10-Q 1 rexi-20150930x10q.htm 10-Q REXI QTR ENDED SEPTEMBER 30, 2015 10-Q
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 September 30, 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 the definitions 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 November 2, 2015 was 21,169,060 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)
 
September 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Cash
$
18,102

 
$
27,542

Restricted cash
941

 
725

Receivables
1,020

 
636

Loans and receivables from managed entities and related parties, net
25,138

 
30,303

Investments in real estate, net
16,191

 
17,097

Investment securities, at fair value
10,218

 
9,540

Investments in unconsolidated loan manager (see Note 8)
32,082

 
39,655

Investments in unconsolidated entities (see Note 8)
18,349

 
13,089

Assets of consolidated variable interest entity ("VIE")-RSO (see Note 19):
 
 
 
     Cash and cash equivalents (including restricted cash)
128,845

 
202,043

     Investments, at fair value
260,315

 
296,506

     Loans
2,234,979

 
2,039,655

     Investments in real estate and unconsolidated entities
56,038

 
60,007

Other assets
105,865

 
129,801

Total assets of consolidated VIE-RSO
2,786,042

 
2,728,012

    
 
 
 
Property and equipment, net
5,533

 
5,063

Deferred tax assets, net
19,449

 
23,304

Other assets
10,929

 
5,416

Total assets
$
2,943,994

 
$
2,900,382

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Accrued expenses and other liabilities
$
20,429

 
$
22,279

Payables to managed entities and related parties
4,417

 
3,015

Borrowings
20,896

 
20,412

Liabilities of consolidated VIE-RSO (see Note 19):
 
 
 
     Borrowings
1,881,240

 
1,717,132

     Other liabilities
49,451

 
57,101

Total liabilities of consolidated VIE-RSO
1,930,691

 
1,774,233

Total liabilities
1,976,433

 
1,819,939

 
 
 
 
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;
34,958,477 and 34,489,568 shares issued (including nonvested restricted stock of 1,143,242 and 833,082), respectively
338

 
335

Additional paid-in capital
310,663

 
308,134

Accumulated deficit
(28,676
)
 
(23,663
)
Treasury stock, at cost; 13,590,239 and 11,764,417 shares, respectively
(134,969
)
 
(120,182
)
Accumulated other comprehensive loss
(2,225
)
 
(1,030
)
Total stockholders’ equity
145,131

 
163,594

Noncontrolling interests
315

 
306

Noncontrolling interests attributable to consolidated VIE-RSO
822,115

 
916,543

Total equity
967,561

 
1,080,443

Total liabilities and equity
$
2,943,994

 
$
2,900,382



RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
REVENUES:
 
 
 
 
 
 
 
Real estate (includes revenues of $2,422, $2,643, $7,925 and $7,628 related to RSO)
$
16,195

 
$
14,289

 
$
54,277

 
$
41,012

Financial fund management (includes revenues of $1,372, $1,525, $4,260 and $2,485 related to RSO)
4,408

 
5,557

 
14,326

 
20,773

Commercial finance (includes no revenues related to RSO)
66

 
(17
)
 
66

 
(158
)
 
20,669

 
19,829

 
68,669

 
61,627

Revenues from consolidated VIE-RSO (see Note 19)
23,705

 
25,811

 
72,267

 
74,884

Elimination of consolidated VIE-RSO revenues attributed to operating segments
(3,697
)
 
(4,136
)
 
(12,074
)
 
(10,056
)
Total revenues
40,677

 
41,504

 
128,862

 
126,455

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Real estate
11,223

 
9,384

 
34,804

 
27,364

Financial fund management
3,369

 
2,812

 
9,513

 
9,980

Commercial finance
434

 
125

 
1,471

 
351

General and administrative
4,053

 
2,426

 
11,531

 
8,309

Provision for credit losses
(400
)
 
559

 
278

 
3,342

Depreciation and amortization
504

 
453

 
1,476

 
1,369

 
19,183

 
15,759

 
59,073

 
50,715

Expenses from consolidated VIE-RSO (see Note 19)
15,994

 
15,447

 
91,589

 
43,585

Elimination of consolidated VIE-RSO expenses attributed to
operating segments
(3,077
)
 
(3,502
)
 
(9,813
)
 
(9,374
)
Total expenses
32,100

 
27,704

 
140,849

 
84,926

OPERATING INCOME (LOSS)
8,577

 
13,800

 
(11,987
)
 
41,529

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Gain (loss) on sale of investment securities, net
—

 
69

 
—

 
439

Impairment on investments in unconsolidated entities
(151
)
 
—

 
(4,497
)
 
—

Interest expense
(450
)
 
(467
)
 
(1,326
)
 
(1,447
)
Other income (expense), net
(52
)
 
80

 
15

 
263

Total other income (expense)
(653
)
 
(318
)
 
(5,808
)
 
(745
)
Other income (expense), net, from consolidated VIE-RSO (see Note 19)
5,215

 
3,730

 
32,268

 
17,527

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

 
11

 
15

 
29

 
4,562

 
3,423

 
26,475

 
16,811

Income (loss) from continuing operations before taxes
13,139

 
17,223

 
14,488

 
58,340

Income tax provision (benefit)
1,355

 
1,741

 
3,456

 
4,991

Income tax provision (benefit) of consolidated VIE-RSO (see Note 19)
(1,796
)
 
(237
)
 
2,969

 
(667
)
Net income (loss)
13,580

 
15,719

 
8,063

 
54,016

Net (income) loss attributable to noncontrolling interests
(37
)
 
11

 
(92
)
 
(33
)
Net (income) loss attributable to noncontrolling interests of consolidated VIE-RSO (see Note 19)
(14,643
)
 
(14,214
)
 
(10,388
)
 
(48,759
)
Net income (loss) attributable to common shareholders
$
(1,100
)
 
$
1,516

 
$
(2,417
)
 
$
5,224

 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Net income (loss)
$
(0.05
)
 
$
0.07

 
$
(0.11
)
 
$
0.25

Weighted average shares outstanding
22,067

 
21,109

 
22,629

 
20,586

 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
Net income (loss)
$
(0.05
)
 
$
0.07

 
$
(0.11
)
 
$
0.24

Weighted average shares outstanding
22,067

 
22,301

 
22,629

 
22,124


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income (loss)
$
13,580

 
$
15,719

 
$
8,063

 
$
54,016

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 

 
 

 
 
 
 
Unrealized gains (losses) on investment securities available-for-sale, net of tax of $(22), $61, $606 and $162
(1,049
)
 
202

 
(532
)
 
359

Reclassification for (gains) losses realized, net of tax of $(212), $(26) $(637) and $83
(243
)
 
(43
)
 
(741
)
 
(274
)
 
(1,292
)
 
159

 
(1,273
)
 
85

Minimum pension liability adjustments, net of tax of $78, $33, $99 and $128
(78
)
 
37

 
(99
)
 
81

Reclassification for (gains) losses realized, net of tax of $48, $0, $145 and $0
57

 
—

 
172

 
3

 
(21
)
 
37

 
73

 
84

Foreign currency translation adjustments, net of tax of $2, $0, $4 and $0
3

 
(4
)
 
5

 
(4
)
Subtotal - activity related to RAI
(1,310
)
 
192

 
(1,195
)
 
165

 
 
 
 
 
 
 
 
Activity related to consolidated VIE-RSO:
 
 
 
 
 
 
 
Reclassification for (gains) losses on available-for-sale securities realized
(1,805
)
 
3,974

 
(12,139
)
 
8,161

Unrealized gains (losses) on available-for-sale securities, net
(1,769
)
 
8,956

 
(345
)
 
7,466

Reclassification for realized (gains) losses from interest rate hedges
412

 
71

 
538

 
212

Unrealized gains (losses) on derivatives, net
1,080

 
1,160

 
3,424

 
2,351

Foreign currency translation losses
(86
)
 
23

 
343

 
(157
)
Subtotal - activity related to consolidated VIE-RSO
(2,168
)
 
14,184

 
(8,179
)
 
18,033

Subtotal - other comprehensive income (loss)
(3,478
)
 
14,376

 
(9,374
)
 
18,198

Comprehensive income (loss)
10,102

 
30,095

 
(1,311
)
 
72,214

Less: Comprehensive (income) loss attributable to noncontrolling interests
(11,983
)
 
(28,478
)
 
(1,772
)
 
(66,927
)
Comprehensive income (loss) attributable to common shareholders
$
(1,881
)
 
$
1,617

 
$
(3,083
)
 
$
5,287



The accompanying notes are an integral part of these statements
5


RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 (loss)
—

 
—

 
—

 
(2,417
)
 
—

 
—

 
(2,417
)
 
92

 
10,388

 
8,063

Treasury shares issued
36,521

 
—

 
(63
)
 
—

 
371

 
—

 
308

 
—

 
—

 
308

Stock-based compensation
468,909

 
3

 
2,592

 
—

 
—

 
—

 
2,595

 
—

 
—

 
2,595

Repurchases of common stock
(1,862,343
)
 
—

 
—

 
—

 
(15,158
)
 
—

 
(15,158
)
 
—

 
—

 
(15,158
)
Dividends declared on common stock
—

 
—

 
—

 
(2,596
)
 
—

 
—

 
(2,596
)
 
—

 
—

 
(2,596
)
Change in noncontrolling interests in consolidated VIE-RSO
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(96,637
)
 
(96,637
)
Other
—

 
—

 
—

 
—

 
—

 
(1,195
)
 
(1,195
)
 
(83
)
 
—

 
(1,278
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,179
)
 
(8,179
)
Balance, September 30, 2015
21,368,238

 
$
338

 
$
310,663

 
$
(28,676
)
 
$
(134,969
)
 
$
(2,225
)
 
$
145,131

 
$
315

 
$
822,115

 
$
967,561

 

The accompanying notes are an integral part of these statements
6


RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
8,063

 
$
54,016

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

 
 

Depreciation and amortization
1,536

 
1,469

Provision for credit losses
278

 
3,342

Unrealized (gain) loss on trading securities
(87
)
 
111

Equity in (earnings) losses of unconsolidated entities
(5,149
)
 
(2,298
)
Distributions from unconsolidated entities
8,093

 
5,134

(Gain) loss on sales of leases and loans
(19
)
 
(22
)
Impairment on investment in unconsolidated entities
4,497

 
—

(Gain) loss on sales of investment securities, net
(1,140
)
 
—

(Gain) loss on sales of assets
—

 
439

Deferred income tax provision (benefit)
3,624

 
4,838

Equity-based compensation issued
2,593

 
1,322

      (Gain) loss on trading securities
15

 
(1,845
)
Trading securities purchases and sales, net
(824
)
 
973

Changes in operating assets and liabilities
1,721

 
(13,055
)
Adjustments to reconcile net income (loss) and operating cash flows to net income (loss) of consolidated VIE-RSO
(754
)
 
42,337

Net cash provided by (used in) operating activities
22,447

 
96,761

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(515
)
 
(291
)
Payments received on real estate loans and real estate
—

 
25

Investments in real estate and unconsolidated real estate entities
(5,147
)
 
(1,561
)
Principal payments on leases and loans
21

 
22

Purchase of loans and securities by consolidated VIE-RSO
(658,207
)
 
(812,912
)
Principal payments and proceeds from sales of loans and securities by consolidated VIE-RSO
524,476

 
552,064

Purchase of loans and investments
(4,457
)
 
(7,320
)
Proceeds from sale of loans and investments
6,070

 
721

Increase (decrease) in restricted cash of consolidated VIE-RSO
96,887

 
18,328

Other investing activity of consolidated VIE-RSO
12,700

 
(10,175
)
Net cash provided by (used in) investing activities
(28,172
)
 
(261,099
)
 
 
 
 

The accompanying notes are an integral part of these statements
7


RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
(unaudited)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Increase (decrease) in borrowings
—

 
2,520

Principal payments on borrowings
—

 
(2,813
)
Net borrowings of debt by consolidated VIE-RSO
124,922

 
60,670

Dividends paid
(3,909
)
 
(2,952
)
Dividends paid on common stock by consolidated VIE-RSO
(68,059
)
 
(75,920
)
Proceeds from issuance of common stock
1

 
17,570

Proceeds from issuance of common stock by consolidated VIE-RSO
3,196

 
177,568

Repurchases of common stock by consolidated VIE-RSO
(15,433
)
 
—

Repurchases of common stock
(15,032
)
 
(8,358
)
(Increase) decrease in restricted cash
(168
)
 
(133
)
Other
—

 
—

Other financing activity of consolidated VIE-RSO
(29,233
)
 
2,761

Net cash provided by (used in) financing activities
(3,715
)
 
170,913

 
 
 
 
Increase (decrease) in cash
(9,440
)
 
6,575

Cash, beginning of year
27,542

 
19,853

Cash, end of period
$
18,102

 
$
26,428



The accompanying notes are an integral part of these statements
8

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. 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 and nine months ended September 30, 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") a public non-traded REIT, which completed its initial public offering in December 2013. This fund manages a portfolio consisting of value-add residential multifamily rental properties and loans;
•
Resource Real Estate Advisor II, LLC manages the activities of Resource Real Estate Opportunity REIT II ("Opportunity REIT II"), a public non-traded REIT, which is still in its offering stage. This fund focuses on acquiring a portfolio consisting of value-add residential multifamily rental properties and loans. 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;
•
Resource Innovation Office Advisor, LLC manages Resource Innovation Office REIT, Inc. ("Innovation Office REIT"), a public non-traded REIT, whose registration statement for the public offering of its units was initially declared effective by the Securities and Exchange Commission ("SEC") on June 10, 2015. The Innovation Office REIT filed an amended initial public offering of up to $1.1 billion in its common stock at a maximum price of $10.27 for Class A shares and $10.00 for Class T shares, which became effective on October 5, 2015. This fund focuses on acquiring office properties and real estate debt secured by office properties;
•
Resource Capital Partners, Inc. acts as the general partner manager and managing member of, and provides asset management services to, the Company's five real estate investment partnerships, five 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;
•
Pearlmark Real Estate, LLC ("Pearlmark"), a joint venture in which the Company owns 50%, manages institutional real estate investments. Pearlmark has begun raising capital for its first real estate investment fund and another fund that is in the formation stage; and
•
Resource Real Estate, Inc. manages owned assets and ventures, which are collectively referred to as the “legacy portfolio.”
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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, Inc., 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 collateralized debt obligation ("CDO") issuers. TCM, together with the Trapeza CDO issuers, are collectively referred to as Trapeza;
•
Ischus Capital Management, LLC ("Ischus") manages legacy CDOs it sponsored, which hold investments in asset-backed securities ("ABS") including residential mortgage-backed securities ("RMBS") and commercial mortgage-backed securities, ("CMBS"); and
•
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 September 30, 2015, LEAF Financial sponsored and manages one publicly-held investment entity and LEAF acts as the sub-servicer of its portfolio of leases and loans. During 2014, LEAF Financial liquidated two of its commercial finance investment entities and liquidated another entity in July 2015. LEAF Financial had sponsored and managed these entities prior to their liquidation.
CVC Credit Partners. In April 2012, the Company sold its equity interests in Apidos Capital Management, LLC ("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. On July 2, 2015, CVC exercised its option to purchase a portion of the Company's interest, which equated to 9% of the joint venture. The Company has subsequently reflected a 24% interest in the joint venture.
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, which represented 15.7% interest on a fully diluted bases and senior management of LEAF maintained a 10% fully-diluted interest. As of September 30, 2015, additional investments made by Eos and RSO as well as warrants that were provided to LEAF's lender in accordance with a financing agreement have reduced the Company's and senior management's investments on a fully-diluted basis to 13.2% and 8.3%, respectively. The Company accounts for its investment in LEAF on the equity method.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)


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 losses of the VIE that could potentially be significant to the VIE or the right to receive 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.
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 and CDO issuers it sponsored, are carried at fair value.  The fair value of the CLO and CDO 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), Resource Credit Income Fund ("CIF") (NASDAQ: RCIIX), and Resource Real Estate Diversified Income Fund ("DIF") (NASDAQ: RREDX), all 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, was valued at net asset value. In July 2015, the Company redeemed its interest in RREGPS and terminated its management agreement. 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 (trading securities) are recorded at fair value with changes in fair value recorded in earnings.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 nine months ended September 30, 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, 2018, including interim periods in 2018, and allows for both retrospective and prospective methods of adoption. The Company is in the process of determining the method of adoption and assessing the impact of this ASU on its consolidated financial statements.
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 guidance is effective for the Company beginning January 1, 2016. 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 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 the Company beginning January 1, 2016. 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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

    
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)
SEPTEMBER 30, 2015
(unaudited)

NOTE 3 - CONSOLIDATING FINANCIAL INFORMATION
The following table presents the consolidating balance sheet as of September 30, 2015 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
Cash
$
18,102

 
$
—

 
$
—

 
$
18,102

Restricted cash
941

 
—

 
—

 
941

Receivables
1,020

 
—

 
—

 
1,020

Receivables from managed entities and related parties, net
27,562

 
—

 
(2,424
)
 
25,138

Investments in real estate, net
16,191

 
—

 
—

 
16,191

Investment securities, at fair value
18,209

 
—

 
(7,991
)
 
10,218

Investments in unconsolidated loan manager
32,082

 
—

 
—

 
32,082

Investments in unconsolidated entities
25,451

 
—

 
(7,102
)
 
18,349

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

 
128,845

 
—

 
128,845

Investments, at fair value
—

 
260,315

 
—

 
260,315

Loans
—

 
2,234,979

 
—

 
2,234,979

Investments in real estate and unconsolidated entities
—

 
56,038

 
—

 
56,038

Other assets-RSO
—

 
105,865

 
—

 
105,865

Total assets of consolidated VIE-RSO
—

 
2,786,042

 
—

 
2,786,042

Property and equipment, net
5,533

 
—

 
—

 
5,533

Deferred tax assets, net
31,632

 
—

 
(12,183
)
 
19,449

Other assets
10,929

 
—

 
—

 
10,929

Total assets
$
187,652

 
$
2,786,042

 
$
(29,700
)
 
$
2,943,994

 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Accrued expenses and other liabilities
$
20,429

 
$
—

 
$
—

 
$
20,429

Payables to managed entities and related parties
4,417

 
—

 
—

 
4,417

Borrowings
20,896

 
—

 
—

 
20,896

Liabilities of consolidated VIE-RSO:
 
 
 
 
 
 
 
     Borrowings
—

 
1,880,891

 
349

 
1,881,240

     Other liabilities
—

 
51,875

 
(2,424
)
 
49,451

Total liabilities of consolidated VIE-RSO
—

 
1,932,766

 
(2,075
)
 
1,930,691

Total liabilities
45,742

 
1,932,766

 
(2,075
)
 
1,976,433

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
Preferred stock
—

 
—

 
—

 
—

Common stock
338

 
—

 
—

 
338

Additional paid-in capital
310,663

 
—

 
—

 
310,663

Accumulated deficit
(18,421
)
 
—

 
(10,255
)
 
(28,676
)
Treasury stock, at cost
(134,969
)
 
—

 
—

 
(134,969
)
Accumulated other comprehensive loss
(16,016
)
 
—

 
13,791

 
(2,225
)
Total stockholders’ equity
141,595

 
—

 
3,536

 
145,131

Noncontrolling interests
315

 
—

 
—

 
315

Noncontrolling interests attributable to consolidated VIE-RSO
—

 
853,276

 
(31,161
)
 
822,115

Total equity
141,910

 
853,276

 
(27,625
)
 
967,561

Total liabilities and equity
$
187,652

 
$
2,786,042

 
$
(29,700
)
 
$
2,943,994



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

The following table presents the consolidating statement of operations for the three months ended September 30, 2015 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
Real estate
$
16,195

 
$
—

 
$
—

 
$
16,195

Financial fund management
4,408

 
—

 
—

 
4,408

Commercial finance
66

 
—

 
—

 
66

 
20,669

 
—

 
—

 
20,669

Revenues from consolidated VIE-RSO
—

 
23,705

 
—

 
23,705

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

 
—

 
(3,697
)
 
(3,697
)
Total revenues
20,669

 
23,705

 
(3,697
)
 
40,677

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Real estate
11,223

 
—

 
—

 
11,223

Financial fund management
3,369

 
—

 
—

 
3,369

Commercial finance
434

 
—

 
—

 
434

General and administrative
4,053

 
—

 
—

 
4,053

Provision for credit losses
(400
)
 
—

 
—

 
(400
)
Depreciation and amortization
504

 
—

 
—

 
504

 
19,183

 
—

 
—

 
19,183

Expenses of consolidated VIE-RSO
—

 
15,994

 
—

 
15,994

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

 
—

 
(3,077
)
 
(3,077
)
Total expenses
19,183

 
15,994

 
(3,077
)
 
32,100

OPERATING INCOME (LOSS)
1,486

 
7,711

 
(620
)
 
8,577

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Impairment on investments in unconsolidated entities
(151
)
 
—

 
—

 
(151
)
Interest expense
(450
)
 
—

 
—

 
(450
)
Other income (expense), net
386

 
—

 
(438
)
 
(52
)
Other income (expense), net, from consolidated VIE-RSO
—

 
5,215

 
—

 
5,215

Total other income (expense)
(215
)
 
5,215

 
(438
)
 
4,562

Income (loss) from continuing operations before taxes
1,271

 
12,926

 
(1,058
)
 
13,139

Income tax provision (benefit)
1,355

 
(1,796
)
 
—

 
(441
)
Net income (loss)
(84
)
 
14,722

 
(1,058
)
 
13,580

Net (income) loss attributable to noncontrolling interests
(37
)
 
—

 
—

 
(37
)
Net (income) loss attributable to noncontrolling interests-RSO
—

 
(7,944
)
 
(6,699
)
 
(14,643
)
Net income (loss) attributable to common shareholders
$
(121
)
 
$
6,778

 
$
(7,757
)
 
$
(1,100
)
    
    


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

The following table presents the consolidating statement of operations for the three months ended September 30, 2014 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
Real estate
$
14,289

 
$
—

 
$
—

 
$
14,289

Financial fund management
5,557

 
—

 
—

 
5,557

Commercial finance
(17
)
 
—

 
—

 
(17
)
 
19,829

 
—

 
—

 
19,829

Revenues from consolidated VIE-RSO
—

 
25,811

 
—

 
25,811

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

 
—

 
(4,136
)
 
(4,136
)
Total revenues
19,829

 
25,811

 
(4,136
)
 
41,504

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Real estate
9,384

 
—

 
—

 
9,384

Financial fund management
2,812

 
—

 
—

 
2,812

Commercial finance
125

 
—

 
—

 
125

General and administrative
2,426

 
—

 
—

 
2,426

Provision for credit losses
559

 
—

 
—

 
559

Depreciation and amortization
453

 
—

 
—

 
453

Total other income (expense)
15,759

 
—

 
—

 
15,759

Expenses of consolidated VIE-RSO
—

 
15,447

 
—

 
15,447

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

 
—

 
(3,502
)
 
