Resource Capital Corp. (Form: 10-Q, Received: 08/09/2016 14:54:49)

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 June 30, 2016


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

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 5th 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting 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	¨

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 August 4, 2016 was 31,165,637 shares.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT

ON FORM 10-Q



		PAGE
PART I
Item 1:	Financial Statements

	Consolidated Balance Sheets - June 30, 2016 (unaudited) and December 31, 2015	3

	Consolidated Statements of Operations (unaudited) Three and Six Months Ended June 30, 2016 and 2015	5

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three and Six Months Ended June 30, 2016 and 2015	7

	Consolidated Statement of Changes in Equity (unaudited) Six Months Ended June 30, 2016	8

	Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, 2016 and 2015	9

	Notes to Consolidated Financial Statements - June 30, 2016 (unaudited)	10

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	69

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	116

Item 4:	Controls and Procedures	117

PART II

Item 1:	Legal Proceedings	119

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	119

Item 6:	Exhibits	119

SIGNATURES		124

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PART I

ITEM 1. FINANCIAL STATEMENTS

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)



	June 30, 2016			December 31, 2015
	(unaudited)
ASSETS ⁽¹⁾
Cash and cash equivalents	$	65,167		$	78,756
Restricted cash	6,823			40,635
Investment securities, trading	3,982			25,550
Investment securities available-for-sale, pledged as collateral, at fair value	88,122			162,306
Investment securities available-for-sale, at fair value	167,158			45,782
Loans held for sale ($161.1 million and $94.5 million at fair value)	420,308			95,946
Loans, pledged as collateral and net of allowances of $1.4 million and $47.1 million	1,476,880			2,160,751
Investments in unconsolidated entities	76,801			50,030
Derivatives, at fair value	6,133			3,446
Interest receivable	8,868			14,009
Deferred tax asset, net	16,916			12,646
Principal paydown receivable	8,100			17,941
Direct financing leases, net of allowances of $0.5 million	665			931
Intangible assets	26,726			26,228
Prepaid expenses	5,058			3,180
Other assets	12,137			22,295
Total assets	$	2,389,844		$	2,760,432
LIABILITIES ⁽²⁾
Borrowings	$	1,575,219		$	1,895,288
Distribution payable	17,060			17,351
Accrued interest expense	5,282			5,604
Derivatives, at fair value	3,084			3,941
Accrued tax liability	139			549
Accounts payable and other liabilities	12,629			10,939
Total liabilities	1,613,413			1,933,672
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 5,740,479 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; 31,163,780 and 31,562,724 shares issued and outstanding (including 655,775 and 691,369 unvested restricted shares)	31			32
Additional paid-in capital	1,218,340			1,228,346
Accumulated other comprehensive income (loss)	700			(2,923		)
Distributions in excess of earnings	(441,522		)	(406,603		)
Total stockholders’ equity	777,561			818,864
Non-controlling interests	(1,130		)	7,896
Total equity	776,431			826,760
TOTAL LIABILITIES AND EQUITY	$	2,389,844		$	2,760,432

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - (Continued)

(in thousands, except share and per share data)



	June 30, 2016		December 31, 2015
	(unaudited)
(1) Assets of consolidated Variable Interest Entities ("VIEs") included in the total assets above:
Cash and cash equivalents	$	—	$	95
Restricted cash	6,595		39,061
Investment securities available-for-sale, pledged as collateral, at fair value	—		66,137
Loans held for sale	—		1,475
Loans, pledged as collateral and net of allowances of $1.0 million and $42.8 million	942,182		1,416,441
Interest receivable	3,767		6,592
Prepaid expenses	42		238
Principal paydown receivable	8,100		17,800
Other assets	41		833
Total assets of consolidated VIEs	$	960,727	$	1,548,672

(2) Liabilities of consolidated VIEs included in the total liabilities above:
Borrowings	$	634,553	$	1,032,581
Accrued interest expense	549		923
Derivatives, at fair value	—		3,346
Accounts payable and other liabilities	157		(117		)
Total liabilities of consolidated VIEs	$	635,259	$	1,036,733

The accompanying notes are an integral part of these statements

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)



