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EX-31.1 - EXHIBIT 31.1 - Exantas Capital Corp.a2017331rso-exhibit311.htm
EX-32.2 - EXHIBIT 32.2 - Exantas Capital Corp.a2017331rso-exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - Exantas Capital Corp.a201733rso-exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Exantas Capital Corp.a2017331rso-exhibit312.htm
EX-12.1 - EXHIBIT 12.1 - Exantas Capital Corp.a2017331rso-ex121.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
o
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: 1-32733
rcclogoa03a03.gif
RESOURCE CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Maryland
 
20-2287134
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
712 Fifth Avenue, 12th Floor, New York, New York 10019
(Address of principal executive offices) (Zip code)
 
 
 
(212) 506-3870
(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 ¨
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," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
þ
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes þ No
The number of outstanding shares of the registrant’s common stock on May 4, 2017 was 31,388,700 shares.



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q

 
 
PAGE
PART I
 
 
Item 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2:
 
 
 
Item 3:
 
 
 
Item 4:
 
 
 
PART II
 
 
 
 
 
Item 1:
 
 
 
Item 6:
 
 
 






PART I
ITEM 1.    FINANCIAL STATEMENTS
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
March 31,
2017
 
December 31,
2016
 
(unaudited)
 
 
ASSETS (1)
 
 
 
Cash and cash equivalents
$
157,760

 
$
116,026

Restricted cash
4,871

 
3,399

Interest receivable
6,139

 
6,404

CRE loans, pledged as collateral and net of allowances of $4.7 million and $3.8 million
1,295,154

 
1,286,278

Loans held for sale
2

 
1,007

Principal paydowns receivable
13,900

 
19,280

Investment securities, trading
221

 
4,492

Investment securities available-for-sale, including securities pledged as collateral of $91.1 million and $97.5 million
118,531

 
124,968

Investments in unconsolidated entities
74,271

 
87,919

Derivatives, at fair value
136

 
647

Direct financing leases, net of allowances of $0.6 million and $0.5 million
349

 
527

Intangible assets

 
213

Other assets
3,469

 
14,673

Deferred tax asset, net
3,899

 
4,255

Assets held for sale (amount includes $143.9 million and $158.2 million of legacy CRE loans held for sale in continuing operations, see Note 22)
317,118

 
383,455

Total assets
$
1,995,820

 
$
2,053,543

LIABILITIES (2)
 

 
 

Accounts payable and other liabilities
$
2,417

 
$
4,480

Management fee payable - related party
1,418

 
1,318

Accrued interest expense
4,629

 
4,979

Borrowings
1,177,195

 
1,191,456

Distributions payable
5,577

 
5,560

Derivatives, at fair value

 
97

Liabilities held for sale (see Note 22)
99,539

 
142,563

Total liabilities
1,290,775

 
1,350,453

EQUITY
 

 
 

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.50% Series A cumulative redeemable preferred shares, liquidation preference $25.00
per share; 1,069,016 and 1,069,016 shares issued and outstanding
1

 
1

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.25% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share; 5,544,579 and 5,544,579 shares issued and outstanding
6

 
6

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.625% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share; 4,800,000 and 4,800,000 shares issued and outstanding
5

 
5

Common stock, par value $0.001:  125,000,000 shares authorized; 31,393,013 and 31,050,020 shares issued and outstanding (including 592,422 and 400,050 unvested restricted shares)
31

 
31

Additional paid-in capital
1,219,125

 
1,218,352

Accumulated other comprehensive income (loss)
3,232

 
3,081

Distributions in excess of earnings
(516,045
)
 
(517,177
)
Total Resource Capital Corp. stockholders’ equity
706,355

 
704,299

     Non-controlling interests
(1,310
)
 
(1,209
)
      Total equity
705,045

 
703,090

TOTAL LIABILITIES AND EQUITY
$
1,995,820

 
$
2,053,543





RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)

 
March 31,
2017
 
December 31,
2016
 
(unaudited)
 
 
(1) Assets of consolidated variable interest entities ("VIEs") included in
total assets above:
 
 
 
Restricted cash
$
4,841

 
$
3,308

Interest receivable
2,700

 
3,153

CRE loans, pledged as collateral and net of allowances of $0.8 million and
$0.8 million
638,930

 
747,726

Loans held for sale
2

 
1,007

Principal paydowns receivable
13,900

 
5,820

Investment securities available-for-sale, including securities pledged as collateral

 
369

Other assets
186

 
58

Total assets of consolidated VIEs
$
660,559

 
$
761,441

 
 
 
 
(2) Liabilities of consolidated VIEs included in total liabilities above:
 
 
 
Accounts payable and other liabilities
$
71

 
$
133

Accrued interest expense
444

 
519

Borrowings
381,168

 
480,103

Total liabilities of consolidated VIEs
$
381,683

 
$
480,755


The accompanying notes are an integral part of these statements
4


RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 

 
For the Three Months Ended
 
March 31,
 
2017
 
2016
REVENUES
 
 
 
Interest income:
 
 
 
CRE loans
$
21,533

 
$
20,981

Securities
2,308

 
4,798

Interest income - other
1,630

 
1,237

Total interest income
25,471

 
27,016

Interest expense
14,254

 
13,302

Net interest income
11,217

 
13,714

Dividend income
19

 
17

Fee income
909

 
572

Total revenues
12,145

 
14,303

OPERATING EXPENSES
 

 
 

Management fees - related party
2,680

 
4,037

Equity compensation - related party
788

 
489

General and administrative
3,863

 
3,642

Depreciation and amortization
68

 
509

Impairment losses
177

 

Provision (recovery) for loan and lease losses
999

 
(70
)
Total operating expenses
8,575

 
8,607

 
 
 
 
 
3,570

 
5,696

OTHER INCOME (EXPENSE)
 

 
 

Equity in earnings of unconsolidated entities
361

 
2,222

Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
7,606

 
853

Net realized and unrealized gain (loss) on investment securities, trading
(911
)
 
145

Fair value adjustments on financial assets held for sale
(21
)
 

Other income (expense)
68

 
(60
)
Total other income (expense)
7,103

 
3,160

 
 
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
10,673

 
8,856

Income tax (expense) benefit
(1,499
)
 
(4
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
9,174

 
8,852

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX
(561
)
 
5,168

NET INCOME (LOSS)
8,613

 
14,020


The accompanying notes are an integral part of these statements
5


RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)
(in thousands, except share and per share data)
(unaudited)


 
 
 
 
 
For the Three Months Ended
 
March 31,
 
2017
 
2016
Net (income) loss allocated to preferred shares
(6,014
)
 
(6,048
)
Carrying value in excess of consideration paid for preferred shares

 
1,611

Net (income) loss allocable to non-controlling interests, net of taxes
101

 
90

NET INCOME (LOSS) ALLOCABLE TO COMMON SHARES
$
2,700

 
$
9,673

NET INCOME (LOSS) PER COMMON SHARE – BASIC
 
 
 
CONTINUING OPERATIONS
$
0.11

 
$
0.12

DISCONTINUED OPERATIONS
$
(0.02
)
 
$
0.20

TOTAL NET INCOME (LOSS) PER COMMON SHARE - BASIC
$
0.09

 
$
0.32

NET INCOME (LOSS) PER COMMON SHARE – DILUTED
 
 
 
CONTINUING OPERATIONS
$
0.11

 
$
0.12

DISCONTINUED OPERATIONS
$
(0.02
)
 
$
0.19

TOTAL NET INCOME (LOSS) PER COMMON SHARE - DILUTED
$
0.09

 
$
0.31

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
30,752,006

 
30,600,407

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
30,914,148

 
31,038,095


The accompanying notes are an integral part of these statements
6


RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

 
For the Three Months Ended
 
March 31,
 
2017
 
2016
Net income (loss)
$
8,613

 
$
14,020

Other comprehensive income (loss):
 

 
 

Reclassification adjustment for realized (gains) losses on available-for-sale securities included in net income

 
301

Unrealized gains (losses) on available-for-sale securities, net
134

 
(1,318
)
Reclassification adjustments associated with unrealized (gains) losses from interest rate hedges included in net income
17

 
61

Unrealized gains on derivatives, net

 
27

Total other comprehensive income (loss)
151

 
(929
)
Comprehensive income (loss) before allocation to non-controlling interests and preferred shares
8,764

 
13,091

Net (income) loss allocable to non-controlling interests, net of taxes
101

 
90

Net (income) loss allocated to preferred shares
(6,014
)
 
(6,048
)
Carrying value in excess of consideration paid for preferred shares

 
1,611

Comprehensive income (loss) allocable to common shares
$
2,851

 
$
8,744



The accompanying notes are an integral part of these statements
7

RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(in thousands, except share and per share data)
(unaudited)