(3,502
)
Total expenses
15,759

 
15,447

 
(3,502
)
 
27,704

OPERATING INCOME (LOSS)
4,070

 
10,364

 
(634
)
 
13,800

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Gain (loss) on sale of investment securities, net
69

 
—

 
—

 
69

Interest expense
(467
)
 
—

 
—

 
(467
)
Other income (expense), net
652

 
—

 
(572
)
 
80

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

 
3,730

 
—

 
3,730

Elimination of consolidated VIE-RSO other income, net
—

 
—

 
11

 
11

 
254

 
3,730

 
(561
)
 
3,423

Income (loss) from continuing operations before taxes
4,324

 
14,094

 
(1,195
)
 
17,223

Income tax provision (benefit)
1,741

 
(237
)
 
—

 
1,504

Net income (loss)
2,583

 
14,331

 
(1,195
)
 
15,719

Net income (loss) attributable to noncontrolling interest
11

 
—

 
—

 
11

Net (income) loss attributable to noncontrolling interests-RSO
—

 
(7,003
)
 
(7,211
)
 
(14,214
)
Net income (loss) attributable to common shareholders
$
2,594

 
$
7,328

 
$
(8,406
)
 
$
1,516




RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

The following table presents the consolidating statement of operations for the nine months ended September 30, 2015 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
Real estate
$
54,277

 
$
—

 
$
—

 
$
54,277

Financial fund management
14,326

 
—

 
—

 
14,326

Commercial finance
66

 
—

 
—

 
66

 
68,669

 
—

 
—

 
68,669

Revenues from consolidated VIE-RSO
—

 
72,267

 
—

 
72,267

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

 
—

 
(12,074
)
 
(12,074
)
Total revenues
68,669

 
72,267

 
(12,074
)
 
128,862

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Real estate
34,804

 
—

 
—

 
34,804

Financial fund management
9,513

 
—

 
—

 
9,513

Commercial finance
1,471

 
—

 
—

 
1,471

General and administrative
11,531

 
—

 
—

 
11,531

Provision for credit losses
278

 
—

 
—

 
278

Depreciation and amortization
1,476

 
—

 
—

 
1,476

Total other income (expense)
59,073

 
—

 
—

 
59,073

Expenses of consolidated VIE-RSO
—

 
91,589

 
—

 
91,589

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

 
—

 
(9,813
)
 
(9,813
)
Total expenses
59,073

 
91,589

 
(9,813
)
 
140,849

OPERATING INCOME (LOSS)
9,596

 
(19,322
)
 
(2,261
)
 
(11,987
)
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Impairment on investment in unconsolidated entities
(4,497
)
 
—

 
—

 
(4,497
)
Interest expense
(1,326
)
 
—

 
—

 
(1,326
)
Other income (expense), net
1,389

 
—

 
(1,374
)
 
15

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

 
32,268

 
—

 
32,268

Elimination of consolidated VIE-RSO other income, net
—

 
—

 
15

 
15

 
(4,434
)
 
32,268

 
(1,359
)
 
26,475

Income (loss) from continuing operations before taxes
5,162

 
12,946

 
(3,620
)
 
14,488

Income tax provision (benefit)
3,456

 
2,969

 
—

 
6,425

Net income (loss)
1,706

 
9,977

 
(3,620
)
 
8,063

Net (income) loss attributable to noncontrolling interests
(92
)
 
—

 
—

 
(92
)
Net (income) loss attributable to noncontrolling interests-RSO
—

 
(24,808
)
 
14,420

 
(10,388
)
Net income (loss) attributable to common shareholders
$
1,614

 
$
(14,831
)
 
$
10,800

 
$
(2,417
)




RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

    
The following table presents the consolidating statement of operations for the nine months ended September 30, 2014 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
Real estate
$
41,012

 
$
—

 
$
—

 
$
41,012

Financial fund management
20,773

 
—

 
—

 
20,773

Commercial finance
(158
)
 
—

 
—

 
(158
)
 
61,627

 
—

 
—

 
61,627

Revenues from consolidated VIE-RSO
—

 
74,884

 
—

 
74,884

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

 
—

 
(10,056
)
 
(10,056
)
Total revenues
61,627

 
74,884

 
(10,056
)
 
126,455

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Real estate
27,364

 
—

 
—

 
27,364

Financial fund management
9,980

 
—

 
—

 
9,980

Commercial finance
351

 
—

 
—

 
351

General and administrative
8,309

 
—

 
—

 
8,309

Provision for credit losses
3,342

 
—

 
—

 
3,342

Depreciation and amortization
1,369

 
—

 
—

 
1,369

Total other income (expense)
50,715

 
—

 
—

 
50,715

Expenses of consolidated VIE-RSO
—

 
43,585

 
—

 
43,585

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

 
—

 
(9,374
)
 
(9,374
)
Total expenses
50,715

 
43,585

 
(9,374
)
 
84,926

OPERATING INCOME (LOSS)
10,912

 
31,299

 
(682
)
 
41,529

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Gain on sale of investment securities, net
439

 
—

 
—

 
439

Interest expense
(1,447
)
 
—

 
—

 
(1,447
)
Other income (expense), net
1,979

 
—

 
(1,716
)
 
263

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

 
17,527

 
—

 
17,527

Elimination of consolidated VIE-RSO other income, net
—

 
—

 
29

 
29

 
971

 
17,527

 
(1,687
)
 
16,811

Income (loss) from continuing operations before taxes
11,883

 
48,826

 
(2,369
)
 
58,340

Income tax provision (benefit)
4,991

 
(667
)
 
—

 
4,324

Net income (loss)
6,892

 
49,493

 
(2,369
)
 
54,016

Net (income) loss attributable to noncontrolling interests
(33
)
 
—

 
—

 
(33
)
Net (income) loss attributable to noncontrolling interests-RSO
—

 
(12,372
)
 
(36,387
)
 
(48,759
)
Net income (loss) attributable to common shareholders
$
6,859

 
$
37,121

 
$
(38,756
)
 
$
5,224


    


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

    
The following table presents the consolidating statement of cash flows for the nine months ended September 30, 2015 (in thousands):
 
RAI
 
RSO
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net income (loss)
$
1,706

 
$
9,977

 
$
(3,620
)
 
$
8,063

Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
1,536

 
—

 
—

 
1,536

Provision for credit losses
278

 
—

 
—

 
278

Unrealized (gain) loss on trading securities
(87
)
 
—

 
—

 
(87
)
Equity in (earnings) losses of unconsolidated entities
(7,307
)
 
—

 
2,158

 
(5,149
)
Distributions from unconsolidated entities
8,093

 
—

 
—

 
8,093

Impairment on investment in unconsolidated entities
4,497

 
—

 
—

 
4,497

(Gain) loss on sales of investment securities, net
(1,140
)
 
—

 
—

 
(1,140
)
(Gain) loss on sales of leases and loans
(19
)
 
—

 
—

 
(19
)
Deferred income tax provision
3,624

 
—

 
—

 
3,624

Equity-based compensation issued
2,593

 
—

 
—

 
2,593

(Gain) loss on trading securities
15

 
—

 
—

 
15

Trading securities purchases and sales, net
(824
)
 
—

 
—

 
(824
)
Changes in operating assets and liabilities
1,721

 
—

 
—

 
1,721

Adjustments to reconcile net income and operating cash flows to net income of consolidated VIE-RSO
—

 
(657
)
 
(97
)
 
(754
)
Net cash provided by (used in) operating activities
14,686

 
9,320

 
(1,559
)
 
22,447

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Capital expenditures
(515
)
 
—

 
—

 
(515
)
Principal payments on leases and loans
21

 
—

 
—

 
21

Investments in real estate and unconsolidated real estate entities
(5,147
)
 
—

 
—

 
(5,147
)
Purchase of loans and securities by consolidated VIE-RSO
—

 
(658,207
)
 
—

 
(658,207
)
Principal payments and proceeds from sales of loans and securities by consolidated VIE-RSO
—

 
524,476

 
—

 
524,476

Purchase of loans and investments
(4,457
)
 
—

 
—

 
(4,457
)
Proceeds from sale of loans and investments
6,070

 
—

 
—

 
6,070

Increase (decrease) in restricted cash of consolidated VIE-RSO
—

 
96,887

 
—

 
96,887

Other investing activity of consolidated VIE-RSO
—

 
13,690

 
(990
)
 
12,700

Net cash provided by (used) in investing activities
(4,028
)
 
(23,154
)
 
(990
)
 
(28,172
)

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

 
RAI
 
RSO
 
Eliminations
 
Consolidated
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 

 
 
Principal payments on borrowings
(990
)
 
—

 
990

 
—

Net borrowings by consolidated VIE-RSO
—

 
124,922

 
—

 
124,922

Dividends paid
(3,909
)
 
—

 
—

 
(3,909
)
Dividends paid on common stock by consolidated VIE-RSO
—

 
(69,433
)
 
1,374

 
(68,059
)
Proceeds from issuance of common stock
1

 
—

 
—

 
1

Proceeds from issuance of common stock by consolidated VIE-RSO
—

 
3,196

 
—

 
3,196

Repurchases of common stock
(15,032
)
 
—

 
—

 
(15,032
)
Repurchases of common stock by consolidated VIE-RSO
—

 
(15,433
)
 
—

 
(15,433
)
(Increase) decrease in restricted cash
(168
)
 
—

 
—

 
(168
)
Other financing activity of consolidated VIE - RSO
—

 
(29,418
)
 
185

 
(29,233
)
Net cash (used in) provided by financing activities
(20,098
)
 
13,834

 
2,549

 
(3,715
)
 
 
 
 
 
 
 
 
Decrease in cash
(9,440
)
 
—

 
—

 
(9,440
)
Cash, beginning of year
27,542

 
—

 
—

 
27,542

Cash, end of period
$
18,102

 
$
—

 
$
—

 
$
18,102



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the Company is as follows (in thousands, except per share data):
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Cash (paid) received:
 
 
 
Interest
$
(1,356
)
 
$
(1,249
)
Income tax payments
(1,270
)
 
(952
)
Refund of income taxes
69

 
167

 
 
 
 
Dividends declared per common share
$
0.18

 
$
0.16

 
 
 
 
Non-cash activities:
 

 
 

Repurchase of common stock from employees in exchange for the payment of income taxes
$
173

 
$
263

Repurchase common stock in exchange for the exercise of warrants
—

 
1,754

Issuance of treasury stock for the Company's investment savings 401(k) plan
371

 
368

Leasehold improvements paid by the landlord
60

 
—

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 September 30, 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:
 
 
 
 
 
 
 
 
 
 
 
Commercial finance
    investment entities
$
—

 
$
28

 
$
100

 
$
1,630

 
$
1,758

 
$
1,758

Real estate investment entities
5,190

 
590

 
1,271

 
14,827

 
16,688

 
21,878

Financial fund management entities
1,122

 
—

 
21

 
26

 
47

 
1,169

Other
333

 
—

 
—

 
—

 
—

 
333

 
6,645

 
618

 
1,392

 
16,483

 
18,493

 
25,138

Rent receivables - real estate
158

 
2

 
2

 
2

 
6

 
164

Total financing receivables
$
6,803

 
$
620

 
$
1,394

 
$
16,485

 
$
18,499

 
$
25,302



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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 September 30, 2015:
 
 
 
 
 
 
 
Balance, beginning of period
$
17,665

 
$
—

 
$
2

 
$
17,667

Provision for (reversal) of credit losses
(402
)
 
—

 
2

 
(400
)
(Charge-offs) recoveries
(17,263
)
 
—

 
—

 
(17,263
)
Balance, end of period
$
—

 
$
—

 
$
4

 
$
4

 
 
 
 
 
 
 
 
Ending balance, individually evaluated for impairment
$
—

 
$
—

 
$
4

 
$
4

Ending balance, collectively evaluated for impairment
—

 
—

 
—

 
—

Balance, end of period
$
—

 
$
—

 
$
4

 
$
4

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015:
 

 
 

 
 

 
 

Balance, beginning of period
$
16,990

 
$
—

 
$
—

 
$
16,990

Provision for (reversal) of credit losses
273

 
1

 
4

 
278

(Charge-offs) recoveries
(17,263
)
 
(1
)
 
—

 
(17,264
)
Balance, end of period
$
—

 
$
—

 
$
4

 
$
4

 
 
 
 
 
 
 
 
Ending balance, individually evaluated for impairment
$
—

 
$
—

 
$
4

 
$
4

Ending balance, collectively evaluated for impairment
—

 
—

 
—

 
—

Balance, end of period
$
—

 
$
—

 
$
4

 
$
4


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

 
Loans and Receivables
from Managed
Entities
 
Leases and
Loans
 
Rent
Receivables
 
Total
Three Months Ended September 30, 2014:
 
 
 
 
 
 
 
Balance, beginning of period
$
39,028

 
$
—

 
$
2

 
$
39,030

Loan
520

 
30

 
9

 
559

(Charge-offs) recoveries
(7,028
)
 
(28
)
 
(6
)
 
(7,062
)
Balance, end of period
$
32,520

 
$
2

 
$
5

 
$
32,527

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014:
 

 
 

 
 

 
 

Balance, beginning of period
$
36,229

 
$
—

 
$
14

 
$
36,243

Provision for credit losses
3,321

 
25

 
(4
)
 
3,342

(Charge-offs) recoveries
(7,030
)
 
(23
)
 
(5
)
 
(7,058
)
Balance, end of period
$
32,520

 
$
2

 
$
5

 
$
32,527

 
 
 
 
 
 
 
 
Ending balance, individually evaluated for impairment
$
32,520

 
$
2

 
$
—

 
$
32,522

Ending balance, collectively evaluated for impairment
—

 
—

 
5

 
5

Balance, end of period
$
32,520

 
$
2

 
$
5

 
$
32,527

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 September 30, 2015:
Receivables from
Managed Entities
 
Rent
Receivables
 
Total
Ending balance, individually evaluated for impairment
$
25,138

 
$
—

 
$
25,138

Ending balance, collectively evaluated for impairment
—

 
164

 
164

Balance, end of period
$
25,138

 
$
164

 
$
25,302

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

    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 September 30, 2015:
 
 
 
 
 
 
 
Financing receivables with a specific valuation allowance:
 

 
 

 
 

 
 

Loans and receivables from managed entities – commercial finance
$
—

 
$
—

 
$
—

 
$
13,815

Loans and receivables from managed entities – real estate
$
—

 
$
—

 
$
—

 
$
458

Rent receivables – real estate
$
—

 
$
—

 
$
4

 
$
—

 
 
 
 
 
 
 
 
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 September 30, 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):
 
September 30,
2015
 
December 31,
2014
Properties owned, net of accumulated depreciation of $9,606 and $9,198:
 
 
 
Hotel property (Savannah, Georgia)
$
9,922

 
$
10,110

Office building (Philadelphia, Pennsylvania)
894

 
888

 
10,816

 
10,998

Partnerships and other investments
5,375

 
6,099

Total investments in real estate, net
$
16,191

 
$
17,097

The Company recorded rental income of $1.4 million and $4.4 million for three and nine months ended September 30, 2015, respectively, and, $1.3 million and $3.8 million for the three and nine months ended September 30, 2014, 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 September 30, and thereafter, are as follows (in thousands):
2016
$
1,082

2017
869

2018
778

2019
531

2020
307

Thereafter
290

Total
$
3,857


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

NOTE 7 - INVESTMENT SECURITIES
Components of investment securities are as follows (in thousands):
 
September 30,
2015
 
December 31,
2014
Available-for-sale securities
$
8,905

 
$
9,065

Trading securities
1,313

 
475

Total investment securities, at fair value
$
10,218

 
$
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
As of September 30, 2015:
 
 
 
 
 
 
 
CLO securities
$
7,360

 
$
1,156

 
$
(77
)
 
$
8,439

Equity securities
432

 
37

 
(3
)
 
466

Total
$
7,792

 
$
1,193

 
$
(80
)
 
$
8,905

 
 
 
 
 
 
 
 
As of 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 14 and 12 CLO issuers that CVC Credit Partners has sponsored and manages at September 30, 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. For the three months ended September 30, 2015, the Company adjusted its assumptions with respect to the fair value calculations of its CLO securities based on a change in market conditions, principally to increase the constant default rate in year one and two and decrease the prepayment speed in year one, which resulted in an impairment charge of $151,000.
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. The Company has an investment of $215,000 in 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 SEC on April 17, 2015. In July 2015, the Company sold its investment in RREGPS (749,976 units) for $677,400, which approximated its cost basis.
Trading securities. The Company had net gains on trading securities of $45,000 and $72,000 for the three and nine months ended September 30, 2015, respectively, including unrealized gains of $45,000 and $87,000 for the three and nine months ended September 30, 2015, respectively, which are included in Financial Fund Management Revenues on the consolidated statements of operations. The Company had net gains on trading securities of $855,000 and $1.8 million during the three and nine months ended September 30, 2014, respectively, including unrealized losses of $231,000 and $111,000 respectively.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
CLO securities
$
1,095

 
$
(45
)
 
2

 
$
883

 
$
(32
)
 
2

Equity securities
106

 
(3
)
 
1

 
—

 
—

 
—

Total
$
1,201

 
$
(48
)
 
3

 
$
883

 
$
(32
)
 
2

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
 
September 30,
2015
 
December 31,
2014
Real estate investment entities
1% – 12%
 
$
11,496

 
$
8,313

Financial fund management partnerships
0.01% − 50%
 
6,175

 
4,162

Trapeza entities
33% − 50%
 
678

 
614

Investments in unconsolidated entities
 
 
$
18,349

 
$
13,089

Included in real estate investment entities is the Company's $2.5 million investment in Opportunity REIT I, as well as a $1.3 million investment in Opportunity REIT II, a $200,000 investment in Innovation Office REIT as well as a $200,000 investment in Resource Apartment REIT III, Inc. ("Apartment REIT III"), which filed a registration statement with the SEC on November 2, 2015. The Company accounts for its investments in Opportunity REITs I and II, Innovation Office REIT and Apartment REIT III on the cost method. As of September 30, 2015, the Company had invested $4.0 million in Pearlmark. In October 2015, the Company invested an additional $1.0 million in Pearlmark. The Company accounts for its investment in Pearlmark on the equity method of accounting. The Company has commitments with respect to some of these investments (see Note 17).
    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 equity share of the operating results of CVC Credit Partners in Financial Fund Management Revenues. In accordance with the CVC Credit Partners shareholders' agreement, in July 2015, CVC exercised its option to buy down the Company's interests in the joint venture by 9%, which reduced the Company's interest to 24%. In conjunction with the buydown, the Company recorded an impairment charge of $4.3 million on its investment in CVC Credit Partners during the three months ended June 30, 2015. The purchase price, an agreed upon formulaic option price based on finalized 2014 results of the joint venture, was not indicative of its fair value. The remaining interests held by the Company were valued by a third-party valuation firm, which concluded that the fair value exceeded the book value and, as such, there was no further impairment.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Summarized operating data for CVC Credit Partners is presented below (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Management fee revenues
$
18,023

 
$
19,103

 
$
50,652

 
$
45,890

Costs and expenses
(15,919
)
 
(17,326
)
 
(44,846
)
 
(42,172
)
Net income
$
2,104

 
$
1,777

 
$
5,806

 
$
3,718

Portion of net income attributable to the Company
$
505

 
$
586

 
$
1,727

 
$
1,227

The Company has a preferred interest in 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 September 30, 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. Each quarter the Company evaluates the book value of the investment by estimating the fair value of the expected future cash flows from the incentive management fees. To the extent that the estimated fair value of future cash flows is less than the cost basis of the investment, such shortfall will be recorded as a reduction of the preferred interest. 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):
 
September 30,
2015
 
December 31,
2014
Accounts payable and other accrued liabilities
$
6,769

 
$
6,045

Supplemental executive retirement plan ("SERP") liability (see Note 14)
5,886

 
6,383

Accrued wages and benefits
3,628

 
4,580

Deferred rent
2,404

 
2,485

Apidos contractual obligation, at fair value (see Notes 8 and 16)
627

 
745

Dividends declared and not yet paid
—

 
1,312

Insurance notes
1,115

 
729

  Total accrued expenses and other liabilities
$
20,429

 
$
22,279


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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 September 30, 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
1,866

 
—

 
—

 
 

 
—

 
—

Other debt:
 
 
 
 
 
Senior Notes
 

 
10,000

 
10,000

Mortgage debt - hotel property
 

 
9,932

 
10,088

Other debt
 

 
964

 
324

Total borrowings outstanding
 

 
$
20,896

 
$
20,412


(1)
The amount of the facility as shown has been reduced $503,000 for an outstanding letter of credit.
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 Bank facility to (i) extend the maturity date to the earlier of (a) the expiration of the Company's 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 a $503,000 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 CDOs and CLOs, (ii) a pledge of 18,972 shares of TBBK common stock, and (iii) a pledge of 540,168 shares of RSO common stock held by the Company.      
There were no borrowings outstanding as of September 30, 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 175,000 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 0.5%. There were no borrowings under this facility as of September 30, 2015 and the availability was $1.9 million. There were no borrowings under this facility as of December 31, 2014.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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 and nine months ended September 30, 2015 was 9.1% and 9.1%, respectively, and 9.3% and 9.4% for the three and nine months ended September 30, 2014, respectively. 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 is 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 - Real Estate and Corporate
Real estate - mortgage. The Company has a $10.7 million mortgage on its hotel property in Savannah, Georgia. The 6.36% fixed rate mortgage, which matures in September 2021, requires monthly payments of principal and interest of $71,331.
Corporate and real estate - capital leases. As of September 30, 2015, the Company has various capital leases for computer equipment.
Debt Repayments
Annual principal payments coming due on the Company’s aggregate borrowings for the five succeeding annual periods ending September 30, and thereafter, are as follows (in thousands):
2016
$
594

2017
615

2018
10,464

2019
269

2020
285

Thereafter
8,669

Total
$
20,896

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 September 30, 2015.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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. 
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
(1,273
)
 
—

 
5

 
73

 
(1,195
)
Balance, September 30, 2015 net of tax of $441, $0, $0 and $2,457
$
706

 
$
(1
)
 
$
—

 
$
(2,930
)
 
$
(2,225
)
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 Nine Months Ended 
 September 30, 2015
 
RSO
 
Other
Noncontrolling interests, beginning of year
$
916,543

 
$
306

Net income (loss) attributable to noncontrolling interests
10,388

 
92

Other comprehensive loss
(8,179
)
 
(83
)
Proceeds from issuance of equity interests, net
(12,237
)
 
—

Amortization of stock-based compensation
1,561

 
—

Discount on 6% senior convertible notes
2,528

 
—

Contributions from (distributions to) noncontrolling interests
(91,111
)
 
—

Other
2,622

 
—

Noncontrolling interests, end of period
$
822,115

 
$
315


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Shares
 
 
 
 
 
 
 
