)
 
—

Increase in restricted cash
(74
)
 
—

Other
—

 
(56
)
Other financing activity of consolidated VIE-RSO
(10,677
)
 
(2,474
)
Net cash provided by financing activities
147,811

 
3,278

 
 
 
 
Decrease in cash
(2,633
)
 
(2,643
)
Cash, beginning of year
27,542

 
19,853

Cash, end of period
$
24,909

 
$
17,210







The accompanying notes are an integral part of these statements
8

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(unaudited)


NOTE 1 - NATURE OF OPERATIONS
Resource America, Inc. (the "Company") (NASDAQ: REXI) is a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its real estate, financial fund management, and commercial finance operating segments. As a specialized asset manager, the Company seeks to develop investment funds for outside investors for which the Company provides asset management services, typically under long-term management and operating arrangements either through a contract with, or as the manager or general partner of, the sponsored fund. The Company limits its investment funds to investment areas where it owns existing operating companies or has specific expertise. The Company manages assets on behalf of institutional and individual investors and Resource Capital Corp. (“RSO”) (NYSE: RSO), a diversified real estate finance company that qualifies as a real estate investment trust (“REIT”). RSO is reflected on a consolidated basis with the Company's financial statements for all periods presented (see Note 19).
The consolidated financial statements and the information and tables contained in the notes to the consolidated financial statements are unaudited. However, in the opinion of management, these interim financial statements include all adjustments necessary to fairly present the results of the interim periods presented. The results of operations for the three months ended March 31, 2015 may not necessarily be indicative of the results of operations for the full year ending December 31, 2015.
The Company conducts its real estate operations primarily through the following subsidiaries:
•
Resource Real Estate Advisor, LLC. manages the activities of Resource Real Estate Opportunity REIT I ("Opportunity REIT I") and Resource Real Estate Opportunity REIT II ("Opportunity REIT II"), public non-traded REITs;
•
Resource Capital Partners, Inc. acts as the general partner manager and managing member of, and provides asset management services to, the Company's eight real estate investment partnerships, six tenant-in-common ("TIC") programs and one limited liability company;
•
Resource Real Estate Management, Inc. (“Resource Residential”) provides property management services to the entire multifamily apartment portfolio, including fund assets, distressed assets and joint venture assets;
•
Resource Real Estate Funding, Inc., on behalf of RSO, manages the commercial real estate debt portfolio comprised principally of first priority interest in commercial mortgage loans ("A notes"), whole mortgage loans, mortgage participations, subordinated interests in commercial mortgage loans ("B notes"), mezzanine debt and related commercial real estate securities. In addition, it manages a separate portfolio of discounted real estate and real estate loans; and
•
Resource Real Estate, Inc. manages owned assets and ventures, which are collectively referred to as the “legacy portfolio.”
The Company conducts its financial fund management operations primarily through the following operating entities:
•
CVC Credit Partners ("CVC Credit Partners"), a joint venture between the Company and an unrelated third-party, finances, structures and manages investments in bank loans, high yield bonds and equity investments through collateralized loan obligation issuers ("CLOs"), managed accounts and a credit opportunities fund;
•
Resource Capital Manager, Inc. ("RCM"), an indirect wholly-owned subsidiary, provides investment management and administrative services to RSO under a management agreement between the Company, RCM and RSO ('"the RCM Agreement");
•
Resource Capital Markets, Inc. ("Resource Capital Markets"), through the Company's registered broker-dealer subsidiary, Resource Securities, acts as an agent in the primary and secondary markets for structured finance securities and transactions;
•
Northport Capital, LLC ("Northport"), provides middle market loan management and monitoring services to RSO under the RCM agreement.
•
Trapeza Capital Management, LLC ("TCM"), a joint venture between the Company and an unrelated third-party, manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies through CDO issuers. TCM, together with the Trapeza CDO issuers, are collectively referred to as Trapeza;
•
Ischus Capital Management, LLC ("Ischus") finances, structures and manages investments in asset-backed securities ("ABS") including residential mortgage-backed securities ("RMBS") and commercial mortgage-backed securities, ("CMBS"); and

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

•
Resource Financial Institutions Group, Inc. (“RFIG”), serves as the general partner for seven company-sponsored affiliated partnerships which invest in financial institutions;
The Company conducts its commercial finance operations through LEAF Commercial Capital, Inc. (“LEAF”) and LEAF Financial Corporation (“LEAF Financial”). As of March 31, 2015, LEAF Financial sponsored and manages two publicly-held investment entities and LEAF acts as the sub-servicer of the respective portfolios of leases and loans held by those entities. During 2014, the Company liquidated two other commercial finance investment entities managed by LEAF Financial.
CVC Credit Partners. In April 2012, the Company sold its equity interests in Apidos to CVC Capital Partners SICAV-FIS, S.A., a private equity firm (“CVC”), in exchange for (i) $25.0 million in cash, (ii) a 33% limited partner interest in CVC Credit Partners, a Cayman Islands limited partnership jointly owned by the Company and CVC, and (iii) a 33% interest in CVC Credit Partners' general partner, a Jersey corporation.  The Company also retained a preferred equity interest in Apidos-CVC, which entitles it to receive distributions from CVC Credit Partners equal to 75% of the incentive management fees from the legacy Apidos portfolios. These investments are reflected as Investments in Unconsolidated Loan Manager on the consolidated balance sheets.
LEAF. In January 2011, the Company formed LEAF to conduct its equipment lease origination and servicing operations and to obtain outside equity and debt financing sources. On November 16, 2011, the Company and LEAF, together with RSO, entered into a stock purchase agreement and related agreements (collectively the “November 2011 LEAF Transaction”) with Eos Partners, L.P., a private investment firm, and its affiliates (“Eos”). The Company retained 18,414 shares of LEAF common stock, representing a fully-diluted interest of 15.7%, and senior management of LEAF maintained a 10% fully-diluted interest. Additional investments by Eos and RSO as well as warrants that were provided to LEAF's lender in accordance with a financing agreement reduced the Company's and senior management's investments on a fully-diluted basis to 13.2% and 8.3%, respectively, as of March 31, 2015. As a result of the November 2011 LEAF Transaction, the Company deconsolidated LEAF and has since accounted for its investment in LEAF on the equity method.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements reflect the Company's accounts and the accounts of the Company's majority-owned and/or controlled subsidiaries. The Company follows the provisions of Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” and accordingly consolidates entities that are variable interest entities (“VIEs”) where it has determined that it is the primary beneficiary of such entities. Once it is determined that the Company holds a variable interest in a VIE, management must perform a qualitative analysis to determine (i) if the Company has the power to direct the matters that most significantly impact the VIE's financial performance; and (ii) if the Company has the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. If the Company's interest possesses both of these characteristics, the Company is deemed to be the primary beneficiary and would be required to consolidate the VIE. The Company continually assesses its involvement with VIEs and re-evaluates the requirement to consolidate them. The portions of these entities that the Company does not own are presented as noncontrolling interests as of the dates and for the periods presented in the consolidated financial statements.
All intercompany transactions and balances have been eliminated in the Company's consolidated financial statements.
Use of Estimates
Preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting period. The Company makes estimates of its allowance for credit losses, the valuation allowance against its deferred tax assets, discounts and collectability of management fees, the valuation of stock-based compensation, and in determining whether a decrease in the fair value of an investment is an other-than-temporary impairment. The real estate and financial fund management segments make assumptions in determining the fair value of investments in investment securities. Actual results could differ from these estimates.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Financing Receivables - Receivables from Managed Entities
The Company performs a review of the collectability of its receivables from managed entities on a quarterly basis.  If upon review there is an indication of impairment, the Company will analyze the future cash flows of the managed entity.  With respect to the receivables from its commercial finance investment partnerships, this takes into consideration several assumptions by management, primarily concerning estimates of future bad debts and recoveries.  For receivables from the real estate investment entities, the Company estimates the cash flows through the sale of the underlying properties based on projected net operating income as a multiple of published capitalization rates, as reduced by the underlying mortgage balances and priority distributions due to the investors.
Investment Securities
The Company’s investment securities available-for-sale, including investments in the CLO issuers it sponsored, are carried at fair value.  The fair value of the CLO investments is based primarily on internally-generated expected cash flow models that require significant management judgment and estimates due to the lack of market activity and the use of unobservable pricing inputs.  The Company's investments in the common stock of The Bancorp, Inc. (NASDAQ: TBBK) and in Resource Real Estate Diversified Income Fund ("DIF") (NASDAQ: RREDX), both of which are affiliated entities, are valued at the closing prices of the respective publicly-traded stocks.  The Company's investment in Resource Real Estate Global Property Securities ("RREGPS"), a Company-sponsored and managed Australian investment fund which is structured as a unit trust, is valued at net asset value. The cumulative net unrealized gains (losses) on these investment securities, net of tax, is reported through accumulated other comprehensive income (loss).  Realized gains (and losses) on the sale of investments are determined on the trade date on the basis of specific identification and are included in net operating results. Securities that are held principally for resale in the near term are recorded as trading securities at fair value with changes in fair value recorded in earnings.
Reclassifications
Certain reclassifications have been made to the 2014 consolidated financial statements to conform to the 2015 presentation.
Recent Accounting Standards
Newly-Adopted Accounting Principle
The Company’s adoption of the following standard during the three months ended March 31, 2015 did not have a material impact on its consolidated financial position, results of operations or cash flows:
In April 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations, with expanded disclosures. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as a discontinued operation is required. This guidance was effective for the Company as of January 1, 2015.
Accounting Standards Issued But Not Yet Effective
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which will replace most of the existing revenue recognition guidance in GAAP.  The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services.  The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for the Company beginning January 1, 2017, including interim periods in 2017, and allows for both retrospective and prospective methods of adoption. On April 1, 2015, the FASB proposed a one year delay in the effective date of the new revenue standard, which would make the new guidance effective for the Company as of the beginning of the 2018 fiscal year. The Company is in the process of determining the method of adoption and assessing the impact of this ASU on its consolidated financial statements.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The Company is currently evaluating the impact of the new guidance on its financial statements and has not yet selected a transition approach to implement the standard.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under the new guidance, an entity should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of the new requirements is not expected to have a material impact on the Company's consolidated balance sheet, statement of operations, or statement of cash flows.
In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates from GAAP the concept of an extraordinary item. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings per share data applicable to an extraordinary item. However, presentation and disclosure guidance for items that are unusual in nature and occur infrequently will be retained. Adoption of this ASU will be required on a prospective or retrospective basis beginning with the quarter ending March 31, 2016 and is not expected to have a material impact on the Company's consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, Consolidation—Amendments to the Consolidation Analysis (Topic 810). The guidance requires an entity to evaluate whether it should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements, as well as the available transition methods.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for the Company beginning January 1, 2016. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

NOTE 3 - CONSOLIDATING FINANCIAL INFORMATION
The following table presents the consolidating balance sheet as of March 31, 2015 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
24,909

 
$
—

 
$
—

 
$
24,909

Restricted cash
798

 
—

 
—

 
798

Receivables
868

 
—

 
(154
)
 
714

Receivables from managed entities and related parties, net
29,317

 
—

 
(2,530
)
 
26,787

Investments in real estate, net
16,833

 
—

 
—

 
16,833

Investment securities, at fair value
22,777

 
—

 
(12,992
)
 
9,785

Investments in unconsolidated loan manager
40,292

 
—

 
—

 
40,292

Investments in unconsolidated entities
20,668

 
—

 
(7,563
)
 
13,105

Assets of consolidated VIE-RSO:
 
 
 
 
 
 
 
Cash and cash equivalents (including restricted cash)
—

 
244,129

 
—

 
244,129

Investments, at fair value
—

 
313,840

 
—

 
313,840

Loans
—

 
2,209,733

 
(558
)
 
2,209,175

Investments in real estate and unconsolidated entities
—

 
55,668

 
—

 
55,668

Other assets-RSO
—

 
109,836

 
(2
)
 
109,834

Total assets of consolidated VIE-RSO
—

 
2,933,206

 
(560
)
 
2,932,646

Property and equipment, net
5,739

 
—

 
—

 
5,739

Deferred tax assets, net
32,177

 
—

 
(10,162
)
 
22,015

Other assets
8,684

 
—

 
—

 
8,684

Total assets
$
203,062

 
$
2,933,206

 
$
(33,961
)
 
$
3,102,307

 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Accrued expenses and other liabilities
$
21,631

 
$
—

 
$
—

 
$
21,631

Payables to managed entities and related parties
2,167

 
—

 
(2
)
 
2,165

Borrowings
21,732

 
—

 
(558
)
 
21,174

Liabilities of consolidated VIE-RSO:
 
 
 
 
 
 
 
     Borrowings
—

 
1,924,598

 
334

 
1,924,932

     Other liabilities
—

 
59,891

 
(2,684
)
 
57,207

Total liabilities of consolidated VIE-RSO
—

 
1,984,489

 
(2,350
)
 
1,982,139

Total liabilities
45,530

 
1,984,489

 
(2,910
)
 
2,027,109

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
Preferred stock
—

 
—

 
—

 
—

Common stock
338

 
—

 
—

 
338

Additional paid-in capital
308,877

 
—

 
—

 
308,877

Accumulated deficit
(17,211
)
 
—

 
(7,421
)
 
(24,632
)
Treasury stock, at cost
(122,305
)
 
—

 
—

 
(122,305
)
Accumulated other comprehensive loss
(12,480
)
 
—

 
11,341

 
(1,139
)
Total stockholders’ equity
157,219

 
—

 
3,920

 
161,139

Noncontrolling interests
313

 
—

 
—

 
313

Noncontrolling interests attributable to consolidated VIE-RSO
—

 
948,717

 
(34,971
)
 
913,746

Total equity
157,532

 
948,717

 
(31,051
)
 
1,075,198

Total liabilities and equity
$
203,062

 
$
2,933,206

 
$
(33,961
)
 
$
3,102,307


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)


The following table presents the consolidating statement of operations for the three months ended March 31, 2015 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
Real estate
$
16,966

 
$
—

 
$
—

 
$
16,966

Financial fund management
5,137

 
—

 
—

 
5,137

Commercial finance
(2
)
 
—

 
—

 
(2
)
 
22,101

 
—

 
—

 
22,101

Revenues from consolidated VIE-RSO
—

 
24,361

 
—

 
24,361

Elimination of consolidated VIE-RSO revenues attributed to operating segments
—

 
—

 
(4,273
)
 
(4,273
)
Total revenues
22,101

 
24,361

 
(4,273
)
 