	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
REVENUES
Interest income:
Loans	$	31,365		$	29,759		$	65,477		$	62,422
Securities	4,291			5,500			9,089			9,552
Leases	39			163			(15		)	258
Interest income - other	2,307			1,119			3,548			1,951
Total interest income	38,002			36,541			78,099			74,183
Interest expense	18,636			15,803			34,407			30,705
Net interest income	19,366			20,738			43,692			43,478
Dividend income	18			17			35			33
Fee income	103			2,816			(598		)	3,986
Total revenues	19,487			23,571			43,129			47,497
OPERATING EXPENSES
Management fees - related party	3,099			3,500			7,136			7,060
Equity compensation - related party	1,415			791			2,678			1,786
Rental operating expense	—			—			—			6
Lease operating	1			24			4			47
General and administrative	11,153			9,994			21,223			19,605
Depreciation and amortization	504			621			1,145			1,186
Impairment losses	—			—			—			59
Provision (recovery) for loan and lease losses	12,099			38,810			12,136			42,800
Total operating expenses	28,271			53,740			44,322			72,549

	(8,784		)	(30,169		)	(1,193		)	(25,052		)
OTHER INCOME (EXPENSE)
Equity in earnings of unconsolidated subsidiaries	2,696			662			4,918			1,368
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	6,946			9,580			11,774			22,187
Net realized and unrealized gain (loss) on investment securities, trading	183			279			328			2,353
Unrealized gain (loss) and net interest income on linked transactions, net	—			—			—			235
(Loss) on reissuance/gain on extinguishment of debt	—			(171		)	—			(1,071		)
(Loss) gain on sale of real estate	—			22			(3		)	—
Total other income (expense)	9,825			10,372			17,017			25,072

INCOME (LOSS) BEFORE TAXES	1,041			(19,797		)	15,824			20
Income tax (expense) benefit	3,488			(2,918		)	2,725			(4,765		)
NET INCOME (LOSS)	4,529			(22,715		)	18,549			(4,745		)

The accompanying notes are an integral part of these statements

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)

(in thousands, except share and per share data)

(unaudited)





	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net (income) loss allocated to preferred shares	(6,014		)	(6,116		)	(12,062		)	(12,207		)
Carrying value in excess of consideration paid for preferred shares	(111		)	—			1,500			—
Net (income) loss allocable to non-controlling interest, net of taxes	60			(2,180		)	150			(4,657		)
NET INCOME (LOSS) ALLOCABLE TO COMMON SHARES	$	(1,536	)	$	(31,011	)	$	8,137		$	(21,609	)
NET INCOME (LOSS) PER COMMON SHARE – BASIC	$	(0.05	)	$	(0.94	)	$	0.27		$	(0.66	)
NET INCOME (LOSS) PER COMMON SHARE – DILUTED	$	(0.05	)	$	(0.94	)	$	0.26		$	(0.66	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC	30,410,451			32,852,316			30,505,428			32,833,426
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED	30,410,451			32,852,316			30,724,272			32,833,426

The accompanying notes are an integral part of these statements

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)



	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net income (loss)	$	4,529		$	(22,715	)	$	18,549		$	(4,745	)
Other comprehensive income (loss):
Reclassification adjustment for realized (gains) losses on available-for-sale securities included in net income	(897		)	(4,076		)	(596		)	(10,334		)
Unrealized gains (losses) on available-for-sale securities, net	3,518			(1,699		)	2,200			1,424
Reclassification adjustments associated with unrealized gains (losses) from interest rate hedges included in net income	(116		)	36			(55		)	126
Unrealized gains on derivatives, net	90			1,237			117			2,379
Foreign currency translation adjustments	—			—			—			429
Total other comprehensive income (loss)	2,595			(4,502		)	1,666			(5,976		)
Comprehensive income (loss) before allocation to non-controlling interests and preferred shares	7,124			(27,217		)	20,215			(10,721		)
Unrealized (gains) losses on available-for-sale securities allocable to non-controlling interests	—			470			—			1,277
Net (income) loss allocable to non-controlling interests	60			(2,180		)	150			(4,657		)
Net (income) loss allocated to preferred shares	(6,014		)	(6,116		)	(12,062		)	(12,207		)
Carrying value in excess of consideration paid for preferred shares	(111		)	—			1,500			—
Comprehensive income (loss) allocable to common shares	$	1,059		$	(35,043	)	$	9,803		$	(26,308	)