Basic shares outstanding
22,067

 
21,109

 
22,629

 
20,586

Dilutive effect of outstanding director units and stock options (1)
—

 
1,192

 
—

 
1,538

Diluted shares outstanding
22,067

 
22,301

 
22,629

 
22,124

 
(1)
Due to the losses for the three and nine months ended September 30, 2015, director units and stock options outstanding were antidilutive and, therefore, excluded from the Diluted EPS computation. As a result, Basic EPS and Diluted EPS shares were the same. Excluded from the Diluted EPS calculation were 270,000 unissued director units and outstanding out-of-the-money options to purchase 140,000 shares of common stock (weighted average exercise price of $16.21 per share).
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Interest cost
$
62

 
$
68

 
$
187

 
$
205

Less: expected return on plan assets
(19
)
 
(38
)
 
(56
)
 
(116
)
Plus: amortization of unrecognized loss
106

 
70

 
317

 
209

Net cost
$
149

 
$
100

 
$
448

 
$
298

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 nine months ended September 30, 2015 and 2014, the Company awarded 440,852 and 628,841 shares of restricted stock valued at $3.9 million and $5.7 million, respectively. Additionally, for the nine months ended September 30, 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)
SEPTEMBER 30, 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):
 
September 30,
2015
 
December 31,
2014
Receivables from managed entities and related parties, net:
 
 
 
Real estate investment entities
$
21,878

 
$
23,733

Commercial finance investment entities (1)
1,758

 
2,883

Financial fund management investment entities
1,169

 
663

Other
333

 
488

Loan receivable from CVC Credit Partners
—

 
2,536

Receivables from managed entities and related parties
$
25,138

 
$
30,303

 
 
 
 
Payables due to managed entities and related parties, net:
 

 
 

Real estate investment entities (2) 
$
4,379

 
$
2,942

Other
38

 
73

Payables to managed entities and related parties
$
4,417

 
$
3,015

 
(1)
Amount for December 31, 2014 is shown net of reserves for credit losses of $17.0 million related to management fees due from one of the Company's commercial finance investment entities that, based on estimated cash distributions, was not expected to be collectible.
(2)
Includes $4.1 million and $2.6 million in self-insurance funds provided by the Company's real estate investment entities as of September 30, 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)
SEPTEMBER 30, 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Fees from unconsolidated investment entities:
 
 
 
 
 
 
 
Real estate (1) 
$
11,464

 
$
8,992

 
$
33,071

 
$
26,436

Financial fund management
774

 
794

 
2,341

 
2,861

Commercial finance (2)
—

 
—

 
—

 
—

CVC Credit Partners: reimbursement of net costs and expenses
219

 
211

 
694

 
836

Opportunity REIT I:
 
 
 
 
 
 
 
Reimbursement of costs and expenses
817

 
641

 
2,639

 
1,556

Dividends paid
87

 
30

 
131

 
88

Opportunity REIT II:
 
 
 
 
 
 
 
Reimbursement of costs and expenses
722

 
642

 
2,221

 
1,590

Dividends paid
42

 
—

 
62

 
—

Innovation Office REIT:
 
 
 
 
 
 
 
     Reimbursement of costs and expenses
283

 
—

 
1,486

 
—

LEAF:
 
 
 
 
 
 
 
Payment for sub-servicing the commercial finance
   investment partnerships
(12
)
 
(52
)
 
(53
)
 
(253
)
Reimbursement of net costs and expenses
36

 
31

 
113

 
95

1845 Walnut Associates Ltd:
 
 
 
 
 
 
 
Payment for rent and related expenses
(213
)
 
(154
)
 
(629
)
 
(561
)
Property management fees
47

 
56

 
123

 
149

Brandywine Construction & Management, Inc.:
  payment for property management of hotel property
(67
)
 
(57
)
 
(200
)
 
(169
)
Atlas Energy, L.P. : reimbursement of net costs and expenses
99

 
52

 
123

 
124

Ledgewood P.C.: payment for legal services 
(3
)
 
(98
)
 
(92
)
 
(165
)
Graphic Images, LLC: payment for printing services
(36
)
 
(27
)
 
(120
)
 
(116
)
The Bancorp, Inc.: reimbursement of net costs and expenses
—

 
29

 
—

 
84

9 Henmar LLC: payment of broker/consulting fees 
(4
)
 
(3
)
 
(21
)
 
(21
)
 
(1)
Includes the reversal of discounts of $35,000 and $245,000 for the three and nine months ended September 30, 2015, respectively, and $38,000 and $112,000 for the three and nine months ended September 30, 2014, respectively, in connection with management fees from the Company's real estate investment entities that it expects to receive in future periods.
(2)
The Company waived management fees from its commercial finance investment entities of $17,000 and $97,000 during the three and nine months ended September 30, 2015, respectively, and $105,000 and $605,000 during the three and nine months ended September 30, 2014, respectively.
    
Relationship with Opportunity REIT I. As of September 30, 2015 and December 31, 2014, the Company had a receivable of $238,000 and $325,000, respectively, for reimbursement of operating costs and expenses.

    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Relationship with Opportunity REIT II. As of September 30, 2015 and December 31, 2014, the Company had a $724,000 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.

Relationship with Innovation Office REIT. As of September 30, 2015, the Company had a receivable of $1.9 million from the Innovation Office REIT for reimbursement of offering costs and expenses.
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. On September 28, 2015, the loan and the associated interest were paid in full.
Advances to Real Estate Limited Partnership. The Company made an advance 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 September 30, 2014 were repaid in full on December 16, 2014. The Company recorded interest income on this loan of $19,000 and $56,000, respectively, for the three and nine months ended September 30, 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.
For certain relationships between the Company and RSO, reference is made to Note 19 - L. Related party transactions - RSO.
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, CIF and TBBK common stock (Level 1).

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 September 30, 2015, the Company held six securities of value within its trading portfolio, five of which were debt/equity investments in externally managed CDO issuers and one was a term loan (Level 3).
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 liability recorded at fair value on a recurring basis were as follows (in thousands): 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets - Investment securities
 
 
 
 
 
 
 
September 30, 2015
$
466

 
$
—

 
$
9,752

 
$
10,218

December 31, 2014
310

 
741

 
8,489

 
9,540

Liability - Apidos contractual commitment
Level 1
 
Level 2
 
Level 3
 
Total
September 30, 2015
$
—

 
$
—

 
$
627

 
$
627

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 nine months ended September 30, 2015 (in thousands):
 
Investment Securities
Balance, beginning of year
$
8,489

Purchases
2,054

Income accreted
906

Payments and distributions received, net
(1,468
)
Sales
(175
)
Impairment
(152
)
Losses on sales of trading securities
(15
)
Unrealized holding gains on trading securities
87

Change in unrealized gains included in accumulated other comprehensive loss
26

Balance, end of period
$
9,752

    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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
(13,235
)
Gain on sale of investment securities, net
445

Unrealized losses on trading securities
(200
)
Gains on trading securities
1,834

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

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 September 30, 2015
 
Valuation Technique
 
Unobservable Inputs
 
Assumptions
(weighted average)
CLO securities
$
8,439

 
Discounted cash flow
 
Constant default rate
 
0.5% - 2%
 
 
 
 
 
Loss severity rate
 
25%
 
 
 
 
 
Constant prepayment rate
 
25%
 
 
 
 
 
Reinvestment price on collateral
 
99.5%
 
 
 
 
 
Reinvestment spread
 
100% - 450%
 
 
 
 
 
Discount rates
 
14%
 
 
 
 
 
 
 
 
Trading securities
$
1,313

 
Net asset value
 
Value of underlying assets
 
variable
 
 
 
Discounted cash flow
 
Constant default rate
 
4% - 5%
 
 
 
 
 
Constant prepayment rate
 
30%
 
 
 
 
 
Loss severity rate
 
30% - 35%
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):
 
September 30, 2015
 
December 31, 2014
 
Carrying
Amount
 
Estimated Fair Value
 
Carrying
Amount
 
Estimated Fair Value
Borrowings:
 

 
 

 
 

 
 

Real estate debt
$
9,932

 
$
10,932

 
$
10,088

 
$
11,197

Senior Notes
10,000

 
12,515

 
10,000

 
12,820

Other debt
964

 
964

 
324

 
324

 
$
20,896

 
$
24,411

 
$
20,412

 
$
24,341

For cash, receivables and payables, the carrying amounts approximate fair value because of the short-term maturity of these instruments.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 September 30, 2015 and December 31, 2014.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
As of September 30, 2015, except for the executive compensation, the Company did not believe it was probable that any payments would be required under any of its contingencies and, accordingly, no liabilities were recorded in the consolidated financial statements. The Company's commitments and contingencies as of September 30, 2015 were as follows:
Corporate
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 $117,000 and $100,000 as of September 30, 2015 and December 31, 2014, respectively.  As of September 30, 2015 and December 31, 2014, Resource Securities net capital was $819,000 and $1.4 million, respectively, which exceeded the minimum requirements by $702,000 and $1.3 million, respectively.
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.
Executive compensation. The Company is also party to employment agreements with certain executives that provide for compensation and other benefits, including severance payments under specified circumstances.
Financial fund management
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 ($1.1 million as of September 30, 2015) to the extent that the limited partners’ aggregate capital contributions exceed the total partner distributions from the fund.  As of September 30, 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.
Fund capital commitments. In connection with the Company's investment in CVC Credit Partners, in its capacity as the fund manager for some of its managed accounts/funds, the Company is contractually committed to invest capital along with third-party investors. Accordingly, as of September 30, 2015, the Company’s pro-rata portion of the unfunded capital commitments totaled $5.4 million across five such funds/accounts. The Company expects these unfunded commitments to be called over the next two years. With respect to Resource Credit Opportunity Fund, LLC, an investment entity in the development stage that the Company plans to co-sponsor and manage, the Company is committed to fund $1.3 million in startup expenses. The liability for these commitments will be recorded in the future as the amounts become due and payable.
Real estate
REIT capital commitments. 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 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. Similarly, with respect to Apartment REIT III, 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 these commitments will be recorded in the future as the amounts become due and payable.
Pearlmark joint venture capital commitment. In connection with the Pearlmark joint venture, the Company is committed to fund up to $8.0 million, of which $5.0 million has been funded as of October 2015. The agreement limits the 2015 contributions to $6.0 million. This funding is reflected as the Company's investment in Pearlmark and will have a preference in distributions, plus a 10% internal rate of return, from the joint venture before any monies will be distributed to the other investors.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Commercial finance
Commercial finance partnership guarantee. In connection with the sale of a portfolio of leases and notes by one of the Company's commercial finance partnerships, the Company provided a guarantee to the buyer whereby the Company will reimburse the buyer in the event that one of the leases in the portfolio fails to make a $183,000 balloon payment on the due date. As of September 30, 2015, the lease is current and there is no indication that the payment will not be made timely; accordingly, no liability has been recorded for this contingency.
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 
 September 30, 2015
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Eliminations
 
Total
Consolidation
Revenues from external customers
 
$
16,788

 
$
2,380

 
$
71

 
$
—

 
$
19,239

 
$
23,705

 
$
(3,094
)
 
$
39,850

Equity in earnings (losses) of unconsolidated entities
 
(593
)
 
2,028

 
(5
)
 
—

 
1,430

 
—

 
(603
)
 
827

Total revenues
 
16,195

 
4,408

 
66

 
—

 
20,669

 
23,705

 
(3,697
)
 
40,677

Segment operating expenses
 
(11,223
)
 
(3,369
)
 
(434
)
 
—

 
(15,026
)
 
(15,994
)
 
3,077

 
(27,943
)
General and administrative expenses
 
(1,260
)
 
(154
)
 
—

 
(2,639
)
 
(4,053
)
 
—

 
—

 
(4,053
)
Provision for credit losses
 
(3
)
 
—

 
403

 
—

 
400

 
—

 
—

 
400

Depreciation and amortization
 
(318
)
 
(15
)
 
—

 
(171
)
 
(504
)
 
—

 
—

 
(504
)
Impairment on available for sale securities
 
—

 
(151
)
 
—

 
—

 
(151
)
 
—

 
—

 
(151
)
Interest expense
 
(177
)
 
—

 
—

 
(273
)
 
(450
)
 
—

 
—

 
(450
)
Other income (expense), net
 
250

 
433

 
(265
)
 
(32
)
 
386

 
5,215

 
(438
)
 
5,163

Pretax loss (income) attributable to noncontrolling interests (2)
 
(37
)
 
—

 
—

 
—

 
(37
)
 
(7,944
)
 
(6,699
)
 
(14,680
)
Income (loss) from continuing operations, net of noncontrolling interests before taxes
 
$
3,427

 
$
1,152

 
$
(230
)
 
$
(3,115
)
 
$
1,234

 
$
4,982

 
$
(7,757
)
 
$
(1,541
)
Nine Months Ended 
 September 30, 2015
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Eliminations
 
Total
Consolidation
Revenues from external customers
 
$
52,787

 
$
8,471

 
$
104

 
$
—

 
$
61,362

 
$
72,267

 
$
(9,916
)
 
$
123,713

Equity in earnings (losses) of unconsolidated entities
 
1,490

 
5,855

 
(38
)
 
—

 
7,307

 
—

 
(2,158
)
 
5,149

Total revenues
 
54,277

 
14,326

 
66

 
—

 
68,669

 
72,267

 
(12,074
)
 
128,862

Segment operating expenses
 
(34,804
)
 
(9,513
)
 
(1,471
)
 
—

 
(45,788
)
 
(91,589
)
 
9,813

 
(127,564
)
General and administrative expenses
 
(3,515
)
 
(889
)
 
—

 
(7,127
)
 
(11,531
)
 
—

 
—

 
(11,531
)
Provision for credit losses
 
(311
)
 
—

 
33

 
—

 
(278
)
 
—

 
—

 
(278
)
Depreciation and amortization
 
(973
)
 
(47
)
 
—

 
(456
)
 
(1,476
)
 
—

 
—

 
(1,476
)
Impairment on available for sale securities
 
—

 
(4,497
)
 
—

 
—

 
(4,497
)
 
—

 
—

 
(4,497
)
Interest expense
 
(539
)
 
—

 
(1
)
 
(786
)
 
(1,326
)
 
—

 
—

 
(1,326
)
Other income (expense), net
 
721

 
1,349

 
(262
)
 
(419
)
 
1,389

 
32,268

 
(1,359
)
 
32,298

Pretax income attributable to noncontrolling interests (2)
 
(92
)
 
—

 
—

 
—

 
(92
)
 
(24,808
)
 
14,420

 
(10,480
)
Income (loss) from continuing operations, net of noncontrolling interests before taxes
 
$
14,764

 
$
729

 
$
(1,635
)
 
$
(8,788
)
 
$
5,070

 
$
(11,862
)
 
$
10,800

 
$
4,008


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Three Months Ended 
 September 30, 2014
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Eliminations
 
Total
Consolidation
Revenues from external customers
 
$
14,377

 
$
4,320

 
$
21

 
$
—

 
$
18,718

 
$
25,811

 
$
(3,645
)
 
$
40,884

Equity in (losses) earnings of unconsolidated entities
 
(88
)
 
1,237

 
(38
)
 
—

 
1,111

 
—

 
(491
)
 
620

Total revenues
 
14,289

 
5,557

 
(17
)
 
—

 
19,829

 
25,811

 
(4,136
)
 
41,504

Segment operating expenses
 
(9,384
)
 
(2,812
)
 
(125
)
 
—

 
(12,321
)
 
(15,447
)
 
3,502

 
(24,266
)
General and administrative expenses
 
(804
)
 
(416
)
 
—

 
(1,206
)
 
(2,426
)
 
—

 
—

 
(2,426
)
Reversal of (provision for) credit losses
 
(8
)
 
—

 
(551
)
 
—

 
(559
)
 
—

 
—

 
(559
)
Depreciation and amortization
 
(309
)
 
(16
)
 
—

 
(128
)
 
(453
)
 
—

 
—

 
(453
)
Gain on sale of investment securities, net
 
—

 
69

 
—

 
—

 
69

 
—

 
—

 
69

Interest expense
 
(190
)
 
—

 
(2
)
 
(275
)
 
(467
)
 
—

 
—

 
(467
)
Other income, net
 
280

 
533

 
19

 
(180
)
 
652

 
3,730

 
(561
)
 
3,821

Pretax loss (income) attributable to noncontrolling interests (2)
 
(9
)
 
—

 
—

 
—

 
(9
)
 
(14,214
)
 
—

 
(14,223
)
Income (loss) from continuing operations, net of noncontrolling interests before taxes
 
$
3,865

 
$
2,915

 
$
(676
)
 
$
(1,789
)
 
$
4,315

 
$
(120
)
 
$
(1,195
)
 
$
3,000

Nine Months Ended 
 September 30, 2014
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Eliminations
 
Total
Consolidation
Revenues from external customers
 
$
41,681

 
$
17,136

 
$
21

 
$
—

 
$
58,838

 
$
74,884

 
$
(9,565
)
 
$
124,157

Equity in (losses) earnings of unconsolidated entities
 
(669
)
 
3,637

 
(179
)
 
—

 
2,789

 
—

 
(491
)
 
2,298

Total revenues
 
41,012

 
20,773

 
(158
)
 
—

 
61,627

 
74,884

 
(10,056
)
 
126,455

Segment operating expenses
 
(27,364
)
 
(9,980
)
 
(351
)
 
—

 
(37,695
)
 
(43,585
)
 
9,374

 
(71,906
)
General and administrative expenses
 
(2,631
)
 
(1,314
)
 
—

 
(4,364
)
 
(8,309
)
 
—

 
—

 
(8,309
)
Reversal of (provision for) credit losses
 
2

 
—

 
(3,344
)
 
—

 
(3,342
)
 
—

 
—

 
(3,342
)
Depreciation and amortization
 
(927
)
 
(47
)
 
—

 
(395
)
 
(1,369
)
 
—

 
—

 
(1,369
)
Gain on sale of investment securities, net
 
—

 
439

 
—

 
—

 
439

 
—

 
—

 
439

Interest expense
 
(577
)
 
—

 
(11
)
 
(859
)
 
(1,447
)
 
—

 
—

 
(1,447
)
Other income, net
 
647

 
1,659

 
17

 
(344
)
 
1,979

 
17,527

 
(1,687
)
 
17,819

Pretax income attributable to noncontrolling interests (2)
 
(53
)
 
—

 
—

 
—

 
(53
)
 
(48,759
)
 
—

 
(48,812
)
Income (loss) from continuing operations including noncontrolling interests before taxes
 
$
10,109

 
$
11,530

 
$
(3,847
)
 
$
(5,962
)
 
$
11,830

 
$
67

 
$
(2,369
)
 
$
9,528

Segment assets
 
Real
Estate
 
Financial
Fund
Management
 
Commercial
Finance
 
All
Other (1)
 
Total
RAI
 
RSO
 
Total
Consolidation
September 30, 2015
 
$
201,835

 
$
38,816

 
$
4,469

 
$
(87,168
)
 
$
157,952

 
$
2,786,042

 
$
2,943,994

September 30, 2014
 
$
187,668

 
$
58,689

 
$
4,301

 
$
(76,569
)
 
$
174,089

 
$
2,589,013

 
$
2,763,102

 
(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.    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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)
SEPTEMBER 30, 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):
 
 
 
 
September 30,
2015
 
December 31, 2014
ASSETS (1)
 
 
 
Cash and cash equivalents
$
104,735

 
$
79,905

Restricted cash
24,110

 
122,138

Subtotal - Cash and cash equivalents
128,845

 
202,043

Investment securities, trading
25,715

 
20,786

Investment securities available-for-sale, pledged as collateral, at fair value
118,797

 
197,800

Investment securities available-for-sale, at fair value
115,803

 
77,920

Subtotal - Investments, at fair value
260,315

 
296,506

Loans, pledged as collateral and net of allowances of $47.3 million and $4.6 million
2,118,978

 
1,925,980

Loans receivable–related party
—

 
558

Loans held for sale ($113.0 million and $113.4 million at fair value)
116,001

 
113,675

Subtotal - Loans, before eliminations
2,234,979

 
2,040,213

Eliminations
—

 
(558
)
Subtotal - Loans
2,234,979

 
2,039,655

Property held for sale
180

 
180

Investments in unconsolidated entities
55,858

 
59,827

Subtotal, Investments in real estate and unconsolidated entities
56,038

 
60,007

Line items included in "other assets":
 
 
 
Linked transactions, net at fair value
—

 
15,367

Derivatives, at fair value
3,730

 
5,304

Interest receivable
13,923

 
16,260

Deferred tax asset
11,351

 
12,634

Principal paydown receivable
32,100

 
40,920

Direct financing leases
1,135

 
2,109

Intangible assets
25,806

 
18,610

Prepaid expenses
5,049

 
4,196

Other assets
12,771

 
14,510

Subtotal - Other assets, before eliminations
105,865

 
129,910

Eliminations
—

 
(109
)
Subtotal - Other assets
105,865

 
129,801

Total assets (excluding eliminations)
$
2,786,042

 
$
2,728,679

Total assets (including eliminations)
$
2,786,042

 
$
2,728,012

LIABILITIES (2)
 

 
 

Borrowings
$
1,880,891

 
$
1,716,871

Eliminations
349

 
261

Subtotal Borrowings
1,881,240

 
1,717,132

Distribution payable
24,744

 
30,592

Accrued interest expense
5,437

 
2,123

Derivatives, at fair value
7,466

 
8,476

Accrued tax liability
4,697

 
9,219

Accounts payable and other liabilities
9,531

 
9,287

Subtotal - Other liabilities, before eliminations
51,875

 
59,697

Eliminations
(2,424
)
 
(2,596
)
Subtotal - Other liabilities
49,451

 
57,101

Total liabilities (before eliminations)
$
1,932,766

 
$
1,776,568

Total liabilities (after eliminations)
$
1,930,691

 
$
1,774,233


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

RSO Balance Sheets Detail (in thousands):
 
 
 
 
September 30,
2015
 
December 31,
2014
(1) Assets of consolidated Variable Interest Entities ("VIE") included in total assets above:
 
 
 
Cash and cash equivalents
$
188

 
$
25

Restricted cash
22,206

 
121,247

        Investments securities available-for-sale, pledged as collateral, at fair value
76,517

 
119,203

        Loans held for sale
2,994

 
282

        Loans, pledged as collateral and net of allowances of $43.0 million and $3.3 million
1,566,454

 
1,261,137

        Interest receivable
7,848

 
8,941

        Prepaid expenses
194

 
221

        Principal paydown receivable
32,100

 
25,767

        Other assets
882

 
(12
)
        Total assets of consolidated RSO VIEs
$
1,709,383

 
$
1,536,811

 
 
 
 
(2) Liabilities of consolidated VIEs included in total liabilities above:
 
 
 
        Borrowings
$
1,189,092

 
$
1,046,494

        Accrued interest expense
953

 
1,000

        Derivatives, at fair value
4,774

 
8,439

Unsettled loan purchases
—

 
(529
)
        Accounts payable and other liabilities
208

 
(386
)
        Total liabilities of consolidated RSO VIEs
$
1,195,027

 
$
1,055,018




RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

RSO Operations Statement Detail (in thousands):
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
REVENUES
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Loans
$
33,502