42,189

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Real estate
11,499

 
—

 
—

 
11,499

Financial fund management
2,990

 
—

 
—

 
2,990

Commercial finance
579

 
—

 
—

 
579

General and administrative
3,297

 
—

 
—

 
3,297

Provision for credit losses
402

 
—

 
—

 
402

Depreciation and amortization
457

 
—

 
—

 
457

 
19,224

 
—

 
—

 
19,224

Expenses of consolidated VIE-RSO
—

 
21,060

 
—

 
21,060

Elimination of consolidated VIE-RSO expenses attributed to operating segments
—

 
—

 
(3,368
)
 
(3,368
)
Total expenses
19,224

 
21,060

 
(3,368
)
 
36,916

OPERATING INCOME
2,877

 
3,301

 
(905
)
 
5,273

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest expense
(421
)
 
—

 
—

 
(421
)
Other income, net
314

 
—

 
(478
)
 
(164
)
Other income, net, from consolidated VIE-RSO
—

 
16,516

 
—

 
16,516

Elimination of consolidated VIE-RSO other income, net
—

 
—

 
11

 
11

 
(107
)
 
16,516

 
(467
)
 
15,942

Income from continuing operations before taxes
2,770

 
19,817

 
(1,372
)
 
21,215

Income tax provision
1,244

 
1,847

 
—

 
3,091

Net income
1,526

 
17,970

 
(1,372
)
 
18,124

Net loss attributable to noncontrolling interests
8

 
—

 
—

 
8

Net income attributable to noncontrolling interests-RSO
—

 
(8,568
)
 
(9,227
)
 
(17,795
)
Net income attributable to common shareholders
$
1,534

 
$
9,402

 
$
(10,599
)
 
$
337

    
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

.    The following table presents the consolidating statement of operations for the three months ended March 31, 2014 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
Real estate
$
13,275

 
$
—

 
$
—

 
$
13,275

Financial fund management
7,075

 
—

 
—

 
7,075

Commercial finance
(99
)
 
—

 
—

 
(99
)
 
20,251

 
—

 
—

 
20,251

Revenues from consolidated VIE-RSO
—

 
25,245

 
—

 
25,245

Elimination of consolidated VIE-RSO revenues attributed to operating segments
—

 
—

 
(2,880
)
 
(2,880
)
Total revenues
20,251

 
25,245

 
(2,880
)
 
42,616

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Real estate
8,875

 
—

 
—

 
8,875

Financial fund management
4,389

 
—

 
—

 
4,389

Commercial finance
103

 
—

 
—

 
103

General and administrative
3,154

 
—

 
—

 
3,154

Provision for credit losses
1,208

 
—

 
—

 
1,208

Depreciation and amortization
451

 
—

 
—

 
451

 
18,180

 
—

 
—

 
18,180

Expenses of consolidated VIE-RSO
—

 
11,285

 

 
11,285

Elimination of consolidated VIE-RSO expenses attributed to operating segments
—

 
—

 
(2,819
)
 
(2,819
)
Total expenses
18,180

 
11,285

 
(2,819
)
 
26,646

OPERATING INCOME
2,071

 
13,960

 
(61
)
 
15,970

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest expense
(483
)
 
—

 
—

 
(483
)
Other income, net
737

 
—

 
(572
)
 
165

Other income, net, from consolidated VIE-RSO
—

 
3,516

 
—

 
3,516

Elimination of consolidated VIE-RSO other income, net
—

 
—

 
18

 
18

 
254

 
3,516

 
(554
)
 
3,216

Income from continuing operations before taxes
2,325

 
17,476

 
(615
)
 
19,186

Income tax provision
1,069

 
16

 
—

 
1,085

Net income
1,256

 
17,460

 
(615
)
 
18,101

Net loss attributable to noncontrolling interests
40

 
—

 
—

 
40

Net income attributable to noncontrolling interests-RSO
—

 
(2,344
)
 
(14,807
)
 
(17,151
)
Net income attributable to common shareholders
$
1,296

 
$
15,116

 
$
(15,422
)
 
$
990

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

The following table presents the consolidating statement of cash flows for the three months ended March 31, 2015 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net income
$
1,526

 
$
17,970

 
$
(1,372
)
 
$
18,124

Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
475

 
—

 
—

 
475

Provision for credit losses
402

 
—

 
—

 
402

Unrealized gain on trading securities
(20
)
 
—

 
—

 
(20
)
Equity in earnings of unconsolidated entities
(2,665
)
 
—

 
821

 
(1,844
)
Distributions from unconsolidated entities
2,151

 
—

 
—

 
2,151

Loss on sale of investment securities, net
15

 
—

 
—

 
15

Deferred income tax provision
1,339

 
—

 
—

 
1,339

Equity-based compensation issued
744

 
—

 
—

 
744

Changes in operating assets and liabilities
(1,532
)
 
—

 
—

 
(1,532
)
Adjustments to reconcile net income and operating cash flows to net income of consolidated VIE-RSO
—

 
(145,688
)
 
(27
)
 
(145,715
)
Net cash provided by (used in) operating activities
2,435

 
(127,718
)
 
(578
)
 
(125,861
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Capital expenditures
(997
)
 
—

 
—

 
(997
)
Principal payments on leases and loans
3

 
—

 
—

 
3

Investments in real estate and unconsolidated real estate entities
(21
)
 
—

 
—

 
(21
)
Purchase of loans and securities by consolidated VIE-RSO
—

 
(211,983
)
 
—

 
(211,983
)
Principal payments and proceeds from sales of loans and securities by consolidated VIE-RSO
—

 
153,189

 
—

 
153,189

Purchase of loans and investments
(1,321
)
 
—

 
—

 
(1,321
)
Decrease in restricted cash of consolidated VIE-RSO
—

 
33,230

 
—

 
33,230

Other investing activity of consolidated VIE-RSO
—

 
3,317

 
—

 
3,317

Net cash used in investing activities
(2,336
)
 
(22,247
)
 
—

 
(24,583
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 

 
 
Increase in borrowings
881

 
—

 
—

 
881

Principal payments on borrowings
(120
)
 
—

 
—

 
(120
)
Net borrowings by consolidated VIE-RSO
—

 
184,202

 
—

 
184,202

Dividends paid
(1,312
)
 
—

 
—

 
(1,312
)
Dividends paid on common stock by consolidated VIE-RSO
—

 
(26,563
)
 
478

 
(26,085
)
Proceeds from issuance of common stock
1

 
—

 
—

 
1

Net proceeds from issuance of common stock by consolidated VIE-RSO
—

 
3,103

 
—

 
3,103

Repurchases of common stock
(2,108
)
 
—

 
—

 
(2,108
)
Increase in restricted cash
(74
)
 
—

 
—

 
(74
)
Other financing activity of consolidated VIE - RSO
—

 
(10,777
)
 
100

 
(10,677
)
Net cash (used in) provided by financing activities
(2,732
)
 
149,965

 
578

 
147,811

 
 
 
 
 
 
 
 
Decrease in cash
(2,633
)
 
—

 
—

 
(2,633
)
Cash, beginning of year
27,542

 
—

 
—

 
27,542

Cash, end of period
$
24,909

 
$
—

 
$
—

 
$
24,909



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the Company is as follows (in thousands, per share data):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Cash (paid) received:
 
 
 
Interest
$
(399
)
 
$
(409
)
Income tax payments
(65
)
 
(176
)
Refund of income taxes
44

 
47

 
 
 
 
Dividends declared per common share
$
0.06

 
$
0.05

 
 
 
 
Non-cash activities:
 

 
 

Repurchase of common stock from employees in exchange for the payment of income taxes
$
165

 
$
207

Issuance of treasury stock for the Company's investment savings 401(k) plan
150

 
178

NOTE 5 - FINANCING RECEIVABLES
The following table is the aging of the Company’s financing receivables (presented gross of allowance for credit losses) as of March 31, 2015 (in thousands):
 
Current
 
30-89 Days
Past Due
 
90-180 Days
Past Due
 
Greater than
181 Days
 
Total
Past Due
 
Total
Loans and receivables from managed
   entities and related parties: (1)
 
 
 
 
 
 
 
 
 
 
 
Commercial finance
    investment entities
$
6

 
$
344

 
$
1,131

 
$
18,503

 
$
19,978

 
$
19,984

Real estate investment entities
3,845

 
1,380

 
384

 
14,831

 
16,595

 
20,440

Financial fund management entities
981

 
57

 
31

 
24

 
112

 
1,093

Other
2,629

 
—

 
—

 
—

 
—

 
2,629

 
7,461

 
1,781

 
1,546

 
33,358

 
36,685

 
44,146

Rent receivables - real estate
98

 
20

 
—

 
—

 
20

 
118

Total financing receivables
$
7,559

 
$
1,801

 
$
1,546

 
$
33,358

 
$
36,705

 
$
44,264

 
(1)
Receivables are presented gross of an allowance for credit losses of $17.2 million related to the Company’s commercial finance investment entities and $113,000 related to one of its real estate investment partnerships.  The remaining receivables from managed entities and related parties have no related allowance for credit losses.
 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

The following table is the aging of the Company’s financing receivables (presented gross of allowance for credit losses) as of December 31, 2014 (in thousands):
 
Current
 
30-89 Days
Past Due
 
90-180 Days
Past Due
 
Greater than
181 Days
 
Total
Past Due
 
Total
Loans and receivables from
   managed entities and
   related parties: (1)
 
 
 
 
 
 
 
 
 
 
 
Commercial finance
    investment entities
$
9

 
$
342

 
$
1,124

 
$
18,398

 
$
19,864

 
$
19,873

Real estate investment entities
6,613

 
772

 
1,214

 
15,134

 
17,120

 
23,733

Financial fund management entities
583

 
74

 
—

 
6

 
80

 
663

Other
3,024

 
—

 
—

 
—

 
—

 
3,024

 
10,229

 
1,188

 
2,338

 
33,538

 
37,064

 
47,293

Rent receivables - real estate
76

 
11

 
1

 
—

 
12

 
88

Total financing receivables
$
10,305

 
$
1,199

 
$
2,339

 
$
33,538

 
$
37,076

 
$
47,381

 
(1)
Receivables are presented gross of an allowance for credit losses of $17.0 million related to one of the Company’s commercial finance investment entities.  The remaining receivables from managed entities and related parties have no related allowance for credit losses.
The following table summarizes the activity in the allowance for credit losses for all financing receivables (in thousands):
 
Receivables
from Managed
Entities
 
Leases and
Loans
 
Rent
Receivables
 
Total
Three Months Ended March 31, 2015:
 
 
 
 
 
 
 
Balance, beginning of period
$
16,990

 
$
—

 
$
—

 
$
16,990

Provision for credit losses
369

 
32

 
1

 
402

Charge-offs
—

 
(32
)
 
—

 
(32
)
Recoveries
—

 
—

 
—

 
—

Balance, end of period
$
17,359

 
$
—

 
$
1

 
$
17,360

 
 
 
 
 
 
 
 
Ending balance, individually evaluated for impairment
$
17,359

 
—

 
$
1

 
$
17,360

Ending balance, collectively evaluated for impairment
0

 
—

 
—

 
—

Balance, end of year
$
17,359

 
$
—

 
$
1

 
$
17,360

 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014:
 

 
 

 
 

 
 

Balance, beginning of period
$
36,229

 
$
—

 
$
14

 
$
36,243

Provision for (reversal of) credit losses
1,213

 
(1
)
 
(4
)
 
1,208

Charge-offs
(1
)
 
—

 
—

 
(1
)
Recoveries
—

 
1

 
—

 
1

Balance, end of period
$
37,441

 
$
—

 
$
10

 
$
37,451

 
 
 
 
 
 
 
 
Ending balance, individually evaluated for impairment
$
37,441

 
$
—

 
$
—

 
$
37,441

Ending balance, collectively evaluated for impairment
—

 
—

 
10

 
10

Balance, end of period
$
37,441

 
$
—

 
$
10

 
$
37,451

 
 
 
 
 
 
 
 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

The Company’s financing receivables (presented exclusive of any allowance for credit losses) relate to the balance in the allowance for credit losses, as follows (in thousands):
As of March 31, 2015
Receivables from
Managed Entities
 
Rent
Receivables
 
Total
Ending balance, individually evaluated for impairment
$
44,146

 
$
—

 
$
44,146

Ending balance, collectively evaluated for impairment
—

 
118

 
118

Balance, end of period
$
44,146

 
$
118

 
$
44,264

As of December 31, 2014
 
 
 
 
 
Ending balance, individually evaluated for impairment
$
47,293

 
$
—

 
$
47,293

Ending balance, collectively evaluated for impairment
—

 
88

 
88

Balance, end of year
$
47,293

 
$
88

 
$
47,381

The following table discloses information about the Company’s impaired financing receivables (in thousands):
 
Net Balance
 
Unpaid Balance
 
Specific Allowance
 
Average Investment in Impaired Assets
As of March 31, 2015
 
 
 
 
 
 
 
Financing receivables with a specific valuation allowance:
 

 
 

 
 

 
 

Loans and receivables from managed entities – commercial finance
$
1,327

 
$
18,573

 
$
17,246

 
$
19,561

Loans and receivables from managed entities – real estate
831

 
$
944

 
113

 
596

Rent receivables – real estate
—

 
—

 
1

 
—

 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
Financing receivables with a specific valuation allowance:
 

 
 

 
 

 
 

Loans and receivables from managed entities – commercial finance
$
1,295

 
$
18,285

 
$
16,990

 
$
18,882

The Company had no impaired financing receivables without a specific allowance as of March 31, 2015 and December 31, 2014.
NOTE 6 - INVESTMENTS IN REAL ESTATE
The Company’s investments in real estate, net, consist of the following (in thousands):
 
March 31,
2015
 
December 31,
2014
Properties owned, net of accumulated depreciation of $9,335 and $9,198:
 
 
 
Hotel property (Savannah, Georgia)
$
9,851

 
$
10,110

Office building (Philadelphia, Pennsylvania)
870

 
888

 
10,721

 
10,998

Partnerships and other investments
6,112

 
6,099

Total investments in real estate, net
$
16,833

 
$
17,097

    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

For three months ended March 31, 2015 and March 31, 2014, the Company recorded rental income of $1.2 million and $939,000, respectively. The contractual future minimum rental income on non-cancelable operating leases included in properties owned for each of the five succeeding annual periods ending March 31, and thereafter, are as follows (in thousands):
2016
$
926

2017
769

2018
700

2019
701

2020
581

Thereafter
355

Total
$
4,032

NOTE 7 - INVESTMENT SECURITIES
Components of investment securities are as follows (in thousands):
 