 
Common Stock
 
Preferred Shares - Series A
 
Preferred Shares - Series B
 
Preferred Shares - Series C
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive (Loss) Income
 
Retained Earnings
 
Distributions in Excess of Earnings
 
Total Stockholders' Equity
 
Non-Controlling Interests
 
Total Equity
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2017
31,050,020

 
$
31

 
$
1

 
$
6

 
$
5

 
$
1,218,352

 
$
3,081

 
$

 
$
(517,177
)
 
$
704,299

 
$
(1,209
)
 
$
703,090

Stock based compensation
360,799

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock based compensation

 

 

 

 

 
847

 

 

 

 
847

 

 
847

Purchase and retirement of common shares
(8,508
)
 

 

 

 

 
(74
)
 

 

 

 
(74
)
 

 
(74
)
Forfeiture of unvested stock
(9,298
)
 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 
8,714

 

 
8,714

 
(101
)
 
8,613

Preferred dividends

 

 

 

 

 

 

 
(6,014
)
 

 
(6,014
)
 

 
(6,014
)
Securities available-for-sale, fair value adjustment, net

 

 

 

 

 

 
134

 

 

 
134

 

 
134

Designated derivatives, fair value adjustment

 

 

 

 

 

 
17

 

 

 
17

 

 
17

Distributions on common stock

 

 

 

 

 

 

 
(2,700
)
 
1,132

 
(1,568
)
 

 
(1,568
)
Balance, March 31, 2017
31,393,013

 
$
31

 
$
1

 
$
6

 
$
5

 
$
1,219,125

 
$
3,232

 
$

 
$
(516,045
)
 
$
706,355

 
$
(1,310
)
 
$
705,045



The accompanying notes are an integral part of these statements
8


RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


 
For the Three Months Ended
 
March 31,
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss) from continuing operations
$
9,174

 
$
8,852

Net income (loss) from discontinued operations, net of tax
(561
)
 
5,168

Net income (loss)
8,613

 
14,020

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Provision (recovery) for loan and lease losses
999

 
(70
)
Depreciation, amortization and accretion
(349
)
 
(2,473
)
Amortization of stock-based compensation
788

 
489

Sale of and principal payments on syndicated corporate loans held for sale
1,076

 

Sale (purchase) of and principal payments on securities, trading, net
4,493

 
3

Net realized and unrealized (gain) loss on investment securities, trading
911

 
(145
)
Net realized and unrealized (gain) loss on sales of investment securities available-for-sale and loans and derivatives
(7,606
)
 
(853
)
Fair value adjustments on financial assets held for sale
21

 

Impairment losses
177

 

Equity in net (earnings) losses of unconsolidated entities
(361
)
 
(2,222
)
Return on investment from investments in unconsolidated entities
6,292

 

Changes in operating assets and liabilities, net of acquisitions
2,279

 
453

Net cash provided by (used in) continuing operating activities
17,333

 
9,202

Net cash provided by (used in) discontinued operating activities
52,095

 
(27,491
)
Net cash provided by (used in) operating activities
69,428

 
(18,289
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

(Increase) decrease in restricted cash
(1,713
)
 
14,365

Deconsolidation of VIEs (1)

 
(472
)
Origination and purchase of loans
(119,240
)
 
(55,682
)
Principal payments received on loans and leases
116,159

 
24,627

Proceeds from sale of loans
21,250

 
138

Purchase of securities available-for-sale

 
(6,468
)
Principal payments on securities available-for-sale
7,519

 
16,229

Proceeds from sale of securities available-for-sale
9,422

 

Return of capital from (investment in) unconsolidated entity
7,703

 
9,381

Settlement of derivative instruments
106

 
56

Purchase of furniture and fixtures

 
(23
)
Net cash provided by (used in) continuing investing activities
41,206

 
2,151

Net cash provided by (used in) discontinued investing activities

 
54,196

Net cash provided by (used in) investing activities
41,206

 
56,347

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net proceeds from issuances of common stock and dividend reinvestment and stock purchase plan (net of offering costs of $0 and $0)

 
33

Repurchase of common stock
(74
)
 
(7,445
)
Repurchase of preferred shares

 
(3,114
)
Net proceeds (borrowings) from repurchase agreements
83,513

 
25,233

Payments on borrowings:
 
 
 

Securitizations
(100,542
)
 
(28,334
)
Distributions paid on preferred stock
(6,014
)
 
(6,115
)
Distributions paid on common stock
(1,550
)
 
(13,232
)
Net cash (used in) provided by continuing financing activities
(24,667
)
 
(32,974
)
Net cash (used in) provided by discontinued financing activities
(44,233
)
 
(12,437
)
Net cash (used in) provided by financing activities
(68,900
)
 
(45,411
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
41,734

 
(7,353
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
116,026

 
78,756

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
157,760

 
$
71,403

SUPPLEMENTAL DISCLOSURE:
 

 
 

Interest expense paid in cash
$
12,648

 
$
12,946

Income taxes paid in cash
$
515

 
$
43

(1)
Cash and cash equivalents at January 1, 2016 decreased by $472,000 due to the adoption of the amendments to the consolidation accounting guidance resulting in the deconsolidation of five variable interest entities.

The accompanying notes are an integral part of these statements
9


RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(unaudited)



NOTE 1 - ORGANIZATION
Resource Capital Corp. and its subsidiaries (collectively the "Company") is primarily focused on originating, holding and managing commercial mortgage loans and other commercial real estate ("CRE") related debt investments.  Historically, the Company has also made other commercial finance investments. The Company's investment activities are managed by Resource Capital Manager, Inc. ("Manager") pursuant to a management agreement.  The Manager is an indirect wholly-owned subsidiary of Resource America, Inc. ("Resource America") (formerly traded on NASDAQ: REXI).  On September 8, 2016, Resource America was acquired by C-III Capital Partners LLC ("C-III"), a leading CRE investment management and services company engaged in a broad range of activities, including primary and special loan servicing, loan origination, fund management, collateralized debt obligation ("CDO") management, principal investment, zoning due diligence, investment sales and multifamily property management. As part of the transaction, C-III took over control of the Company's Manager and became the beneficial owner of approximately 2.3% of the Company’s outstanding common shares at March 31, 2017.
    
In November 2016 the Company received approval from its board of directors to execute a strategic plan (the "Plan") to focus its strategy on CRE debt investments. The Plan contemplates disposing of certain legacy CRE loans, exit underperforming non-core asset classes and establishing a dividend policy based on sustainable earnings. Legacy CRE loans are loans originated prior to 2010. The Company reclassified the residential mortgage and middle market lending segments' assets and liabilities as held for sale in the fourth quarter of 2016. As a result of the reclassification, these segments are reported as discontinued operations and have been excluded from continuing operations and from segment results for all periods presented. 
The following subsidiaries are consolidated in the Company’s financial statements:
RCC Real Estate, Inc. ("RCC Real Estate") holds real estate investments, including CRE loans, CRE related securities and direct investments in real estate.  RCC Real Estate owns 100% of the equity of the following variable interest entities "VIE":
Resource Real Estate Funding CDO 2006-1, Ltd. ("RREF CDO 2006-1"), a Cayman Islands limited liability company and qualified real estate investment trust ("REIT") subsidiary ("QRS").  RREF CDO 2006-1 was established to complete a collateralized debt obligation ("CDO") issuance secured by a portfolio of CRE loans and commercial mortgage-backed securities ("CMBS"). This entity was deconsolidated at January 1, 2016 and the retained investment is accounted for as an investment security, available-for-sale in the Company's consolidated financial statements. On April 25, 2016, RREF CDO 2006-1 was liquidated and, in exchange for the Company's interests in RREF CDO 2006-1, the remaining assets of the CDO were distributed to the Company, comprised of investment securities available-for-sale and loans held for investment, which were recorded at fair value.
Resource Real Estate Funding CDO 2007-1, Ltd. ("RREF CDO 2007-1"), a Cayman Islands limited liability company and QRS.  RREF CDO 2007-1 was established to complete a CDO issuance secured by a portfolio of CRE loans and CMBS. This entity was deconsolidated at January 1, 2016 and the retained investment is now accounted for as an investment security, available-for-sale in the Company's consolidated financial statements. On November 25, 2016, RREF CDO 2007-1 was liquidated and, in exchange for the Company's interests in RREF CDO 2007-1, the remaining assets of the CDO were distributed to the Company, comprised of investment securities available-for-sale and loans held for investment, which were recorded at fair value.
Resource Capital Corp. CRE Notes 2013, Ltd. ("RCC CRE Notes 2013"), a Cayman Islands limited liability company and QRS, was established to complete a CRE securitization issuance secured by a portfolio of CRE loans. RCC CRE Notes 2013 was liquidated in December 2016 and, as a result, the remaining assets were returned to the Company in exchange for the Company's preference shares and equity notes in the securitization.
Resource Capital Corp. 2014-CRE2, Ltd. ("RCC 2014-CRE2"), a Cayman Islands limited liability company and QRS, was established to complete a CRE securitization issuance secured by a portfolio of CRE loans.
Resource Capital Corp. 2015-CRE3, Ltd. ("RCC 2015-CRE3"), a Cayman Islands limited liability company and QRS, was established to complete a CRE securitization issuance secured by a portfolio of CRE loans.
Resource Capital Corp. 2015-CRE4, Ltd. ("RCC 2015-CRE4"), a Cayman Islands limited liability company and QRS, was established to complete a CRE securitization issuance secured by a portfolio of CRE loans.