The accompanying notes are an integral part of these statements

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2016

(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			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
Balance, December 31, 2015	31,562,724		$	32		$	1	$	6	$	5	$	1,228,346		$	(2,923	)	$	—		$	(406,603	)	$	818,864		$	7,896		$	826,760
Deconsolidation of variable interest entities	—		—			—		—		—		—			1,957			—			(16,932		)	(14,975		)	(8,876		)	(23,851		)
Balance, January 1, 2016	31,562,724		32			1		6		5		1,228,346			(966		)	—			(423,535		)	803,889			(980		)	802,909
Proceeds from dividend reinvestment and stock purchase plan	6,417		—			—		—		—		70			—			—			—			70			—			70
Discount on 8.0% convertible senior notes	—		—			—		—		—		19			—			—			—			19			—			19
Stock based compensation	304,315		—			—		—		—		—			—			—			—			—			—			—
Amortization of stock based compensation	—		—			—		—		—		2,678			—			—			—			2,678			—			2,678
Purchase and retirement of common shares	(709,676	)	(1		)	—		—		—		(8,158		)	—			—			—			(8,159		)	—			(8,159		)
Net income (loss)	—		—			—		—		—		—			—			18,699			—			18,699			(150		)	18,549
Preferred dividends	—		—			—		—		—		—			—			(12,062		)	—			(12,062		)	—			(12,062		)
Preferred stock redemption	—		—			—		—		—		(4,615		)	—			1,500			—			(3,115		)	—			(3,115		)
Securities available-for-sale, fair value adjustment, net	—		—			—		—		—		—			1,604			—			—			1,604			—			1,604
Designated derivatives, fair value adjustment	—		—			—		—		—		—			62			—			—			62			—			62
Distributions on common stock	—		—			—		—		—		—			—			(8,137		)	(17,987		)	(26,124		)	—			(26,124		)
Balance, June 30, 2016	31,163,780		$	31		$	1	$	6	$	5	$	1,218,340		$	700		$	—		$	(441,522	)	$	777,561		$	(1,130	)	$	776,431

The accompanying notes are an integral part of these statements

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	For the Six Months Ended
	June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	18,549		$	(4,745	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Provision for (recovery of) loan losses	12,136			42,800
Depreciation, amortization, and accretion	4,090			7,574
Amortization of stock-based compensation	2,678			1,786
Deferred income tax (benefit) expense	—			(194		)
Sale (origination) of residential mortgage loans held for sale, net	(83,829		)	15,229
Sale (purchase) of and principal payments on securities, trading, net	140			(9,541		)
Net realized and unrealized loss (gain) on investment securities, trading	(328		)	(2,353		)
Net realized and unrealized (gain) loss on sales of investment securities available-for-sale and loans	(11,774		)	(32,016		)
Loss (gain) on the reissuance (extinguishment) of debt	—			1,071
Loss (gain) on sale of real estate	3			—
Settlement of derivative instruments	(4,035		)	12,405
Net impairment losses recognized in earnings	—			59
Unrealized gain (loss) and net interest income on linked transactions, net	—			(235		)
Equity in net (earnings) losses of unconsolidated subsidiaries	(4,918		)	(1,368		)
Changes in operating assets and liabilities, net of acquisitions	20,353			(6,371		)
Net cash provided by (used in) operating activities	(46,935		)	24,101

CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash	15,727			75,836
Deconsolidation of VIEs ⁽¹⁾	(472		)	—
Purchase of securities available-for-sale	(6,537		)	(11,320		)
Principal payments on securities available-for-sale	29,827			49,819
Proceeds from sale of securities available-for-sale	—			37,221
Acquisition of legacy collateralized debt obligation assets	(7,511		)	—
Return of capital from (investment in) unconsolidated entity	9,530			5,000
Proceeds from sale of real estate held-for-sale	—			44
Purchase and origination of loans	(160,677		)	(436,440		)
Principal payments received on loans	241,613			209,744
Proceeds from sale of loans	8,881			93,146
Purchase of property and equipment	(28		)	(238		)
Principal payments received on loans – related parties	—			558
Settlement of derivative instruments	(50		)	—
Net cash (used in) provided by investing activities	130,303			23,370
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 $58)	68			129
Proceeds from issuance of preferred shares (net of offering costs of $0 and $78)	—			3,035
Repurchase of common stock	(7,914		)	(5		)
Repurchase of preferred shares	(3,359		)	—
Net proceeds (borrowings) from repurchase agreements	118,574			(56,383		)
Proceeds from borrowings:
Securitizations	—			282,127
Convertible senior notes	—			99,000
Senior secured revolving credit facility	33,000			99,500
Reissuance of debt	—			12,229
Payments on borrowings:
Securitizations	(119,810		)	(290,190		)
Senior secured revolving credit facility	(79,000		)	(62,000		)
Payment of debt issuance costs	(39		)	(7,986		)
Distributions to non-controlling interest and subordinated note holders	—			(4,333		)
Proceeds received from non-controlling interests	—			2,676
Distributions paid on preferred stock	(12,130		)	(12,159		)
Distributions paid on common stock	(26,347		)	(48,006		)
Net cash provided by (used in) financing activities	$	(96,957	)	$	17,634
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(13,589		)	65,105
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	78,756			79,905
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	65,167		$	145,010
SUPPLEMENTAL DISCLOSURE:
Interest expense paid in cash	$	28,786		$	21,402
Income taxes paid in cash	$	6,240		$	9,182


(1)	Cash and cash equivalents as of 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 ( see Note 2 ).

The accompanying notes are an integral part of these statements

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Resource Capital Corp. and subsidiaries’ (collectively the "Company") principal business activity is to originate, purchase and manage a diversified portfolio of commercial real estate-related assets and commercial finance assets. The Company’s investment activities are managed by Resource Capital Manager, Inc. ("Manager") pursuant to a management agreement (the "Management Agreement"). The Manager is a wholly-owned indirect subsidiary of Resource America, Inc. ("Resource America") (NASDAQ: REXI). In September 2013, it was determined that the Company is a variable interest entity ("VIE") and that Resource America was the primary beneficiary of the Company. In December 2015, Resource America early adopted the consolidation guidance issued by the Financial Accounting Standards Board ("FASB") ( see Note 2 ) and it was determined that the Company was no longer a VIE. Therefore, the Company's financial statements are no longer consolidated into Resource America's financial statements.

On January 1, 2016, the Company adopted the amendments to the consolidation guidance as outlined in Note 2. As a result of its evaluation, the Company determined that it is no longer the primary beneficiary of the following VIEs and therefore, deconsolidated these entities: Resource Real Estate Funding CDO 2006-1, Ltd. ("RREF CDO 2006-1"), Resource Real Estate Funding CDO 2007-1, Ltd. ("RREF CDO 2007-1"), Apidos Cinco CDO, Ltd. ("Apidos Cinco CDO"), Pelium Capital Partners, L.P., ("Pelium Capital") and RCM Global, LLC ("RCM Global").

The following subsidiaries are consolidated in the Company’s financial statements:


•	RCC Real Estate, Inc. ("RCC Real Estate") holds real estate investments, including commercial real estate loans, commercial real estate-related securities and direct investments in real estate. RCC Real Estate owns 100% of the equity of the following VIEs:

◦

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 commercial real estate ("CRE") loans and commercial mortgage-backed securities ("CMBS"). This entity was deconsolidated as of January 1, 2016 and the retained investment is now accounted for as an investment security, available-for-sale ( see Note 2 ) in its 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 Company was distributed the remaining assets of the CDO, comprised of investment securities available-for-sale and loans held for investment, which were recorded at fair value.


◦	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 as of January 1, 2016 and the retained investment is now accounted for as an investment security, available-for-sale ( see Note 2 ) in its consolidated financial statements.


◦	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.


◦	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.