March 31,
2015
 
December 31,
2014
Available-for-sale securities
$
9,519

 
$
9,065

Trading securities
266

 
475

Total investment securities, at fair value
$
9,785

 
$
9,540

    
Available-for-sale securities.  The following table discloses the pre-tax unrealized gains (losses) relating to the Company’s investments in available-for-sale securities (in thousands):
 
Cost or
Amortized Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
March 31, 2015
 
 
 
 
 
 
 
CLO securities
$
7,445

 
$
1,226

 
$
(224
)
 
$
8,447

Equity securities
888

 
184

 
—

 
1,072

Total
$
8,333

 
$
1,410

 
$
(224
)
 
$
9,519

 
 
 
 
 
 
 
 
December 31, 2014
 

 
 

 
 

 
 

CLO securities
$
6,962

 
$
1,228

 
$
(176
)
 
$
8,014

Equity securities
888

 
163

 
—

 
1,051

Total
$
7,850

 
$
1,391

 
$
(176
)
 
$
9,065

CLO securities.  The CLO securities represent the Company’s retained equity interests in 13 and 12 CLO issuers that CVC Credit Partners has sponsored and manages at March 31, 2015 and December 31, 2014, respectively (see Note 8).  The fair value of these retained interests is impacted by the fair value of the investments held by the respective CLO issuers, which are sensitive to interest rate fluctuations and credit quality determinations.
Equity securities.  The Company holds 18,972 shares of TBBK common stock.  This investment is pledged as collateral for one of the Company’s secured corporate credit facilities. The Company also holds approximately 10,808 shares of DIF with a cost basis of $109,000. In 2014, the Company purchased 749,976 units of RREGPS for $677,400.
Trading securities. The Company had net realized losses on trading securities of $15,000 and net realized gains of $117,000 during the three months ended March 31, 2015 and 2014 respectively, and unrealized gains of $20,000 and unrealized losses of $71,000, respectively, which were included in Financial Fund Management Revenues on the consolidated statements of operations.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Unrealized losses on available-for-sale securities, along with their related fair value, and aggregated by the length of time the investments were in a continuous unrealized loss position, are as follows (in thousands, except number of securities):
 
Less than 12 Months
 
More than 12 Months
 
Fair Value
 
Unrealized
Losses
 
Number of Securities
 
Fair Value
 
Unrealized
Losses
 
Number of Securities
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
CLO securities
$
3,154

 
$
(224
)
 
5

 
$
—

 
$
—

 
—

Equity securities


 
—

 
—

 
—

 
—

 
—

Total
$
3,154

 
$
(224
)
 
5

 
$
—

 
$
—

 
—

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
CLO securities
$
2,643

 
$
(176
)
 
4

 
$
—

 
$
—

 
—

Equity securities
—

 
—

 
—

 
—

 
—

 
—

Total
$
2,643

 
$
(176
)
 
4

 
$
—

 
$
—

 
—

NOTE 8 - INVESTMENTS IN UNCONSOLIDATED ENTITIES AND LOAN MANAGER
As a specialized asset manager, the Company develops various types of investment vehicles, which it manages under long-term management agreements or similar arrangements.  The following table details the Company’s investments in these vehicles, including the range of ownership interests owned (in thousands, except percentages):
 
Range of Combined
Ownership Interests
 
March 31,
 
December 31,
 
 
2015
 
2014
Real estate investment entities
1% – 12%
 
$
7,939

 
$
8,313

Financial fund management partnerships
0.01% − 50%
 
4,452

 
4,162

Trapeza entities
33% − 50%
 
714

 
614

Investments in unconsolidated entities
 
 
$
13,105

 
$
13,089

Included in real estate investment entities is the Company's $2.5 million investment in Opportunity REIT I, which completed its initial public offering in December 2013 as well as a $1.3 million investment in Opportunity REIT II, which is still in its offering stage and a $200,000 investment in Innovation Office REIT, Inc. ("Innovation Office REIT"), which is not yet effective. The Company accounts for its investments in Opportunity REIT I, II and the Innovation Office REIT on the cost method.
Included in financial fund management partnerships is the Company's $200,000 investment in Resource Credit Income Fund ("CIF"), a new interval fund, whose registration statement with respect to the offer and sale of its shares of beneficial interest was declared effective by the Securities and Exchange Commission on April 17, 2015.
The Company evaluates all of these investments for impairment on a quarterly basis. There were no identified events that had a significant adverse effect on these investments and, as such, no impairment has been recorded.
Investment in Unconsolidated Loan Manager. The Company records its 33% equity share of the results of CVC Credit Partners in Financial Fund Management Revenues on the consolidated statements of operations and comprehensive income. Under the terms of the CVC Credit Partners shareholders' agreement, CVC has an irrevocable option to buy 9% of the Company's interests in the joint venture, which would reduce the Company's interest to 24%. This option may be exercised during a sixty-day period that commenced April 25, 2015 (30 days after the audit report date for the CVC Credit Partners audit for the year ended December 31, 2014).
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Summarized operating data for CVC Credit Partners is presented below (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Management fee revenues
$
16,738

 
$
12,388

Costs and expenses
(14,809
)
 
(11,295
)
Net income
$
1,929

 
$
1,093

Portion of net income attributable to the Company
$
637

 
$
361

The Company has a preferred interest in Apidos Capital Management, LLC ("Apidos") relating to incentive management fees on legacy CLOs that had been sponsored and managed by Apidos. The Company accounts for this interest, with a book value of $6.8 million at March 31, 2015, on the cost method. As these incentive fees are received, in accordance with its preferred interest, the Company receives a distribution of 75% of those amounts which will initially be recorded as income, net of any contractual amounts due to third-parties. The Company continually evaluates the investment for impairment by estimating the fair value of the expected future cash flows from the incentive management fees. If the estimated fair value is less than the cost basis of the interest, the preferred interest will be deemed to be impaired. If the Company determines that the shortfall is other-than-temporary, the impairment will be recorded as a reduction of the preferred interest by reducing the revenues previously recorded on these preferred shares. At such time that the investment has been reduced to zero, all subsequent distributions will be recorded as income.
NOTE 9 - ACCRUED EXPENSES AND OTHER LIABILITIES
The following is a summary of the components of accrued expenses and other liabilities (in thousands):
 
March 31,
2015
 
December 31,
2014
Accounts payable and other accrued liabilities
$
6,612

 
$
6,045

Supplemental executive retirement plan ("SERP") liability (see Note 14)
6,218

 
6,383

Accrued wages and benefits
4,100

 
4,580

Deferred rent
2,424

 
2,485

Apidos contractual obligation, at fair value (see Note 16)
694

 
745

Dividends payable
1,306

 
1,312

Short-term insurance notes
277

 
729

  Total accrued expenses and other liabilities
$
21,631

 
$
22,279



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

NOTE 10 - BORROWINGS
The credit facilities and other debt of the Company and related borrowings outstanding are as follows (in thousands): 
 
As of March 31, 2015
 
December 31,
2014
 
Maximum
Amount of
Facility
 
Borrowings
Outstanding
 
Borrowings
Outstanding
Credit facilities:
 

 
 

 
 

TD Bank – secured revolving credit facility (1) 
$
10,997

 
$
—

 
$
—

Republic Bank – secured revolving credit facility
2,784

 
—

 
—

 
 

 
—

 
—

Other debt:
 
 
 
 
 
Senior Notes
 

 
10,000

 
10,000

Mortgage debt - hotel property
 

 
10,035

 
10,088

Other debt
 

 
1,139

 
324

Total borrowings outstanding
 

 
$
21,174

 
$
20,412


(1)
The amount of the facility as shown has been reduced $503,000 for an outstanding letter of credit at March 31, 2015.
Corporate and Real Estate Debt
TD Bank, N.A. (“TD Bank”).  Through April 24, 2014, the terms of the Company's line of credit with TD Bank allowed for borrowings up to $7.5 million with interest at either (a) the prime rate plus 2.25% or (b) a specified London Interbank Offered Rate ("LIBOR") plus 3%. The interest rate used varies from one to six month LIBOR depending upon the period of the borrowing. In April 2014, the Company amended the TD facility to (i) extend the maturity date to the earlier of (a) the expiration of its management agreement with RSO or (b) December 31, 2017, (ii) increase the maximum borrowing amount to $11.5 million provided that the Company maintains an aggregate value of pledged securities of $6.0 million and (iii) require that the Company have no cash advances outstanding for thirty consecutive days during each one-year period beginning on April 25, 2014. The Company is charged an annual fee of 0.5% on the unused facility amount as well as a 5.25% fee on the $503,000 of outstanding letter of credit.
Borrowings are secured by a first priority security interest in certain of the Company's assets and the guarantees of certain subsidiaries, including (i) the present and future fees and investment income earned in connection with the management of, and investments in, sponsored collateralized debt and loan obligation issuers, (ii) a pledge of 18,972 shares of TBBK common stock, and (iii) a pledge of 2,160,671 shares of RSO common stock held by the Company.      
There were no borrowings outstanding as of March 31, 2015 and the availability on the TD facility was $11.0 million, as reduced for the letter of credit. There were no borrowings under this facility as of December 31, 2014.
Republic First Bank (“Republic Bank”). In February 2011, the Company entered into a $3.5 million revolving credit facility with Republic Bank.  The facility bears interest at the prime rate of interest plus 1% with a floor of 4.5%.  The loan is secured by a pledge of 700,000 shares of RSO common stock held by the Company and a first priority security interest in an office building located in Philadelphia, Pennsylvania (see Note 6).  Availability under this facility is limited to the lesser of (a) the sum of (i) 25% of the appraised value of the real estate, based upon the most recent appraisal delivered to the bank and (ii) 100% of the cash and 75% of the market value of the pledged RSO shares held in the pledged account; and (b) 100% of the cash and 100% of the market value of the pledged RSO shares held in the pledged account.  The loan has an unused annual facility fee equal to 0.25%. In November 2013, the Company further amended this facility to extend the maturity date to December 28, 2016 and increase the unused annual facility fee to 0.50%. There were no borrowings under this facility as of March 31, 2015 and the availability was $2.8 million. There were no borrowings under this facility as of December 31, 2014.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Senior Notes
The Company's $10.0 million of 9% senior notes (the "Senior Notes") mature on March 31, 2018. The effective interest rate for the three months ended March 31, 2015 and 2014 was 9.1% and 9.4%, respectively. On August 28, 2014, the Senior Notes were modified to extend the maturity date from March 31, 2015 and to include an early redemption feature.  The Company may early redeem all or any part of the Senior Notes upon notification to the note holders at the redemption price plus any accrued and unpaid interest through to the date of such redemption. The redemption price will be at a premium to par, as follows: prior to March 31, 2016 at 102%, between March 31, 2016 and March 31, 2017 at 101%, and thereafter at 100%.
Other Debt
As of March 31, 2015, the Company has various capital leases for computer equipment totaling $880,998.
Debt Repayments
Annual principal payments coming due on the Company’s aggregate borrowings for the next five years ending March 31 and thereafter, are as follows (in thousands):
2016
$
601

2017
602

2018
10,591

2019
292

2020
276

Thereafter
8,812

Total
$
21,174

Covenants
The TD Bank credit facility is subject to certain financial covenants, which are customary for the type and size of the facility, including debt service coverage and debt to equity ratios. The debt to equity ratio restricts the amount of recourse debt the Company can incur based on a ratio of recourse debt to net worth.
The covenant for the mortgage on the Company's hotel property requires maintaining a minimum debt coverage ratio. In addition, although non-recourse in nature, the loan is subject to limited standard exceptions (or "carveouts") which the Company has guaranteed. These carveouts will expire as the loan is paid down over the next ten years. The Company has control over the operations of the underlying property, which mitigates the potential risk associated with these carveouts and, accordingly, no liabilities for these obligations have been recorded in the consolidated financial statements. To date, the Company has not been required to make any carveout payments.
The Company was in compliance with all of its financial debt covenants as of March 31, 2015.
NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss) and all other changes in the equity of a business from transactions and other events and circumstances from non-owner sources.  These changes, other than net income (loss), are referred to as “other comprehensive income (loss)” and for the Company include primarily changes in the fair value, net of tax, of its investment securities available-for-sale and pension liability. 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

The following are changes in accumulated other comprehensive (loss) income by category (in thousands):
 
Investment Securities
Available-for-Sale
 
Cash Flow Hedges
 
Foreign Currency
Translation Adjustments
 
SERP Pension
Liability
 
Total
Balance, December 31, 2014, net of tax of $472, $0, $(3) and $(2,700)
$
1,979

 
$
(1
)
 
$
(5
)
 
$
(3,003
)
 
$
(1,030
)
Current-period other comprehensive (loss) income
(158
)
 
—

 
2

 
47

 
(109
)
Balance, March 31, 2015 net of tax of $458, $0, $2 and $9
$
1,821

 
$
(1
)
 
$
(3
)
 
$
(2,956
)
 
$
(1,139
)
Amounts reclassified from accumulated other comprehensive income were reflected in the consolidated financial statements, as follows:
Category
 
Locations in the consolidated financial statements
Investment securities available-for-sale
 
Revenues - Financial fund management
Cash flow hedges
 
Revenues - commercial finance
SERP pension liability
 
General and administrative expenses
Foreign currency translation adjustments
 
Other income
NOTE 12 - NONCONTROLLING INTERESTS
The following table presents the activity in noncontrolling interests (in thousands):
 
For the Three Months Ended 
 March 31, 2015
 
RSO
 
Other
Noncontrolling interests, beginning of year
$
916,543

 
$
306

Net income (loss) attributable to noncontrolling interests
17,795

 
(8
)
Other comprehensive loss
(1,474
)
 
(4
)
Proceeds from issuance of equity interests, net
3,103

 
—

Amortization of stock-based compensation
996

 
—

Discount on 6% senior convertible notes
4,213

 
—

Contribution from noncontrolling interests
(373
)
 
19

Distributions to noncontrolling interests
(27,057
)
 
—

Noncontrolling interests, end of period
$
913,746

 
$
313


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

NOTE 13 - EARNINGS PER SHARE
Basic earnings per share (“Basic EPS”) is computed using the weighted average number of common shares outstanding during the period, inclusive of nonvested share-based awards that are entitled to receive non-forfeitable dividends.  The diluted earnings per share (“Diluted EPS”) computation takes into account the effect of potential dilutive common shares.  Potential dilutive common shares, consisting primarily of outstanding stock options, warrants and director deferred shares, are calculated using the treasury stock method.
The following table presents a reconciliation of the shares used in the computation of Basic EPS and Diluted EPS (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Shares
 