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

RCC Commercial, Inc. ("RCC Commercial") holds a 29.6% investment in NEW NP, LLC ("NEW NP, LLC"), a Delaware limited liability company that holds syndicated corporate loan investments, the Company's self-originated middle market loans and owns 100% of the equity of the following VIE:
Apidos CDO III, Ltd. ("Apidos CDO III"), a Cayman Islands limited liability company and taxable REIT subsidiary ("TRS"), was established to complete a CDO issuance secured by a portfolio of syndicated corporate loans and asset-backed securities ("ABS"). On March 31, 2015, the Company issued a notice of redemption to Apidos CDO III's trustee to call the CDO. In June 2015, the Company liquidated Apidos CDO III and, as a result, substantially all of the assets were sold.
RCC Commercial II, Inc. ("Commercial II") holds structured notes, available-for-sale securities and investments in the subordinated notes of foreign, syndicated corporate loan collateralized loan obligation ("CLO") vehicles.  Commercial II owns 100%, 68.3%, and 88.6% respectively, of the equity of the following VIEs:
Apidos Cinco CDO, Ltd. ("Apidos Cinco CDO"), a Cayman Islands limited liability company and TRS, was established to complete a CDO issuance secured by a portfolio of syndicated corporate loans, ABS and corporate bonds. This entity was deconsolidated at January 1, 2016 and the retained investment is now accounted for as an investment security, available-for-sale (see Note 2). In November 2016, the Company liquidated Apidos Cinco CDO and, as a result, substantially all of the assets were sold. The remaining assets were consolidated by the Company upon liquidation and are marked at fair value.
Whitney CLO I, Ltd. ("Whitney CLO I"), a Cayman Islands limited liability company and TRS. In September 2013, the Company liquidated Whitney CLO I and, as a result, all of the assets were sold.
Moselle CLO S.A. ("Moselle CLO"), incorporated in Luxembourg, is a CLO issuer whose assets consisted of European senior secured loans, U.S. senior secured loans, U.S. senior unsecured loans, U.S. second lien loans, European mezzanine loans, and a limited amount of synthetic securities and other eligible debt obligations. In December 2014, the Company liquidated Moselle CLO and, as a result, substantially all of the assets were sold.
RCC Commercial III, Inc. ("Commercial III") holds syndicated corporate loans investments.  Commercial III owns 90% of the equity of the following VIE:
Apidos CDO I, Ltd. ("Apidos CDO I"), a Cayman Islands limited liability company and TRS was established to complete a CDO issuance secured by a portfolio of syndicated corporate loans and ABS. In October 2014, the Company liquidated Apidos CLO I, and as a result, substantially all of the assets were sold.
RSO EquityCo, LLC owned 10% of the equity of Apidos CDO I and 10% of the equity of Apidos CLO VIII, Ltd ("Apidos CLO VIII"), a Cayman Islands limited liability company and TRS.
RCC Residential Portfolio, Inc. ("RCC Resi Portfolio"), a Delaware corporation directly owned by the Company, which invests in residential mortgage-backed securities ("RMBS").
RCC Resi TRS, a TRS directly owned by the Company, is a Delaware corporation which was formed to hold strategic residential mortgage positions which could not be held by RCC Resi Portfolio. RCC Resi TRS also owns 100% of the equity, unless otherwise stated, in the following:
Primary Capital Mortgage, LLC ("PCM"), (formerly known as Primary Capital Advisors, LLC), a limited liability company that originates and services residential mortgage loans. In November 2016, PCM's operations were reclassified to discontinued operations. See Note 22 for further discussion.
RCM Global Manager, LLC ("RCM Global Manager"), a Delaware limited liability company, owns 21.6% of the following entity:
RCM Global, LLC ("RCM Global"), a Delaware limited liability company, holds a portfolio of investment securities, available-for-sale. This entity was deconsolidated at January 1, 2016 and the retained investment is now accounted for as an equity method investment (see Note 2).
RCC Residential Depositor, LLC ("RCC Resi Depositor"), a Delaware limited liability company, owns 100% of the following entity:
RCC Residential Acquisition, LLC ("RCC Resi Acquisition"), a Delaware limited liability company, which was formed to purchase residential mortgage loans from PCM and transfer the assets to RCC Opportunities Trust ("RCC Opp Trust").
*
RCC Opp Trust, a Delaware statutory trust, which was formed to hold a portfolio of residential mortgage loans, available-for-sale.



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

Resource TRS III, LLC, formerly Resource TRS III, Inc. ("Resource TRS III"), a TRS directly owned by the Company, held the Company’s interests in a syndicated corporate loan CDO originated by the Company.  Resource TRS III also previously owned 33% of the equity of Apidos CLO VIII, which was liquidated in October 2013.
Resource TRS IV, LLC, formerly Resource TRS IV, Inc. ("Resource TRS IV"), a TRS directly owned by the Company, held the Company's equity investment in hotel condominium units acquired in conjunction with a loan foreclosure. The hotel condominium units were sold in April 2014.
Resource TRS V, LLC, formerly Resource TRS V, Inc. ("Resource TRS V"), a TRS directly owned by the Company, held the Company's equity investment in a held for sale condominium complex. All of the condominium units were sold at December 31, 2013.
Long Term Care Conversion Funding ("LTCC Funding"), a New York limited liability company, which provides funding through a financing facility to fund the acquisition of life settlement contracts.
Life Care Funding, LLC ("LCF"), a New York limited liability company, is a joint venture between RCC Resi TRS, which owns a 70.9% equity interest, and Life Care Funding Group Partners. LCF was established for the purpose of acquiring life settlement contracts. As part of the Company's plan to exit under-performing non-core businesses, the assets and liabilities of LCF were reclassified as held for sale status at December 31, 2016.
ZWH4, LLC ("ZAIS"), a Delaware limited liability company, which owned a beneficial interest in the warehouse credit facility of ZAIS CLO 4, Limited, is a Cayman Islands exempted limited liability company, in equity form, that is used to finance the purchase of syndicated corporate loans. The warehouse credit facility closed on May 5, 2016, at which time, Resource TRS III purchased a beneficial interest in ZAIS CLO 4, which was sold in November 2016.
Resource TRS, LLC, a Delaware limited liability company, which holds a 25.8% investment in NEW NP, LLC.
RCC TRS, LLC, formerly Resource TRS, Inc. ("Resource TRS"), holds the Company’s equity investment in a leasing company and holds all of its investment securities, trading (through both direct and indirect investments in such securities). Resource TRS also owns equity in the following:
NEW NP, LLC holds syndicated corporate loan investments and the Company's self-originated middle market loans. Resource TRS owns 44.6% of the equity in NEW NP, LLC at March 31, 2017. An additional 29.6% of the equity is owned by RCC Commercial. NEW NP, LLC owned 100% of Northport TRS, LLC, a Delaware limited liability company, which held middle market loans. NEW NP, LLC sold its interest in Northport TRS, LLC on August 4, 2016. In November 2016, NEW NP, LLC's operations were reclassified to discontinued operations. See Note 22 for further discussion.
Pelium Capital Partners, L.P. ("Pelium Capital"), a Delaware limited partnership, which holds investment securities, trading. Resource TRS owns 80.2% of the equity in Pelium Capital at March 31, 2017. This entity was deconsolidated at January 1, 2016 and the retained investment is now accounted for as an equity method investment (see Note 2).
Resource Capital Asset Management LLC ("RCAM"), a domestic limited liability company, which was entitled to collect senior, subordinated, and incentive fees related to CLO issuers to which it provided management services through CVC Credit Partners, L.P., formerly Apidos Capital Management ("ACM"), a subsidiary of CVC Capital Partners SICAV-FIS, S.A., a private equity firm ("CVC").  Resource America, Inc. owns a 24% interest in CVC Credit Partners, L.P., ("CVC Credit Partners").