 
$
27,026

 
$
95,924

 
$
73,474

Securities
4,866

 
5,168

 
14,418

 
12,563

Leases
(8
)
 
—

 
250

 
—

Interest income − other
968

 
1,647

 
2,919

 
5,481

Total interest income
39,328

 
33,841

 
113,511

 
91,518

Interest expense
16,906

 
11,508

 
47,611

 
31,746

Net interest income
22,422

 
22,333

 
65,900

 
59,772

Rental income
—

 
1,118

 
—

 
7,777

Dividend income
17

 
16

 
50

 
169

Fee income
1,266

 
2,344

 
6,317

 
7,166

Revenues from consolidated VIE-RSO
23,705

 
25,811

 
72,267

 
74,884

OPERATING EXPENSES
 

 
 

 
 
 
 
Management fees − related party
3,252

 
3,606

 
10,312

 
10,000

Equity compensation − related party
(225
)
 
798

 
1,561

 
4,497

Rental operating expense
—

 
695

 
6

 
5,168

Lease operating
(33
)
 
—

 
14

 
—

General and administrative - Corporate
4,372

 
3,716

 
13,222

 
11,305

General and administrative - PCM
6,966

 
4,631

 
20,767

 
12,196

Depreciation and amortization
628

 
562

 
1,814

 
2,158

Impairment losses
—

 
—

 
59

 
—

Provision (recovery) for loan losses
1,034

 
1,439

 
43,834

 
(1,739
)
Expenses of consolidated VIE-RSO
15,994

 
15,447

 
91,589

 
43,585

Adjusted operating income
7,711

 
10,364

 
(19,322
)
 
31,299

OTHER INCOME (EXPENSE)
 

 
 

 
 
 
 
Equity in earnings of unconsolidated subsidiaries
334

 
887

 
1,702

 
4,663

Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
5,812

 
4,226

 
29,980

 
7,962

Net realized and unrealized gains (loss) on investment securities, trading
(580
)
 
376

 
1,773

 
(1,834
)
Unrealized gain (loss) and net interest income on linked transactions, net
—

 
177

 
235

 
7,494

(Loss) on reissuance/gain on extinguishment of debt
(332
)
 
(1,867
)
 
(1,403
)
 
(2,469
)
(Loss) gain on sale of real estate
(19
)
 
(69
)
 
(19
)
 
2,973

Other income (expense)
—

 
—

 
—

 
(1,262
)
Other income, net, from consolidated VIE - RSO
5,215

 
3,730

 
32,268

 
17,527

Income from continuing operations
12,926

 
14,094

 
12,946

 
48,826

Income tax (expense) benefit - RSO
1,796

 
237

 
(2,969
)
 
667

NET INCOME (LOSS)
14,722

 
14,331

 
9,977

 
49,493

Net (loss) income allocated to preferred shares
(6,115
)
 
(5,545
)
 
(18,322
)
 
(11,303
)
Net (income) loss allocable to non-controlling interest, net of taxes
(1,829
)
 
(1,458
)
 
(6,486
)
 
(1,069
)
NET INCOME (LOSS) ALLOCABLE TO RSO COMMON SHAREHOLDERS
$
6,778

 
$
7,328

 
$
(14,831
)
 
$
37,121


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

RSO Cash Flow Detail (in thousands)
For the Nine Months Ended
 
September 30,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
9,977

 
$
49,493

Items included in "Change in cash attributable to consolidated VIE-RSO":
 
 
 
Provision for (recovery of) loan losses
43,834

 
(1,739
)
Depreciation, amortization, and accretion
10,122

 
2,463

Amortization of stock-based compensation
1,561

 
4,497

Amortization of (accretion) of terminated derivative instruments
1,219

 
212

Amortization (accretion)of interest-only available-for-sales securities
2,768

 
(573
)
Sale (origination) of residential mortgage loans held for sale, net
(647
)
 
(42,178
)
Sale (purchase) of and principal payments of securities, trading, net
(3,120
)
 
(3,571
)
Net realized and unrealized loss (gain) on investment securities, trading
(1,773
)
 
1,834

Net realized and unrealized (gain) loss on sales of investment securities available-for-sale and loans
(29,980
)
 
(15,487
)
Loss (gain) on the reissuance (extinguishment) of debt
1,403

 
2,469

Loss (gain) on sales of real estate
19

 
(2,973
)
Settlement of derivative instruments
3,870

 
(23
)
Net impairment losses recognized in earnings
59

 
—

      Unrealized gain (loss) of unconsolidated subsidiaries
(235
)
 
(5,713
)
      Equity in net (earnings) losses of unconsolidated subsidiaries
(1,702
)
 
(4,663
)
Changes in operating assets and liabilities, net of acquisitions
(3,225
)
 
6,067

Net cash provided by (used in) operating activities
24,173

 
(59,378
)
Change in consolidated VIE-RSO cash for the period
(24,830
)
 
99,001

Subtotal - Change in cash attributable to consolidated VIE-RSO before eliminations
(657
)
 
39,623

Elimination of intercompany activity
(97
)
 
2,714

Subtotal - Adjustments to reconcile net income (loss) and operating cash flows to net income (loss) of consolidated VIE-RSO
(754
)
 
42,337

Net cash provided by (used in ) operating activities of consolidated VIE-RSO (excluding eliminations)
34,150

 
(9,885
)

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

 
For the Nine Months Ended
 
September 30,
 
2015
 
2014
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchase and originations of loans
(629,832
)
 
(667,774
)
Purchase of securities available-for-sale
(28,375
)
 
(145,138
)
Subtotal - Purchase of loans and securities by consolidated VIE-RSO
(658,207
)
 
(812,912
)
Principal payments received on loans
294,901

 
315,778

Proceeds from sale of loans
108,446

 
76,314

Principal payments on securities available-for-sale
59,819

 
40,748

Proceeds from sale of securities available-for-sale
60,752

 
117,367

Principal payments received on loans - related parties
558

 
2,706

Investment in loans - related parties
—

 
(849
)
Subtotal - principal payments and proceeds from sales received by consolidated VIE-RSO, before eliminations
524,476

 
552,064

 
 
 
 
(Increase) decrease in restricted cash
96,887

 
18,328

 
 
 
 
Items included in "Other investing activity of consolidated VIE-RSO":
 
 
 
Return of capital from (investment in) unconsolidated entity
5,625

 
8,911

Acquisition of controlling interest in Moselle CLO S.A.
—

 
(30,433
)
Settlement of derivative instruments
8,028

 
(19,245
)
Proceeds from sale of real estate held-for-sale
47

 
31,639

Improvements of investments in real estate
—

 
(225
)
Purchase of furniture and fixtures
(10
)
 
(69
)
Acquisition of property and equipment
—

 
(362
)
Subtotal - Other investing activity of consolidated VIE-RSO, before eliminations
13,690

 
(9,784
)
Eliminations
(990
)
 
(391
)
Subtotal - Other investing activity of consolidated VIE-RSO
12,700

 
(10,175
)
Net cash used in investing activities of consolidated VIE-RSO
(excluding eliminations)
(23,154
)
 
(252,304
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

 
Nine Months Ended
 
September 30,
 
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
4,621

 
92,234

Senior secured revolving credit facility
110,500

 
35,500

Securitizations
505,862

 
235,344

Convertible senior notes
99,000

 
—

   Reissuance of debt
16,597

 
39,635

Payments on borrowings:
 
 
 
Securitization
(374,778
)
 
(301,040
)
Senior secured revolving credit facility
(62,000
)
 
—

Payment of debt issuance costs
(13,235
)
 
(7,284
)
Repurchase agreements, net of borrowings
(161,645
)
 
(33,719
)
Subtotal - net borrowings of debt by consolidated VIE-RSO
124,922

 
60,670

Distributions paid on common stock
(69,433
)
 
(77,636
)
Elimination of dividends paid to RAI
1,374

 
1,716

Distributions paid on common stock of consolidated VIE-RSO, after eliminations
(68,059
)
 
(75,920
)
Net proceeds from issuances of common stock and dividend reinvestment and stock purchase plan, net of offering costs
163

 
25,416

Proceeds from issuance of preferred shares, net of offering costs
3,033

 
152,152

Repurchase of common stock
(15,433
)
 
—

Subtotal - net proceeds from issuance of stock by consolidated VIE-RSO
(12,237
)
 
177,568

Distributions paid to non-controlling interests
(14,050
)
 
(1,384
)
Proceeds received from non-controlling interests
3,424

 
12,676

Distributions to subordinated note holders
(518
)
 
(799
)
Distributions paid on preferred stock
(18,274
)
 
(7,907
)
Subtotal - Other consolidated financing activity of consolidated VIE-RSO, before eliminations
(29,418
)
 
2,586

Eliminations
185

 
175

Subtotal - Other consolidated financing activity of consolidated VIE-RSO
(29,233
)
 
2,761

Net cash provided by financing activities of consolidated VIE-RSO, excluding eliminations
13,834

 
163,188

Net increase (decrease) in cash and cash equivalents
24,830

 
(99,001
)
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
$
104,735

 
$
163,269

 
 
 
 
Supplemental disclosures:
 

 
 

  Interest expense paid in cash
$
33,971

 
$
26,782

  Income taxes paid in cash
$
9,518

 
$
3,293



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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, which, generally is the entity that has the power to direct the activities that are most significant to the VIE and the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE. RSO continuously analyzes 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 the consolidation of an entity that would otherwise not have been consolidated or the non-consolidation of an entity that otherwise would have been consolidated.
Consolidated VIEs (RSO is the primary beneficiary)
Based on RSO management’s analysis, RSO is the primary beneficiary of 13 VIEs at September 30, 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, RCC 2015-CRE4, 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, RCC 2015-CRE4 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, RCC 2015-CRE3 and RCC 2015-CRE4 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 manages the commercial real estate-related entities on behalf of RSO, and CVC Credit Partners manages the commercial finance-related 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% of the 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 impact 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 subsequently sold.
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)
SEPTEMBER 30, 2015
(unaudited)

On July 9, 2014, RCC Residential, together with Resource America and certain Resource America employees, acquired through RCM Global a portfolio of securities from JP Morgan for $23.5 million.  The portfolio, is managed by Resource America. RCC Residential contributed $15.0 million for a 63.8% membership interest. Each of the members of RCM Global is allocated revenue and expenses of RCM Global in accordance with his or her 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 of the portfolio's remaining assets was 46.4% as of September 30, 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 operations.
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 13 consolidated VIEs have no recourse to the general credit of RSO. 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 and nine months ended September 30, 2015, RSO provided no financial support. For the three and nine months ended September 30, 2014, RSO provided financial support of $209,000 and $758,000, respectively. RSO has provided no other financial support to any other of its VIEs nor does RSO 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)
SEPTEMBER 30, 2015
(unaudited)

The following table shows the classification and carrying value of assets and liabilities of RSO's consolidated VIEs as of September 30, 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
 
RCC 2015-CRE4
 
Moselle
 
RCM Global, LLC
 
Total
ASSETS (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
188

 
$
188

Restricted cash (1)
71

 
192

 
14,503

 
116

 
24

 
255

 
1,686

 
—

 
—

 
5,005

 
354

 
—

 
22,206

Investment securities available-for-sale, pledged as collateral, at fair value
—

 
—

 
9,653

 
—

 
5,933

 
55,781

 
—

 
—

 
—

 
—

 
—

 
5,150

 
76,517

Loans, pledged as collateral
—

 
—

 
148,549

 
—

 
88,193

 
190,614

 
139,956

 
351,620

 
342,944

 
304,578

 
—

 
—

 
1,566,454

Loans held for sale
153

 
—

 
2,841

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,994

Interest receivable
—

 
—

 
805

 
—

 
350

 
1,329

 
740

 
1,324

 
1,241

 
1,109

 
—

 
950

 
7,848

Prepaid assets
—

 
5

 
29

 
—

 
69

 
74

 
12

 
5

 
—

 
—

 
—

 
—

 
194

Principal paydown receivable
—

 
—

 
—

 
—

 
—

 
—

 
32,100

 
—

 
—

 
—

 
—

 
—

 
32,100

Other assets
—

 
—

 
—

 
—

 
—

 
—

 
161

 
8

 
—

 
—

 
—

 
713

 
882

Total assets (2)
$
224

 
$
197

 
$
176,380

 
$
116

 
$
94,569

 
$
248,053

 
$
174,655

 
$
352,957

 
$
344,185

 
$
310,692

 
$
354

 
$
7,001

 
$
1,709,383

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Borrowings
$
—

 
$
—

 
$
152,310

 
$
—

 
$
52,820

 
$
127,195

 
$
125,833

 
$
232,030

 
$
278,444

 
$
220,403

 
$
57

 
$
—

 
$
1,189,092

Accrued interest expense
—

 
—

 
209

 
—

 
25

 
101

 
122

 
127

 
214

 
155

 
—

 
—

 
953

Derivatives, at fair value
—

 
—

 
—

 
—

 
197

 
4,577

 
—

 
—

 
—

 
—

 
—

 
—

 
4,774

Unsettled loan purchases
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Accounts payable and other liabilities
—

 
—

 
13

 
—

 
17

 
5

 
(2
)
 
10

 
—

 
—

 
154

 
11

 
208

Total liabilities
$
—

 
$
—

 
$
152,532

 
$
—

 
$
53,059

 
$
131,878

 
$
125,953

 
$
232,167

 
$
278,658

 
$
220,558

 
$
211

 
$
11

 
$
1,195,027

 
(1)
Includes $6.9 million designated to fund future commitments on specific commercial real estate loans 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 September 30, 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)
SEPTEMBER 30, 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. ("LCC"), a former 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 LCC. At the time of investment, RSO's investment in LCC 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 LCC 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 LCC, assuming conversion, was 28.4% at September 30, 2015. RSO's investment in LCC was recorded at $40.8 million and $39.4 million as of September 30, 2015 and December 31, 2014, respectively. RSO determined that it is not the primary beneficiary of LCC 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 LCC actions, including the 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 $8.1 million and $9.4 million at September 30, 2015 and December 31, 2014, respectively. RSO recognized fee income of $791,000 and $2.7 million for the for the three and nine months ended September 30, 2015, respectively, and $1.2 million and $4.0 million for the three and nine months ended September 30, 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 ownership of the outstanding preferred equity to 68.3%. 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)
SEPTEMBER 30, 2015
(unaudited)

Investment in ZAIS
In February 2015, RSO made an investment in ZAIS CLO 4 Limited, an offshore financing vehicle created to acquire and warehouse syndicated bank loans, through its wholly-owned, indirect subsidiary ZAIS and through its consolidated subsidiary Pelium Capital together with a certain Resource America employee. RSO, through ZAIS and Pelium Capital, committed to invest $10.0 million and $3.0 million, respectively, during the vehicle's warehousing period. The vehicle is managed by ZAIS Leveraged Loan Manager 4, LLC (the “Collateral Manager”), an entity unrelated to RSO or to Pelium Capital, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the entity. The Collateral Manager can be replaced either for cause by the entity’s administrative agent if there is an event of default or by a unanimous vote of the entity’s equity investors, excluding any preference shares held by the Collateral Manager or its affiliates. Although RSO has an investment in the entity that is potentially significant, because it was determined that RSO did not have the ability to kick out the collateral manager, RSO was not determined to be the primary beneficiary and, hence, not required to consolidate ZAIS CLO 4, Limited. As of September 30, 2015, RSO had invested $10.0 million and $3.0 million through ZAIS and Pelium Capital, respectively. RSO accounts for its investment in ZAIS as an investment security available-for-sale in its consolidated financial statements.
Investment in Harvest CLO XV Designated Activity Company
                In February 2015, RSO made an investment in Harvest CLO XV Designated Activity Company ("Harvest XV"), an offshore financing vehicle created to acquire and warehouse syndicated bank loans, through its wholly-owned, direct subsidiary Commercial II.  The vehicle is managed by 3i Debt Management Investments Limited (the “Collateral Manager”), an entity unrelated to RSO, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the entity.  The Collateral Manager can be replaced only for cause by the entity’s administrative agent.  Although RSO has an investment in the entity that is potentially significant, because it was determined that RSO did not have the ability to unilaterally kick out the collateral manager, RSO was not determined to be the primary beneficiary and, hence, not required to consolidate Harvest XV.  As of September 30, 2015, RSO had invested $11.2 million in Harvest XV's warehouse.  RSO accounts for its investment in Harvest XV as an investment security available-for-sale in its consolidated financial statements.
The following table shows the classification, carrying value and maximum exposure to loss with respect to RSO’s unconsolidated VIEs as of September 30, 2015 (in thousands):
 
Unconsolidated Variable Interest Entities
 
 
 
LCC
 
Unsecured Junior Subordinated Debentures
 
Resource Capital Asset Management CDOs
 
Investment in ZAIS and Harvest XV
 
Total
 
Maximum Exposure to Loss
Investment in unconsolidated entities
$
40,779

 
$
1,548

 
$
—

 
$
24,471

 
$
66,798

 
$
66,798

Intangible assets
—

 
—

 
8,088

 
—

 
8,088

 
8,088

Total assets
40,779

 
1,548

 
8,088

 
24,471

 
74,886

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Borrowings
—

 
51,360

 
—

 
—

 
51,360

 
N/A
Total liabilities
—

 
51,360

 
—

 
—

 
51,360

 
N/A
Net asset (liability)
$
40,779

 
$
(49,812
)
 
$
8,088

 
$
24,471

 
$
23,526

 
N/A
As of September 30, 2015, there were no explicit arrangements or implicit variable interests that could require RSO to provide financial support to any of its unconsolidated VIEs.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

C.
Supplemental cash flow information - RSO
Supplemental disclosure of cash flow information is summarized for the periods indicated (in thousands):
 
For the Nine Months Ended
 
September 30,
 
2015
 
2014
Non-cash operating activities include the following:
 
 
 
Reclassification of linked transactions, net at fair value to investment securities available-for-sale, pledged as collateral, at fair value and borrowings (1)
$
15,367

 
$
—

 
 
 
 
Non-cash investing activities include the following:
 
 
 
Reclassification of linked transactions, net at fair value to investment securities available-for-sale, pledged as collateral, at fair value (1)
$
48,764

 
$
—

 
 
 
 
Non-cash financing activities include the following:
 
 
 

Distributions on common stock declared but not paid
$
20,667

 
$
26,629

Distributions on preferred stock declared but not paid
$
4,077

 
$
5,555

Reclassification of linked transactions, net at fair value to borrowings (1)
$
33,397

 
$
—

 
(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 its investment securities available-for-sale, pledged as collateral, at fair value and related repurchase agreements 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 mortgage debt.
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
As of September 30, 2015:
 
 
 
 
 
 
 
Structured notes
$
26,635

 
$
1,952

 
$
(2,872
)
 
$
25,715

RMBS
1,896

 
—

 
(1,896
)
 
—

Total
$
28,531

 
$
1,952

 
$
(4,768
)
 
$
25,715

 
 
 
 
 
 
 
 
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 19 and two securities during the nine months ended September 30, 2015 and 2014, for a net realized gain of approximately $1.4 million and $2.5 million, respectively. RSO held 50 and 37 investment securities, trading as of September 30, 2015 and December 31, 2014, respectively.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 September 30, 2015:
 
 
 
 
 
 
 
CMBS
$
175,167

 
$
3,902

 
$
(1,244
)
 
$
177,825

RMBS
2,286

 
111

 
(77
)
 
2,320

ABS
47,110

 
5,419

 
(381
)
 
52,148

Corporate bonds
2,420

 
—

 
(113
)
 
2,307

Total
$
226,983

 
$
9,432

 
$
(1,815
)
 
$
234,600

 
 
 
 
 
 
 
 
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 September 30, 2015 and December 31, 2014, $118.8 million and $197.8 million, respectively, of investment securities available-for-sale were pledged as collateral under related financings.     
The following table summarizes the estimated maturities of RSO’s CMBS, RMBS, ABS and corporate bonds according to their estimated weighted average life classifications (in thousands, except percentages):
Weighted Average Life
Fair Value
 
Amortized Cost
 
Weighted Average Coupon
As of September 30, 2015:
 
 
 
 
 
Less than one year
$
125,357

(1) 
$
124,387

 
8.18
%
Greater than one year and less than five years
82,189

 
77,757

 
6.66
%
Greater than five years and less than ten years
13,643

 
11,779

 
10.19
%
Greater than ten years
13,411

 
13,060

 
9.02
%
Total
$
234,600

 
$
226,983

 
7.81
%
 
 
 
 
 
 
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 and ABS will either be extended or the security will be paid in full.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

At September 30, 2015, the contractual maturities of the CMBS investment securities available-for-sale range from October 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 October 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
September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS
$
73,950

 
$
(340
)
 
38

 
$
16,649

 
$
(904
)
 
13

 
$
90,599

 
$
(1,244
)
 
51

ABS
7,082

 
(195
)
 
8

 
1,132

 
(186
)
 
8

 
8,214

 
(381
)
 
16

Corporate Bonds
945

 
(6
)
 
2

 
1,362

 
(107
)
 
1

 
2,307

 
(113
)
 
3

RMBS
1,241

 
(77
)
 
2

 
—

 
—

 
—

 
1,241

 
(77
)
 
2

Total temporarily
impaired securities
$
83,218

 
$
(618
)
 
50

 
$
19,143

 
$
(1,197
)
 
22

 
$
102,361

 
$
(1,815
)
 
72

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 
CMBS
$
35,860

 
$
(555
)
 
22

 
$
25,583

 
$
(2,647
)
 
13

 
$
61,443

 
$
(3,202
)
 
35

ABS
1,000

 
(278
)
 
8

 
958

 
(58
)
 
3

 
1,958

 
(336
)
 
11

Corporate Bonds
1,447

 
(18
)
 
1

 
—

 
—

 
—

 
1,447

 
(18
)
 
1

Total temporarily
impaired securities
$
38,307

 
$
(851
)
 
31

 
$
26,541

 
$
(2,705
)
 
16

 
$
64,848

 
$
(3,556
)
 
47

The unrealized losses in the above table are considered to be temporary impairments due to market factors and are not reflective of credit deterioration.
During the nine months ended September 30, 2015 and 2014, RSO did not recognize other-than-temporary impairment on its investment securities available-for-sale.
The following table summarizes RSO's sales of investment securities available-for-sale, (in thousands, except number of securities):
 
For the Three Months Ended
 
For the Nine Months Ended
 
Positions Sold
 
Positions Redeemed
 
Par Amount Sold/Redeemed
 
Realized Gain (Loss)
 
Positions Sold
 
Positions Redeemed
 
Par Amount Sold/Redeemed
 
Realized Gain (Loss)
September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABS
8
 