 
 
Basic shares outstanding
22,965

 
20,252

Dilutive effect of outstanding stock options, warrants and director units
274

 
1,775

Diluted shares outstanding
23,239

 
22,027

    
NOTE 14 - BENEFIT PLANS
SERP. The Company established a SERP, which has Rabbi and Secular Trust components, for Mr. Edward E. Cohen (“Mr. E. Cohen”), while he was the Company’s Chief Executive Officer.  The plan pays Mr. E. Cohen an annual benefit of $838,000 during his lifetime.
The components of net periodic benefit costs for the SERP were as follows (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Interest cost
$
62

 
$
68

Less: expected return on plan assets
(19
)
 
(39
)
Plus: Amortization of unrecognized loss
106

 
70

Net cost
$
149

 
$
99

Restricted stock.  The value of the restricted stock awarded is based on the closing price of the Company's common stock as of the date of grant. During the three months ended March 31, 2015 and 2014, the Company awarded 440,852 and 417,407 shares of restricted stock valued at $3.9 million and $3.7 million, respectively. Additionally, for the three months ended March 31, 2015, there were 45,306 shares earned as part of a performance-based award valued at $420,000.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

NOTE 15 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In the ordinary course of its business operations, the Company has sponsored and manages investment entities.  Additionally, it has ongoing relationships with several related entities.  The following table details these receivables and payables (in thousands):
 
March 31,
2015
 
December 31,
2014
Receivables from managed entities and related parties, net:
 
 
 
Real estate investment entities (1)
$
20,326

 
$
23,733

Commercial finance investment entities (2)
2,738

 
2,883

Financial fund management investment entities
1,093

 
663

Other
325

 
488

Loan receivable from CVC Credit Partners
2,305

 
2,536

Receivables from managed entities and related parties
$
26,787

 
$
30,303

 
 
 
 
Payables due to managed entities and related parties, net:
 

 
 

Real estate investment entities (3) 
$
2,096

 
$
2,942

Other
69

 
73

Payables to managed entities and related parties
$
2,165

 
$
3,015

 
(1)
Includes a $113,000 reserve for credit losses for management fees due from one of the Company's real estate investment entities: there was no reserve at December 31, 2014.
(2)
Amounts shown are net of reserves for credit losses of $17.2 million and $17.0 million as of March 31, 2015 and December 31, 2014, respectively, related to management fees due from one of the Company's commercial finance investment entities that, based on estimated cash distributions, are not expected to be collectible.
(3)
Reflects $2.0 million and $2.6 million in self-insurance funds provided by the Company's real estate investment entities as of March 31, 2015 and December 31, 2014, respectively, which are held in escrow by the Company to cover claims.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

The Company receives fees, dividends and reimbursed expenses from several related/managed entities.  In addition, the Company reimburses related entities for certain operating expenses.  The following table details those activities (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Fees from unconsolidated investment entities:
 
 
 
Real estate (1) 
$
9,434

 
$
8,925

Financial fund management
782

 
802

CVC Credit Partners – reimbursement of net costs and expenses
229

 
181

RRE Opportunity REIT I:
 
 
 
Reimbursement of costs and expenses
888

 
351

Dividends paid
15

 
29

RRE Opportunity REIT II:
 
 
 
Reimbursement of costs and expenses
737

 
502

Dividends paid
7

 
—

LEAF:
 
 
 
Payment for sub-servicing the commercial finance
   investment partnerships
(23
)
 
(127
)
Reimbursement of net costs and expenses
36

 
36

1845 Walnut Associates Ltd:
 
 
 
Payment for rent and related expenses
(207
)
 
(204
)
Property management fees
38

 
16

Brandywine Construction & Management, Inc. –
  payment for property management of hotel property
(52
)
 
(40
)
Atlas Energy, L.P. – reimbursement of net costs and expenses
13

 
30

Ledgewood P.C. – payment for legal services 
(34
)
 
(24
)
Graphic Images, LLC – payment for printing services
(48
)
 
(60
)
The Bancorp, Inc. – reimbursement of net costs and expenses
—

 
27

9 Henmar LLC – payment of broker/consulting fees 
(3
)
 
(3
)
 
(1)
Reflects the reversal of discounts of $207,000 and $33,000 for the three months ended March 31, 2015 and 2014, respectively, in connection with management fees from the Company's real estate investment entities that it expects to receive in future periods.
(2)
During the three months ended March 31, 2015 and 2014, the Company waived $49,000 and $224,000, respectively, of management fees from its commercial finance investment entities.
    
Relationship with Opportunity REIT I. As of March 31, 2015 and December 31, 2014, the Company had a receivable of $725,000 and $325,000, respectively, for reimbursement of costs and expenses associated with the formation and operating expenses of Opportunity REIT I.

Relationship with Opportunity REIT II. On February 6, 2014, Opportunity REIT II commenced its initial public offering of up to $1.0 billion in common stock at a maximum price of $10 per share. This fund focuses on acquiring under-performing multifamily rental properties, distressed real estate and performing loans and is externally managed by Resource Real Estate, a subsidiary of the Company. As of March 31, 2015 and December 31, 2014, the Company had a $587,000 and $3.4 million receivable from Opportunity REIT II for offering costs and operating expense reimbursements. On June 14, 2014, the Company had provided a $1.3 million short-term bridge loan to Opportunity REIT II with interest at LIBOR plus 300 basis points which was repaid in full by June 30, 2014.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Relationship with CVC Credit Partners. On May 6, 2014, the Company made a €1.5 million bridge loan to CVC Credit Partners with interest accruing at a rate of the Euro Interbank Offered Rate ("EURIBOR") plus 7%. In connection with the original loan agreement, the Company made an additional advance of €500,000 on December 8, 2014. In September 2014, the Company and CVC agreed to extend the maturity of the note until April 2015 and, in March of 2015, further extended the maturity to September 30, 2015.
Advances to Real Estate Limited Partnership. The Company made advances to one of its affiliated real estate limited partnerships under a revolving note of up to $3.0 million bearing interest at the prime rate. Advances outstanding of $2.3 million as of March 31, 2014 were repaid in full on December 16, 2014. The Company recorded $17,000 of interest income on this loan during the three months ended March 31, 2014.
In February 2014, the Company loaned a non-executive employee $300,000 under a promissory note bearing interest at 3-month LIBOR plus 3%, resetting annually. In December 2014, the Company amended the terms of the note to provide for an initial repayment of $50,000 plus accrued interest, which was paid on March 15, 2015, with the remaining principal and interest due in full on March 15, 2016.
NOTE 16 - FAIR VALUE
In analyzing the fair value of its assets and liabilities accounted for on a fair value basis, the Company follows the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities are categorized into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1 − Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. 
Level 2 − Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3 − Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and that are, consequently, not based on market activity, but upon particular valuation techniques.
There were no transfers between any of the levels within the fair value hierarchy for any of the periods presented.
The following is a discussion of the assets and liabilities that are recorded at fair value on a recurring and non-recurring basis, as well as the valuation techniques applied to each fair value measurement and the estimates and assumptions used by the Company in those measurements.
Investment securities. The Company uses quoted market prices to value its investments in DIF and TBBK common stock (Level 1) and net asset value ("NAV") calculated by the independent fund administrator to value its investment in RREGPS. The Company can redeem its investment in RREGPS with 60-day notice. The underlying investments in RREGPS are all publicly-traded securities as of March 31, 2015 (Level 2).
The fair value of the Company's investments in CLO and CDO securities are based on internally-generated expected cash flow models that require significant management judgments and estimates due to the lack of market activity and unobservable pricing inputs. The significant unobservable inputs used in the fair value measurement include the constant prepayment rate ("CPR"), a probability of default ("CDR"), severity rate, reinvestment price on underlying collateral and the discount rate. Significant increases (decreases) in the default or discount rates in isolation would result in a significantly lower (higher) fair value measurement, whereas significant increases (decreases) in the recovery rate, prepayment rate or reinvestment price in isolation would result in a significantly higher (lower) fair value measurement.  Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the discount rate and a directionally opposite change in the assumption used for prepayment rates, recovery rates and reinvestment prices on underlying collateral.  As of March 31, 2015, the Company holds four securities of value within its trading portfolio, three of which are debt/equity investments in externally managed CDO issuers and one is a term loan (Level 3).

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Investment in Apidos-CVC preferred stock and contractual commitment. The Company's contractual commitment associated with its investment in the Apidos-CVC preferred stock was initially valued at $589,000 based on the present value of the underlying discounted projected cash flows of the legacy Apidos incentive management fees (Level 3).
The fair value of the Company’s assets and liabilities recorded at fair value on a recurring basis were as follows (in thousands): 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets - Investment securities
 
 
 
 
 
 
 
March 31, 2015
$
284

 
$
788

 
$
8,713

 
$
9,785

December 31, 2014
$
310

 
$
741

 
$
8,489

 
$
9,540

Liabilities - Apidos contractual commitment
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2015
$
—

 
$
—

 
$
694

 
$
694

December 31, 2014
$
—

 
$
—

 
$
745

 
$
745

The following table presents additional information about assets which were measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value during three months ended March 31, 2015 (in thousands):
 
Investment Securities
Balance, beginning of year
$
8,489

Purchases
611

Income accreted
288

Payments and distributions received, net
(455
)
Sales
(175
)
Losses on sales of trading securities
(15
)
Unrealized holding gains on trading securities
20

Change in unrealized gains included in accumulated other comprehensive loss
(50
)
Balance, end of period
$
8,713

The following table presents additional information about assets which were measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value during year ended December 31, 2014 (in thousands):
 
Investment Securities
Balance, beginning of year
$
7,407

Purchases
15,063

Income accreted
995

Payments and distributions received, net
(3,752
)
Sales
(13,251
)
Gain on sale of investment securities, net
445

Unrealized losses on trading securities
(200
)
Realized gains on trading securities
1,850

Change in unrealized losses included in accumulated other comprehensive loss
(68
)
Balance, end of year
$
8,489


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

The following table presents the Company's quantitative inputs and assumptions used in determining the fair value of items categorized in Level 3 (in thousands, except percentages):
 
Fair value at March 31, 2015
 
Valuation Technique
 
Unobservable Inputs
 
Assumptions
(weighted average)
CLO securities
$
8,447

 
Discounted cash flow
 
Constant default rate
 
0% - 2%
 
 
 
 
 
Loss severity rate
 
25%
 
 
 
 
 
Constant prepayment rate - year one
 
30%
 
 
 
 
 
Constant prepayment rate - year two
 
25%
 
 
 
 
 
Constant prepayment rate - thereafter
 
25%
 
 
 
 
 
Reinvestment price on collateral
 
99.5%
 
 
 
 
 
Reinvestment spread
 
0% - 450%
 
 
 
 
 
Discount rates
 
13%
 
 
 
 
 
 
 
 
Trading securities
$
266

 
Net asset value
 
Value of underlying assets
 
variable
 
 
 
Discounted cash flow
 
Constant default rate
 
2% - 9%
 
 
 
 
 
Constant prepayment rate
 
20% - 30%
 
 
 
 
 
Loss severity rate
 
30%
The fair value of financial instruments required to be disclosed at fair value, excluding instruments valued on a recurring basis, is as follows (in thousands):
 
March 31, 2015
 
December 31, 2014
 
Carrying
Amount
 
Estimated Fair Value
 
Carrying
Amount
 
Estimated Fair Value
Borrowings:
 

 
 

 
 

 
 

Real estate debt
$
10,035

 
$
11,131

 
$
10,088

 
$
11,197

Senior Notes
10,000

 
13,177

 
10,000

 
12,820

Other debt
1,139

 
1,139

 
324

 
324

 
$
21,174

 
$
25,447

 
$
20,412

 
$
24,341

For cash, receivables and payables, the carrying amounts approximate fair value because of the short-term maturity of these instruments.
The Company estimated the fair value of the real estate debt using current interest rates for similar loans. The Company estimated the fair value of the Senior Notes by applying the percentage appreciation in a high-yield fund with approximately similar quality and risk attributes as the Senior Notes. The carrying value of the Company's other debt was estimated using current interest rates for similar loans at March 31, 2015 and December 31, 2014.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Broker-dealer capital requirement.  Resource Securities serves as a dealer-manager for the sale of securities of direct participation investment programs, both public and private, sponsored by subsidiaries of the Company who also serve as general partners and/or managers of these programs.  Additionally, Resource Securities serves as an introducing agent for transactions involving sales of securities of financial services companies, REITs and insurance companies for the Company and for RSO.  As a broker-dealer, Resource Securities is required to maintain minimum net capital, as defined in regulations under the Securities Exchange Act of 1934, as amended, which was $177,000 and $100,000 as of March 31, 2015 and December 31, 2014, respectively.  As of March 31, 2015 and December 31, 2014, Resource Securities net capital was $1.3 million and $1.4 million, respectively, which exceeded the minimum requirements by $1.1 million and $1.3 million, respectively.
Clawback liability.  One of the Company's structured finance partnerships that invests in public and private regional banks has a potential clawback of up to 75% of the management fees paid to the Company ($978,000 as of March 31, 2015) to the extent that the limited partners’ aggregate capital contributions exceed the total partner distributions from the fund.  As of March 31,

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

2015, the fair value of the fund's assets were sufficient to cover the distribution requirement and, as such, no liability has been recorded for this contingency.
Legal proceedings. The Company is also a party to various routine legal proceedings arising out of the ordinary course of business. Management believes that none of these actions, individually or, in the aggregate, will have a material adverse effect on the Company's consolidated financial condition or operations.
Real estate commitment.  As a specialized asset manager, the Company sponsors and manages investment funds in which it may make an equity investment along with outside investors.  This equity investment is generally based on a percentage of funds raised and varies among investment programs.  With respect to the Innovation Office REIT, in addition to the $200,000 initial capital investment, the Company is committed to invest up to 1% of the first $100.0 million of equity raised to a maximum of $1.0 million. The liability for this commitment will be recorded in the future as the amounts become due and payable.
General corporate commitments. The Company is also party to employment agreements with certain executives that provide for compensation and other benefits, including severance payments under specified circumstances.
As of March 31, 2015, except for the executive compensation, the Company did not believe it was probable that any payments would be required under any of its commitments and contingencies and, accordingly, no liabilities were recorded in the consolidated financial statements.
NOTE 18 - OPERATING SEGMENTS
The Company manages its operations and makes business decisions based on three reportable operating segments, Real Estate, Financial Fund Management and Commercial Finance, and one segment, RSO, which is a consolidated VIE.  Certain other activities are reported in the “All Other” category and "Eliminations" in the tables in order for the information presented about the Company's operating segments to agree to the consolidated balance sheets and statements of operations. Summarized operating segment data are as follows (in thousands):
Three Months Ended 
 March 31, 2015
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Eliminations
 