On July 1, 2016, the Company underwent an internal tax restructuring in order to reduce the costs associated with ownership of multiple legal entities, simplify its overall legal entity structure, ease deployment of cash throughout the business for operations and opportunities and consolidate operations into one centralized entity or group of entities. As a result of this tax restructuring, several of the Company’s directly owned subsidiaries converted from corporations to single member LLCs. Also, the following directly owned subsidiaries of the Company merged into RCC Residential Portfolio TRS, Inc. ("RCC Resi TRS") and were dissolved upon the restructuring: Long Term Care Conversion, Inc. ("LTCC") and Resource TRS II, Inc. ("Resource TRS II"). On October 1, 2016, RCC Residential, Inc. ("RCC Residential") merged into RCC Resi TRS and was also dissolved.




RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the accounting policies set forth in Note 2 included in the Company's annual report on Form 10-K for the year ended December 31, 2016. The consolidated financial statements include the accounts of the Company. All inter-company transactions and balances have been eliminated.
Basis of Presentation
All adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly liquid investments with original maturities of three months or less at the time of purchase. At March 31, 2017 and December 31, 2016, approximately $153.7 million and $111.6 million, respectively, of the reported cash balances exceeded the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. However, all of the Company's cash deposits are held at multiple, established financial institutions to minimize credit risk exposure.
Allowance for Loan Loss
The general reserve, established for loans not determined to be impaired individually, is based on the Company's historical realized loss experience, adjusted for certain current economic factors.
Discontinued Operations
The results of operations of a component or a group of components of the Company that either has been disposed of or is classified as held for sale is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
Income Taxes
Due to changes in management’s focus regarding the non-CRE businesses, the Company’s forecasted taxable income continues to be insufficient to completely realize the tax benefits of the gross deferred tax asset of $60.9 million (tax effected $17.1 million) at March 31, 2017. The Company believes it will be able to utilize up to $28.3 million of the gross deferred tax asset prior to its expiration. Therefore, a gross valuation allowance of $32.6 million (tax effected $13.2 million) has been recorded against the deferred tax asset at March 31, 2017. Management will continue to evaluate the Company's ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies.
Recent Accounting Standards
In January 2017, the Financial Accounting Standards Board ("FASB"), issued guidance to add the SEC Staff Announcement "Disclosure of the Impact that Recently Issued Accounting Standards will have on the Financial Statements of a Registrant when such Standards are Adopted in a Future Period (in accordance with Staff Accounting Bulletin Topic 11.M)." The announcement applies to the May 2014 guidance on revenue recognition from contracts with customers, the February 2016 guidance on leases and the June 2016 guidance on how credit losses for most financial assets and certain other instruments that are measured at fair value through net income are determined. The announcement provides the SEC staff view that a registrant should evaluate certain recent accounting standards that have not yet been adopted to determine appropriate financial statement disclosures about the potential material effects of those recent accounting standards. If a registrant does not know or cannot reasonably estimate the impact that adoption of the recent accounting standards referenced in this announcement is expected to have on the financial statements, then the registrant should make a statement to that effect and consider the additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the recent accounting standards will have on the



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

financial statements of the registrant when adopted. The Company has not completed its assessment under the new guidance on revenue recognition from contracts with customers, however, it expects to identify similar performance obligations as currently identified; therefore, the Company does not expect a material impact upon the application of this guidance. The Company is currently evaluating the impact of this guidance on leases and the measurement of credit losses on financial instruments and its impact on its consolidated financial statements.
In January 2017, the FASB issued guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions, or disposals, of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities (a "set") is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired, or disposed of, is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the guidance requires that: (i) to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (ii) remove the evaluation of whether a market participant could replace missing elements. The guidance also narrows the definition of an output to: the result of inputs and processes applied to those inputs that provide goods or services to customers, investment income (such as dividends or interest), or other revenues. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted only for certain transactions. The Company is in the process of evaluating the impact of this new guidance.
In November 2016, the FASB issued guidance to reduce the diversity in practice of the classification and presentation of changes in restricted cash on the statement of cash flows. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance.
In October 2016, the FASB issued guidance to amend how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The guidance requires that if, under the first characteristic of a primary beneficiary, the reporting entity determines that it is the single decision maker of a VIE, then the reporting entity is required to include all of its direct variable interests in a VIE and, on a proportionate basis, its indirect variable interests in a VIE held through related parties, including related parties that are under common control with the reporting entity, in determining whether it satisfies the second characteristic of a primary beneficiary, the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. If the reporting entity does not satisfy the second characteristic of a primary beneficiary after performing the assessment, the reporting entity is required to evaluate whether it and one or more of its related parties under common control, as a group, have the characteristics of a primary beneficiary. If the characteristics of a primary beneficiary are met as a group, then the party within the related party group that is most closely associated with the VIE is the primary beneficiary. The guidance became effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Adoption did not have a material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued new guidance to reduce the diversity in practice around the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The guidance addresses the following eight specific cash flow issues: (i) debt prepayments or extinguishment costs; (ii) contingent consideration payments made after a business combination; (iii) proceeds from the settlement of insurance claims; (iv) proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); (v) settlement of zero-coupon debt instruments or other debt instruments with insignificant coupon rates; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance.
In June 2016, the FASB issued guidance which will change how credit losses for most financial assets and certain other instruments that are measured at fair value through net income are determined. The new guidance will replace the current incurred loss approach with an expected loss model for instruments measured at amortized cost. For available-for-sale debt securities, the guidance requires recording allowances rather than reducing the carrying amount, as it is currently under the other-than-temporary impairment model. It also simplifies the accounting model for credit-impaired debt securities and loans. This guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within that reporting period. Early adoption



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

is permitted for annual periods beginning after December 15, 2018, and interim periods within that reporting period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is in the process of evaluating the impact of this new guidance.
In March 2016, the FASB issued guidance intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. This guidance became effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Adoption did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting will remain largely unchanged. The guidance will also require new qualitative and quantitative disclosures to help financial statement users better understand the timing, amount and uncertainty of cash flows arising from leases. This guidance will be effective for reporting periods beginning on or after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.
In January 2016, the FASB issued guidance to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments in order to provide users of financial statements with more decision-useful information. The guidance requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements, and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  It is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017 and early adoption is permitted for certain provisions. The Company is in the process of evaluating the impact of this new guidance.
In February 2015, the FASB issued guidance that 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: (i) modify the evaluation of whether limited partnerships and similar legal entities are VIEs; (ii) eliminate the presumption that a general partner should consolidate a limited partnership; (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.
In August 2014, the FASB issued guidance that clarifies the disclosures management must make in its interim and annual financial statement footnotes when management has determined that conditions exist that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued (or within one year after the date the financial statements are available to be issued when applicable). In accordance with this guidance, management’s assessment is required to be made each reporting period and should be based on relevant conditions and events that are known and reasonably knowable at the date the financial statements are issued. In all cases, to the extent that substantial doubt about the entity’s ability to continue as a going concern is determined to be probable, management must disclose the principal conditions or events that gave rise to the substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and management’s plans



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

that either alleviate or are intended to mitigate the conditions or events that gave rise to the substantial doubt about the entity’s ability to continue as a going concern. Additionally, to the extent substantial doubt about the entity’s ability to continue as a going concern is not alleviated by management’s plans, management must indicate in the footnotes that there is substantial doubt about the entity’s ability to continue as a going concern. This guidance became effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Adoption did not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued guidance that establishes key principles by which an entity determines the amount and timing of revenue recognized from customer contracts. At issuance, the guidance was effective for the first interim or annual period beginning after December 15, 2016. In August 2015, the FASB issued additional guidance that delayed the previous effective date by one year, resulting in the original guidance becoming effective for the first interim or annual period beginning after December 15, 2017. Early application, which was not permissible under the initial effectiveness timeline, is now permissible though no earlier than as of the first interim or annual period beginning after December 15, 2016. In 2016, the FASB issued multiple amendments to the accounting standard to provide further clarification. The Company has not completed its assessment under the new guidance, however, it expects to identify similar performance obligations as currently identified; therefore, the Company does not expect a material impact upon the application of this guidance.
Reclassifications
Certain reclassifications have been made to the 2016 consolidated financial statements to conform to the 2017 presentation, including the impact of discontinued operations and assets and liabilities held for sale.
NOTE 3 - VARIABLE INTEREST ENTITIES