—
 
$
15,462

 
$
2,437

 
15
 
—
 
$
31,399

 
$
10,547

RMBS
—
 
—
 
$
—

 
$
—

 
0.006
 
—
 
$
28,305

 
$
984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABS
3
 
—
 
$
6,947

 
$
2,974

 
3
 
—
 
$
9,447

 
$
3,000

Corporate bonds
—
 
1
 
$
1,000

 
$
48

 
—
 
—
 
$
1,630

 
$
47

CMBS
—
 
—
 
$
—

 
$
—

 
6
 
—
 
$
28,470

 
$
182




RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

F.
Loans - RSO
The following is a summary of RSO’s loans (in thousands):
Loan Description
 
Principal
 
Unamortized (Discount) Premium, Net (1)
 
Carrying
Value (2)
As of September 30, 2015:
 
 
 
 
 
 
Commercial real estate loans:
 
 

 
 

 
 

Whole loans
 
$
1,612,442

 
$
(9,057
)
 
$
1,603,385

B notes
 
15,984

 
(20
)
 
15,964

Mezzanine loans
 
45,382

 
5

 
45,387

Total commercial real estate loans
 
1,673,808

 
(9,072
)
 
1,664,736

Bank loans
 
150,122

 
(489
)
 
149,633

Middle market loans
 
350,325

 
(854
)
 
349,471

Residential mortgage loans, held for investment
 
2,422

 
—

 
2,422

Subtotal loans before allowance
 
2,176,677

 
(10,415
)
 
2,166,262

Allowance for loan loss
 
(47,284
)
 
—

 
(47,284
)
Total loans held for investment, net of allowance
 
2,129,393

 
(10,415
)
 
2,118,978

Bank loans held for sale
 
2,994

 
—

 
2,994

Residential mortgage loans held for sale, at fair value (3)
 
113,007

 
—

 
113,007

Total loans held for sale
 
116,001

 
—

 
116,001

Total loans, net
 
$
2,245,394

 
$
(10,415
)
 
$
2,234,979

 
 
 
 
 
 
 
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 held for investment, net of allowance
 
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)
 
113,393

 
—

 
113,393

Total loans held for sale
 
113,675

 
—

 
113,675

Total loans, net
 
$
2,049,468

 
$
(9,813
)
 
$
2,039,655

 
(1)
Amounts include deferred amendment fees of $45,000 and $88,000 and deferred upfront fees of $19,000 and $82,000 being amortized over the life of the bank loans as of September 30, 2015 and December 31, 2014, respectively.  Amounts include loan origination fees of $9.5 million and $8.1 million as of September 30, 2015 and December 31, 2014, respectively.
(2)
Substantially all loans are pledged as collateral under various borrowings at September 30, 2015 and December 31, 2014, respectively.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

(3)
Residential mortgage loans held for sale, at fair value consisted of $60.5 million and $52.5 million of agency-conforming and jumbo mortgage loans, respectively, as of September 30, 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. Amortized cost approximates fair value.
Commercial Real Estate Loans
The following is a summary of the Company's commercial real estate loans held for investment (in thousands):
Description
 
Quantity
 
Amortized
Cost
 
Contracted
Interest Rates
 
Maturity
Dates (3)
As of September 30, 2015:
 
 
 
 
 
 
 
 
Whole loans, floating rate (1) (4) (5)
 
86
 
$
1,603,385

 
LIBOR plus 1.75% to
LIBOR plus 15.00%
 
October 2015 to February 2019
B notes, fixed rate
 
1
 
15,964

 
8.68%
 
April 2016
Mezzanine loans, fixed rate (6)
 
2
 
45,387

 
9.01%
 

September 2016
Total (2) 
 
89
 
$
1,664,736

 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
3
 
54,808

 
0.50% to 18.71%
 
January 2016 to
September 2019
Total (2) 
 
78
 
$
1,347,030

 
 
 
 
 
(1)
Whole loans had $103.9 million and $105.1 million in unfunded loan commitments as of September 30, 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)
Totals do not include allowance for loan loss of $42.1 million and $4.0 million as of September 30, 2015 and December 31, 2014, respectively.
(3)
Maturity dates do not include possible extension options that may be available to the borrowers.
(4)
Includes 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 September 30, 2015 and December 31, 2014.
(5)
Includes a $799,000 junior mezzanine tranche of a whole loan that has a fixed rate of 10.0% as of September 30, 2015 and December 31, 2014.
(6)
Contracted interest rates and maturity dates do not include rates or maturity dates associated with one loan with an amortized cost of $38.1 million that was fully reserved as of June 30 2015.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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 September 30, 2015:
 
 
 
 
 
 
 
 
B notes
 
$
—

 
$
—

 
$
15,964

 
$
15,964

Mezzanine loans
 
—

 
38,072

 
7,315

 
45,387

Whole loans
 
—

 
39,527

 
1,563,858

 
1,603,385

Total (1) 
 
$
—

 
$
77,599

 
$
1,587,137

 
$
1,664,736

 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2015, approximately 30.4%, 23.3% and 5.9% of RSO’s commercial real estate loan portfolio was concentrated in Texas, California and Arizona, respectively. At December 31, 2014, approximately 27.4%, 27.3%, and 7.3% of RSO’s commercial real estate loan portfolio was concentrated in California, Texas and Arizona, respectively.
Bank Loans
At September 30, 2015, RSO’s bank loan portfolio, including loans held for sale, consisted of $151.5 million (net of allowance of $1.1 million) of floating rate loans, which bear interest ranging between the three month London Interbank Offered Rate ("LIBOR") plus 1.25%, and the three month LIBOR plus 8.00% with maturity dates ranging from October 2015 to February 2024.
At December 31, 2014, RSO’s bank loan portfolio, including loans held for sale, 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 1.25%, and the three month LIBOR plus 8.75% with maturity dates ranging from January 2015 to February 2024.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

The following table provides information as to the lien position and status of RSO bank loans, at amortized cost (in thousands):
 
Apidos I
 
Apidos III
 
Apidos Cinco
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
Loans held for investment:
 
 
 
 
 
 
 
First lien loans
$
—

 
$
—

 
$
146,651

 
$
146,651

Second lien loans
—

 
—

 
2,508

 
2,508

Third lien loans
—

 
—

 
—

 
—

Defaulted first lien loans
—

 
—

 
215

 
215

Defaulted second lien loans
—

 
—

 
259

 
259

Total
—

 
—

 
149,633

 
149,633

First lien loans held for sale at fair value
153

 
—

 
2,841

 
2,994

Total
$
153

 
$
—

 
$
152,474

 
$
152,627

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Loans held for investment:
 

 
 

 
 

 
 

First lien loans
$
153

 
$
80,196

 
$
245,377

 
$
325,726

Second lien loans
—

 
—

 
3,572

 
3,572

Third lien loans
—

 
—

 
—

 
—

Defaulted first lien loans
—

 
—

 
—

 
—

Defaulted second lien loans
—

 
971

 
379

 
1,350

Total
153

 
81,167

 
249,328

 
330,648

First lien loans held for sale at fair value
—

 
—

 
282

 
282

Total
$
153

 
$
81,167

 
$
249,610

 
$
330,930

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):
 
September 30,
2015
 
December 31,
2014
Less than one year
$
2,518

 
$
7,829

Greater than one year and less than five years
145,216

 
274,332

Five years or greater
4,893

 
48,769

 
$
152,627

 
$
330,930

At September 30, 2015 approximately 13.2%, 12.5% and 9.6%, of RSO’s bank loan portfolio was concentrated in the collective industry grouping of automobile, diversified/conglomerate service, and healthcare, education, and childcare, respectively. At December 31, 2014, approximately 8.5%, 11.7% and 17.5% of RSO’s bank loan portfolio was concentrated in the collective industry grouping of automobile, diversified/conglomerate service and healthcare, education, and childcare, respectively.
Middle Market Loans
At September 30, 2015, RSO’s middle market loan portfolio consisted of $345.4 million (net of allowance of $4.1 million) of floating rate loans, which bear interest ranging between the one or three month London Interbank Offered Rate ("LIBOR") plus 6.25% and one or three month LIBOR plus 11.75% with maturity dates ranging from December 2016 to July 2023.
At December 31, 2014, RSO’s middle market portfolio consisted of $250.1 million of floating rate loans, which bore interest ranging between the one or 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)
SEPTEMBER 30, 2015
(unaudited)

The following table provides information as to the lien position and status of middle market loans, at amortized cost (in thousands):
 
September 30,
2015
 
December 31,
2014
First Lien
$
221,961

 
$
149,287

Second Lien
122,554

 
100,826

First Lien Defaulted
—

 
—

Second Lien Defaulted
4,956

 
—

 
$
349,471

 
$
250,113

The following is a summary of the weighted average maturity of RSO’s middle market loans, at amortized cost (in thousands):
 
September 30,
2015
 
December 31,
2014
Less than one year
$
—

 
$
—

Greater than one year and less than five years
210,773

 
132,353

Five years or greater
138,698

 
117,760

 
$
349,471

 
$
250,113

At September 30, 2015 and December 31, 2014, approximately 13.0% and 2.8%, respectively, of RSO's middle market loan portfolio was concentrated in the collective industry grouping of diversified and conglomerate service and 13.0% and 13.7%, respectively, of RSO's middle market loan portfolio was concentrated in the collective industry grouping of personal, food and miscellaneous service.

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 September 30, 2015:
 
 
 
 
B notes
 
$
20

 
0.04%
Mezzanine loans
 
38,080

 
80.54%
Whole loans
 
4,014

 
8.49%
Bank loans
 
1,084

 
2.29%
Middle market loans
 
4,086

 
8.64%
Total
 
$
47,284

 
 
 
 
 
 
 
As of December 31, 2014:
 
 

 
 
B notes
 
$
55

 
1.19%
Mezzanine loans
 
230

 
4.99%
Whole loans
 
3,758

 
81.46%
Bank loans
 
570

 
12.36%
Total
 
$
4,613

 
 

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 to the outstanding loan balance. At September 30, 2015, principal paydown receivables relating to RSO's loan portfolio totaled $32.1 million, the entirety of which RSO received in cash in October 2015. At December 31, 2014, principal paydown receivables relating to RSO's loan portfolio totaled $40.9 million, the entirety of which RSO received in cash during January 2015.
During the quarter ended September 30, 2015, approximately 46.7% of RSO's residential mortgage loans were originated in Georgia, 10.5% in Utah, 9.1% in Virginia, 5.2% in Florida and 4.1% in South Carolina. During the year ended 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.
G.
Investments in unconsolidated entities - RSO
The following table shows RSO's investments in unconsolidated entities as of September 30, 2015 and December 31, 2014 and equity in earnings of unconsolidated subsidiaries for the three and nine months ended September 30, 2015 and 2014 (in thousands):
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated Subsidiaries
 
 
 
Balance as of
 
Balance as of
 
For the three months ended
 
For the nine months ended
 
For the three months ended
 
For the nine months ended
 
Ownership %
 
September 30,
2015
 
December 31, 2014
 
September 30,
2015
 
September 30,
2015
 
September 30,
2014
 
September 30,
2014
Värde Investment
Partners, L.P.
7.5%
 
$
654

 
$
654

 
$
—

 
$
—

 
$
—

 
$
(19
)
RRE VIP
Borrower, LLC (1)
3% to 5%
 
—

 
—

 
—

 
46

 
770

 
2,506

Investment in
LCC Preferred Stock
28.4%
 
40,779

 
39,416

 
961

 
1,362

 
13

 
(859
)
Investment in CVC Global Credit Opportunities Fund (2)
14.1%
 
12,877

 
18,209

 
(628
)
 
293

 
47

 
2,004

Investment in Life Care Funding  (3)
60.7%
 
—

 
—

 
—

 
—

 
—

 
(75
)
Investment in School Lane House (1)

 
—

 
—

 
1

 
1

 
57

 
1,106

Subtotal
 
 
54,310

 
58,279

 
334

 
1,702

 
887

 
4,663

Investment in
RCT I and II (4)
3.0%
 
1,548

 
1,548

 
(610
)
 
(1,805
)
 
(601
)
 
(1,785
)
Investment in
Preferred Equity (1)(5)

 
—

 
—

 
—

 
—

 
—

 
410

Total
 
 
$
55,858

 
$
59,827

 
$
(276
)
 
$
(103
)
 
$
286

 
$
3,288

 
(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 March 2015, RSO elected a partial redemption of $5.0 million from the fund.
(3)
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 following the additional investment and consolidation.
(4)
For the three and nine months ended September 30, 2015 and 2014, these amounts are recorded in interest expense on RSO's consolidated statements of operations.
(5) For the nine months ended September 30, 2014, these amounts are recorded in interest income on loans on RSO's consolidated statements of operations.     

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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 September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
Allowance for losses at January 1, 2015
$
4,043

 
$
570

 
$
—

 
$
—

 
$
—

 
$
4,613

Provision (recovery) for loan losses
38,025

 
1,912

 
4,223

 
(110
)
 
(216
)
 
43,834

Loans charged-off
—

 
(1,398
)
 
(137
)
 
110

 
216

 
(1,209
)
Recoveries
46

 
—

 
—

 
—

 
—

 
46

Allowance for losses at September 30, 2015
$
42,114

 
$
1,084

 
$
4,086

 
$
—

 
$
—

 
$
47,284

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
40,274

 
$
345

 
$
4,086

 
$
—

 
$
—

 
$
44,705

Collectively evaluated for impairment
$
1,840

 
$
739

 
$
—

 
$
—

 
$
—

 
$
2,579

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans:
 

 
 

 
 
 
 

 
 

 
 

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
129,078

 
$
474

 
$
349,471

 
$
—

 
$
—

 
$
479,023

Collectively evaluated for impairment 
$
1,535,658

 
$
149,159

 
$
—

 
$
2,422

 
$
—

 
$
1,687,239

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 (recovery) 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:
 
 
 
 
 
 
 
 
 
 
 
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
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—



RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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.  A loan with a rating of a 1 is considered performing within expectations, a loan with a rating of a 2 is considered watching closely with limited liquidity concerns, a loan with a rating of a 3 is considered to have possible future liquidity concerns, a loan with a rating of a 4 is considered to have nearer term liquidity concerns, and a loan with a rating of 5 has defaulted. 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 September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank loans
$
133,727

 
$
10,836

 
$
2,148

 
$
2,448

 
$
474

 
$
2,994

 
$
152,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 current with respect to debt service with the exception of two loans with an aggregate amortized cost of $474,000 as of September 30, 2015. As of December 31, 2014, all of RSO’s bank loans were current with respect to debt service with the exception of two loans with an amortized aggregate 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 1 is considered performing above expectations, a loan with a rating of a 2 is considered performing within expectations, a loan with a rating of a 3 is considered performing below expectations and requires close monitoring but no loss of interest or principal is expected, a loan with a rating of a 4 is considered to be performing below expectations and some loss of interest or dividend is expected but no loss of principal, and a loan with a rating of a 5 is considered performing substantially below expectations, in default and some loss of principal is expected. 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 September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle market loans
$
52,206

 
$
255,237

 
$
37,072

 
$
—

 
$
4,956

 
$
—

 
$
349,471

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle market loans
$
—

 
$
240,245

 
$
9,868

 
$
—

 
$
—

 
$
—

 
$
250,113

As of September 30, 2015, one loan was in default with a risk rating of a 5. The rest of RSO's portfolio is current with respect to debt service. All of RSO’s middle market loans were current with respect to debt service as of December 31, 2014.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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.  A loan with a rating of 1 is considered to have satisfactory performance with no issues noted. A loan is graded with a rating of a 2 if a surveillance trigger event has occurred without mitigating circumstance to support such event. A loan with a rating of a 3 has experienced an extended decline in operating performance, a significant deviation from its origination plan or the occurrence of one or more surveillance trigger events which create an increased risk for potential default. A loan with a rating of a 4 is considered to be in default or that default is imminent and full recovery of the unpaid principal balance is improbable. RSO also 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.
During the second quarter of 2015, RSO recorded an allowance for loan loss on a subordinated mezzanine loan position that was acquired in 2007. The outstanding loan balance of $38.1 million was fully reserved and associated accrued interest of $3.0 million was reversed against interest income, for a total charge to operations of $41.1 million. The loan was originally supported by a portfolio of 13 hotel properties, most of which were luxury brand hotels. An impairment analysis showed the fair value of the underlying collateral declined from that as of March 31, 2015. Contributing to this decline was a modification of the senior mortgage that accelerated the time horizon for disposing of the remaining properties collateralizing the loan. Compounding this fact, the remaining two luxury brand hotel properties securing the loan are located in or near San Juan, Puerto Rico, and recent economic and credit disruptions in Puerto Rico resulted in events that caused RSO to determine that realizable values had declined rapidly and that the troubled debt restructuring should be fully reserved as of June 30, 2015. This loan remains fully reserved as of September 30, 2015.
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 September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
Whole loans
$
1,568,683

 
$
32,500

 
$
—

 
$
2,202

 
$
—

 
$
1,603,385

B notes
15,964

 
—

 
—

 
—

 
—

 
15,964

Mezzanine loans
7,315

 
—

 
—

 
38,072

 
—

 
45,387

 
$
1,591,962

 
$
32,500

 
$
—

 
$
40,274

 
$
—

 
$
1,664,736

 
 
 
 
 
 
 
 
 
 
 
 
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

RSO’s had no delinquent commercial real estate loans as of September 30, 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.
Loans Receivable - Related Party
RSO recorded a recovery on loan losses of $216,000 the nine months ended September 30, 2015 for provisions recorded during the year ended December 31, 2014. 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 bringing direct financing leases in the amount of $2.1 million onto RSO's books in lieu of cash settlement of the loan receivable.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Loan Portfolios Aging Analysis
The following table shows the loan portfolio aging analysis as of the dates indicated at amortized cost (in thousands):
 
30-59
Days
 
60-89
Days
 
Greater
than
90 Days
 
Total Past Due
 
Current (3)
 
Total
Loans
Receivable
 
Total Loans > 90 Days and Accruing
As of September 30, 2015:
 

 
 

 
 
 
 
 
 
 
 
 
 
Whole loans
$
—

 
$
—

 
$
—

 
$
—

 
$
1,603,385

 
$
1,603,385

 
$
—

B notes
—

 
—

 
—

 
—

 
15,964

 
15,964

 
—

Mezzanine loans
—

 
—

 
—

 
—

 
45,387

 
45,387

 
—

Bank loans (1)
—

 
—

 
474

 
474

 
152,153

 
152,627

 
—

Middle market loans
—

 
—

 
4,956

 
4,956

 
344,515

 
349,471

 
—

Residential mortgage loans (2)
—

 
—

 
190

 
190

 
115,239

 
115,429

 
—

Total loans
$
—

 
$
—

 
$
5,620

 
$
5,620

 
$
2,276,643

 
$
2,282,263

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 $3.0 million and $282,000 of bank loans held for sale at September 30, 2015 and December 31, 2014, respectively.
(2)
Contains $113.0 million and $113.4 million of residential mortgage loans held for sale at fair value September 30, 2015 and December 31, 2014, respectively.
(3)
Current loans include one impaired mezzanine loan and one impaired whole loan with amortized costs of $38.1 million and $2.2 million, respectively that were both fully reserved as of September 30, 2015.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Impaired Loans
The following tables show impaired loans as of the dates indicated (in thousands):
 
Recorded Investment
 
Unpaid Principal Balance
 
Specific Allowance
 
Average Investment in Impaired Loans
 
Interest Income Recognized
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
Loans without a specific valuation allowance:
 
 
 
 
 
 
 
 
 
Whole loans
$
129,078

 
$
129,078

 
$
—

 
$
128,591

 
$
15,659

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Bank loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Middle market loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Residential mortgage loans
$
2,422

 
$
2,422

 
$
—

 
$
2,785

 
$
116

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans with a specific valuation allowance:
 

 
 

 
 

 
 

 
 

Whole loans
$
2,202

 
$
2,202

 
$
(2,202
)
 
$
2,202

 
$
45

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
38,072

 
$
38,072

 
$
(38,072
)
 
$
38,072

 
$
—

Bank loans
$
474

 
$
474

 
$
(345
)
 
$
237

 
$
—

Middle market loans
$
4,956

 
$
4,900

 
$
(4,086
)
 
$
4,956

 
$
—

Residential mortgage loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
Total:
 

 
 

 
 

 
 

 
 

Whole loans
$
131,280

 
$
131,280

 
$
(2,202
)
 
$
130,793

 
$
15,704

B notes
—

 
—

 
—

 
—

 
—

Mezzanine loans
38,072

 
38,072

 
(38,072
)
 
38,072

 
—

Bank loans
474

 
474

 
(345
)
 
237

 
—

Middle market loans
4,956

 
4,900

 
(4,086
)
 
4,956

 
—

Residential mortgage loans
2,422

 
2,422

 
—

 
2,785

 
116

Loans receivable - related party
—

 
—

 
—

 
—

 
—

 
$
177,204

 
$
177,148

 
$
(44,705
)
 
$
176,843

 
$
15,820


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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)
SEPTEMBER 30, 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
Nine Months Ended September 30, 2015::
 
 
 
 
 
Whole loans
3

 
$
99,959

 
$
99,959

B notes
—

 
—

 
—

Mezzanine loans
1

 
38,072

 
—

Bank loans
—

 
—

 
—

Middle market loans
—

 
—

 
—

Residential mortgage loans
—

 
—

 
—

Loans receivable - related party
—

 
—

 
—

Total loans
4

 
$
138,031

 
$
99,959

 
 
 
 
 
 
Nine Months Ended September 30, 2014:
 
 
 
 
 
Whole loans
2

 
$
16,039

 
$
16,039

B notes
—

 
—

 
—

Mezzanine loans
1

 
38,072

 
38,072

Bank loans
—

 
—

 
—

Middle market loans
—

 
—

 
—

Residential mortgage loans
—

 
—

 
—

Loans receivable - related party
—

 
—

 
—

Total loans
3

 
$
54,111

 
$
54,111

As of September 30, 2015 and 2014, there were no commercial real estate loan troubled-debt restructurings that subsequently defaulted.
I.
Business Combinations - RSO
On February 26, 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. On April 30, 2015, RSO committed to another capital contribution in the amount of $750,000, increasing its ownership of LCF to 60.7%. The first installment of $375,000 was funded on April 30, 2015 and the second installment of $375,000 was funded on July 30, 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

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

J.
Intangible assets - RSO
The following table summarizes the activity of intangible assets for the period indicated (in thousands):
 
Management Contracts
 
Wholesale/Correspondent Relationships
 
Mortgage Servicing Rights
 
Total
Balance, January 1, 2015
$
9,434

 
$
302

 
$
8,874

 
$
18,610

Additions
—

 
—

 
12,521

 
12,521

Sales
—

 
—

 
—

 
—

Amortization
(1,346
)
 
(191
)
 
(3,138
)
 
(4,675
)
Total before impairment adjustment
8,088

 
111

 
18,257

 
26,456

Temporary impairment adjustment
—

 
—

 
(650
)
 