•	RCC Commercial, Inc. ("RCC Commercial") holds a 29.6% investment in Northport TRS, LLC ("Northport LLC") 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 bank 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, all of the assets were sold.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)


•	RCC Commercial II, Inc. ("Commercial II") holds structured notes, available-for-sale securities and investments in the subordinated notes of foreign, syndicated bank 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, a Cayman Islands limited liability company and TRS, was established to complete a CDO issuance secured by a portfolio of bank loans, ABS and corporate bonds. This entity was deconsolidated as of January 1, 2016 and the retained investment is now accounted for as an investment security, available-for-sale ( see Note 2 ).


◦	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 bank loan 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 bank loans and ABS. In October 2014, the Company liquidated Apidos CLO I, and as a result, substantially all of the assets were sold.


•	Resource TRS, Inc. ("Resource TRS"), a TRS directly owned by the Company, 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:


◦	Resource TRS, LLC, a Delaware limited liability company, which holds a 25.8% investment in Northport LLC.


◦	Northport LLC, a Delaware limited liability company, which holds bank loan investments and the Company's self-originated middle market loans. Resource TRS owns 44.6% of the equity in Northport LLC as of June 30, 2016 . The remaining 29.6% of the equity is owned by RCC Commercial.


◦	Pelium Capital, a Delaware limited partnership, which holds investment securities, trading. Resource TRS owns 80.2% of the equity in Pelium Capital as of June 30, 2016 . This entity was deconsolidated as of January 1, 2016 and the retained investment is now accounted for as an equity method investment ( see Note 2 ).


•	Resource TRS II, Inc. ("Resource TRS II"), a TRS directly owned by the Company, holds the Company’s management rights in bank loan CLOs not originated by the Company. Resource TRS II owns 100% of the equity of the following VIE:

◦

Resource Capital Asset Management ("RCAM"), a domestic limited liability company, which is entitled to collect senior, subordinated, and incentive fees related to two CLO issuers to which it provides 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").


•	Resource TRS III, Inc. ("Resource TRS III"), a TRS directly owned by the Company, held the Company’s interests in a bank loan CDO originated by the Company. Resource TRS III previously owned 33% of the equity of Apidos CLO VIII, Ltd ("Apidos CLO VIII"), a Cayman Islands limited liability company and TRS, which was liquidated in October 2013.


•	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, 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 as of December 31, 2013.


•	RSO EquityCo, LLC owned 10% of the equity of Apidos CDO I and 10% of the equity of Apidos CLO VIII.


•	Long Term Care Conversion, Inc. ("LTCC"), a TRS directly owned by the Company, is a Delaware corporation that owns 100% of the following entities:

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

◦

Long Term Care Conversion Funding ("LTCC Funding"), a New York limited liability company, which owns a 70.9% equity interest in Life Care Funding, LLC ("LCF") and provides funding through a financing facility to fund the acquisition of life settlement contracts. LCF, a New York limited liability company, is a joint venture between LTCC and Life Care Funding Group Partners and was established for the purpose of acquiring life settlement contracts.

◦

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 bank loans. The warehouse credit facility closed on May 5, 2016, at which time, Resource TRS III purchased a beneficial interest in ZAIS CLO 4.


•	RCC Residential, Inc. ("RCC Residential"), a TRS directly owned by the Company, is a Delaware corporation which owns 100% of the following entities:


◦	Primary Capital Mortgage, LLC ("PCM"), (formerly known as Primary Capital Advisors, LLC), a limited liability company that originates and services residential mortgage loans.


◦	RCM Global Manager, LLC ("RCM Global Manager"), a Delaware limited liability company, owns 25.9% of the following entity:


▪	RCM Global, a Delaware limited liability company, holds a portfolio of investment securities, available-for-sale. This entity was deconsolidated as of January 1, 2016 and the retained investment is now accounted for as an equity method investment ( see Note 2 ).


▪	RCC Residential Portfolio, Inc. ("RCC Resi Portfolio"), a Delaware corporation directly owned by the Company, invests in residential mortgage-backed securities ("RMBS").


▪	RCC Residential Portfolio TRS, Inc. ("RCC Resi TRS"), a TRS directly owned by the Company, is a Delaware corporation which intends to hold strategic residential mortgage positions which cannot be held by RCC Resi Portfolio.


◦	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, purchases residential mortgage loans from PCM and transfers the assets to RCC Opportunities Trust ("RCC Opp Trust").