The Company has evaluated its securities, loans, investments in unconsolidated entities, liabilities to subsidiary trusts issuing preferred securities (consisting of unsecured junior subordinated notes), securitizations, guarantees and other financial contracts in order to determine if they are variable interests in VIEs. The Company regularly monitors these legal interests and contracts and, to the extent it has determined that it has a variable interest, analyzes the related 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. The Company 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.
Consolidated VIEs (the Company is the primary beneficiary)
Based on management’s analysis, the Company is the primary beneficiary of seven VIEs at March 31, 2017 and December 31, 2016: Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Whitney CLO I, RCC 2014-CRE2, RCC 2015-CRE3 and RCC 2015-CRE4 (collectively the "Consolidated VIEs"). The Consolidated VIEs were formed on behalf of the Company to invest in real estate-related securities, CMBS, property available-for-sale, syndicated corporate loans, corporate bonds and asset-backed securities and were financed by the issuance of debt securities. The Manager manages the CRE related entities on behalf of the Company, and CVC Credit Partners manages the commercial finance-related entities on behalf of the Company. By financing these assets with long-term borrowings through the issuance of bonds, the Company 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. All of the Company's VIEs were reevaluated under the revised consolidation model effective for the Company on January 1, 2016.
On November 14, 2016, the Company substantially liquidated Apidos Cinco CDO, a syndicated corporate loan CLO determined to be a VIE that is managed by CVC Credit Partners, a related party to the Company. As a result of the liquidation, all senior and mezzanine notes of the securitization were repaid, leaving only the Company's equity interest in the securitization outstanding as of December 31, 2016. Because substantially all of the VIE's activities are being conducted on behalf of a single variable interest holder that is a related party of the decision maker, it was determined that the Company is the primary beneficiary of the transaction and, as such, should consolidate Apidos Cinco CDO. The Company consolidated the remaining restricted cash, one structured security and three syndicated corporate loans for an aggregate combined fair value of $2.3 million. The Company received $22.7 million as a result of the liquidation through March 2017. The Company elected the fair value option for the



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

structured security and syndicated corporate loans upon acquisition, as given the short hold period, the Company believes fair value is the most useful indication of value for these assets.
Whitney CLO I was a securitization in which the Company acquired rights to manage the collateral assets held by the entity in February 2011. For a discussion on the primary beneficiary analysis for Whitney, see "— Unconsolidated VIEs – Resource Capital Asset Management," below.
For a discussion of the Company’s consolidated securitizations, see Note 1, and for a discussion of the debt issued through the securitizations, see Note 11.
For consolidated CLOs in which the Company does not own 100% of the subordinated notes, the Company imputes an interest rate using expected cash flows over the life of the CLO and records the third party's share of the cash flows as interest expense on the consolidated statements of operations.
The Company has exposure to losses on its securitizations to the extent of its subordinated debt and preferred equity interests in them. The Company 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 the Company holds in these securitizations have been eliminated, and the Company’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. The Company's operating results and cash flows include the gross amounts related to the securitizations' assets and liabilities as opposed to the Company's net economic interests in the securitizations. Assets and liabilities related to the securitizations are disclosed, in the aggregate, on the Company's consolidated balance sheets.
The creditors of the Company’s seven consolidated VIEs have no recourse to the general credit of the Company. During the three months ended March 31, 2017, the Company provided no financial support to any of its VIEs nor does it have any requirement to do so, although it may choose to do so in the future to maximize future cash flows on such investments by the Company. There are no explicit arrangements that obligate the Company to provide financial support to any of its consolidated VIEs.
The following table shows the classification and carrying value of assets and liabilities of the Company's consolidated VIEs at March 31, 2017 (in thousands):
 
Apidos I
 
Apidos III
 
Apidos Cinco
 
Whitney CLO I
 
RCC 2014-CRE2
 
RCC 2015-CRE3
 
RCC 2015-CRE4 (1)
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted cash
$
239

 
$
100

 
$
1,563

 
$
187

 
$

 
$

 
$
2,752

 
$
4,841

Loans, pledged as collateral

 

 

 

 
201,164

 
232,952

 
204,814

 
638,930

Loans held for sale

 

 
2

 

 

 

 

 
2

Interest receivable

 

 

 

 
825

 
1,024

 
851

 
2,700

Principal paydown receivable

 

 

 

 

 
13,900

 

 
13,900

Other assets

 

 

 

 
16

 
154

 
16

 
186

Total assets (2)
$
239

 
$
100

 
$
1,565

 
$
187

 
$
202,005

 
$
248,030

 
$
208,433

 
$
660,559

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Borrowings
$

 
$

 
$

 
$

 
$
81,834

 
$
181,505

 
$
117,829

 
$
381,168

Accrued interest expense

 

 

 

 
86

 
222

 
136

 
444

Accounts payable and other liabilities

 

 

 

 
31

 
11

 
29

 
71

Total liabilities
$

 
$

 
$

 
$

 
$
81,951

 
$
181,738

 
$
117,994

 
$
381,683

(1)    Includes $2.8 million designated to fund future commitments on specific CRE 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.

Unconsolidated VIEs (the Company is not the primary beneficiary, but has a variable interest)
Based on management’s analysis, the Company 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



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

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 the Company’s financial statements at March 31, 2017. The Company’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.

RREF CDO 2006-1 and RREF CDO 2007-1
RREF CDO 2006-1 and RREF CDO 2007-1 were formed on behalf of the Company to invest in real estate-related securities, CMBS and property available-for-sale and were financed by the issuance of debt securities. The Manager manages the commercial real estate-related entities on behalf of the Company. The primary beneficiary determination for each of these VIEs was made at each VIE’s inception and is continually assessed. On January 1, 2016, the Company adopted the amendments to the consolidation guidance. As a result of its evaluation, the Company determined that it was no longer the primary beneficiary of these VIEs as its investments in these vehicles do not provide the Company with a controlling financial interest and were deconsolidated. At deconsolidation, the Company recorded its investments in RREF CDO 2006-1and RREF CDO 2007-1 at fair value and accounted for these investments as investment securities available-for-sale in its consolidated financial statements. On April 25, 2016, the Company called and liquidated its investment in RREF CDO 2006-1 and, in exchange for the Company's interest in RREF CDO 2006-1, the Company distributed the remaining assets of $65.7 million at fair value after paying off the CDO debt owed to third parties of $7.5 million. The Company recognized a gain of approximately $846,000 as a result of this transaction, which was recorded in net realized and unrealized gain (loss) on and sales of investment securities available-for-sale and loans and derivatives on the consolidated statements of operations. On November 25, 2016, the Company called and liquidated its investment in RREF CDO 2007-1 and, in exchange for the Company's interest in RREF CDO 2007-1, the Company was distributed the remaining assets of $130.9 million at fair value after paying off the CDO debt owed to third parties of $33.7 million. The Company recognized a gain of approximately $2.1 million as a result of this transaction, which was recorded in net realized and unrealized gain (loss) on derivatives and sales of investment securities available-for-sale and loans on the consolidated statements of operations.
RCM Global, LLC

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 revenues 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. On January 1, 2016, the Company adopted the amendments to the consolidation guidance. Upon adoption, the Company reevaluated its variable interest in RCM Global and determined it would not be the primary beneficiary of RCM Global, as its investment in the limited liability company does not provide the Company with a controlling financial interest. As a result of its evaluation, the Company deconsolidated its investment in RCM Global. As of January 1, 2016, the Company accounted for its investment in RCM Global as an equity method investment in an unconsolidated entity in its consolidated financial statements. At March 31, 2017, the Company held a 21.6% interest in RCM Global and the remainder was owned by subsidiaries of Resource America and certain of its employees and their spouses.

Pelium Capital

In September 2014, the Company contributed $17.5 million to Pelium Capital for an initial ownership interest of 80.4%. Pelium Capital is a specialized credit opportunity fund managed by Resource America. The Company funded its final commitment of $2.5 million in February 2015. The Company will receive 10% of the carried interest in the partnership for the first five years which can increase its interest to 20% if the Company's capital contributions aggregate $40.0 million. Resource America contributed cash of $2.8 million to the formation of Pelium Capital. At December 31, 2015, Pelium Capital was accounted for as a consolidated voting interest subsidiary. On January 1, 2016, the Company adopted the amendments to the consolidation guidance. Upon adoption, the Company reevaluated its interest in Pelium Capital and determined that although it now possessed a variable interest in Pelium Capital, it would not be the primary beneficiary of Pelium Capital, as its investment in the limited liability company does not provide the Company with a controlling financial interest. As a result of its reevaluation, the Company deconsolidated its investment in Pelium Capital on January 1, 2016, and accounted for its investment as an equity method investment in investments in unconsolidated entities in its consolidated financial statements. At March 31, 2017, the Company had an investment balance of $12.2 million and held an 80.2% interest in Pelium Capital.