Total
Consolidation
Revenues from external customers
 
$
16,294

 
$
3,129

 
$
13

 
$
—

 
$
19,436

 
$
24,361

 
$
(3,452
)
 
$
40,345

Equity in (losses) earnings of unconsolidated entities
 
672

 
2,008

 
(15
)
 
—

 
2,665

 
—

 
(821
)
 
1,844

Total revenues
 
16,966

 
5,137

 
(2
)
 
—

 
22,101

 
24,361

 
(4,273
)
 
42,189

Segment operating expenses
 
(11,499
)
 
(2,990
)
 
(579
)
 
—

 
(15,068
)
 
(21,060
)
 
3,368

 
(32,760
)
General and administrative expenses
 
(879
)
 
(284
)
 
—

 
(2,134
)
 
(3,297
)
 
—

 
—

 
(3,297
)
Provision for credit losses
 
(114
)
 
—

 
(288
)
 
—

 
(402
)
 
—

 
—

 
(402
)
Depreciation and amortization
 
(312
)
 
(16
)
 
—

 
(129
)
 
(457
)
 
—

 
—

 
(457
)
Interest expense
 
(183
)
 
—

 
—

 
(238
)
 
(421
)
 
—

 
—

 
(421
)
Other income (expense), net
 
223

 
441

 
1

 
(351
)
 
314

 
16,516

 
(467
)
 
16,363

Pretax loss (income) attributable to noncontrolling interests (2)
 
8

 
—

 
—

 
—

 
8

 
(8,568
)
 
(9,227
)
 
(17,787
)
Income (loss) from continuing operations, net of noncontrolling interests before taxes
 
$
4,210

 
$
2,288

 
$
(868
)
 
$
(2,852
)
 
$
2,778

 
$
11,249

 
$
(10,599
)
 
$
3,428

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Three Months Ended 
 March 31, 2014
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Eliminations
 
Total
Consolidation
Revenues from external customers
 
$
13,630

 
$
5,990

 
$
—

 
$
—

 
$
19,620

 
$
25,245

 
$
(2,880
)
 
$
41,985

Equity in (losses) earnings of unconsolidated entities
 
(355
)
 
1,085

 
(99
)
 
—

 
631

 
—

 
—

 
631

Total revenues
 
13,275

 
7,075

 
(99
)
 
—

 
20,251

 
25,245

 
(2,880
)
 
42,616

Segment operating expenses
 
(8,875
)
 
(4,389
)
 
(103
)
 
—

 
(13,367
)
 
(11,285
)
 
2,819

 
(21,833
)
General and administrative expenses
 
(1,096
)
 
(453
)
 
—

 
(1,605
)
 
(3,154
)
 
—

 
—

 
(3,154
)
Provision for credit losses
 
3

 
—

 
(1,211
)
 
—

 
(1,208
)
 
—

 
—

 
(1,208
)
Depreciation and amortization
 
(308
)
 
(11
)
 
—

 
(132
)
 
(451
)
 
—

 
—

 
(451
)
Interest expense
 
(196
)
 
—

 
—

 
(287
)
 
(483
)
 
—

 
—

 
(483
)
Other income, net
 
256

 
571

 
(2
)
 
(88
)
 
737

 
3,516

 
(554
)
 
3,699

Pretax loss (income) attributable to noncontrolling interests (2)
 
40

 
—

 
—

 
—

 
40

 
(2,344
)
 
(14,807
)
 
(17,111
)
Income (loss) from continuing operations, net of noncontrolling interests before taxes
 
$
3,099

 
$
2,793

 
$
(1,415
)
 
$
(2,112
)
 
$
2,365

 
$
15,132

 
$
(15,422
)
 
$
2,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment assets
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Total
Consolidation
March 31, 2015
 
$
191,539

 
$
49,258

 
$
4,173

 
$
(75,309
)
 
$
169,661

 
$
2,932,646

 
$
3,102,307

March 31, 2014
 
$
180,902

 
$
60,047

 
$
9,861

 
$
(82,254
)
 
$
168,556

 
$
2,341,335

 
$
2,509,891

 
(1)
Includes general corporate expenses and assets not allocable to any particular segment.
(2)
In viewing its segment operations, the Company includes the pretax income attributable to noncontrolling interests.  However, these interests are excluded from income (loss) from operations as computed in accordance with U.S. GAAP and should be deducted to compute income from operations as reflected in the Company’s consolidated statements of operations.    
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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)


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




RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

 
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

 
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



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

A.
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.
B.
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.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.
C.
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.
D.
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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

 
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.
E.
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.     

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

F.
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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

G.
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.     

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

H.
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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

 
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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.
I.
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
J.
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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

K.    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





RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

 
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.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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 million of Senior Notes in full, and $5.0 million of the Securitized Borrowings as of March 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 million of the Securitized Borrowings as of March 31, 2015.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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

 
 
 
 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.
L. 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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

M. 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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

NOTE 20 - SUBSEQUENT EVENTS        
The Company has evaluated subsequent events through the filing of this form and determined that there have not been any events that have occurred that would require adjustments to or disclosures in the consolidated financial statements, except the following:
On April 1, 2015, Northport TRS LLC entered into an amendment to its Senior Secured Revolving Credit Agreement with JP Morgan Chase Bank. Under the amendment the maximum amount of the commitments outstanding has increased from $225.0 million to $300.0 million. The commitment termination date and maturity date have been extended from September 18, 2017 to March 31, 2018 and September 18, 2018 to March 31, 2019 respectively. In addition, the applicable margin has increased for both LIBOR and Alternate Base Rate ("ABR") borrowings. The LIBOR margin has increase from 2.50% to 2.75% and the ABR margin has increased from 1.50% to 1.75%.
On April 10, 2015, RSO entered into two first mortgage bridge loans in the amount of $2.5 million and $3.3 million with two of the Company's real estate investment partnerships. Each loan carries a rate of LIBOR plus 5.75% with a LIBOR floor of 0.25%. The loans mature on May 5, 2016, with two consecutive one-year options to extend upon the first maturity date. One of the loans in the amount of $2.5 million was repaid on April 29, 2015.

    



ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
The financial information presented reflects the operations and assets of Resource Capital Corp (NYSE: RSO), or RSO, a publicly-traded real estate investment trust, or REIT, which we sponsored and manage, on a consolidated basis with our operations and assets. In management’s discussion and analysis that follows, we analyze the Resource America operations by its three business segments: Real Estate, Financial Fund Management, and Commercial Finance together with one other segment, RSO, as a consolidated variable interest entity, or VIE. Each of our operating segments earns fees for acquiring, managing, and/or financing certain assets on behalf of RSO, for which we receive payment. These revenues are included in the tables that follow and then eliminated in order to reflect the consolidation of RSO for accounting purposes.
Resource America is an asset management company that specializes in real estate and credit investments. We use industry specific expertise to evaluate, originate, service and manage investment opportunities through our real estate, financial fund management and commercial finance subsidiaries as well as our joint ventures. As a specialized asset manager, we seek to develop investment funds for outside investors for which we provide asset management services, typically under long-term management arrangements either through a contract with, or as the manager or general partner of, our sponsored investment funds. We typically maintain an investment in the funds we sponsor. As of March 31, 2015, we managed $20.6 billion of assets.
We limit our fund development and management services to asset classes where we own existing operating companies or have specific expertise. We believe this strategy enhances the return on investment we can achieve for our funds. In our real estate operations, we concentrate on the ownership, operation and management of multifamily and commercial real estate and real estate mortgage loans including whole mortgage loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, mezzanine loans, investments in real estate loans and investments in “value-added” properties (properties which require substantial improvements to reach their full investment potential). In our financial fund management operations, we concentrate on bank loans, trust preferred securities of banks, bank holding companies, insurance companies and other financial companies, and asset backed securities, or ABS.
In our real estate segment, we have focused our efforts primarily on acquiring and managing a portfolio of commercial real estate and real estate related debt as well as value-added multifamily investments. In 2013, we completed the public offering for Resource Real Estate Opportunity REIT I, Inc., which we refer to as Opportunity REIT I, having raised total equity of $635 million (including proceeds of a private offering). We increased our assets under management during 2014 and 2015 by raising investor funds through our retail broker channel for investment programs, principally for Resource Real Estate Opportunity REIT II, Inc., which we refer to as Opportunity REIT II. As of March 31, 2015, Opportunity REIT II has raised $138.2 million; through May 1, 2015, total funds raised increased to $174.7 million. We will continue to raise funds for Opportunity REIT II and anticipate fundraising for our newest fund, Resource Real Estate Innovation Office REIT, Inc., or Innovation Office REIT, commencing in the second half of 2015.
    During 2013, we launched Resource Real Estate Diversified Income Fund, or DIF, a publicly-offered, alternative real estate income mutual fund that will invest across global securities, credit and unlisted real estate funds. As of March 31, 2015, DIF has raised $39.1 million; through May 1, 2015, total funds raised increased to $44.3 million.
In December 2014, we entered into a joint venture with the principals of Pearlmark Real Estate Partners, L.L.C. to sponsor and manage private institutional real estate funds.
    In our financial fund management segment, we continue to focus primarily on the sponsorship and management of collateralized loan obligation, or CLO, issuers, and the management of legacy collateralized debt obligation, or CDO, issuers. Through our joint venture, CVC Credit Partners L.P., or CVC Credit Partners, we have closed 13 CLOs with a total par value of approximately $6.8 billion since the formation of the joint venture in 2012. We expect to continue to focus on managing our existing assets and expanding our CLO and separately managed account activities through our joint venture.
    
In 2013, we formed Northport Capital, LLC, or Northport, to originate both senior and subordinated, secured and unsecured loans to middle market companies on behalf of RSO. At March 31, 2015, Northport held a total of $295.1 million of middle market loans at fair value.
    
In our commercial finance operations, our lease origination and servicing platform is managed by our joint venture, LEAF Commercial Capital, Inc., or LEAF, in which we currently own a 13.2% interest. As of March 31, 2015, LEAF managed $674.0 million of commercial leases and notes and LEAF Financial Corporation, our wholly-owned subsidiary, manages two commercial lease investment partnerships. During 2014, we liquidated two other commercial lease investment partnerships.
Our consolidated net income attributable to common shareholders was $337,000 for the three months ended March 31,


2015.


Presentation of Managements’ Discussion and Analysis of Financial Condition and Results of Operations.
Our financial statements have been prepared to consolidate the financial statements of RSO. Our operating segments manage assets on behalf of RSO and the compensation we earn under the terms of our management agreement with RSO is allocated across our operating segments in proportion to the management services each segment provides to RSO. The assets of RSO are held solely to satisfy RSO’s obligations and the creditors of RSO have no recourse to us. Our rights to the benefits of RSO are limited to the management compensation, expense reimbursements and dividends we receive. Our risks associated with RSO are limited to our ownership of 2.2% of RSO's common stock.
The operating results and the discussion of each of our operating segments is presented before the consolidation of RSO to appropriately reflect the manner in which we conduct our operations. Management believes that excluding the fees earned by us under the terms of the management agreement with RSO that are eliminated upon consolidation may impact a reader’s analysis and understanding of our results of operations.


Assets Under Management
We increased our assets under management by $2.8 billion to $20.6 billion at March 31, 2015 from $17.8 billion at March 31, 2014. The following table sets forth information relating to our assets under management by operating segment (in millions, except percentages) (1):
 
March 31,
 
Increase
 
2015
 
2014
 
Amount
 
Percentage
Financial fund management (2)
$
16,323

 
$
14,558

 
$
1,765

 
12%
Real estate (3)
3,567

 
2,618

 
949

 
36%
Commercial finance
692

 
617

 
75

 
12%
 
$
20,582

 
$
17,793

 
$
2,789

 
16%
 
 
 
 
 
 
 
 
Net assets under management (4)
$
9,963

 
$
8,286

 
$
1,677

 
20%
 
(1)
We describe how we calculate assets under management in the notes to the third table of this section.
(2)
The increase primarily reflects a $1.8 billion increase in assets managed by CVC Credit Partners and a $324.0 million increase in private equity and other assets offset, in part, by reductions in the eligible collateral bases of our ABS and trust preferred securities portfolios by $106.4 million and $117.1 million, respectively, resulting from defaults, paydowns, sales and calls.
(3)
The increase is primarily due to an increase in real estate assets managed as follows: a $634.0 million increase in commercial real estate assets managed for RSO, and increases of $255.0 million and $131.0 million in real estate assets managed for RRE Opportunity REIT I (offering closed in December 2013) and RRE Opportunity REIT II (in the offering stage), respectively.
(4)
Net assets under management represents the proportionate share of assets we manage after reflecting joint venture arrangements.
Our assets under management are primarily managed through various investment entities including CDOs and CLOs; public and private limited partnerships; tenant-in-common, or TIC property interest programs; two REITs; and other investment funds. The following table sets forth the number of entities we manage by operating segment:
 
CDOs and CLOs
 
Limited Partnerships
 
TIC Programs
 
Other
Investment
Funds
As of March 31, 2015 (1)
 
 
 
 
 
 
 
Financial fund management
47
 
12
 
—
 
11
Real estate
5
 
8
 
6
 
5
Commercial finance
—
 
2
 
—
 
2
 
52
 
22
 
6
 
18
As of March 31, 2014 (1)
 
 
 
 
 
 
 
Financial fund management
45
 
8
 
—
 
8
Real estate
2
 
8
 
6
 
6
Commercial finance
—
 
4
 
—
 
2
 
47
 
20
 
6
 
16
 
(1)
All of our operating segments manage assets on behalf of RSO.