*	RCC Opp Trust, a Delaware statutory trust, which holds a portfolio of residential mortgage loans, available-for-sale.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reverse Stock Split and Amended and Restated Certificate of Incorporation

Effective August 31, 2015, the Company completed a one-for-four reverse stock split of its outstanding common stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented. In addition, the Company adopted an Amended and Restated Certificate of Incorporation, which provides that its authorized capital stock consists of 125,000,000 shares of common stock, $0.001 par value per share, and 100,000,000 shares of preferred stock, $0.001 par value per share.

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 our annual report on Form 10-K for the year ended December 31, 2015. The consolidated financial statements include the accounts of the Company. All inter-company transactions and balances have been eliminated.

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 June 30, 2016 and December 31, 2015 , approximately $61.7 million and $74.3 million of the reported cash balances exceeded the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution, subjecting the Company to risk related to the uninsured balance. All of the Company's cash deposits are held at large, established financial institutions.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Income Taxes

Because modest changes in projected income or loss produce a significant variance in estimates of the Company's annual effective tax rate, the Company records its tax provision (benefit) based on its actual effective tax rate.

Recent Accounting Standards

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 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 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual 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 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 currently evaluating the impact of this guidance and its impact on our consolidated financial statements.

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 currently evaluating the effect of adoption.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

In September 2015, the FASB issued guidance that simplifies the accounting for adjustments made to provisional amounts recognized in a business combination, which are currently recognized on a retrospective basis. Under the new requirements, adjustments to provisional amounts will be recognized in the reporting period in which the adjustments are determined. The effects of changes in depreciation, amortization, or other income arising from changes to the provisional amounts, if any, are included in earnings of the reporting period in which the adjustments to the provisional amounts are determined. An entity is also required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. It is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Adoption did not have a material impact on the Company's consolidated financial statements.

In April 2015, the FASB issued guidance that simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. It is effective for annual reporting periods beginning after December 15, 2015. The Company has early adopted the provisions of this guidance. Note 12, Borrowings , reflects the presentation of debt issuance costs as prescribed by this accounting standards update. Adoption did not have a material impact on the Company's consolidated financial statements.

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: (1) modify the evaluation of whether limited partnerships and similar legal entities are VIEs; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.

On January 1, 2016, the Company adopted the above guidance as required. As a result of its re-evaluation, the Company determined it is no longer the primary beneficiary of the following VIEs and, therefore, they were deconsolidated: RREF CDO 2006-1, RREF CDO 2007-1, Apidos Cinco CDO, Pelium Capital, and RCM Global. As a result of these deconsolidations, the Company will no longer reflect the underlying collateral (loans and securities) of those VIEs in its consolidated financial statements. Instead, the Company will prospectively reflect in its consolidated balance sheet, its direct investments (the "retained investments") in the issued and outstanding securities of those VIEs. The Company's retained investments in RREF CDO 2006-1, RREF CDO 2007-1, Apidos Cinco CDO are now accounted for as investment securities, available-for-sale and, as a result, are marked-to-market while the Company's retained investments in Pelium Capital and RCM Global are accounted for as equity method investments. The Company has elected to retrospectively reflect the deconsolidation of these entities on a modified basis, which resulted in a reduction to the beginning balance of retained earnings as of January 1, 2016, of $16.9 million . The reduction to retained earnings represents the effect of marking the investments to market as of the date of the required adoption.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The following table summarizes the net impact of the deconsolidation of the five VIEs upon adoption on January 1, 2016 (in thousands) net of eliminations:



	Total Deconsolidated VIEs			Retained Interest as of 1/1/2016		Net Impact on Deconsolidation
ASSETS:
Cash and cash equivalents	$	472		$	—	$	472
Restricted cash	17,076			—		17,076
Loans, pledged as collateral and net of allowances ^(1)(2)(3)	364,589			—		364,589
Loans held for sale	1,322			—		1,322
Investment securities available-for-sale, at fair value	68,997			166,769		(97,772		)
Investment securities, trading	21,851			—		21,851
Investments in deconsolidated entities	17,250			23,175		(5,925		)
Interest receivable	4,299			—		4,299
Principal paydown receivable	17,800			—		17,800
Prepaid expenses	256			—		256
Other assets	972			—		972
Total assets	$	514,884		$	189,944	$	324,940