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

Pearlmark Mezzanine Realty Partners IV, L.P.
On June 24, 2015, the Company committed up to $50.0 million in Pearlmark Mezzanine Realty Partners IV, L.P. ("Pearlmark Mezz"), a Delaware limited partnership created to acquire and manage financial interests in commercial real estate property. The investment advisor for Pearlmark Mezz is Pearlmark Real Estate LLC ("Pearlmark Manager"), which is 50% owned by Resource America. The Company determined it possessed a variable interest in Pearlmark Mezz, however, it would not be the primary beneficiary of Pearlmark Mezz, as its investment in the limited liability company does not provide the Company with a controlling financial interest. The Company accounts for its investment in Pearlmark Mezz as an equity method investment in an unconsolidated entity in its consolidated financial statements. The Company pays Pearlmark Manager management fees of 1.0% on the unfunded committed capital and 1.5% on the invested capital. The Company was entitled to a management fee rebate of 25% for the first year of the fund, which ended June 24, 2016. Resource America has agreed that it will credit any such fees paid by the Company to Pearlmark Manager against the base management fee that the Company pays Resource America. At March 31, 2017, the Company had an investment balance of $16.9 million and held a 47.7% interest in Pearlmark Mezz.
LEAF Commercial Capital, Inc.
On November 16, 2011, the Company together with LEAF Financial, Inc. ("LEAF Financial"), a subsidiary of Resource America, and LEAF Commercial Capital, Inc. ("LCC"), a former subsidiary of Resource America, 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, the Company 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, the Company’s investment in LCC was valued at $36.3 million based on a third-party valuation.  During 2013, the Company 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 expired and the Company was issued additional Series A-1 Preferred Stock in exchange for its investment in the Series E Preferred Stock. The Company's fully-diluted interest in LCC, assuming conversion, was 29.0% at March 31, 2017. The Company accounts for its investment in LCC as an equity method investment in an unconsolidated entity in its consolidated financial statements. The Company’s total investment in LCC was $43.1 million and $43.0 million at March 31, 2017 and December 31, 2016, respectively. The Company 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 29.0% 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
The Company 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 the Company, as described below. The Company 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 the Company’s consolidated financial statements.
The Company records its investments in RCT I and RCT II’s common shares as investments in unconsolidated trusts using the cost method and records dividend income when declared by RCT I and RCT II. The trusts each hold subordinated debentures for which the Company is the obligor in the amount of $25.8 million for each of RCT I and RCT II. The debentures were funded by the issuance of trust preferred securities of RCT I and RCT II. The Company will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

Resource Capital Asset Management CLOs
In February 2011, the Company purchased a company that managed syndicated corporate loan assets through five CLOs. As a result, the Company 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 was amortized over the expected life of each CLO. The Company determined that it did not hold a controlling financial interest and, therefore, was not the primary beneficiary of these CLOs. The CLOs were liquidated in February 2013, January 2016, September 2016 and February 2017, respectively. The unamortized balance of the intangible asset was $0 and $213,000 at March 31, 2017 and December 31, 2016, respectively. The Company recognized fee income of $680,000 and $402,000 for the three months ended March 31, 2017 and 2016, respectively. During the three months ended March 31, 2017, the Company recorded impairment of $177,000 on the related intangible asset of these CLOs. At March 31, 2017, the Company had no remaining investment in RCAM.
With respect to the fifth CLO, Whitney CLO I, in October 2012, the Company purchased 66.6% of its preferred equity, which resulted in consolidation. Based upon that purchase, the Company 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, the Company had both the power to direct and the right to receive benefits and the obligation to absorb losses. It was then determined that, between the Company and the related party, the Company 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. The Company, therefore, consolidated Whitney CLO I. In May 2013, the Company purchased additional equity in this CLO, which increased its ownership of the outstanding preferred equity to 68.3%. In September 2013, the Company liquidated Whitney CLO I, and, as a result, all of the assets were sold.
Investment in ZAIS
In February 2015, the Company made an investment in ZAIS CLO 4 Limited, an offshore financing vehicle created to acquire and warehouse syndicated corporate loans, through its wholly-owned, indirect subsidiary ZAIS and through its unconsolidated subsidiary Pelium Capital together with a Resource America employee. The Company, through ZAIS and Pelium Capital, committed to invest $10.0 million and $3.0 million, respectively, during the vehicle's warehousing period. The warehouse credit facility closed on May 5, 2016, at which time, Resource TRS III purchased a beneficial interest in ZAIS CLO 4. The vehicle is managed by ZAIS Leveraged Loan Manager 4, LLC (the "Collateral Manager"), an entity unrelated to the Company 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 the Company had an investment in the entity that is potentially significant, because it was determined that the Company did not have the ability to kick out the collateral manager, the Company was determined not to be the primary beneficiary and, therefore, was not required to consolidate ZAIS CLO 4. On November 22, 2016, the Company sold its beneficial interest in ZAIS CLO 4 for $9.4 million and recognized a gain of $418,000 as a result of this transaction, which was recorded in net realized and unrealized gain (loss) on derivatives and sales of investment securities available-for-sale and loans on the Company's consolidated statements of operations.
Investments in the Harvest CLO Securities         
In September 2013 and March 2014, the Company made investments in Harvest CLO VII Limited and Harvest CLO VIII Limited (collectively, the "Harvest Securities"), respectively, offshore limited liability companies created to acquire syndicated corporate loans and issue CLOs.  The Harvest Securities are managed by 3i Debt Management Investments Limited (the "Portfolio Manager"), an entity unrelated to the Company, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the entity.  The Portfolio Manager can be replaced only for cause by the Harvest Securities’ trustee.  Although the Company has investments in the Harvest Securities that are potentially significant, because it was determined that the Company did not have the ability to unilaterally kick out the Portfolio Manager, the Company was determined not to be the primary beneficiary and, therefore, was not required to consolidate the Harvest Securities. At March 31, 2017, the Company had investments of $4.3 million in Harvest CLO VII Limited and $4.8 million in Harvest CLO VIII Limited. The Company accounts for its investments in the Harvest Securities as investment securities available-for-sale in its consolidated financial statements.



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

Investment in Harvest CLO XV Designated Activity Company
In September 2015, the Company made an investment in Harvest CLO XV Designated Activity Company ("Harvest XV"), an offshore financing vehicle created to acquire and warehouse syndicated corporate loans, through its wholly-owned, direct subsidiary Commercial II. In May 2016, the warehouse closed and the Company invested in Harvest CLO XV DAC ("Harvest CLO XV"). The CLO is managed by the Portfolio Manager, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the entity. The Portfolio Manager can be replaced only for cause by the entity’s administrative agent. Although the Company has an investment in the entity that is potentially significant, because it was determined that the Company did not have the ability to unilaterally kick out the collateral manager, the Company was determined not to be the primary beneficiary and, therefore, was not required to consolidate Harvest CLO XV. At March 31, 2017, the Company's investment in Harvest CLO XV is $11.1 million. The Company accounts for its investment in Harvest CLO 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 the Company’s unconsolidated VIEs at March 31, 2017 (in thousands):
 
Unconsolidated Variable Interest Entities
 
LCC
 
Unsecured
Junior
Subordinated
Debentures
 
Investment in Harvest CLOs
 
RCM Global LLC
 
Pelium Capital
 
Pearlmark Mezz
 
Total
 
Maximum
Exposure
to Loss
Investments in unconsolidated entities
$
43,125

 
$
1,548

 
$

 
$
472

 
$
12,201

 
$
16,924

 
$
74,270

 
$
74,270

Investment securities, available-for-sale

 

 
20,211

 

 

 

 
20,211

 
$
20,211

Total assets
43,125

 
1,548

 
20,211

 
472

 
12,201

 
16,924

 
94,481

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Borrowings

 
51,548

 

 

 

 

 
51,548

 
N/A

Total liabilities

 
51,548

 

 

 

 

 
51,548

 
N/A

Net asset (liability)
$
43,125

 
$
(50,000
)
 
$
20,211

 
$
472

 
$
12,201

 
$
16,924

 
$
42,933

 
N/A

At March 31, 2017, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is summarized for the periods indicated (in thousands):
 
For the Three Months Ended
 
March 31,
 
2017
 
2016
Non-cash continuing financing activities include the following:
 

 
 

Distributions on common stock accrued but not paid
$
1,568

 
$
13,073

Distribution on preferred stock accrued but not paid
$
4,009

 
$
4,010




RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

NOTE 5 - LOANS
The following is a summary of the Company’s loans (in thousands):
Loan Description
 
Principal
 
Unamortized (Discount)
Premium, net (1)
 
Carrying
Value (2)
At March 31, 2017:
 
 
 
 
 
 
CRE whole loans
 
$
1,305,765

 
$
(5,922
)
 
$
1,299,843

Allowance for loan loss
 
(4,689
)
 

 
(4,689
)
Total CRE loans held for investment, net of allowance
 
1,301,076

 
(5,922
)
 