As of March 31, 2015 and 2014, we managed assets in the following classes for the accounts of institutional and individual investors, RSO and for our own account (in millions):
 
March 31, 2015
 
March 31, 2014
 
Institutional and
Individual Investors
 
RSO
 
Company
 
Total
 
Total
Bank loans (1) 
$
10,787

 
$
1,083

 
$
—

 
$
11,870

 
$
10,029

Trust preferred securities (1) 
3,173

 
—

 
—

 
3,173

 
3,269

Asset-backed securities (1) 
847

 
—

 
—

 
847

 
954

Mortgage and other real
estate-related loans (2)
8

 
1,886

 
—

 
1,894

 
1,289

Real properties (2) 
1,613

 
—

 
16

 
1,629

 
1,320

Commercial finance assets (3) 
692

 
—

 
—

 
692

 
617

Private equity and other assets (1) 
102

 
375

 
—

 
477

 
315

 
$
17,222

 
$
3,344

 
$
16

 
$
20,582

 
$
17,793

 
 
 
 
 
 
 
 
 
 
Net assets under management (4)
$
7,560

 
$
2,387

 
$
16

 
$
9,963

 
$
8,286

 
(1)
We value these assets at their amortized cost.
(2)
We value our managed real estate assets as the sum of:  (i) the amortized cost of the commercial real estate loans; and (ii) the book value of each of the following: (a) real estate and other assets held by our real estate investment entities, (b) our outstanding legacy loan portfolio, and (c) our interests in real estate.
(3)
We value our commercial finance assets as the sum of the book value of the financed equipment and leases and loans.
(4)
Net assets under management represents the proportionate share of assets we manage after reflecting joint venture arrangements.
Employees
As of March 31, 2015, we had 705 full-time employees, an increase of 72 (11%) from March 31, 2014. The following table summarizes our employees by operating segment:
 
Total
 
Real Estate
 
Financial Fund
Management
 
Corporate/
Other
March 31, 2015
 
 
 
 
 
 
 
Investment professionals
89
 
72
 
14
 
3
Other
101
 
39
 
13
 
49
 
190
 
111
 
27
 
52
Property management
515
 
515
 
—
 
—
Total
705
 
626
 
27
 
52
 
 
 
 
 
 
 
 
March 31, 2014
 
 
 
 
 
 
 
Investment professionals
66
 
50
 
13
 
3
Other
85
 
29
 
11
 
45
 
151
 
79
 
24
 
48
Property management
482
 
482
 
—
 
—
Total
633
 
561
 
24
 
48
The revenues in each of our operating segments are generated by the fees we earn for structuring and managing the investment entities we sponsored on behalf of individual and institutional investors and RSO, and the income produced by the assets and investments we manage for our own account. The following table sets forth information about our revenue sources (in thousands): 


 
Three Months Ended 
 March 31,
 
 
2015
 
2014
 
Fund management revenues (1) 
$
16,362

 
$
15,269

 
Finance and rental revenues (2) 
2,350

 
1,988

 
RSO management fees (3) 
3,368

 
2,782

 
Other revenues
21

 
212

 
Subtotal - Resource America revenues before consolidating with RSO
22,101

 
20,251

 
Consolidated VIE-RSO revenues
24,361

 
31,931

 
Elimination of consolidated VIE-RSO revenues attributed to operating segments
(4,273
)
 
(2,880
)
 
 
$
42,189

 
$
49,302

 
 
(1)
Includes fees from our real estate and financial fund management segments and our share of the income or loss from limited and general partnership interests we own in our real estate, financial fund management and commercial finance operations.
(2)
Includes rental income and revenues from certain real estate assets.
(3)
Reflects the various management fees that are received by our operating segments acquiring, managing, and financing the assets of RSO. These fees are eliminated in reporting the consolidated results of Resource America including RSO.
We provide a more detailed discussion of the revenues generated by each of our business segments under “Results of Operations:  Real Estate”, “Financial Fund Management” and “Commercial Finance.”
Results of Operations:  Real Estate
During 2015, our primary focus will be our continued fundraising efforts for Opportunity REIT II and the commencement of capital raising for our newest fund, Innovation Office REIT, the registration statement for which is not yet effective.
Through our real estate segment, we focus on four different activities:
•
the acquisition, ownership and management of portfolios of real estate and real estate related debt, which we have acquired through sponsored real estate investment entities as well as through joint ventures with institutional investors, that principally invest in multifamily housing;
•
the management, principally for RSO, of general investments in commercial real estate debt, including first mortgage debt, whole loans, mortgage participations, B notes, mezzanine debt and related commercial real estate securities;
•
the development and expansion of our liquid alternative investment product platform for investments that offer higher levels of income, lower volatility, and because they include publicly-traded vehicles, greater liquidity as compared to traditional real estate investments. Our current platform includes the DIF and Resource Real Estate Global Property Securities, or RREGPS, an Australian investment fund.  In the first quarter of 2015, we added six new employees who are dedicated solely to the distribution of the DIF as well as the expansion of this platform through the creation of additional liquid alternative funds; and
•
to a significantly lesser extent, the management and resolution of a portfolio of real estate property interests that we acquired at various times between 1991 and 1999, which we collectively refer to as our legacy portfolio.


The following table sets forth information related to real estate assets managed (1) (in millions):
 
March 31,
 
2015
 
2014
Assets under management (1):
 
 
 
Commercial real estate debt for RSO
$
1,682

 
$
1,235

Real estate investment funds and programs
517

 
569

RRE Opportunity REIT I
958

 
703

RRE Opportunity REIT II
131

 
—

Distressed portfolios
—

 
19

Properties managed for RSO
—

 
35

Institutional portfolios
15

 
15

Residential mortgages for RSO
205

 
18

Legacy portfolio
16

 
16

Others
5

 
—

DIF
38

 
8

 
$
3,567

 
$
2,618

 
 
 
 
Net assets under management
$
3,564

 
$
2,618

 
(1)
For information on how we calculate assets under management, see "Assets under Management” above.

We support our real estate investment funds by making long-term investments in them.  In addition, from time to time, we make bridge investments in the funds to facilitate acquisitions.  We record losses on these equity method investments primarily as a result of depreciation and amortization expense recorded by the property interests. Certain of our fee income is transaction based and, as such, can be highly variable. For 2015, our fee income will depend upon the success of RRE Opportunity REIT I and RRE Opportunity REIT II and the timing of their respective acquisitions, refinancings, and dispositions.


The following table sets forth information relating to the revenues recognized and costs and expenses incurred in our real estate operations (in thousands): 
 
Three Months Ended
 
March 31,
 
2015
 
2014
Revenues:
 
 
 
Management fees:
 
 
 
REIT management fees from RSO
$
2,752

 
$
2,646

Property management fees
2,932

 
2,403

Asset management fees
3,352

 
1,942

Broker-dealer fees
1,692

 
—

 
10,728

 
6,991

Other:
 

 
 

Rental property income
1,193

 
939

Master lease revenues
1,145

 
1,049

Fee income from sponsorship of investment entities
3,228

 
4,651

Equity in gains (losses) of unconsolidated entities
672

 
(355
)
 
$
16,966

 
$
13,275

Costs and expenses:
 

 
 

General and administrative expenses
$
4,964

 
$
4,080

Property management expenses
2,409

 
2,220

Broker-dealer expenses
2,278

 
578

Master lease expenses
968

 
1,197

Rental property expenses
880

 
800

 
$
11,499

 
$
8,875

Revenues − Three Months Ended March 31, 2015 as Compared to the Three Months Ended March 31, 2014
Revenues from our real estate operations increased $3.7 million (28%) to $17.0 million for the three months ended March 31, 2015 from $13.3 million for the three months ended March 31, 2014.  We attribute these changes primarily to the following:
Management fees
•
a $529,000 increase in property management fees, due principally to an increase of $339,000 in fees earned from Opportunity REIT I in conjunction with the increase in its assets as well as a $178,000 increase in construction management fees earned from improvement projects for some of its properties;
•
a $106,000 increase in management fees from RSO, reflecting a greater allocation of RSO fee to our real estate segment;
•
a $1.4 million increase in asset management fees. The fees earned from Opportunity REIT I, which are based on the higher of the cost or the independently appraised value of each investment, increased by $997,000 as a result of the increase in values of the underlying investments by $316.0 million to $930.6 million at March 31, 2015 from $614.6 million at March 31, 2014; and
•
a $1.7 million in dealer-manager fees. During the quarter ended March 31, 2015, we raised $91.0 million for Opportunity REIT II, which began fundraising in April 2014. Our broker-dealer subsidiary, Resource Securities, Inc., is the dealer-manager for the offering.
Other revenues
•
a $1.4 million decrease in fee income from sponsored investment entities in connection with the purchase and third-party financing of properties by those entities, as follows:
•
during 2015, we earned $3.2 million in fees primarily from the following activities:


•
the acquisition of three properties (valued at $109.8 million);
•
the sale of three properties (valued at $68.5 million); and
•
the financing of two properties.
•
in comparison, during 2014, we earned $4.7 million in fees primarily from the following activities:
•
the acquisition of two properties (valued at $114.3 million);
•
the acquisition of joint venture interests in 10 multifamily communities (valued at $51.2 million);
•
the sale of two properties (valued at $82.9 million); and
•
the financing of one property.
•
a $1.0 million increase in equity in earnings of unconsolidated entities. During the quarter ended March 31, 2015 we recorded income relating to a gain on the sale of a property in one of our real estate investment funds; there were no property sales during the prior year period.
Costs and Expenses - Three Months Ended March 31, 2015 as Compared to the Three Months Ended March 31, 2014
Costs and expenses of our real estate operations increased $2.6 million (30%) to $11.5 million for three month ended March 31, 2015 from $8.9 million for the three months ended March 31, 2014. We attribute this increase in costs and expenses primarily to the following:
•
an $884,000 increase in general and administrative expenses, primarily reflecting the $687,000 increase in compensation expense in conjunction with the increase in the number of employees and increased wages to handle the increase in assets under management, as well as a $101,000 increase in professional fees;
•
a $189,000 increase in property management expenses, due primarily to an increase in wages and benefits associated with increased staffing levels required to manage the increase in properties under management;
•
a $1.7 million increase in broker-dealer expenses, primarily the $802,000 increase in commissions associated with the substantial fundraising efforts on behalf of Opportunity REIT II during the three months ended March 31, 2015.
Results of Operations:  Financial Fund Management
General. We conduct our financial fund management operations primarily through seven separate operating entities:
•
CVC Credit Partners, a joint venture between us and an unrelated third-party, finances, structures and manages investments in bank loans, high yield bonds and equity investments through CLO issuers and managed accounts, and a credit opportunities fund;
•
Resource Capital Manager, Inc., or RCM, an indirect wholly-owned subsidiary, provides investment management and administrative services to RSO under a management agreement between us, RCM and RSO, which we refer to as the RCM Agreement);
•
Resource Capital Markets, Inc., or Resource Capital Markets, through our registered broker-dealer subsidiary, Resource Securities, acts as an agent in the primary and secondary markets for structured finance securities and transactions;
•
Northport Capital, LLC, or Northport, provides middle market loan management and monitoring services to RSO under the RCM agreement;
•
Trapeza Capital Management, LLC, or TCM, a joint venture between us and an unrelated third-party, manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies through CDO issuers. TCM, together with the Trapeza CDO issuers, are collectively referred to as Trapeza;
•
Ischus Capital Management, LLC, or Ischus, finances, structures and manages investments in ABS including residential mortgage-backed securities, or RMBS, and commercial mortgage-backed securities, or CMBS; and
•
Resource Financial Institutions Group, Inc., or RFIG, serves as the general partner for seven company-sponsored affiliated partnerships which invest in financial institutions.
The following table sets forth information relating to assets managed by our financial fund management operating entities on behalf of institutional and individual investors and RSO (in millions) (1):


Assets under management (1):
Institutional and
Individual Investors
 
RSO
 
Total by Type
March 31, 2015
 
 
 
 
 
CVC Credit Partners
$
10,787

 
$
1,083

 
$
11,870

Trapeza
3,173

 
—

 
3,173

Ischus
847

 
—

 
847

Other
58

 
375

 
433

 
$
14,865

 
$
1,458

 
$
16,323

 
 
 
 
 
 
Net assets under management
$
5,898

 
$
501

 
$
6,399

 
 
 
 
 
 
March 31, 2014
 

 
 

 
 

CVC Credit Partners
$
8,363

 
$
1,666

 
$
10,029

Trapeza
3,269

 
—

 
3,269

Ischus
954

 
—

 
954

Other company-sponsored partnerships
62

 
244

 
306

 
$
12,648

 
$
1,910

 
$
14,558

 
 
 
 
 
 
Net assets under management
$
5,195

 
$
473

 
$
5,668

 
(1)
For information on how we calculate assets under management and net assets under management, see "Assets Under Management" above.
CVC Credit Partners
As of March 31, 2015, CVC Credit Partners has sponsored, structured and/or currently manages $11.9 billion in assets across 25 CLO issuers and 11 separately managed accounts for institutional and individual investors, including $1.1 billion in assets managed on behalf of RSO, consisting principally of U.S. and European bank loans and corporate bonds.
For the CLOs it manages, CVC Credit Partners earns average fees of 0.14% (senior) and 0.29% (subordinate) of the aggregate principal balance of the eligible collateral. Subordinate management fees are subordinate to debt service payments on the CLOs. For separately managed accounts, CVC Credit Partners earns approximately 0.79% on the average balance of the assets managed.
Incentive management fees, which depend on performance, are also subordinate to payments on the debt. During the three months ended March 31, 2015, we received 75% of the incentive management fees generated by six legacy Apidos CLOs, two of which were liquidated during the year.
Resource Capital Markets
Our Resource Capital Markets group primarily generates fees from the following activities:
•
Introductory agent - connecting buyers and sellers in structured security transactions for which fees vary on a deal-by-deal basis.
•
Auction agent - assisting with the auction process of securities for third-party CDO and CLO managers.
•
Structuring and placement - assisting with the structuring of assets and placement of debt and equity securities in CLO transactions managed by third-party managers.
•
Trading portfolio - our Board approved the allocation of up to $6.5 million of capital to invest for our own account in which we buy and sell structured finance securities. At March 31, 2015, we had an investment of $266,000 in a proprietary trading portfolio and an investment of $2.6 million in RCM Global, LLC, or RCM Global, a newly-formed venture between us, RSO and certain related parties that holds a portfolio of available-for-sale securities.  We expect to monetize the RCM Global portfolio during 2015 and plan to invest a portion of the proceeds into Pelium Capital Partners, L.P., or Pelium Capital, a newly-formed hedge fund. 
•
Pelium Capital - managing a $25.9 million portfolio, principally consisting of credit-related instruments and securities for our own account, RSO and certain related parties.
We manage RCM Global and Pelium Capital on behalf of RSO. These entities are consolidated by RSO and, accordingly, our investments in them are eliminated in our consolidated financial statements with RSO.