(650
)
Balance, September 30, 2015
$
8,088

 
$
111

 
$
17,607

 
$
25,806

Management Contracts and Wholesale/Correspondent Relationships
RSO recognized fee income on management contracts and wholesale/correspondent relationships of $791,000 and $2.7 million for the three and nine months ended September 30, 2015, respectively, and $1.2 million and $4.0 million for the three and nine months ended September 30, 2014, respectively.
For the three and nine months ended September 30, 2015, RSO recorded amortization expense of RSO recorded amortization expense of $518,000 and $1.5 million, respectively, in relation to RSO's management contracts and wholesale/correspondent relationships. For the three and nine months ended September 30, 2014, RSO recorded amortization expense of $517,000 and $1.5 million, respectively. RSO expects to record amortization expense on its management contracts and wholesale/correspondent relationships of $2.0 million for the year ended December 31, 2015, $1.8 million for the year ended December 31, 2016, $1.8 million for the year ended 2017, $1.6 million for the year ended 2018, and $1.0 million for the year ended December 31, 2019.  The weighted average amortization period was 6.0 years and 6.6 years at September 30, 2015 and December 31, 2014, respectively.
Mortgage Servicing Rights
Through RSO's wholly-owned residential mortgage loan 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. In accordance with FASB ASC Subtopic 860-50, RSO utilizes the amortization method for the subsequent measurement of its MSRs. The total servicing portfolio was $1.8 billion and $894.8 million as of September 30, 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 residential mortgage loans.
For the three and nine months ended September 30, 2015, RSO recognized $1.3 million and $3.1 million, respectively, of amortization expense related to mortgage servicing rights. For the three and nine ended September 30, 2014, RSO recognized $423,000 and $1.1 million, respectively. RSO expects to recognize amortization related to its mortgage servicing rights portfolio in the amount of $4.1 million for the year ending December 31, 2015, $3.9 million for the year ending December 31, 2016, $3.8 million for the year ending December 31, 2017, $3.7 million for the year ending December 31, 2018, and $3.1 million for the year ending December 31, 2019. The weighted average amortization period was 1.2 years and 1.4 years at September 30, 2015 and December 31, 2014, respectively.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

The activity in the loan servicing portfolio associated with capitalized servicing rights consisted of (in thousands):
 
September 30,
2015
 
December 31,
2014
Balance, beginning of period
$
894,767

 
$
433,153

Additions
923,473

 
519,915

Payoffs, sales and curtailments
(65,013
)
 
(58,301
)
Balance, end of period
$
1,753,227

 
$
894,767


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
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Servicing fees from capitalized portfolio
$
1,071

 
$
413

 
$
2,533

 
$
1,057

Late fees
$
37

 
$
20

 
$
78

 
$
59

Other ancillary servicing revenue
$
2

 
$
1

 
$
9

 
$
4


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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 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 September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
RREF CDO 2006-1 Senior Notes
$
52,820

 
$
—

 
$
52,820

 
2.37%
 
30.9 years
 
$
93,757

RREF CDO 2007-1 Senior Notes
127,195

 
—

 
127,195

 
1.20%
 
31.0 years
 
247,080

RCC CRE Notes 2013 Senior Notes
127,215

 
1,382

 
125,833

 
2.66%
 
13.2 years
 
141,114

RCC 2014-CRE2 Senior Notes
235,344

 
3,314

 
232,030

 
1.50%
 
16.6 years
 
349,681

RCC 2015-CRE3 Senior Notes
282,127

 
3,683

 
278,444

 
2.10%
 
16.5 years
 
340,885

RCC 2015-CRE4 Senior Notes
223,735

 
3,332

 
220,403

 
1.92%
 
16.9 years
 
307,697

Apidos Cinco CDO Senior Notes  
152,310

 
—

 
152,310

 
1.05%
 
4.6 years
 
171,209

Moselle CLO S.A. Securitized Borrowings, at fair value (1)
57

 
—

 
57

 
N/A
 
N/A
 
354

Unsecured Junior Subordinated Debentures (2)
51,548

 
188

 
51,360

 
4.24%
 
21.1 years
 
—

6.0% Convertible Senior Notes
115,000

 
5,339

 
109,661

 
6.00%
 
3.2 years
 
—

8% Convertible Senior Notes
100,000

 
4,885

 
95,115

 
8.00%
 
4.3 years
 
—

CRE - Term Repurchase Facilities (3)
88,050

 
2,756

 
85,294

 
2.27%
 
19 days
 
140,107

CMBS - Term Repurchase Facility (4)
26,328

 
2

 
26,326

 
1.41%
 
19 days
 
32,539

Residential Investments - Term Repurchase Facility (5)
4,629

 
—

 
4,629

 
2.75%
 
356 days
 
5,134

Residential Mortgage Financing Agreements
97,124

 
—

 
97,124

 
2.78%
 
352 days
 
154,531

CMBS - Short Term Repurchase Agreements (6)
63,548

 
—

 
63,548

 
1.72%
 
46 days
 
90,444

Senior Secured Revolving Credit Agreement
162,000

 
3,258

 
158,742

 
3.03%
 
3.5 years
 
344,084

Total
$
1,909,030

 
$
28,139

 
$
1,880,891

 
2.61%
 
12.0 years
 
$
2,418,616





RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 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 (7)
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 (5)
22,248

 
36

 
22,212

 
1.16%
 
1 day
 
27,885

Residential Mortgage Financing Agreements
102,576

 
—

 
102,576

 
2.78%
 
207 days
 
147,472

CMBS - Short Term Repurchase Agreements (6)
44,225

 
—

 
44,225

 
1.63%
 
17 days
 
62,446

Senior Secured Revolving Credit Agreement
113,500

 
2,363

 
111,137

 
2.66%
 
3.7 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 $63,000 and $198,000 related to CRE repurchase facilities as of September 30, 2015 and December 31, 2014, respectively.
(4)
Amounts also include accrued interest expense of $14,000 and $12,000 related to CMBS repurchase facilities as of September 30, 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 include accrued interest expense of $8,000 and $20,000 related to residential investment facilities as of September 30, 2015 and December 31, 2014, respectively.
(6)
Amounts also include accrued interest expense of $26,000 and $31,000 related to CMBS short term repurchase facilities as of September 30, 2015 and December 31, 2014.
(7)
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.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Securitizations
The following table sets forth certain information with respect to RSO's securitizations:
Securitization
 
Closing Date
 
Maturity Date
 
Reinvestment
Period End
 
Total Note
Paydowns as of
September 30, 2015
 
 
 
 
 
 
 
 
(in millions)
RREF CDO 2006-1 Senior Notes
 
August 2006
 
August 2046
 
September 2011
 
$
180.4

RREF CDO 2007-1 Senior Notes
 
June 2007
 
September 2046
 
June 2012
 
$
216.6

RCC CRE Notes 2013 Senior Notes
 
December 2013
 
December 2028
 
N/A
 
$
133.6

RCC 2014-CRE2 Senior Notes
 
July 2014
 
April 2032
 
N/A
 
$
—

RCC 2015-CRE3 Senior Notes
 
February 2015
 
March 2032
 
N/A
 
$
—

RCC 2015-CRE4 Senior Notes
 
August 2015
 
August 2032
 
N/A
 
$
—

Apidos CDO III Senior Notes
 
May 2006
 
September 2020
 
June 2012
 
$
262.5

Apidos Cinco CDO Senior Notes
 
May 2007
 
May 2020
 
May 2014
 
$
169.7

Moselle CLO S.A. Senior Notes
 
October 2005
 
January 2020
 
January 2012
 
$
167.2

Moselle CLO S.A. Securitized Borrowings
 
October 2005
 
January 2020
 
January 2012
 
$
5.0

In June 2015, RSO called Apidos CDO III, substantially liquidating the securitization's assets. Proceeds from the sale of these assets, plus proceeds from previous sales and paydowns in the CDO, were used to pay down the securitization's $262.5 million of Senior Notes in full.
The investments held by RSO's securitizations collateralize 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 September 30, 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; however, principal repayments, for a period ending in February 2017, may be used to purchase funding participations with respect to existing collateral held outside of the securitization.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

RCC 2015-CRE4
In August 2015, RSO closed RCC 2015-CRE4, a $312.9 million CRE securitization transaction that provided financing for transitional commercial real estate loans. RCC 2015-CRE4 issued a total of $223.7 million of senior notes at par to unrelated investors. RCC Real Estate purchased 100% of the Class C senior notes for $26.6 million. In addition, Resource Real Estate Funding 2015-CRE4 Investor, LLC, a subsidiary of RCC Real Estate purchased a $62.6 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-CRE4, but are senior in right of the payment to the preference shares. The equity interest is subordinated in right of payment to all other securities issued by RCC 2015-CRE4.
At closing, the senior notes issued to investors by RCC 2015-CRE4 consisted of the following classes: (i) $179.9 million of Class A notes bearing interest at one-month LIBOR plus 1.4%; (ii) $43.8 million of Class B notes bearing interest at one-month LIBOR plus 3.00%; (iii) $26.6 million of Class C notes bearing interest at one-month LIBOR plus 4.75%. All of the notes issued mature in August 2032, although RSO has the right to call the notes anytime after September 2017 until maturity. There is no reinvestment period in RCC 2015-CRE3; however, principal repayments, for a period ending in September 2017, may be used to purchase funding participations with respect to existing collateral held outside of the securitization.
6.0% Convertible Senior Notes
In connection with RSO's one-for-four reverse stock split, the 6% Convertible Senior Notes due 2018, ("6.0% Convertible Senior Notes") automatically adjusted from 150.1502 shares of common stock per $1,000 principal amount of such notes to 37.53755 shares of common stock per $1,000 principal amount of such notes. The conversion price was adjusted from $6.66 to $26.64 as a result of the stock split.
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") are convertible at the option of the holder. The 8% Convertible Senior Notes had an original 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% Convertible Senior Notes by a holder, the holder will receive cash, RSO common shares or a combination of cash and RSO common shares, at RSO's election. In connection with RSO's one-for-four reverse stock split, the 8% Convertible Senior Notes automatically adjust to 46.86035 shares of common stock or $1,000 principal amount of such notes. The conversion price was adjusted from $5.34 to $21.36 as a result of the split.
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. In addition, RSO recorded a discount of $2.5 million on the 8.0% Convertible Senior Notes that reflects the difference between the stated value of the debt and the fair value of the notes as if they were issued without a conversion feature. 
The aforementioned market discounts and the deferred debt issuance costs will be amortized on a straight-line basis as additional interest expense through maturity on January 15, 2020. Interest on the 8% Convertible Senior Notes is paid semi-annually.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Repurchase and Credit Facilities
Borrowings under RSO's 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):
 
As of September 30, 2015
 
As of 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 (1)
$
26,326

 
$
32,539

 
27
 
1.41%
 
$
24,967

 
$
30,180

 
33
 
1.35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE Term Repurchase Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (2)
78,230

 
128,354

 
6
 
2.21%
 
179,762

 
258,223

 
15
 
2.38%
Deutsche Bank AG (3)
—

 
—

 
—
 
—%
 
25,920

 
39,348

 
2
 
2.78%
Morgan Stanley Bank (4)
7,064

 
11,753

 
1
 
2.80%
 
—

 
—

 
—
 
—%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-Term Repurchase Agreements - CMBS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deutsche Bank Securities, LLC
49,939

 
70,484

 
20
 
1.73%
 
33,783

 
44,751

 
8
 
1.62%
Wells Fargo Securities, LLC
13,609

 
19,960

 
4
 
1.85%
 
10,442

 
17,695

 
1
 
1.66%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Investment Term Repurchase Facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (5)
4,629

 
5,134

 
6
 
2.75%
 
22,212

 
27,885

 
6
 
1.16%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage Financing Agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Century Bank
41,975

 
54,093

 
194
 
2.82%
 
41,387

 
51,961

 
158
 
2.82%
Wells Fargo Bank
55,149

 
100,438

 
163
 
2.75%
 
61,189

 
95,511

 
104
 
2.75%
Totals
$
276,921

 
$
422,755

 
 
 
 
 
$
399,662

 
$
565,554

 
 
 
 
 
(1)
The Wells Fargo CMBS term repurchase facility borrowing includes $2,000 and $0 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(2)
The Wells Fargo CRE term repurchase facility borrowing includes $927,000 and $1.7 million of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(3)
The Deutsche Bank CRE term repurchase facility includes $0 and $268,000 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(4)
The Morgan Stanley CRE term repurchase facility includes $1.8 million and $0 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(5)
The Wells Fargo resident investments term repurchase facility includes $36,000 of deferred debt issuance costs as of December 31, 2014.
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 September 30, 2015.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 at that date.
 
 
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)
SEPTEMBER 30, 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 September 30, 2015:
 
 
 
 
 
CMBS Term Repurchase Facility
 
 
 
 
 
Wells Fargo Bank, National Association
$
5,894

 
19
 
1.41%
 
 
 
 
 
 
Residential Investments Term Repurchase Facility
 
 
 
 
 
Wells Fargo Bank, National Association
$
505

 
356
 
2.75%
 
 
 
 
 
 
CRE Term Repurchase Facilities
 
 
 
 
 
Wells Fargo Bank, National Association
$
49,604

 
19
 
2.21%
Morgan Stanley Bank, National Association
$
2,864

 
22
 
2.80%
 
 
 
 
 
 
Short-Term Repurchase Agreements - CMBS
 
 
 
 
 
Wells Fargo Securities, LLC
$
6,070

 
11
 
1.85%
Deutsche Bank Securities, LLC
$
20,853

 
56
 
1.73%
 
 
 
 
 
 
Residential Mortgage Financing Agreements
 
 
 
 
 
Wells Fargo Bank
$
45,289

 
365
 
2.75%
New Century Bank
$
12,119

 
334
 
2.82%
 
 
 
 
 
 
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 September 30, 2015.
CRE – Term Repurchase Facility
On September 20, 2015, RCC Real Estate's wholly-owned subsidiary, RCC Real Estate SPE 6 ("SPE 6"), entered into a master repurchase and securities agreement (the "Morgan Stanley Facility”) with Morgan Stanley Bank, NA to finance the origination of commercial real estate loans. RSO paid a commitment fee of 0.65% of the maximum facility amount, as well as other standard costs. The Morgan Stanley Facility has a maximum capacity of $250.0 million and an initial three year term that expires on September 10, 2018 with annual one year extension options, and an interest rate of one month LIBOR plus an applicable spread ranging from 2.25% to 2.75%. Morgan Stanley charges an unused fee of 0.50% if the average daily outstanding borrowings are less than or equal to 50% of the facility amount, and of 0.25% if the amount the average daily outstanding borrowings are greater than 50% but less than 0.65% of the facility amount. Morgan Stanley has agreed to waive this unused fee until January 2016.


RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

The Morgan Stanley Facility contains events of default (subject to certain materiality thresholds and grace periods) customary for this type of financing arrangement, including but not limited to: payment defaults; a change of control of SPE 6 or RSO; breaches of covenants and/or certain representations and warranties; a judgment in an amount greater than $250,000 against SPE 6 or $15 million in the aggregate against RSO; or a default involving the failure to pay or acceleration of a monetary obligation in excess of $250,000 of SPE 6 or $15 million of RSO. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the Morgan Stanley Facility and the liquidation of assets subject to the facility by Morgan Stanley. RSO and SPE 6 were in compliance with all financial covenants under the terms of the guarantee as of September 30, 2015.
Residential Investments - Term Repurchase Facility
In June 2014, RSO entered into a master repurchase and securities agreement with Wells Fargo Bank, NA.  The agreement allowed for the transfer of RSO’s rights, title and interest in certain residential mortgage backed securities and certificates of trust to Wells Fargo in exchange for the transfer of funds by Wells Fargo to RSO.  The agreement also allows for Wells Fargo to transfer back to RSO those assets at either a certain date or on demand in exchange for the return of funds from RSO to Wells Fargo. Over the course of five amendments, the most recent of which was entered into with Wells Fargo on September 20, 2015, RSO extended the facility's termination date to September 20, 2016. Additionally, the amendments reduced the facility's maximum borrowing amount from a total of $285.0 million at December 31, 2014 to $30.0 million with respect to certificates of trust and zero with respect to resident mortgage backed securities. There were no other material changes to the agreement over the course of the five amendments.  The facility currently charges a fee for unused balance of 25 basis points on the difference between a threshold equal to 40% of the maximum borrowing amount with respect to certificates of trust and the average daily borrowing balance of that month.
Residential Mortgage Financing Agreements
PCM has master repurchase agreements 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. In August 2015, PCM amended its agreement with New Century to extend the facility's termination date to August 29, 2016, with no other material changes made to the facility's terms. In September 2015, PCM amended its agreement with Wells Fargo to extend the facility's termination date to September 29, 2016, with no other material changes made to the facility's terms.
PCM was in compliance with all financial covenant requirements under the New Century and Wells Fargo agreements as of September 30, 2015.
Senior Secured Revolving Credit Facility
On September 18, 2014, RSO's wholly-owned subsidiary, Northport LLC, closed a $110.0 million syndicated senior secured revolving credit facility ("Northport Credit Facility") with JP Morgan as the agent bank to finance the origination of middle market and syndicated loans. The availability under the Northport Credit Facility was increased to $125.0 million as of September 30, 2014 and again to $140.0 million with an additional commitment from ING Bank early in March 2015. During the second quarter 2015, RSO entered into the first and second amendments of the Northport Credit Facility which increased the original commitment from $225.0 million to $300.0 million and secured $85.0 million of additional availability bringing the total available under the Northport Credit Facility to $225.0 million as of September 30, 2015. As of September 30, 2015, $162.0 million was outstanding on the Northport Credit Facility. Under the first amendment, both the ability to access to draws on the Northport Credit Facility and maturity have been extended six months until March 31, 2018 and March 31, 2019 respectively.
Under the terms of the second amendment, the interest rate margins over LIBOR 25 basis points. Accordingly, the Northport Credit Facility bears interest rates, at RSO's election, on a per annum basis equal to (i) the applicable LIBOR rate plus 2.75% or (ii) the applicable base rate (prime rate of 3.25% as of September 30, 2015) plus 1.75%. During the six month period following September 18, 2014, RSO was charged a commitment fee on any unused balance of 0.375% per annum if the unused balance was greater than 35% of the total commitment or 0.50% per annum if it was less than 35% of the total commitment. Following that period, the commitment fee on any unused balance became 0.375% per annum if the outstanding balance is greater than 35% of the total commitment or 1.00% per annum if the unused balance is 35% or less of the total commitment. At September 30, 2015, there was an unused balance of $63.0 million on the facility.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Amounts available to borrow under the Northport Credit Facility are subject to compliance with a borrowing base computation that applies different advance rates to different types of assets held by Northport LLC that are pledged as collateral. Under the Northport Credit Facility, RSO has made certain customary representations and warranties and is required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. At September 30, 2015, RSO is in compliance with all covenants under the agreement. RSO guarantees Northport LLC's performance of its obligations under the Northport Credit Facility.
Contractual maturity dates of RSO's borrowings by category and year are present in the table below:
 
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019 and Thereafter
CDOs
 
$
332,382

 
$
57

 
$
—

 
$
—

 
$
—

 
$
332,325

CRE Securitizations
 
856,710

 
—

 
—

 
—

 
—

 
856,710

Repurchase Agreements
 
276,921

 
175,168

 
101,753

 
—

 
—

 
—

Unsecured Junior Subordinated Debentures
 
51,360

 
—

 
—

 
—

 
—

 
51,360

6.0 % Convertible Notes
 
109,661

 
—

 
—

 
—

 
109,661

 
—

8.0 % Convertible Notes
 
95,115

 
—

 
—

 
—

 
—

 
95,115

Senior Secured Revolving Credit Facility
 
158,742

 
—

 
—

 
—

 
—

 
158,742

Total
 
$
1,880,891

 
$
175,225

 
$
101,753

 
$
—

 
$
109,661

 
$
1,494,252

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 Resource America 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 with a 1% extension fee paid on the outstanding loan balance.  On June 3, 2011, the 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 another 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 and nine months ended September 30, 2015, RSO recorded a partial recovery of $0 and $216,000, respectively. As of September 30, 2015, RSO held $1.1 million of direct financing leases.
On November 16, 2011, RSO, together with LEAF Financial and LEAF, entered into the SPA with Eos. RSO’s resulting interest is accounted for under the equity method.  For the three and nine months ended September 30, 2015, RSO recoded gains of $961,000 and $1.4 million, respectively, which was recorded in equity in net earnings of unconsolidated subsidiaries on the consolidated statements of operations.  For the three and nine months ended September 30, 2014, RSO recorded a gain of $13,000 and a loss of $859,000, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations.  RSO’s investment in LEAF was $40.8 million and $39.4 million as of September 30, 2015 and December 31, 2014, respectively.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Relationship with CVC Credit Partners. On April 17, 2012, Apidos Capital Management (“ACM”), a former subsidiary of the Company, was sold to CVC Credit Partners, L.P. ("CVC Credit Partners"), a joint venture entity in which the Company owns a 24% 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 and nine months ended September 30, 2015, CVC Credit Partners earned subordinated fees of $173,000 and $631,000, respectively, and no incentive fees. For the three and nine months ended September 30, 2014, CVC Credit Partners earned subordinated fees of $309,000 and $1.0 million, respectively, and no incentive fees. 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 because RSO is a related party of CVC Credit Partners. For the three and nine months ended September 30, 2015, RSO recorded a loss of $628,000 and earnings of $293,000, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. For the three and nine months September 30, 2014, RSO recorded earnings of $47,000 and $2.0 million, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. In March 2015, RSO elected to withdraw $5.0 million from the fund. RSO's investment balance was $12.9 million as of September 30, 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. In October 2015, another $4.0 million withdrawal was requested and received.
RSO has closed the following four real estate securitization transactions, which provide financing for commercial real estate loans: RCC CRE Notes 2013, a $307.8 million securitization in December 2013; RCC 2014-CRE2, a $353.9 million securitization on July 30, 2014; RCC 2015-CRE3, a $346.2 million securitization on February 24, 2015; and RCC 2015-CRE4, a $312.9 million securitization on August 18, 2015. Resource Real Estate serves as special servicer for each transaction. With respect to each specialty service mortgage loan, Resource Real Estate receives an amount equal to the product of (a) the special servicing fee rate, 0.25% per annum, and (b) the outstanding principal balance of such specialty service mortgage loan. The servicing fee is payable monthly, on an asset-by-asset basis. RSO utilizes the brokerage services of Resource Securities, Inc. (“Resource Securities”), a wholly-owned broker-dealer subsidiary of Resource America, on a limited basis to conduct some of its asset trades. RSO paid Resource Securities placement agent fees in connection with each transaction as follows: $205,000; $175,000; $100,000; and $85,000, respectively.
Relationship with Pearlmark. On June 24, 2015, RSO committed up to $50.0 million in Pearlmark Mezzanine Realty Partners IV, L.P. ("Pearlmark Mezz IV L.P."), a Delaware limited partnership.  The contractual fund manager of the fund is Pearlmark Real Estate LLC ("Pearlmark"), a Delaware limited liability company that is 50% owned by Resource America.  RSO will pay Pearlmark Mezz IV L.P. management fees of 1.0% on the committed capital and 1.5% on the invested capital.  RSO is entitled to a management fee rebate of 25% for the first year of the fund.  As of September 30, 2015, RSO is indebted for $50,000 for management fees, net of the rebate.  RSO has not invested any capital as of September 30, 2015.  The Company has agreed that it will credit any such fees paid by RSO to Pearlmark against the base management fee that the RSO pays to the Company.
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 and nine months ended September 30, 2015, RSO paid Ledgewood $13,000 and $348,000, respectively, in connection with legal services rendered to RSO. For the three and nine ended September 30, 2014, RSO paid Ledgewood $45,000 and $202,000, respectively, in connection with legal services rendered to RSO.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