1,295,154

Syndicated corporate loans
 
2

 

 
2

Total loans held for sale
 
2

 

 
2

Total loans, net (3)
 
$
1,301,078

 
$
(5,922
)
 
$
1,295,156

 
 
 
 
 
 
 
At December 31, 2016:
 
 

 
 

 
 

CRE whole loans
 
$
1,295,926

 
$
(5,819
)
 
$
1,290,107

Allowance for loan loss
 
(3,829
)
 

 
(3,829
)
Total CRE loans held for investment, net of allowance
 
1,292,097

 
(5,819
)
 
1,286,278

Syndicated corporate loans
 
1,007

 

 
1,007

Total loans held for sale
 
1,007

 

 
1,007

Total loans, net (3)
 
$
1,293,104

 
$
(5,819
)
 
$
1,287,285

(1)
Amounts include unamortized loan origination fees of $5.8 million and $5.8 million at March 31, 2017 and December 31, 2016, respectively. Amounts also include deferred amendment fees of $125,000 and $4,000 being amortized over the life of the loans at March 31, 2017 and December 31, 2016, respectively.
(2)
Substantially all loans are pledged as collateral under various borrowings at March 31, 2017 and December 31, 2016.
(3)
Pursuant to the Company's Plan, certain underperforming legacy CRE loans were moved to loans held for sale status and included in Assets held for sale on the Company's consolidated balance sheet at March 31, 2017 and December 31, 2016 (see Note 22).



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

Commercial Real Estate Loans
The following is a summary of the Company's CRE loans held for investment (in thousands):
Description
 
Quantity
 
Amortized Cost
 
Contracted
Interest Rates
 
Maturity Dates (3)
At March 31, 2017:
 
 
 
 
 
 
 
 
Whole loans, floating rate (1)(4)(5)
 
67
 
$
1,299,843

 
LIBOR plus 3.75% to LIBOR plus 6.25%
 
May 2017 to April 2020
Total (2)
 
67
 
$
1,299,843

 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2016:
 
 
 
 

 
 
 
 
Whole loans, floating rate (1)
 
67
 
$
1,290,107

 
LIBOR plus 3.75% to
LIBOR plus 6.45%
 
April 2017 to January 2020
Total (2) 
 
67
 
$
1,290,107

 
 
 
 
(1)
Whole loans had $62.4 million and $55.5 million in unfunded loan commitments at March 31, 2017 and December 31, 2016, 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 allowances for loan losses of $4.7 million and $3.8 million at March 31, 2017 and December 31, 2016, respectively.
(3)
Maturity dates do not include possible extension options that may be available to borrowers.
(4)
Maturity dates do not include a loan with a maturity date of February 2017 that is in default (see Note 6).
(5)
Includes one loan that matured in May 2017 that paid off subsequent to March 31, 2017, and another loan that was subsequently extended to June 2017.

The following is a summary of the maturities of the Company’s CRE loans held for investment, at amortized cost (in thousands):
Description
 
2017
 
2018
 
2019 and Thereafter
 
Total
At March 31, 2017:
 
 
 
 
 
 
 
 
Whole loans
 
$
20,000

 
$
24,417

 
$
1,255,426

 
$
1,299,843

Total (1) 
 
$
20,000

 
$
24,417

 
$
1,255,426

 
$
1,299,843

 
 
 
 
 
 
 
 
 
At December 31, 2016:
 
2017
 
2018
 
2019 and Thereafter
 
Total
Whole loans
 
$
7,000

 
$
24,476

 
$
1,258,631

 
$
1,290,107

Total (1) 
 
$
7,000

 
$
24,476

 
$
1,258,631

 
$
1,290,107

(1)
Contractual maturities of CRE loans assumes full exercise of extension options available to borrowers, to the extent they qualify.
At March 31, 2017, approximately 30.3%, 21.4% and 8.7% of the Company's CRE loan portfolio was concentrated in Texas, California and Florida, respectively. At December 31, 2016, approximately 30.7%, 19.2%, and 7.3% of the Company's CRE loan portfolio was concentrated in Texas, California and Georgia, respectively.
Syndicated Corporate Loans
On January 1, 2016, Apidos Cinco CDO was deconsolidated after adopting the amendments to the consolidation guidance on VIEs. On November 16, 2016, the Company liquidated Apidos Cinco CDO, and substantially all of the assets were sold. As a result, all senior and mezzanine notes of the securitization were repaid, leaving only the Company's equity in Apidos Cinco CDO at December 31, 2016. Therefore, the Company consolidated Apidos Cinco CDO and recorded the remaining loans as of the date of liquidation. The following table provides information as to the lien position and status of the Company's syndicated corporate loans, at the lower of cost or market (in thousands):



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

 
Apidos Cinco
 
Total
At March 31, 2017:
 
 
 
Loans held for sale:
 
 
 
Second lien loans held for sale
$
2

 
$
2

Total
$
2

 
$
2

 
 
 
 
At December 31, 2016:
 

 
 

Loans held for sale:
 

 
 

Second lien loans held for sale
$
1,007

 
$
1,007

Total
$
1,007

 
$
1,007

The following is a summary of the weighted average maturity of the Company’s syndicated corporate loans held for sale, at the lower of cost or market (in thousands):
 
March 31,
2017
 
December 31,
2016
Less than one year
$
2

 
$
221

Greater than one year and less than five years

 
786

Five years or greater

 

   Total
$
2

 
$
1,007

At March 31, 2017, the syndicated corporate loan held for sale portfolio was concentrated in the collective industry grouping of retail stores and aerospace and defense. At December 31, 2016, the syndicated corporate loan held for sale portfolio was concentrated in the collective industry grouping of healthcare, education and childcare, retail stores and aerospace and defense.
Allowance for Loan Losses
The following is a summary of the allocation of the allowance for loan losses with respect to the Company's loans by asset class (in thousands, except percentages):
Description
 
Allowance for
Loan Loss
 
Percentage of Total Allowance
At March 31, 2017:
 
 
 
 
CRE whole loans
 
$
4,689

 
100.00%
Total
 
$
4,689

 
 
 
 
 
 
 
At December 31, 2016:
 
 

 
 
CRE whole loans
 
$
3,829

 
100.00%
Total
 
$
3,829

 
 
Principal Paydowns Receivable
Principal paydowns receivable represent payments that have been received by the Company's various servicers and trustees. At March 31, 2017, the Company had $13.9 million principal paydowns receivable, the entirety of which the Company received in cash during April 2017. At December 31, 2016, the Company had $19.3 million of principal paydowns receivable, the entirety of which the Company received in cash during January 2017.



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)


NOTE 6 - FINANCING RECEIVABLES
The following tables show the allowance for loan and lease losses and recorded investments in loans and leases for the years indicated (in thousands):
 
Commercial Real Estate Loans
 
Syndicated Corporate Loans
 
Direct Financing Leases
 
Total
At March 31, 2017:
 
 
 
 
 
 
 
Allowance for loan and lease losses:
 
 
 
 
 
 
 
Allowance for loan and lease losses at January 1, 2017
$
3,829

 
$

 
$
465

 
$
4,294

Provision (recovery) for loan and lease losses
860

 

 
139

 
999

Allowance for loan and lease losses at March 31, 2017
$
4,689

 
$

 
$
604

 
$
5,293

Ending balance:
 

 
 

 
 
 
 

Individually evaluated for impairment
$
2,500

 
$

 
$
604

 
$
3,104

Collectively evaluated for impairment
$
2,189

 
$

 
$

 
$
2,189

Loans acquired with deteriorated credit quality
$

 
$

 
$

 
$

Loans and Leases:
 

 
 

 
 
 
 

Ending balance:
 
 
 

 
 
 
 

Individually evaluated for impairment
$
7,000

 
$

 
$
953

 
$
7,953

Collectively evaluated for impairment
$
1,292,843

 
$

 
$

 
$
1,292,843

Loans acquired with deteriorated credit quality
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
At December 31, 2016:
 
 
 

 
 
 
 

Allowance for loan and lease losses:
 
 
 
 
 
 
 
Allowance for loan and lease losses at January 1, 2016
$
41,839

 
$
1,282

 
$
465

 
$
43,586

Provision (recovery) for loan and lease losses
18,167

 
(402
)
 

 
17,765

Loans charged-off

 
402

 

 
402

Transfer to loans held for sale
(15,763
)
 

 

 
(15,763
)
Deconsolidation of VIEs
(40,414
)
 
(1,282
)
 

 
(41,696
)
Allowance for loan and lease losses at December 31, 2016
$
3,829

 
$

 
$
465

 
$
4,294

Ending balance:
 

 
 

 
 
 
 

Individually evaluated for impairment
$
2,500

 
$

 
$
465

 
$
2,965

Collectively evaluated for impairment
$
1,329

 
$

 
$

 
$
1,329

Loans acquired with deteriorated credit quality
$

 
$

 
$

 
$

Loans and Leases:
 

 
 

 
 
 
 

Ending balance:
 

 
 

 
 
 
 

Individually evaluated for impairment
$
7,000

 
$

 
$
992

 
$
7,992

Collectively evaluated for impairment
$
1,283,107

 
$

 
$

 
$
1,283,107

Loans acquired with deteriorated credit quality
$

 
$

 
$

 
$


Credit quality indicators
Commercial Real Estate Loans

Loans are graded at inception and updated as new information is received. As a result, a loan previously rated 4 may, over time and with improved performance, be rated better than 4. Loans are graded on a scale of 1 to 4 with 1 representing the



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

Company’s highest rating and 4 representing its lowest rating. CRE loans are first individually evaluated for impairment. To the extent no individual impairment is determined, a general reserve is established.