Northport Capital
Our Northport Capital group earns loan origination fees of up to 2% on certain middle market loans which it arranges for RSO. These fees are paid by the borrowers. Northport continues to assist RSO in growing its middle market loan portfolio, which totaled $295.1 million across 29 loans, at March 31, 2015. As a result, a portion of the RSO management fees have been allocated to the Northport group.
Trapeza
Our Trapeza group has sponsored, structured and currently co-manages 13 CDO issuers holding approximately $3.2 billion in trust preferred securities of banks, bank holding companies, insurance companies and other financial companies at March 31, 2015.
We own a 50% interest in an entity that manages 11 Trapeza CDO issuers and a 33.33% interest in another entity that manages two Trapeza CDO issuers. On average, we earn 0.13% in senior management fees on the aggregate principal balance of the eligible collateral held by the CDO issuers. These fees are shared with our co-sponsors.
Ischus
Our Ischus group has sponsored, structured and/or currently manages eight CDO issuers for institutional and individual investors, which hold approximately $847.2 million in real estate ABS, including RMBS, CMBS and credit default swaps at March 31, 2015.
On average, we earn 0.07% in senior management fees on the aggregate principal balance of eligible collateral held by the CDO issuers.
RFIG
Through RFIG, we sponsored, structured and currently manage seven affiliated partnerships for individual and institutional investors, which have a combined net asset value of $70.4 million ($58.4 million cost basis) of investments in financial institutions at March 31, 2015. We derive revenues from these operations through annual management fees, based on an average of 1.88% of equity. In addition, we may receive a carried interest of up to 20% upon meeting specific investor return rates. As part of our sponsorship, management and general partnership interests, we hold limited partnership interests in five of these partnerships.
The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our financial fund management operations (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Revenues:
 
 
 
Fund management fees
$
742

 
$
815

Fund management fees - incentive
781

 
1,059

RSO management fees
616

 
136

Structuring and placement fees
140

 
3,327

Loan origination fees
884

 
213

Introductory agent fees
118

 
548

Equity in earnings of unconsolidated CDO issuers
288

 
243

Equity in earnings of CVC Credit Partners
637

 
361

Gains, net, on trading securities
5

 
183

Other revenues
14

 
29

 
4,225

 
6,914

Limited and general partners interests:
 
 
 
Fair value adjustment
334

 
163

Operations
73

 
(2
)
LLC Member interests
505

 
—

Total limited and general partners and members interests
912

 
161

 
$
5,137

 
$
7,075

Costs and expenses:
 

 
 

General and administrative expenses
$
2,990

 
$
4,389



Revenues − Three Months Ended March 31, 2015 as Compared to the Three Months Ended March 31, 2014
Revenues decreased $1.9 million (27%) to $5.1 million for the three months ended March 31, 2015 from $7.1 million for three months ended March 31, 2014. We attribute the decrease to the following:
•
a $278,000 decrease in fund management incentive fees, reflecting payments received in connection with retaining 75% of the incentive management fees earned by the legacy Apidos CLOs. These fees are dependent on CLO performance;
•
a $3.2 million decrease in structuring and placement fees, principally due to fees earned by Resource Capital Markets for underwriting a European CLO in March 2014 for an unrelated third-party collateral manager. No such fees were earned in the three months ended March 31, 2015;
•
a $430,000 decrease in introductory agent fees as a result of fees earned in connection with seven structured security transactions with an average fee of $17,000 as compared to eight structured security transactions with an average fee of $68,500 for the prior year period; and
•
a $178,000 decrease in realized and unrealized gains and interest recorded on our trading securities portfolio, which was primarily liquidated during the third quarter of 2014 and the proceeds of which were invested in Pelium Capital.
These decreases were partially offset by the following increases:
•
a $480,000 increase in in RSO management fees, due to the increased middle market assets managed by Northport on behalf of RSO;
•
a $671,000 increase in loan origination fees earned by Northport in connection with the closing of $46.9 million in middle market loans issued by RSO during the three months ended March 31, 2015 as compared to $15.0 million of loans closed during the prior year period;
•
a $276,000 increase in earnings generated by CVC Credit Partners in conjunction with the increase in the assets under management; and
•
a $751,000 increase in earnings from our limited and general partners interests and LLC Member interests, which includes a $580,000 increase in equity in earnings and a $171,000 increase due to realized mark to market adjustments).
Costs and Expenses − Three Months Ended March 31, 2015 as Compared to Three Months Ended March 31, 2014
    Costs and expenses of our financial fund management operations decreased $1.4 million (32%) to $3.0 million for the three months ended March 31, 2015 from $4.4 million for the three months ended March 31, 2014, primarily as a result of a decrease in incentive compensation in connection with the March 2014 structuring and placement fees earned and the commissions paid in connection with fees earned on our trading activities in the prior year period.
Results of Operations:  Commercial Finance
The commercial finance assets we manage through LEAF increased by $75.0 million to $692 million as compared to $617 million at March 31, 2014. This increase reflects a $21.0 million increase in the LEAF portfolio, offset in part by a $29.0 million decrease in the assets managed by our investment partnerships, reflecting liquidation of two of the four funds during 2014 as well as the natural runoff of the portfolios. As of March 31, 2015 and 2014, LEAF managed 61,000 and 58,000 leases and loans for itself and our investment entities, with an average original finance value of $18,000 and $23,000, and an average term of 53 and 56 months, respectively.
The following table sets forth information related to commercial finance assets managed by us and LEAF, our unconsolidated joint venture (1) (in millions):
 
March 31,
Assets under management (1):
2015
 
2014
LEAF
$
602

 
$
581

Managed for others
83

 
—

Commercial finance investment partnerships
7

 
36

 
$
692

 
$
617


(1)
For information on how we calculate assets under management, see “Assets Under Management” above.
The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our commercial finance operations (in thousands):    


 
Three Months Ended
 
March 31,
 
2015
 
2014
Revenues:
 
 
 
  Equity in losses of unconsolidated investment entities
$
(15
)
 
$
(2
)
  Lease revenues, including equity in losses of LEAF
13

 
(97
)
 
$
(2
)
 
$
(99
)
Costs and expenses:
 

 
 

General and administrative expenses - wage and benefit costs
$
90

 
$
85

General and administrative expenses - other
489

 
18

 
$
579

 
$
103

During 2012, our share of LEAF's losses reduced our investment to zero and, as a result, since then we have not reflected losses of LEAF in our consolidated financial statements. However, we will continue to record our share of any changes that may be recorded in LEAF's accumulated other comprehensive income relating to its hedging activities.
Commencing December 1, 2010, we agreed to waive all future management fees from our commercial finance investment partnerships due to their reduced equity distributions as a result of the impact of the recession on their respective cash flows. Accordingly, we waived $49,000 and $224,000 of fund management fees from these entities during the three months ended March 31, 2015 and 2014, respectively.
During the three months ended March 31, 2015, we incurred $424,000 of costs and expenses related to legal matters in conjunction with our commercial finance investment partnerships; we did not incur such costs during the prior year period.
Results of Operations:  Other Costs and Expenses
General and Administrative Expenses
General and administrative costs increased $143,000 (5%) to $3.3 million for the three months ended March 31, 2015 from $3.2 million for the three months ended March 31, 2014. Wages and benefits increased $497,000 (40%) to $1.7 million for the three months ended March 31, 2015 from $1.2 million for the three months ended March 31, 2014, primarily related to the salary increases and bonuses paid in 2015. For the three months ended March 31, 2015, professional fees decreased by $365,000 primarily due to the audit and consulting fees which we incurred last year in connection with the change in our reporting year end and initial consolidation of RSO.
Provision for Credit Losses
The following table sets forth our provision (reduction in the provision) for credit losses as reported by segment (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Commercial finance:
 
 
 
Receivables from managed entities
$
256

 
$
1,212

Leases and loans
32

 
(1
)
Real estate:
 

 
 

Receivables from managed entities
113

 
1

Rent receivables
1

 
(4
)
 
$
402

 
$
1,208

    


We have estimated, based on projected cash flows, that the commercial finance partnerships will not have sufficient funds to pay a portion of their accrued management fees and, accordingly, we recorded provisions of $256,000 (for one partnership) and $1.2 million (for three partnerships, two of which were subsequently liquidated during 2014) for the three months ended March 31, 2015 and March 31, 2014.
During the three months ended March 31, 2015, due to shortfalls in projected cash flows of one of the real estate investment partnerships we recorded a provision of $113,000.
Depreciation and Amortization
The following table reflects the depreciation reported by our operating segments (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Real estate property investments
$
137

 
$
129

Other operating segments - primarily depreciation on fixed assets
320

 
322

Total depreciation expense
$
457

 
$
451

Interest Expense
Interest expense includes the non-cash amortization of debt issuance costs. During the three months ended March 31, 2015 and 2014, corporate interest is comprised primarily of the 9% interest on our $10.0 million of Senior Notes outstanding. Real estate segment interest primarily reflects the mortgage on the hotel property in Savannah, Georgia. The following table reflects interest expense as reported by segment (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Corporate
$
238

 
$
287

Real estate
183

 
196

 
$
421

 
$
483

Net (Income) Loss Attributable to Noncontrolling Interests
We record third-party interests in our earnings as amounts allocable to noncontrolling interests.  The following table sets forth the net (income) loss attributable to noncontrolling interests (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Noncontrolling interests in consolidated VIE-RSO (1)
$
(17,795
)
 
$
(17,151
)
Other:
 
 
 
  Real estate - hotel property (2) 
$
(5
)
 
$
30

  Real estate - Australian joint venture (3)
13

 
10

 
$
8

 
$
40

 
(1)
Our rights and benefits with respect to RSO are limited to the management compensation, expense reimbursements and dividends we receive and our risks associated with being an investor in RSO which is limited to our ownership position. The remaining portion of RSO's net income (loss) is attributed to noncontrolling interests attributable to RSO.
(2)
A related party holds a 19.99% interest in our hotel property in Savannah, Georgia.
(3)
Our Australian joint venture partner holds a 25% interest.


Income Taxes
The following table details the allocation of our consolidated provision for income taxes from continuing operations for us and RSO (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
RAI
$
1,244

 
$
1,069

Consolidated VIE-RSO
1,847

 
16

Total
$
3,091

 
$
1,085

The following paragraphs discuss our income taxes, exclusive of the income tax provision for our consolidated VIE-RSO.
Our effective income tax rate (income taxes as a percentage of income from continuing operations, before taxes) was a provision of 45% for the three months ended March 31, 2015 as compared to 46% for the three months ended March 31, 2014. The change in the income tax rate primarily relates to the lesser impact of discrete tax adjustments relative to pre-tax earnings for the three months ended March 31, 2015. Excluding those discrete tax items, our effective income tax rate would have been 40% for the three months ended March 31, 2015.

The tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and the level of our tax credits. We take certain of these and other factors, including our history of pretax earnings, into account in assessing our ability to realize our net deferred tax assets.  We are subject to examination by the U.S. Internal Revenue Service, or IRS, and other taxing authorities in certain states in which we have significant business operations. RAI is currently undergoing an IRS Excise Tax examination for 2011, a Kansas income tax examination for tax years 2010 through 2012, a Los Angeles income tax examination for tax years 2010 through 2012, and a Philadelphia income tax examination for tax years 2010 through 2013. We are no longer subject to U.S. federal income tax examinations for years before 2010 and are no longer subject to state and local income tax examinations for years before 2007.
               
                The New York State 2014-2015 Budget Act (“N.Y. Budget Act”), signed into law on March 31, 2014, substantially modified and reformed various aspects of New York State tax law.
Results of Operations:  RSO
RSO, which we consolidate as a VIE, is a diversified real estate finance company that is organized and conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended. RSO's investment strategy focuses on commercial real estate and commercial real estate-related assets and, to a lesser extent, commercial finance assets. RSO invests in the following asset classes: commercial real estate-related assets such as commercial real estate property, whole loans, A-notes, B-notes, mezzanine loans, commercial mortgage-backed securities and investments in real estate joint ventures as well as commercial finance assets such as bank loans, lease receivables and other asset-backed securities, trust preferred securities, debt tranches of collateralized debt obligations, structured note investments and private equity investment principally issued by financial institutions. RSO has financed a substantial portion of its portfolio investments through borrowing strategies seeking to match the maturities and repricing dates of its financings with the maturities and repricing dates of those investments, and has sought to mitigate interest rate risk through derivative instruments.


The following summarizes the operating activities of RSO (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Total interest income
$
37,642

 
$
27,085

Interest expense
14,902

 
9,628

Net interest income
22,740

 
17,457

Other revenues
1,621

 
7,788

Total revenues
24,361

 
25,245

Operating expenses
21,060

 
11,285

Net operating income
3,301

 
13,960

Other revenues, net
16,516

 
3,516

Net income
$
19,817

 
$
17,476

Although we treat RSO as a consolidated VIE, our sole interests in it are through our management agreements as its external manager and our ownership of 2.9 million shares (2.2%) of its common stock as of March 31, 2015.
Liquidity and Capital Resources
Our analysis of liquidity and capital reserves excludes the liquidity of our consolidated VIE, RSO, as we do not have access to, or the ability to utilize, any of RSO's assets, nor do we have any obligation or liability with respect to any of its liabilities or borrowings.
As an asset manager, our liquidity needs consist principally of capital needed to make investments and to pay our operating expenses (principally wages, benefits and interest expense). Our ability to meet our liquidity needs will be subject to our ability to generate cash from operations, and, with respect to our investments, our ability to raise investor funds.
At March 31, 2015, our liquidity consisted of four primary sources:
•
cash on hand of $24.9 million;
•
$13.8 million of availability under two corporate credit facilities;
•
potential disposition of non-core assets; and
•
cash generated from operations.
Disposition of Non-core Assets. Our legacy portfolio at March 31, 2015 consisted of five property interests. To the extent we are able to dispose of these assets, we will obtain additional liquidity. The amount of additional liquidity we obtain will vary significantly depending upon the asset being sold and then-current economic conditions. We cannot provide any assurance that we will be able to dispose of these properties or as to the timing or amounts we may realize from any such dispositions.
Refinancing and Repayment of Our Debt. In November 2013, we amended our credit facility with Republic First Bank to extend the maturity date to December 28, 2016. In April 2014, we amended our credit facility with TD Bank to extend the maturity date to December 31, 2017. In addition, the maximum borrowing capacity on our TD Bank facility was increased from $7.5 million to $11.5 million.
As of March 31, 2015, our total borrowings outstanding of $21.2 million included $10.0 million of Senior Notes, $10.0 million of mortgage debt (secured by the underlying property) and $1.1 million of other debt.
Capital Requirements
Our capital needs consist principally of available funding to make investments in the investment vehicles we sponsor or for our own account and to provide bridge financing or other temporary financial support to facilitate asset acquisitions by our sponsored investment vehicles. Accordingly, the amount of capital we require will depend to a significant extent upon our level of activity in making investments for our own account or in sponsoring investment vehicles, all of which is largely within our discretion.