M. Fair value of financial instruments - RSO
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 September 30, 2015:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investment securities, trading
$
—

 
$
—

 
$
25,715

 
$
25,715

Investment securities available-for-sale
—

 
4,627

 
229,973

 
234,600

Loans held for sale
—

 
60,958

 
52,049

 
113,007

Derivatives
—

 
1

 
3,729

 
3,730

Total assets at fair value
$
—

 
$
65,586

 
$
311,466

 
$
377,052

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Derivatives
$
—

 
$
1,586

 
$
5,880

 
$
7,466

Total liabilities at fair value
$
—

 
$
1,586

 
$
5,880

 
$
7,466

 
 
 
 
 
 
 
 
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
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
$
—

 
$
—

 
$
8,476

 
$
8,476

Total liabilities at fair value
$
—

 
$
—

 
$
77,416

 
$
77,416


RSO's residential mortgage loan portfolio included in loans held for sale is comprised of both agency loans and non-agency jumbo loans. The fair values of RSO's agency loan portfolio are generally classified as Level 2 in the fair value hierarchy, as those values are determined based on quoted market prices for similar assets or upon other observable inputs. The fair values of RSO's jumbo loan portfolio are 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 September 30, 2015, except for a note balance of $57,000, Moselle CLO paid off all of RSO's outstanding CLO notes.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

The following table presents additional information about assets that are measured at fair value on a recurring basis for which RSO has utilized Level 3 inputs (in thousands):
 
CMBS (1) 
 
ABS
 
Structured Finance Securities
 
Warrant
 
Interest Rate Lock Commitments
 
Loans Held for Sale
 
Total
Beginning balance,
January 1, 2015
$
185,772

 
$
72,157

 
$
20,786

 
$
898

 
$
970

 
$
83,380

 
$
363,963

Included in earnings
1,676

 
2,478

 
2,530

 
(71
)
 
25,713

 
(1,272
)
 
31,054

Unlined transactions
33,239

 
—

 
—

 
—

 
—

 
—

 
33,239

Purchases/Originations
10,373

 
24,812

 
22,126

 
—

 
—

 
246,927

 
304,238

Sales
—

 
(26,292
)
 
(17,283
)
 
—

 
—

 
(270,827
)
 
(314,402
)
Paydowns
(51,918
)
 
(5,094
)
 
(1,986
)
 
—

 
—

 
(6,159
)
 
(65,157
)
Issuances
—

 
—

 
—

 
—

 
—

 
—

 
—

Settlements
—

 
(11,216
)
 
—

 
—

 
(24,595
)
 
—

 
(35,811
)
Included in OCI
(1,317
)
 
(8,568
)
 
(458
)
 
—

 
—

 
—

 
(10,343
)
Transfers into Level 3
—

 
3,871

 
—

 
—

 
—

 
—

 
3,871

Ending balance, September 30, 2015
$
177,825

 
$
52,148

 
$
25,715

 
$
827

 
$
2,088

 
$
52,049

 
$
310,652

 
(1)
Beginning balance includes linked transactions. Due to a change in accounting guidance, as of January 1, 2015, the concept of linked transactions no longer exists.
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
(3,552
)
Included in earnings
127

Ending balance, September 30, 2015
$
5,255

Forward sale commitments on residential mortgages had a beginning balance at January 1, 2015 of $1.2 million with $3.2 million included in earnings and settlements of $2.3 million for a remaining forwards sale commitments liability of $2.1 million at September 30, 2015.
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):

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

 
Level 1
 
Level 2
 
Level 3
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Loans held for sale
$
—

 
$
2,999

 
$
—

 
$
2,999

Impaired loans
—

 
998

 
32,500

 
33,498

Total assets at fair value
$
—

 
$
3,997

 
$
32,500

 
$
36,497

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Assets:
 

 
 

 
 

 
 

Loans held for sale
$
—

 
$
36,956

 
$
—

 
$
36,956

Impaired loans
—

 
1,678

 
137,811

 
139,489

Total assets at fair value
$
—

 
$
38,634

 
$
137,811

 
$
176,445

Loans held for sale consist of bank loans and CRE loans identified for sale due to credit concerns.  Interest on loans held for sale is recognized according to the contractual terms of the loan and included in interest income on loans.  The fair value of bank loans held for sale and impaired bank loans is based on what secondary markets are currently offering for these loans.  As such, RSO classifies these loans as nonrecurring Level 2.  For the 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 and nine months ended September 30, 2015 were $920,000 and $42.4 million, respectively. The amounts of nonrecurring fair value losses for specifically impaired loans for the three and nine months ended September 30, 2014, were $24,000 and $464,000, respectively. The amounts of nonrecurring fair value losses for loans held for sale for the three and nine months ended September 30, 2015 were $35,000 and $841,000, respectively. The amounts of nonrecurring fair value losses for loans for sale for the three and nine months ended September 30, 2014 were $597,000 and $658,000, 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 a consequence, 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 September 30, 2015, for which quantitative information with respect to unobservable inputs was available, the significant unobservable inputs used in the fair value measurements were as follows (in thousands, except were otherwise indicated):
 
Fair Value at
September 30, 2015
 
Valuation Technique
 
Significant
Unobservable Inputs
 
Significant
Unobservable
Input Value
Interest rate swap agreements
$
5,255

 
Discounted cash flow
 
Weighted average credit spreads
 
4.83
%
Warrant
$
827

 
Option pricing model
 
Market capitalization (in millions)
 
$
146.0

 
 
 
 
 
Volatility
 
50.00
%
RSO is required to disclose the fair value of financial instruments for which it is practicable to estimate that value.  The fair values of RSO's short-term financial instruments such as cash and cash equivalents, restricted cash, principal paydown receivable, interest receivable, distribution payable, accrued interest expense, repurchase agreements and the secured revolving credit agreement approximate their carrying value on the consolidated balance sheets.  The fair values of RSO’s investment securities, trading are reported in Investment Securities, Trading.  The fair values of RSO’s investment securities available-for-sale are reported in Investment Securities Available-for-Sale. 
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.

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

Loans receivable-related party are estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
CDO notes are valued using the dealer quotes, typically the dealer who underwrote the CDO in which the notes are held. Moselle CLO is valued using a third-party pricing specialist.
Junior subordinated notes are estimated by obtaining quoted prices for similar assets in active markets.
The fair value of the convertible notes was determined using a discounted cash flow model that discounts the expected future cash flows using current interest rates on similar debts that do not have a conversion option. The 6% Convertible Senior Notes are discounted at a rate of 7.00% and the 8% Convertible Senior Notes are discounted at a rate of 8.60%. The fair value of the CRE portfolio was determined using a discounted cash flow model that discounts the expected future cash flows at current rates at which similar loans would be made to borrowers with similar credit rating and with the same remaining maturities. Discount rates used range between 15%-25%.
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 September 30, 2015:
 
 
 
 
 
 
 
 
 
Loans held-for-investment
$
2,118,978

 
$
2,107,162

 
$
—

 
$
491,206

 
$
1,615,956

CDO notes
$
1,189,092

 
$
1,076,523

 
$
—

 
$
—

 
$
1,076,523

Junior subordinated notes
$
51,360

 
$
17,854

 
$
—

 
$
—

 
$
17,854

Convertible notes
$
204,776

 
$
204,776

 
$
—

 
$
—

 
$
204,776

Repurchase agreements
$
276,921

 
$
276,921

 
$
—

 
$
—

 
$
276,921

Senior secured revolving credit agreement
$
158,742

 
$
158,742

 
$
—

 
$
—

 
$
158,742

 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

Loans held-for-investment
$
1,925,980

 
$
1,909,019

 
$
—

 
$
570,071

 
$
1,338,948

Loans receivable-related party
$
558

 
$
558

 
$
—

 
$
—

 
$
558

CDO notes
$
1,046,493

 
$
975,762

 
$
—

 
$
—

 
$
975,762

Junior subordinated notes
$
51,205

 
$
17,699

 
$
—

 
$
—

 
$
17,699

Convertible notes
$
108,374

 
$
108,374

 
$
—

 
$
—

 
$
108,374

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 the Pearlmark joint venture 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.  Except for Pearlmark (see Note 17), 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 September 30, 2015.
    

RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2015
(unaudited)

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 September 30, 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
—

 
678

 
678

  Pearlmark
—

 
3,647

 
3,647

 
$
158

 
$
4,325

 
$
4,483

 
(1)
Exclusive of expense reimbursements due to the Company.
NOTE 20 - SUBSEQUENT EVENTS        
The Company has evaluated subsequent events through the filing of its Quarterly Report on Form 10-Q for the period ended September 30, 2015 and determined that there have not been any events that have occurred that would require adjustments to or disclosures in the consolidated financial statements.
    



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 Resource America's operations by their 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 September 30, 2015, we managed or co-managed $21.7 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 September 30, 2015, Opportunity REIT II has raised $317.7 million; through November 3, 2015, total funds raised increased to $350.9 million. We will continue to raise funds for Opportunity REIT II and anticipate fundraising for Resource Innovation Office REIT, Inc., or Innovation Office REIT, commencing in the first quarter of 2016. On November 2, 2015, we filed a registration statement with the SEC for Resource Apartment REIT III, Inc., for which we anticipate raising up to $1.0 billion in equity to manage a portfolio of multifamily properties. We expect that capital raising in the fourth quarter and into 2016 will remain strong notwithstanding regulatory changes like the implementation of FINRA 15-02 and the Department of Labor’s recent proposal on a fiduciary standard for retirement accounts.
    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 September 30, 2015, DIF has raised $71.7 million; through November 3, 2015, total funds raised increased to $77.7 million.
During 2014, we launched Resource Credit Income Fund, or CIF, a publicly-offered, alternative mutual fund that will invest in the debt of small- to middle-market companies with a focus on senior and subordinated debt. As of September 30, 2015, we have a $215,000 investment in the fund and expect to commence fundraising for the CIF in the first half of 2016.
In June 2015, we invested $3.0 million into a new 50/50 joint venture with the principals of Pearlmark Real Estate Partners, LLC to sponsor and manage private institutional real estate funds. The joint venture, Pearlmark Real Estate, LLC, or Pearlmark, will focus on managing institutional real estate investments. We made additional investments of $1.0 million each in August and October 2015. Under the joint venture agreement, we are committed to provide up to an additional $1.0 million in the fourth quarter of 2015 and up to an additional $2.0 million in subsequent periods.
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 16 CLOs with a total par value of approximately $8.3 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 September 30, 2015, Northport held a total of $349.5 million of middle market loans at amortized cost.
    
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 September 30, 2015, LEAF managed $756.0 million of commercial leases and notes. In addition, LEAF Financial Corporation, or LEAF Financial, our wholly-owned subsidiary, currently manages one of its four sponsored commercial lease investment partnerships. LEAF Financial liquidated one of the partnerships in July 2015 (two other partnerships had been previously liquidated during 2014).
Our consolidated net loss attributable to common shareholders was $1.1 million and $2.4 million for the three and nine months ended September 30, 2015.
We anticipate that capital raising in 2015 will remain strong as we monitor a variety of trends in this industry including a number of regulatory changes like the implementation of FINRA 15-02 and the Department of Labor’s recent proposal on a fiduciary standard for retirement accounts.
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 $2.3 billion to $21.7 billion at September 30, 2015 from $19.4 billion at September 30, 2014. The following table sets forth information relating to our assets under management by operating segment (in millions, except percentages) (1):
 
September 30,
 
Increase
 
2015
 
2014
 
Amount
 
Percentage
Financial fund management (2)
$
16,969

 
$
15,696

 
$
1,273

 
8%
Real estate (3)
4,009

 
3,056

 
953

 
31%
Commercial finance
756

 
646

 
110

 
17%
 
$
21,734

 
$
19,398

 
$
2,336

 
12%
 
 
 
 
 
 
 
 
Net assets under management (4)
$
9,607

 
$
9,212

 
$
395

 
4%
 
(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 offset, in part, by reductions in the eligible collateral bases of our ABS, corporate loans and trust preferred securities portfolios by $103.3 million, $307.5 million and $150.7 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 $558.0 million increase in commercial real estate assets managed for RSO, and increases of $131.0 million and $312.0 million in real estate assets managed for RRE Opportunity REIT I 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 September 30, 2015 (1)
 
 
 
 
 
 
 
Financial fund management
48
 
13
 
—
 
14
Real estate
6
 
5
 
5
 
5
Commercial finance
—
 
1
 
—
 
2
 
54
 
19
 
5
 
21
As of September 30, 2014 (1)
 
 
 
 
 
 
 
Financial fund management
46
 
8
 
—
 
11
Real estate
4
 
8
 
6
 
6
Commercial finance
—
 
3
 
—
 
2
 
50
 
19
 
6
 
19
 
(1)
All of our operating segments manage assets on behalf of RSO.
As of September 30, 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):
 
September 30, 2015
 
September 30, 2014
 
Institutional and
Individual Investors
 
RSO
 
Company
 
Total
 
Total
Bank loans (1) 
$
11,823

 
$
767

 
$
—

 
$
12,590

 
$
11,122

Trust preferred securities (1) 
3,102

 
—

 
—

 
3,102

 
3,253

Asset-backed securities (1) 
809

 
—

 
—

 
809

 
912

Mortgage and other real
estate-related loans (2)
7

 
1,973

 
—

 
1,980

 
1,456

Real properties (2) 
1,948

 
—

 
16

 
1,964

 
1,578

Commercial finance assets (3) 
756

 
—

 
—

 
756

 
646

Private equity and other assets (1) 
120

 
413

 
—

 
533

 
431

 
$
18,565

 
$
3,153

 
$
16

 
$
21,734

 
$
19,398

 
 
 
 
 
 
 
 
 
 
Net assets under management (4)
$
7,148

 
$
2,443

 
$
16

 
$
9,607

 
$
9,212

 
(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 September 30, 2015, we had 747 full-time employees, an increase of 26 (4%) from September 30, 2014. The following table summarizes our employees by operating segment:
 
Total
 
Real Estate
 
Financial Fund
Management
 
Corporate/
Other
September 30, 2015
 
 
 
 
 
 
 
Investment professionals
99
 
75
 
18
 
6
Other
111
 
51
 
12
 
48
 
210
 
126
 
30
 
54
Property management
537
 
537
 
—
 
—
Total
747
 
663
 
30
 
54
 
 
 
 
 
 
 
 
September 30, 2014
 
 
 
 
 
 
 
Investment professionals
79
 
61
 
15
 
3
Other
95
 
35
 
11
 
49
 
174
 
96
 
26
 
52
Property management
547
 
547
 
—
 
—
Total
721
 
643
 
26
 
52
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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Fund management revenues (1) 
$
15,936

 
$
13,241

 
$
51,909

 
$
43,460

Finance and rental revenues (2) 
1,573

 
2,420

 
6,839

 
7,088

RSO management fees (3) 
3,096

 
3,309

 
9,791

 
9,106

(Losses) gains on resolution of loans (4) 
—

 
(10
)
 
—

 
(10
)
Other revenues
64

 
869

 
130

 
1,983

Subtotal - Resource America revenues before consolidating with RSO
20,669

 
19,829

 
68,669

 
61,627

Consolidated VIE-RSO revenues
23,705

 
25,811

 
72,267

 
74,884

Elimination of consolidated VIE-RSO revenues attributed to operating segments
(3,697
)
 
(4,136
)
 
(12,074
)
 
(10,056
)
 
$
40,677

 
$
41,504

 
$
128,862

 
$
126,455

 
(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.
(4)
Includes the resolution of loans we hold in our real estate segment.
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.
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 the CIF.  During the first quarter of 2015, we added six new employees who are dedicated solely to the distribution of the DIF and the CIF 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):
 
September 30,
 
2015
 
2014
Assets under management (1):
 
 
 
Commercial real estate debt for RSO
$
1,838

 
$
1,328

Real estate investment funds and programs
516

 
572

RRE Opportunity REIT I
1,094

 
963

RRE Opportunity REIT II
329

 
17

Properties managed for RSO
—

 
35

Institutional portfolios
15

 
15

Residential mortgages for RSO
136

 
88

Legacy portfolio
16

 
16

Other
—

 
5

DIF
65

 
17

 
$
4,009

 
$
3,056

 
 
 
 
Net assets under management
$
3,984

 
$
3,054

 
(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 significantly 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Management fees:
 
 
 
 
 
 
 
REIT management fees from RSO
$
2,434

 
$
2,609

 
$
7,896

 
$
7,519

Property management fees
3,480

 
3,110

 
9,477

 
8,292

Asset management fees
3,899

 
2,690

 
10,765

 
7,067

Broker-dealer fees
1,584

 
280

 
5,033

 
336

 
11,397

 
8,689

 
33,171

 
23,214

Other:
 

 
 

 
 
 
 
Rental property income
1,448

 
1,280

 
4,371

 
3,797

Master lease revenues
54

 
1,119

 
2,365

 
3,270

Fee income from sponsorship of investment entities
3,889

 
3,299

 
12,880

 
11,410

(Losses) gains and fees on resolution of loans and other property interests
—

 
(10
)
 
—

 
(10
)
Equity in gains (losses) of unconsolidated entities
(593
)
 
(88
)
 
1,490

 
(669
)
 
$
16,195

 
$
14,289

 
$
54,277

 
$
41,012

Costs and expenses:
 

 
 

 
 
 
 
General and administrative expenses
$
5,421

 
$
3,651

 
$
15,655

 
$
11,736

Property management expenses
2,598

 
2,218

 
7,541

 
6,608

Broker-dealer expenses
2,065

 
1,381

 
6,737

 
3,013

Master lease expenses
206

 
1,265

 
2,201

 
3,484

Rental property expenses
933

 
869

 
2,670

 
2,523

 
$
11,223

 
$
9,384

 
$
34,804

 
$
27,364

Revenues − Three Months Ended September 30, 2015 as Compared to the Three Months Ended September 30, 2014
Revenues from our real estate operations increased $1.9 million (13%) to $16.2 million for the three months ended September 30, 2015, from $14.3 million for the three months ended September 30, 2014.  We attribute this increase in revenues primarily to the following:
Management fees
•
a $175,000 decrease in management fees from RSO, reflecting a decrease in the equity capital of RSO upon which we are paid a base management fee;
•
a $370,000 increase in property management fees, reflecting a $165,000 increase in fees earned from Opportunity REIT I and Opportunity REIT II in conjunction with the increase in their asset base. Construction management fees earned from improvement projects for these funds also increased by $192,000;
•
a $1.2 million increase in asset management fees. The fees earned from Opportunity REIT I and Opportunity REIT II increased reflecting the increase in the value of the underlying investments by $443.0 million to $1.4 billion at September 30, 2015 from $980.0 million at September 30, 2014; and
•
a $1.3 million increase in dealer-manager fees. During the quarter ended September 30, 2015, we raised $82.9 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 $590,000 increase in fee income from sponsored investment entities in connection with the purchase and third-party financing of properties by those entities, as follows:
•
during the three months ended September 30, 2015, we earned $3.9 million in fees primarily from the following activities:
•
the acquisition of three properties (valued at $92.3 million);
•
the sale of two properties (valued at $40.8 million); and
•
the placement of $53.5 million of financing on properties.
•
in comparison, during three months ended September 30, 2014, we earned $3.3 million in fees, primarily from the following activities:
•
the acquisition of five properties (valued at $108.0 million);
•
the sale of two properties (valued at $36.1 million); and
•
the placement of $55.1 million of financing on properties.
•
a $505,000 increase in equity in losses of unconsolidated entities, including a $721,000 equity loss reflecting our 50% interest in the Pearlmark joint venture that commenced operations in the third quarter of 2015.
•
a $1.1 million decrease in master lease revenues due to the sale of the underlying property in July 2015.
Costs and Expenses - Three Months Ended September 30, 2015 as Compared to the Three Months Ended September 30, 2014
Costs and expenses of our real estate operations increased $1.8 million (20%) to $11.2 million for the three months ended September 30, 2015, from $9.4 million for the three months ended September 30, 2014. We attribute this increase in costs and expenses primarily to the following:
•
a $1.8 million increase in general and administrative expenses, primarily reflecting $1.2 million in compensation expense (in conjunction with the higher number of employees and related wages to handle the increase in assets under management) and $345,000 in marketing and travel expenses (principally the increased selling efforts with respect to DIF and Opportunity REIT II fundraising).
•
a $380,000 increase in property management expenses, primarily wages and benefits associated with increased staffing levels required to manage the higher number of properties under management;
•
a $684,000 increase in broker-dealer expenses, reflecting the $800,000 increase in payroll associated with the fundraising efforts on behalf of Opportunity REIT II during the three months ended September 30, 2015; and
•
a $1.1 million decrease in master lease expenses due to the sale of the underlying property.

Revenues − Nine Months Ended September 30, 2015 as Compared to the Nine Months Ended September 30, 2014
Revenues from our real estate operations increased $13.3 million (32%) to $54.3 million for the nine months ended September 30, 2015, from $41.0 million for the nine months ended September 30, 2014. We attribute this increase in revenues primarily to the following:
•
a $377,000 increase in management fees from RSO, reflecting an increase in the average RSO equity capital and a greater allocation of RSO base management fees to the real estate segment;
•
a $1.2 million increase in property management fees, due principally to a $705,000 increase in fees earned from Opportunity REIT I and Opportunity REIT II in conjunction with the increase in their asset base as well as a $431,000 increase in construction management fees earned from improvement projects for some of their properties;
•
a $3.7 million increase in asset management fees. The fees earned from Opportunity REIT I and Opportunity REIT II increased by $3.4 million as a result of the increase in the value of the underlying investments in those funds by $443.0 million to $1.4 billion at September 30, 2015 from $980.0 million at September 30, 2014; and
•
a $4.7 million increase in dealer-manager fees. During the nine months ended September 30, 2015 and 2014, we raised $270.5 million and $17.8 million, respectively, for Opportunity REIT II, which began fundraising in April 2014.