The characteristics of each rating category are as follows:

1.
A loan with a rating of a 1 is considered to have satisfactory performance with no issues noted. All interest and principal payments are current and the probability of loss is remote;
2.
A loan is graded with a rating of a 2 if a surveillance trigger event has occurred, but loss is not probable at this time. Such trigger events could include but are not limited to a trending decrease in occupancy rates or a flattening of lease revenues; and to a lesser extent, ground lease defaults, ground lease expirations that occur in the next six months or the borrower is delinquent on payment of property taxes or insurance;
3.
A loan with a rating of 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. Loans identified in this category show some liquidity concerns. However, the risk of loss is not specifically assignable to any individual loan. The noted risk of the loans in this category is generally covered by general reserves;
4.
A loan with a rating of a 4 is considered to be in payment default or default is expected, full recovery of the unpaid principal balance is improbable and loss is considered probable. The noted risk of the loans in this category is covered by specific reserves.
Credit risk profiles of CRE loans at amortized cost were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Held for Sale
 
Total
At March 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
CRE whole loans (1)
$
1,259,153

 
$
33,690

 
$

 
$
7,000

 
$

 
$
1,299,843

Legacy CRE whole loans (1)(2)

 

 

 

 
143,907

 
143,907

 
$
1,259,153

 
$
33,690

 
$

 
$
7,000

 
$
143,907

 
$
1,443,750

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2016:
 

 
 

 
 

 
 

 
 

 
 

CRE whole loans (1)
$
1,186,292

 
$
96,815

 
$

 
$
7,000

 
$

 
$
1,290,107

Legacy CRE whole loans (1)

 

 

 

 
158,178

 
158,178

 
$
1,186,292

 
$
96,815

 
$

 
$
7,000

 
$
158,178

 
$
1,448,285

(1)
Pursuant to the Company's strategic Plan as described in Note 1, certain legacy CRE loans were moved to loans held for sale and included in assets held for sale, carried at the lower of cost or market ("LCOM") on the Company's consolidated balance sheet at March 31, 2017 and December 31, 2016, respectively (see Note 22).
(2)
Includes one loan with a maturity date of May 2017 which subsequently defaulted.
At March 31, 2017 and December 31, 2016, the Company had one CRE loan with a credit quality rating of 4 due to short term vacancy/tenant concerns and a near term maturity. The loan is collateralized by a retail shopping center in Roswell, GA and had an amortized cost of $7.0 million at March 31, 2017 and December 31, 2016. For the period ended December 31, 2016, the Company obtained an appraisal and used the value indicated in the appraisal as a practical expedient in determining the fair value of the loan. The appraisal indicated a fair value of $4.5 million and the Company recorded a specific provision of $2.5 million on the loan during the fourth quarter of 2016. No additional provision was recorded on the loan for the three-month period ended March 31, 2017. This loan had a maturity date of February 2017 and was default at March 31, 2017.
At December 31, 2016, the Company had eight legacy CRE whole loans and one mezzanine loan classified as assets held for sale with a total carrying value of $158.2 million. Appraisals, as a practical expedient for fair value, were obtained for all eight legacy CRE loans classified as assets held for sale. The mezzanine loan, classified as an asset held for sale, had a fair value of $0. The Company recorded, and subsequently charged off upon transfer of the loans to assets held for sale, specific reserves on four of the five loans transferred to assets held for sale totaling $15.8 million, where the carrying values of the loans exceeded their fair values. These five loans had a collective carrying value of $110.7 million at December 31, 2016 and were comprised of the following:



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

Two loans cross-collateralized by a hotel in Studio City, CA, with an initial par value of $67.5 million. These loans were written down to their collective appraised value of $61.4 million. The loans have a maturity date of February 2017 and are in default at March 31, 2017;
One loan collateralized by a hotel in Tucson, AZ with an initial par value of $32.5 million. This loan was written down to its appraised value of $14.3 million. On February 28, 2017, the Company entered into a discounted payoff agreement with its borrower and received proceeds of $21.3 million in satisfaction of this loan. This transaction resulted in the recognition of a realized gain of $7.0 million in the Company's consolidated statements of operations as net realized and unrealized gain (loss) on sales of investment securities available for sale and loans and derivatives;
One loan collateralized by an office property in Phoenix, AZ with an initial par value of $17.7 million. This loan was written down to its appraised value of $11.0 million. The loan has a maturity date of May 2017 and subsequently defaulted;
One loan collateralized by a hotel in Palm Springs, CA with an initial par value of $29.5 million. This loan was written down to its appraised value of $24.0 million.
All five loans were risk-rated category 4 prior to being transferred to assets held for sale.

As a result of the discounted payoff agreement discussed above on the Tuscon, AZ property, four of the five aforementioned legacy CRE loans remain at March 31, 2017 and have a collective carrying value of $96.4 million.

At March 31, 2017, 49%, 43% and 8% of the Company's legacy CRE whole loans were concentrated in hotel, retail and office, respectively. Of these loans, 92% are within California and 8% are within Arizona. At December 31, 201654%39% and 7% of the Company's legacy CRE whole loans were concentrated in hotel, retail and office, respectively. Of these loans, 84% are within California and 16% are within Arizona.

Three loans held for sale with a collective carrying value of $47.5 million at March 31, 2017 and December 31, 2016 had fair values in excess of their carrying values. Before being transferred to assets held for sale in the fourth quarter of 2016, these loans were risked-rated in category 1 or category 2.

All of the Company's CRE whole loans are current with respect to contractual principal and interest except three loans at March 31, 2017. Two defaulted loans are cross-collateralized by a property in Studio City, CA and had a collective carrying value, which is the lower of its cost or fair market value, of $61.4 million at March 31, 2017. The other defaulted loan is supported by a property in Roswell, GA and had a carrying value of $4.5 million at March 31, 2017.

All of the Company's CRE whole loans were current with respect to contractual principal and interest except two of the Company's legacy CRE whole loans at December 31, 2016. The two loans are cross-collateralized by a property in Studio City, CA. The loans had a collective carrying value, which was the lower of its cost or fair market value, of $61.4 million at December 31, 2016.
Syndicated Corporate Loans

Loans are graded at inception and updated as new information is received. Loans are graded on a scale of 1 to 5 with 1 representing the Company’s highest rating and 5 representing its lowest rating. Syndicated corporate loans are first individually evaluated for impairment. To the extent no individual impairment is determined, a general reserve is established.

The characteristics of each rating category are as follows:
1.
Loans with a rating of 1 are considered performing within expectations. All interest and principal payments are current, all future payments are anticipated and loss is not probable;
2.
Loans with a rating of a 2 are considered to have limited liquidity concerns and are watched closely. Loans identified in this category show remote signs of liquidity concerns, loss is not probable and, therefore, no reserve is established;



RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2017
(unaudited)

3.
Loans with a rating of a 3 are considered to have possible future liquidity concerns. Loans identified in this category show some liquidity concerns, but the ability to estimate potential defaults is not quantifiable and, therefore, no reserve is established;
4.
Loans with a rating of a 4 are considered to have nearer term liquidity concerns. These loans have a reasonable possibility of future default. However, the risk of loss is not assignable to one specific credit. The noted risk of the loans in this category is covered by general reserves; and
5.
Loans with a rating of a 5 have defaulted in payment of principal and interest or default is imminent. It is probable that impairment has occurred on these loans based on their payment status and that impairment is estimable. The noted risk of the loans in this category is covered by specific reserves.
Credit risk profiles of syndicated corporate loans were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Rating 5
 
Held for Sale
 
Total
At March 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Syndicated corporate loans
$

 
$

 
$

 
$

 
$

 
$
2

 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2016:
 

 
 

 
 

 
 

 
 

 
 

 
 

Syndicated corporate loans
$

 
$

 
$