LIABILTITES:
Borrowings	$	297,191		$	—	$	297,191
Accrued interest expense	297			—		297
Derivative liabilities, at fair value	3,346			—		3,346
Accounts payable and other liabilities	255			—		255
Total liabilities	301,089			—		301,089
Retained earnings	206,876			189,944		16,932
Non-controlling interests	8,876			—		8,876
Accumulated other comprehensive loss	(1,957		)	—		(1,957		)
Total equity	213,795			189,944		23,851
Total liabilities and equity	$	514,884		$	189,944	$	324,940


(1)	As part of the deconsolidation of RREF CDO 2006-1 and RREF CDO 2007-1, $40.3 million of specific reserves and $142,000 of general reserves on CRE loans were deconsolidated as of January 1, 2016.


(2)	As part of the deconsolidation of Apidos Cinco CDO, $1.3 million of specific reserves on the bank loans were deconsolidated as of January 1, 2016.


(3)	As part of the deconsolidation of RREF CDO 2006-1 and RREF CDO 2007-1, the Company deconsolidated four loans representing the senior participations in commercial real estate loans totaling $91.3 million that were previously disclosed as both impaired loans and troubled debt restructurings as of December 31, 2015.

In November 2014, the FASB issued guidance to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of shares. An entity that issues or invests in a hybrid financial instrument is required to separate an embedded derivative feature from the host contract (for example, an underlying share) and account for the feature as a derivative according to Accounting Standards Codification ("ASC") Subtopic 815-10 on derivatives and hedging if certain criteria are met. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Adoption did not have a material impact on the Company's consolidated financial statements.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and management’s plans 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 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effect of adoption.

In August 2014, the FASB issued guidance that provides for the election of a measurement alternative when a reporting entity determines that it is the primary beneficiary of a collateralized financing entity and, hence, is required to consolidate that collateralized financing entity. The measurement alternative allows a qualifying consolidated collateralized financing entity to use the more observable of the fair value of the financial assets or the fair value of the financial liabilities adjusted by the carrying amount of non-financial assets and the fair value of any beneficial interests retained by the reporting entity (including those beneficial interests that represent compensation for services). Alternatively, if the measurement alternative is not elected for a qualifying consolidated collateralized financing entity, this guidance requires that the financial assets and financial liabilities be measured in accordance with ASC Topic 820, and that any difference in the fair value of the financial assets and the fair value of the financial liabilities be reflected in earnings and attributed to the reporting entity in the consolidated statement of operations. This guidance is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Adoption did not have a material impact on the Company's consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the 2015 consolidated financial statements to conform to the 2016 presentation.

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 June 30, 2016 : Apidos CDO I, Apidos CDO III, Whitney CLO I, RCC CRE Notes 2013, 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, bank loans, corporate bonds and asset-backed securities and were financed by the issuance of debt securities. The Manager manages the commercial real estate-related entities on behalf of 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 (see Note 2).

As of December 31, 2015, the Company was the primary beneficiary of thirteen VIEs: Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, Whitney CLO I, RCC CRE Notes 2013, RCC 2014-CRE2, RCC 2015-CRE3, RCC 2015-CRE4, Moselle CLO and RCM Global, LLC (collectively, the "Consolidated VIEs at December 31, 2015"). In performing the primary beneficiary analysis for the Consolidated VIEs at December 31, 2015, it was determined that the parties that have the power to direct the activities that are most significant to each of these VIEs and that had the right to receive benefits or the obligation to absorb losses that could potentially be significant to these VIEs, were a related-party group. It was then determined that the Company was the party within that group that was more closely associated with each such VIE considering the design of the VIE, the principal-agency relationship between the Company and other members of the related-party group, and the relationship and

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

significance of the activities of the VIE to the Company compared to the other members of the related-party group. Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, RCC CRE Notes 2013, RCC 2014-CRE2, RCC 2015-CRE3 and RCC 2015-CRE4 were formed on behalf of the Company to invest in real estate-related securities, CMBS, property available-for-sale, bank loans, corporate bonds and asset-backed securities and were financed by the issuance of debt securities. The Manager manages the commercial real estate-related entities on behalf of 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.