Other revenues
•
a $1.5 million increase in fee income from sponsored investment entities in connection with the purchase and third-party financing of properties by those entities, as follows:
•
during the nine months ended September 30, 2015, we earned $12.9 million in fees primarily from the following activities:
•
the acquisition of nine properties (valued at $398.6 million);
•
the sale of seven properties (valued at $123.1 million); and
•
the placement of $207.7 million of financing on properties.
•
in comparison, during the nine months ended September 30, 2014, we earned $11.4 million in fees, primarily from the following activities:
•
the acquisition of eight properties (valued at $302.4 million);
•
the acquisition in January 2014 of joint venture interests in 10 multifamily communities (valued at $51.2 million);
•
the sale of six properties (valued at $143.0 million); and
•
the placement of $297.9 million of financing on properties.
•
a $2.2 million increase in equity in earnings of unconsolidated entities. During the nine months ended September 30, 2015, we recorded income relating to gains on sales of six properties in three of our real estate investment funds; there were no property sales during the prior year period. This increase was partially offset by a $721,000 equity loss in the startup of the Pearlmark operations.
Costs and Expenses - Nine Months Ended September 30, 2015 as Compared to the Nine Months Ended September 30, 2014
Costs and expenses of our real estate operations increased $7.4 million (27%) to $34.8 million for the nine months ended September 30, 2015, from $27.4 million for the nine months ended September 30, 2014. We attribute this increase in costs and expenses primarily to the following:
•
a $3.9 million increase in general and administrative expenses, comprised primarily of $2.7 million in compensation expense (in conjunction with the higher headcount to handle the increased assets under management) in addition to $405,000 in professional fees and $453,000 in travel and marketing expenditures associated with our fundraising efforts;
•
a $933,000 increase in property management expenses, primarily wages and benefits associated with higher staffing levels to manage the increase in properties under management;
•
a $3.7 million increase in broker-dealer expenses, primarily the $3.3 million increase in payroll associated with the fundraising efforts on behalf of Opportunity REIT II and DIF.
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, manages the legacy CDOs that it sponsored, which hold 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
September 30, 2015
 
 
 
 
 
CVC Credit Partners
$
11,823

 
$
767

 
$
12,590

Trapeza
3,102

 
—

 
3,102

Ischus
809

 
—

 
809

Other
55

 
413

 
468

 
$
15,789

 
$
1,180

 
$
16,969

 
 
 
 
 
 
Net assets under management
$
5,147

 
$
470

 
$
5,617

 
 
 
 
 
 
September 30, 2014
 

 
 

 
 

CVC Credit Partners
$
9,738

 
$
1,384

 
$
11,122

Trapeza
3,253

 
—

 
3,253

Ischus
912

 
—

 
912

Other company-sponsored partnerships
62

 
347

 
409

 
$
13,965

 
$
1,731

 
$
15,696

 
 
 
 
 
 
Net assets under management
$
5,621

 
$
537

 
$
6,158

 
(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 September 30, 2015, CVC Credit Partners has sponsored, structured and/or currently manages $12.6 billion in assets across 26 CLO issuers and 13 separately managed accounts for institutional and individual investors, including $766.7 million 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 0.15% (senior) and 0.31% (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 0.77% 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 and nine months ended September 30, 2015, we received 75% of the incentive management fees generated by five and six legacy Apidos CLOs, respectively, one of which was liquidated in the first quarter of 2015.
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 September 30, 2015, we had an investment of $1.3 million in a proprietary trading portfolio and an investment of $1.4 million in RCM Global, LLC, or RCM Global, a venture between us, RSO and certain related parties that holds a portfolio of available-for-sale securities.  Through distributions, we recovered the cost basis of our investment in RCM Global during the third quarter of 2014 and used those proceeds to fulfill our commitment to Pelium Capital Partners, L.P., or Pelium Capital; and
•
Pelium Capital - managing a $21.8 million portfolio, principally consisting of credit-related instruments and securities for our own account and RSO.
We manage RCM Global and Pelium Capital on behalf of RSO, us (including certain related parties), and third-party investors. These entities are consolidated by RSO and, accordingly, our investments and interest in them are eliminated in our consolidated financial statements with RSO.
Northport
Our Northport 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 $349.5 million across 30 loans at September 30, 2015.
Trapeza
Our Trapeza group has sponsored, structured and currently co-manages 13 CDO issuers holding approximately $3.1 billion in par value of outstanding trust preferred securities of banks, bank holding companies, insurance companies and other financial companies at September 30, 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 and manages eight CDO issuers for institutional and individual investors, which hold approximately $808.8 million in real estate ABS, including RMBS, CMBS and credit default swaps at September 30, 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 ($55.4 million cost basis) of investments in financial institutions at September 30, 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Fund management fees
$
755

 
$
821

 
$
2,271

 
$
2,895

Fund management fees - incentive
576

 
941

 
2,014

 
5,798

RSO management fees
661

 
700

 
1,894

 
1,587

Structuring and placement fees
125

 
215

 
305

 
3,582

Loan origination fees
418

 
354

 
2,039

 
1,277

Introductory agent fees
516

 
439

 
812

 
1,132

Equity in earnings of unconsolidated CDO issuers
334

 
258

 
906

 
719

Equity in earnings of CVC Credit Partners
505

 
586

 
1,722

 
1,227

Gains, net, on trading securities
45

 
855

 
70

 
1,910

Other revenues
19

 
15

 
56

 
74

 
3,954

 
5,184

 
12,089

 
20,201

Limited and general partner interests:
 
 
 
 
 
 
 
Fair value adjustments
(303
)
 
(112
)
 
249

 
101

Operations
224

 
143

 
448

 
129

LLC member interests
533

 
342

 
1,540

 
342

Total limited, general partner and member interests
454

 
373

 
2,237

 
572

 
$
4,408

 
$
5,557

 
$
14,326

 
$
20,773

Costs and expenses:
 

 
 

 
 
 
 
General and administrative expenses
$
3,366

 
$
2,812

 
$
9,483

 
$
9,980

Revenues − Three Months Ended September 30, 2015 as Compared to the Three Months Ended September 30, 2014
Revenues decreased $1.1 million (21%) to $4.4 million for the three months ended September 30, 2015 from $5.6 million for three months ended September 30, 2014. We attribute this decrease in revenues primarily to the following:
•
a $365,000 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; and
•
an $810,000 decrease in realized and unrealized gains and interest recorded on our trading portfolio. The portfolio was substantially liquidated during the third quarter of 2014 and the proceeds were reinvested in Pelium Capital. We have fully funded our commitment in Pelium Capital and our share of the earnings/losses is reflected in limited and general partners' interests.
    
Costs and Expenses − Three Months Ended September 30, 2015 as Compared to the Three Months Ended September 30, 2014
Costs and expenses of our financial fund management operations increased $554,000 (20%) to $3.4 million for the three months ended September 30, 2015 from $2.8 million for the three months ended September 30, 2014, primarily reflecting increases in wages and benefits and legal costs incurred in connection with the growth of the Northport business.
Revenues − Nine Months Ended September 30, 2015 as Compared to the Nine Months Ended September 30, 2014
Revenues decreased $6.4 million (31%) to $14.3 million for the nine months ended September 30, 2015 from $20.8 million for nine months ended September 30, 2014. We attribute this decrease in revenues primarily to the following:
•
a $624,000 decrease in fund management fees, primarily due to the collection in 2014 of a deferred subordinated collateral management fee from our Trapeza operations and decreased capital bases in our unconsolidated partnerships as a result of distributions;


•
a $3.8 million decrease in fund management incentive fees due to the substantial liquidation of one of the legacy Apidos CLOs (during the second quarter of 2014 ) on which we retained 75% of the incentive management fees that were earned;
•
a $3.3 million decrease in structuring and placement fees, principally due to fees earned by Resource Capital Markets in 2014 for underwriting a European CLO for an unrelated third-party collateral manager;
•
a $320,000 decrease in introductory agent fees earned in connection with our riskless trade and CDO auction advisory services; and
•
a $1.8 million decrease in realized and unrealized gains and interest recorded on our trading portfolio, which was primarily liquidated during the third quarter of 2014.
These decreases were partially offset by the following increases:
•
a $307,000 increase in RSO management fees, due to the increased middle market assets managed by Northport on behalf of RSO;
•
a $762,000 increase in loan origination fees, reflecting an increase in fees earned by Northport in connection with the closing of $120.0 million in middle market loans issued by RSO during the nine months ended September 30, 2015 as compared to $96.8 million of loans closed during the prior year period;
•
a $187,000 increase in earnings on CDO issuers, due to the addition of four CLO equity investments, offset in part by the liquidation of one CLO equity investment during 2014;
•
a $495,000 increase in equity in earnings of CVC Credit Partners in conjunction with the increase in the assets under management; and
•
a $1.7 million increase in earnings from our limited and general partner interests and LLC Member interests, which includes a $1.5 million increase in equity in earnings and a $148,000 increase in portfolio mark to market adjustments on our Pelium Capital investment.
Costs and Expenses - Nine Months Ended September 30, 2015 as Compared to the Nine Months Ended September 30, 2014
Costs and expenses of our financial fund management operations decreased $497,000 (5.0%) to $9.5 million for the nine months ended September 30, 2015 from $10.0 million for the nine months ended September 30, 2014. We attribute this decrease in costs and expenses primarily to the following:
•
an $870,000 decrease in total compensation expense, primarily due to a $1.8 million decrease in incentive compensation in connection with structuring and placement fees offset, in part by, a $909,000 increase in wages related to the growth of Northport; this decrease was partially offset by
•
a $366,000 increase in general and administrative expenses, including a $226,000 increase in legal fees due to the startup and expansion of the Northport business and a $140,000 increase in financial software expenses (the prior year costs were partially reimbursed in connection with a structuring and placement fee).
Results of Operations:  Commercial Finance
The commercial finance assets we manage through LEAF increased by $111.0 million to $756.0 million as compared to $645.0 million at September 30, 2014. This increase reflects increases of $48.0 million in the LEAF portfolio and $63.0 million in the assets managed for others, including our investment partnerships. Of the four initial investment partnerships we sponsored and managed, two were liquidated during the second and fourth quarters of 2014 and another was liquidated in July 2015. As of September 30, 2015 and 2014, LEAF managed 61,700 and 61,355 leases and loans for itself, other third-parties and our investment partnerships, with an average original finance value of $20,400 and $21,300 and an average term of 52 and 54 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):
 
September 30,
Assets under management (1):
2015
 
2014
LEAF
$
634

 
$
586

Others, including commercial finance investment partnerships
122

 
59

 
$
756

 
$
645


(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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Equity in losses of unconsolidated investment entities and LEAF
$
(4
)
 
$
(39
)
 
$
25

 
$
(43
)
Commercial finance revenues
70

 
22

 
41

 
(115
)
 
$
66

 
$
(17
)
 
$
66

 
$
(158
)
Costs and expenses:
 

 
 

 
 
 
 
General and administrative expenses - wage and benefit costs
$
81

 
$
102

 
$
212

 
$
276

General and administrative expenses - other
353

 
23

 
1,259

 
75

 
$
434

 
$
125

 
$
1,471

 
$
351

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 $17,000 and $97,000 of fund management fees from these entities during the three and nine months ended September 30, 2015 and $105,000 and $605,000 during the three and nine months ended September 30, 2014, respectively.
Results of Operations:  Other Costs and Expenses
General and Administrative Expenses
General and administrative costs increased $1.6 million (67%) and $3.2 million (39%) to $4.1 million and $11.5 million for the three and nine months ended September 30, 2015, respectively, from $2.4 million and $8.3 million for the three and nine months ended September 30, 2014, respectively. Wages and benefits increased $726,000 (63.2%) and $1.8 million (49.7%) to $1.9 million and $5.3 million for the three and nine months ended September 30, 2015, respectively, from $1.1 million and $3.6 million for the three and nine months ended September 30, 2014, respectively, primarily related to salary increases and bonuses in 2015. For the nine months ended September 30, 2015, professional fees increased by $503,000 primarily due to a $960,000 increase as a result of legal and regulatory matters. This increase was offset, in part, by a $457,000 decrease in audit and consulting fees. During 2014, we had incurred additional fees related to the change in our reporting year end and the 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Commercial finance:
 
 
 
 
 
 
 
Receivables from managed entities
$
(402
)
 
$
582

 
$
4

 
$
3,381

Leases and loans
—

 
(24
)
 
(37
)
 
(37
)
Real estate:
 

 
 

 
 
 
 
Receivables from managed entities
1

 
(1
)
 
308

 
1

Rent receivables
1

 
2

 
3

 
(3
)
 
$
(400
)
 
$
559

 
$
278

 
$
3,342



We have estimated, based on projected cash flows, that the commercial finance partnerships will not have sufficient funds to pay a portion of the receivable we are owed. Accordingly, we recorded a provision of $4,000 (related to one of the partnerships net of the recoveries realized on its liquidation in July 2015) for the nine months ended September 30, 2015 (there was no provision recorded for the three month period) and provisions of $0.6 million and $3.4 million (for three of the partnerships, two of which were subsequently liquidated during 2014) for the three and nine months ended September 30, 2014.
During the three and nine months ended September 30, 2015, due to shortfalls in projected cash flows of one of the real estate investment partnerships, we recorded provisions of $1,000 and $308,000, respectively, to our receivables.
Depreciation and Amortization
The following table reflects the depreciation reported by our operating segments (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Real estate property investments
$
142

 
$
136

 
$
416

 
$
398

Other operating segments - primarily depreciation on fixed assets
362

 
317

 
1,060

 
971

Total depreciation expense
$
504

 
$
453

 
$
1,476

 
$
1,369

Interest Expense
Interest expense includes the non-cash amortization of debt issuance costs. During the three and nine months ended September 30, 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Corporate
$
273

 
$
275

 
$
786

 
$
859

Real estate
177

 
190

 
539

 
577

Commercial finance
—

 
2

 
1

 
11

 
$
450

 
$
467

 
$
1,326

 
$
1,447

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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Noncontrolling interests in consolidated VIE-RSO (1)
$
(14,643
)
 
$
(14,214
)
 
$
(10,388
)
 
$
(48,759
)
Other:
 
 
 
 
 
 
 
  Real estate - hotel property (2) 
$
(40
)
 
$
1

 
$
(158
)
 
$
(61
)
  Real estate - Australian joint venture (3)
3

 
10

 
66

 
28

 
$
(37
)
 
$
11

 
$
(92
)
 
$
(33
)
 
(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)
Reflects the net income attributable to our Australian partner (25% interest) for the current year prior to the sale of all of our interests in


that joint venture.
Income Taxes
The following table details the allocation of our consolidated provision (benefit) for income taxes from continuing operations for us and RSO (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
RAI
$
1,355

 
$
1,741

 
$
3,456

 
$
4,991

Consolidated VIE-RSO
(1,796
)
 
(237
)
 
2,969

 
(667
)
Total
$
(441
)
 
$
1,504

 
$
6,425

 
$
4,324

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 107% and 67% for the three and nine months ended September 30, 2015 as compared to 40% and 42% for the three and nine months ended September 30, 2014, respectively. The change in the income tax rate primarily relates to the greater impact of discrete tax adjustments relative to pre-tax earnings for the three and nine months ended September 30, 2015. The discrete tax expense of $760,000 recorded for the three months ended September 30, 2015 relates to state tax expenses as a result of the filing of our 2014 tax returns. Excluding all discrete tax items, our effective income tax rate would have been 47% and 42% for the three and nine months ended September 30, 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. We are currently undergoing a Kansas 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 2011 and are no longer subject to state and local income tax examinations for years before 2008.


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.
Reflected in RSO operating expenses for the three and nine months ended September 30, 2015 is an impairment charge of $41 million related to an RSO mezzanine loan investment due to a change in market conditions.
The following summarizes the operating activities of RSO (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Total interest income
$
39,328

 
$
33,841

 
$
113,511

 
$
91,518

Interest expense
16,906

 
11,508

 
47,611

 
31,746

Net interest income
22,422

 
22,333

 
65,900

 
59,772

Other revenues
1,283

 
3,478

 
6,367

 
15,112

Total revenues
23,705

 
25,811

 
72,267

 
74,884

Operating expenses
15,994

 
15,447

 
91,589

 
43,585

Net operating income (loss)
7,711

 
10,364

 
(19,322
)
 
31,299

Other income (expense), net
5,215

 
3,730

 
32,268

 
17,527

Net income (loss)
$
12,926

 
$
14,094

 
$
12,946

 
$
48,826

Although we treat RSO as a consolidated VIE, our sole interests in it are through our management agreements as its external manager and our 2.2% ownership (715,398 shares, as adjusted for the RSO four-to-one reverse stock split) of RSO's common stock outstanding as of September 30, 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 September 30, 2015, our liquidity consisted of three primary sources:
•
cash on hand of $18.1 million;
•
$12.9 million of availability under two corporate credit facilities; and
•
cash generated from operations.
Disposition of Non-core Assets. Our legacy portfolio at September 30, 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. Additionally, in August 2014, we modified our Senior Notes to extend the maturity date to March 31, 2018 and to include an early redemption feature.
As of September 30, 2015, our total borrowings outstanding of $20.9 million included $10.0 million of Senior Notes, $9.9 million of mortgage debt (secured by the underlying property) and $1.0 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, except for our commitments in connection with Opportunity REIT II, Pearlmark and CVC Credit Partners (see "-Contractual Obligations and Other Commercial Commitments), 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
For the nine months ended September 30, 2015 and 2014, we paid cash dividends of $3.9 million $3.0 million, respectively, which were funded from cash flows generated from operations. 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 September 30, 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)
$
9,932

 
$
220

 
$
489

 
$
554

 
$
8,669

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

 
—

 
10,000

 
—

 
—

Capital lease obligations (1) 
964

 
374

 
590

 
—

 
—

 
10,964

 
374

 
10,590

 
—

 
—

 
 
 
 
 
 
 
 
 
 
Operating lease obligations
12,639

 
2,644

 
4,280

 
3,321

 
2,394

Other long-term liabilities
6,263

 
806

 
1,531

 
1,353

 
2,573

Total contractual obligations
$
39,798

 
$
4,044

 
$
16,890

 
$
5,228

 
$
13,636

 
(1)
Not included in the table above are estimated interest payments calculated at rates in effect at September 30, 2015 - less than 1 year: $1.6 million; 1-3 years:  $2.6 million; 3-5 years:  $1.2 million; and after 5 years: $400,000.
 
 
 
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

 
$
—

 
$
—

 
$
—

As of September 30, 2015, except for the executive compensation, we do not believe it was probable that any payments would be required under any of our commitments and contingencies and, accordingly, no liabilities were recorded in the consolidated financial statements. Our commitments and contingencies as of September 30, 2015 were as follows:
Corporate
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 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 for us 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 $117,000 and $100,000 as of September 30, 2015 and December 31, 2014, respectively.  As of September 30, 2015 and December 31, 2014, Resource Securities net capital was $819,000 and $1.4 million, respectively, which exceeded the minimum requirements by $702,000 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.
Executive compensation. We are also party to employment agreements with certain executives that provide for compensation and other benefits, including severance payments under specified circumstances.
Financial fund management
Clawback liability.  One of our 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 us ($1.1 million as of September 30, 2015) to the extent that the limited partners’ aggregate capital contributions exceed the total partner distributions from the fund.  As of September 30, 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.


Fund capital commitments. In connection with our investment in CVC Credit Partners, in its capacity as the fund manager for some of its managed accounts/funds, is contractually committed to invest capital along with third-party investors. Accordingly, as of September 30, 2015, our pro-rata portion of the unfunded capital commitments totaled $5.4 million across five such funds/accounts. We expect these unfunded commitments to be called over the next two years. With respect to Resource Credit Opportunity Fund, LLC, an investment entity in the development stage that we plan to co-sponsor and manage, we are committed to fund $1.3 million in startup expenses. The liability for these commitments will be recorded in the future as the amounts become due and payable.
Real estate
REIT capital commitments. 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 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. Similarly, with respect to Apartment REIT III, 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 these commitments will be recorded in the future as the amounts become due and payable.
Pearlmark joint venture capital commitment. In connection with the Pearlmark joint venture, we are committed to fund up to $8.0 million, of which $5.0 million has been funded as of October 2015. The agreement limits the 2015 contributions to $6.0 million. This funding is reflected as our investment in Pearlmark and will have a preference in distributions, plus a 10% internal rate of return, from the joint venture before any monies will be distributed to the other investors.
Commercial finance
Commercial finance partnership guarantee. In connection with the sale of a portfolio of leases and notes by one of our commercial finance partnerships, we provided a guarantee to the buyer whereby we will reimburse the buyer in the event that one of the leases in the portfolio fails to make a $183,000 balloon payment on the due date. As of September 30, 2015, the lease is current and there is no indication that the payment will not be made timely; accordingly, no liability has been recorded for this contingency.    


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 and nine months ended September 30, 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 Pearlmark 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.  Except for Pearlmark, 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 September 30, 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. 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 September 30, 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 September 30, 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 September 30, 2015, our trading security portfolio was comprised of $1.3 million 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 September 30, 2015, the hypothetical loss would be approximately $131,000.
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 September 30, 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 September 30, 2015 of our 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
 
July 2015
 
139,770

 
$
8.29

 
139,770

 
$
5,133,701

(2) 
August 2015
 
968,912

 
$
8.00

 
7,350,186

 
$
17,649,814

(2)(3) 
September 2015
 
197,619

 
$
7.43

 
1,427,488

 
$
16,222,326

(3) 
 
 
1,306,301

 
$
7.91

 
 
 
 
 
 
(1)
The average price per share as reflected above includes broker fees and commissions.
(2)
In September 2014, our Board of Directors authorized a program, or the 2014 Program, to repurchase up to 1.5 million shares of our common stock. From August 1 to August 17, 2015 (date the 2014 Program was canceled), we acquired 49,452 shares for $396,312 (at an average cost of $8.01 per share), and in total since inception of the 2014 Program, we acquired a total of 864,641 shares.
(3)
Effective August 18, 2015, our Board of Directors authorized a new program, or the 2015 Program, to repurchase up to $25.0 million in shares of our common stock and canceled the 2014 Program. From August 18 to August 31, 2015, we acquired 919,460 shares for $7,350,186 (at an average cost of $7.99 per share).
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. (2)
10.7(b)
 
Letter Agreement between Alan Feldman and Resource America, Inc., dated January 20, 2015. (3)
10.8
 
Employment Agreement between Jeffrey Blomstrom and Resource America, Inc., dated January 28, 2015. (4)
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.
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 Current Report on Form 8-K filed on September 2, 2014 and by this reference incorporated herein.
(3)
Filed previously as an exhibit to our Annual Report on Form 10-K filed on March 13, 2015 and by this reference incorporated herein.
(4)
Filed previously as an exhibit to our Current Report on Form 8-K filed on February 2, 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)
 
 
 
November 9, 2015
By:
/s/ Thomas C. Elliott
 
 
THOMAS C. ELLIOTT
 
 
Senior Vice President and Chief Financial Officer
 
 
 
November 9, 2015
By:
/s/ Arthur J. Miller
 
 
ARTHUR J. MILLER
 
 
Vice President and Chief Accounting Officer