Dividends
We used our cash flows from operations to fund our dividend payment of $1.3 million in the quarter ended March 31, 2015. For the three months ended March 31, 2014, we used cash reserves to pay the $980,000 dividend. We have paid quarterly cash dividends since August 1995. The determination of the amount of future cash dividends, if any, is at the discretion of our Board of Directors and will depend on the various factors affecting our financial condition and other matters that the directors deem relevant.
Contractual Obligations and Other Commercial Commitments
Our analysis of contractual obligations and other commitments excludes the obligations and commitments of our consolidated VIE-RSO, as we do not have any obligation on or recourse with respect to any of its liabilities or borrowings.
The following tables summarize our contractual obligations and other commercial commitments at March 31, 2015 (in thousands):
 
 
 
Payments Due By Period
 
Total
 
Less than
1 Year
 
1 – 3 
Years
 
3 – 5
Years
 
After
5 Years
Contractual obligations:
 
 
 
 
 
 
 
 
 
Non-recourse to us:
 
 
 
 
 
 
 
 
 
Mortgage - hotel property (1)
$
10,035

 
$
213

 
$
473

 
$
536

 
$
8,813

 
 
 
 
 
 
 
 
 
 
Recourse to us:
 
 
 
 
 
 
 
 
 
Other debt (1) 
10,000

 
—

 
10,000

 
—

 
—

Capital lease obligations (1) 
1,138

 
388

 
719

 
31

 
—

 
11,138

 
388

 
10,719

 
31

 
—

 
 
 
 
 
 
 
 
 
 
Operating lease obligations
13,224

 
2,302

 
4,244

 
3,647

 
3,031

Other long-term liabilities
6,676

 
819

 
1,559

 
1,422

 
2,876

Total contractual obligations
$
41,073

 
$
3,722

 
$
16,995

 
$
5,636

 
$
14,720

 
(1)
Not included in the table above are estimated interest payments calculated at rates in effect at March 31, 2015 - less than 1 year: $1.6 million; 1-3 years:  $2.2 million; 3-5 years:  $1.2 million; and after 5 years: $0.8 million.
 
 
 
Amount of Commitment Expiration Per Period
 
Total
 
Less than
1 Year
 
1 – 3
Years
 
3 – 5
Years
 
After
5 Years
Other commercial commitments:
 
 
 
 
 
 
 
 
 
Standby letters of credit
$
803

 
$
803

 
$
—

 
$
—

 
$
—

Total commercial commitments
$
803

 
$
803

 
$
—

 
$
—

 
$
—

Broker-Dealer Capital Requirement. Resource Securities, our wholly-owned subsidiary, is a registered broker-dealer and serves as a dealer-manager for the sale of securities of direct participation investment programs, both public and private, sponsored by our subsidiaries who also serve as general partners and/or managers of these programs. Additionally, Resource Securities serves as an introducing agent for transactions involving sales of securities of financial services companies, REITs and insurance companies and for us and RSO.  As a broker-dealer, Resource Securities is required to maintain minimum net capital, as defined in regulations under the Securities Exchange Act of 1934, as amended, which was $177,000 and $100,000, as of March 31, 2015 and December 31, 2014, respectively.  As of March 31, 2015 and December 31, 2014, Resource Securities net capital was $1.3 million and $1.4 million, respectively, which exceeded the minimum requirements by $1.1 million and $1.3 million, respectively.
Legal proceedings. We are also a party to various routine legal proceedings arising out of the ordinary course of business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our consolidated financial condition or operations.


Real estate commitment.  As a specialized asset manager, we sponsor and manage investment funds in which we may make an equity investment along with outside investors.  This equity investment is generally based on a percentage of funds raised and varies among investment programs.  With respect to the Innovation Office REIT, in addition to the $200,000 initial capital investment, we are committed to invest up to 1% of the first $100.0 million of equity raised to a maximum of $1.0 million. The liability for this commitment will be recorded in the future as the amounts become due and payable.
General Corporate Commitments. We are also a party to employment agreements with certain executives that provide for compensation and other benefits, including severance payments under specified circumstances.
As of March 31, 2015, except for the executive compensation, we do not believe it is probable that any payments will be required under any of our commitments and contingencies, and accordingly, no liabilities for these obligations have been recorded in the consolidated financial statements.
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. We have variable interests in VIEs through our management contracts and investments in various securitization entities, including CDO issuers. Since we serve as the asset manager for the investment entities we sponsored and manage, we are 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 us, we will perform an additional qualitative analysis to determine if our 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, we compare the benefits we would receive (in the optimistic scenario) or the losses we 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 us were significant as compared to total benefits and losses absorbed by all variable interest holders, then we would conclude that we are the primary beneficiary.
The financial statements for the three months ended March 31, 2015 and 2014 reflect the consolidation of RSO. See Note 19 of the notes to our consolidated financial statements for additional disclosures pertaining to VIEs.
Our investments in the Trapeza structured finance entities that hold investments in trust preferred assets and asset-backed securities, Ischus asset-backed securities, and RREGPS were all determined to be VIEs that we do not consolidate as we do not have the obligation of, or right to, losses or earnings that would be significant to those entities.  We have not provided financial or other support to these VIEs and have no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at March 31, 2015.
Critical Accounting Policies
     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, costs and expenses, and related disclosure of contingent assets and liabilities. We make estimates of our allowance for credit losses, the valuation allowance against our deferred tax assets, discounts and collectability of management fees, the valuation of stock-based compensation, and in determining whether a decrease in the fair value of an investment is an other-than-temporary impairment. The financial fund management segment makes assumptions in determining the fair value of our investments in securities. We used assumptions, specifically inputs to the Black-Scholes pricing model and the discounted cash flow model, in computing the fair value of the Senior Notes and related warrants. On an on-going basis, we evaluate our estimates, which are based on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.     


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
We are exposed to various market risks from changes in interest rates. Fluctuations in interest rates can impact our results of operations, cash flows and financial position. We manage this risk through regular operating and financing activities. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. The range of changes presented reflects our view of changes that are reasonably possible over a one-year period and provides indicators of how we view and manage our ongoing market risk exposures. Our analysis does not consider other possible effects that could impact our business.
Debt
At March 31, 2015, we had two secured revolving credit facilities for general business use. We only utilized one facility during 2014 for a short-term period. In the event that we have to utilize the facilities for longer term borrowing, the interest on the facilities would be subject to interest rate fluctuation.
All other debt as of March 31, 2015 is at fixed rates of interest and is, therefore, not subject to interest rate fluctuation.
Trading Securities
Our trading security investments are a source of market risk. As of March 31, 2015, our trading security portfolio was comprised of $266,000 of investments in equity and debt securities. Trading securities are recorded at fair value and changes in the fair value are included in operations. Assuming a 10% decrease in the market value of these investments as of March 31, 2015, the hypothetical loss would be approximately $27,000.
ITEM 4.    CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of our chief executive officer and chief financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2015, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




PART II. OTHER INFORMATION

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases by us during the quarter ended March 31, 2015 of equity securities that are registered under Section 12 of the Securities Exchange Act of 1934:

Issuer Purchases of Equity Securities
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share (1)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
 
January 2015
 
65,535

 
$
9.00

 
65,535

 
1,294,851

(2) 
February 2015
 
89,037

 
$
9.02

 
89,037

 
1,205,814

(2) 
March 2015
 
78,466

 
$
9.10

 
78,466

 
1,127,348

(2) 
 
 
233,038

 
$
9.04

 
 
 
 
 
 
(1)
The average price per share as reflected above includes broker fees and commissions.
(2)
In September 2014, the Board of Directors authorized a new program to repurchase up to an additional 1.5 million shares of our common stock.
Share repurchases may be made from time to time through open market purchases or privately negotiated transactions at our discretion and in accordance with the rules of the Securities and Exchange Commission, as applicable. The amount and timing of any repurchases will depend on market conditions and other factors.


ITEM 6.    EXHIBITS    
Exhibit No.
 
Description
3.1
 
Restated Certificate of Incorporation of Resource America. (1)
3.2
 
Amended and Restated Bylaws of Resource America. (1)
4.1
 
Form of 9% Senior Note due 2018. (20)
10.1(a)
 
Amended and Restated Loan and Security Agreement, dated March 10, 2011, between Resource America, Inc. and TD Bank, N.A. (4)
10.1(b)
 
First Amendment to the Amended and Restated Loan and Security Agreement, dated as of November 29, 2011, between Resource America, Inc. and TD Bank, N.A. (6)
10.1(c)
 
Second Amendment to the Amended and Restated Loan and Security Agreement and Joinder to Loan Documents, dated as of February 15, 2012, between Resource America, Inc. and TD Bank, N.A and the Joining Guarantors as set forth therein. (9)
10.1(d)
 
Third Amendment to the Amended and Restated Loan and Security Agreement and Joinder, dated as of November 16, 2012, between Resource America, Inc. and TD Bank, N.A and the Joining Guarantors as set forth therein. (11)
10.1(e)
 
Fourth Amendment to the Amended and Restated Loan and Security Agreement and Joinder, dated as of April 25, 2014, among Resource America, Inc. and TD Bank, N.A and the Joining Guarantors as set forth therein. (14)
10.2
 
Amended and Restated Employment Agreement between Michael S. Yecies and Resource America, Inc., dated December 29, 2008. (2)
10.3(a)
 
Amended and Restated Employment Agreement between Thomas C. Elliott and Resource America, Inc., dated February 10, 2014. (13)
10.3(b)
 
Letter Agreement between Thomas C. Elliott and Resource America, Inc., dated January 20, 2015.
10.4(a)
 
Amended and Restated Employment Agreement between Jeffrey F. Brotman and Resource America, Inc., dated December 29, 2008. (2)
10.4(b)
 
Letter Agreement Jeffrey F. Brotman and Resource America, Inc., dated January 20, 2015.
10.5(a)
 
Amended and Restated Employment Agreement between Jonathan Z. Cohen and Resource America, Inc., dated December 29, 2008. (2)
10.5(b)
 
Letter Agreement between Jonathan Z. Cohen and Resource America, Inc., dated January 20, 2015.
10.6
 
Amended and Restated Employment Agreement between Steven J. Kessler and Resource America, Inc., dated December 29, 2008. (2)
10.7(a)
 
Employment Agreement between Alan Feldman and Resource America, Inc., dated January 29, 2009. (13)
10.7(b)
 
Letter Agreement between Alan Feldman and Resource America, Inc., dated January 20, 2015.
10.8
 
Employment Agreement between Jeffrey Blomstrom and Resource America, Inc., dated January 28, 2015. (21)
10.9(a)
 
Loan Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (3)
10.9(b)
 
Loan Modification Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (5)
10.9(c)
 
Second Loan Modification Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (8)
10.9(d)
 
Third Loan Modification Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (10)
10.9(e)
 
Fourth Loan Modification Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (12)
10.10
 
Settlement Agreement, dated January 9, 2012, by and among Raging Capital Group and Resource America, Inc. (7)
10.11
 
Resource America, Inc. Investment Savings Plan. (15)
10.12
 
Resource America, Inc. 2012 Non-Employee Director Deferred Stock Plan. (16)
10.13(a)
 
Resource America, Inc. Amended and Restated Omnibus Equity Compensation Plan. (17)
10.13(b)
 
Form of Grant of Incentive Stock Option. (18)
10.13(c)
 
Form of Grant of Non-Qualified Incentive Stock Option. (18)


10.13(d)
 
Form of Stock Award Agreement. (19)
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
 
Risk factors of Resource Capital Corp. (22)
101
 
Interactive Data Files
 
(1)
Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and by this reference incorporated herein.
(2)
Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 and by this reference incorporated herein.
(3)
Filed previously as an exhibit to our Current Report on Form 8-K filed on March 3, 2011 and by this reference incorporated herein.
(4)
Filed previously as an exhibit to our Current Report on Form 8-K filed on March 16, 2011 and by this reference incorporated herein.
(5)
Filed previously as an exhibit to our Current Report on Form 8-K filed on September 28, 2011 and by this reference incorporated herein.
(6)
Filed previously as an exhibit to our Current Report on Form 8-K filed on December 2, 2011 and by this reference incorporated herein.
(7)
Filed previously as an exhibit to our Current Report on Form 8-K filed on January 12, 2012 and by this reference incorporated herein.
(8)
Filed previously as an exhibit to our Current Report on Form 8-K filed on January 17, 2012 and by this reference incorporated herein.
(9)
Filed previously as an exhibit to our Current Report on Form 8-K filed on February 15, 2012 and by this reference incorporated herein.
(10)
Filed previously as an exhibit to our Current Report on Form 8-K filed on October 31, 2012 and by this reference incorporated herein.
(11)
Filed previously as an exhibit to our Current Report on Form 8-K filed on November 19, 2012 and by this reference incorporated herein.
(12)
Filed previously as an exhibit to our Current Report on Form 8-K filed on November 13, 2013 and by this reference incorporated herein.
(13)
Filed previously as an exhibit to our Annual Report on Form 10-K filed on March 17, 2014 and by this reference incorporated herein.
(14)
Filed previously as an exhibit to our Current Report on Form 8-K filed on April 28, 2014 and by this reference incorporated herein.
(15)
Filed previously as an exhibit to our Registration Statement on Form S-8 filed on April 13, 2009 and by this reference incorporated herein.
(16)
Filed previously as an exhibit to our Proxy Statement filed on January 30, 2012 and by this reference incorporated herein.
(17)
Filed previously as an exhibit to our Proxy Statement filed on April 16, 2014 and by this reference incorporated herein.
(18)
Filed previously as an exhibit to our Annual report on Form 10-K/A filed on March 27, 2006 and by this reference incorporated herein.
(19)
Filed previously as an exhibit to our Current Report on Form 8-K filed on February 15, 2006 and by this reference incorporated herein.
(20)
Filed previously as an exhibit to our Current Report on Form 8-K filed on September 2, 2014 and by this reference incorporated herein.
(21)
Filed previously as an exhibit to our Current Report on Form 8-K filed on February 2, 2015 and by this reference incorporated herein.
(22)
Filed previously as an exhibit to our Annual Report on Form 10-K filed on March 13, 2015 and by this reference incorporated herein.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
RESOURCE AMERICA, INC.
 
(Registrant)
 
 
 
May 11, 2015
By:
/s/ Thomas C. Elliott
 
 
THOMAS C. ELLIOTT
 
 
Senior Vice President and Chief Financial Office
 
 
 
May 11, 2015
By:
/s/ Arthur J. Miller
 
 
ARTHUR J. MILLER
 
 
Vice President and Chief Accounting Officer