Moselle CLO was a European securitization in which the Company purchased a $30.4 million interest in the form of subordinate notes representing 100% of the Class 1 Subordinated Notes and 67.9% of the Class 2 Subordinated Notes in February 2014. The CLO was managed by an independent third-party, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the CLO. Though neither the Company nor one of its related parties managed the CLO, due to certain unilateral kick-out rights within the collateral management agreement it was determined that the Company had the power to direct the activities that most significantly impacted the economic performance of Moselle CLO. Having both the power to direct the activities that most significantly impact Moselle CLO and a financial interest that was expected to absorb both positive and negative variability in the CLO that could potentially be significant, the Company was determined to be the primary beneficiary of Moselle CLO and, therefore, consolidated the CLO. During the fourth quarter of 2014, the CLO began the liquidation process and all assets were subsequently sold. The Company's interest in the Moselle CLO Subordinated Notes was fully redeemed in March 2016.

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 12 .

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 June 30, 2016 , the Company has 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.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The following table shows the classification and carrying value of assets and liabilities of the Company's consolidated VIEs as of June 30, 2016 (in thousands):



	Apidos I		Apidos III		Whitney CLO I		RCC CRE Notes 2013		RCC 2014-CRE2		RCC 2015-CRE3		RCC 2015-CRE4		Total
ASSETS
Restricted cash ⁽¹⁾	$	65	$	62	$	163	$	—	$	4,220	$	2,083	$	2	$	6,595
Loans held for investment	—		—		—		86,397		263,303		281,980		310,502		942,182
Interest receivable	—		—		—		404		1,025		1,165		1,173		3,767
Prepaid assets	—		—		—		11		11		10		10		42
Principal paydown receivable	—		—		—		8,100		—		—		—		8,100
Other assets	—		—		—		41		—		—		—		41
Total assets ⁽²⁾	$	65	$	62	$	163	$	94,953	$	268,559	$	285,238	$	311,687	$	960,727

LIABILITIES
Borrowings	$	—	$	—	$	—	$	47,305	$	147,566	$	218,762	$	220,920	$	634,553
Accrued interest expense	—		—		—		60		101		214		174		549
Accounts payable and other liabilities	—		—		—		23		41		53		40		157
Total liabilities	$	—	$	—	$	—	$	47,388	$	147,708	$	219,029	$	221,134	$	635,259

(1) Includes $4.2 million designated to fund future commitments on specific commercial real estate loans in certain of the securitizations.

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

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 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 as of June 30, 2016 . 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, RREF CDO 2007-1 and Apidos Cinco CDO

RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO were formed on behalf of the Company to invest in real estate-related securities, CMBS, property available-for-sale, bank loans, corporate bonds and asset-backed securities and were financed by the issuance of debt securities. The Manager manages the commercial real estate-related entities on behalf of 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. On January 1, 2016, the Company adopted the amendments to the consolidation guidance as outlined in Note 2 . 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. As a results of its evaluation, these investments were deconsolidated. At deconsolidation, the Company recorded its investments in RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO at fair value and will account 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 was distributed the remaining assets of $65.6 million at fair value after paying off the CDO debt owed to third parties of $7.5 million and recognized a gain of approximately $846,000 as a result of this transaction.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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 c ontributed $15.0 million for a 63.8% membership interest. E ach 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 as outlined in Note 2 . 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 investment in an unconsolidated entity in its consolidated financial statements. As of June 30, 2016 , the Company holds a 25.9% interest in RCM Global.

Pelium Capital

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”), another 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 June 30, 2016 . The Company’s investment in LCC was recorded at $44.4 million and $42.0 million as of June 30, 2016 and December 31, 2015 , 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 (see Note 17 ).

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.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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 RCT I and $25.8 million for RCT II. The debentures were funded by the issuance of trust preferred securities of RCT I and RCT II. The Company will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.

Resource Capital Asset Management CLOs

In February 2011, the Company purchased a company that managed bank 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 is amortized over the expected life of each CLO. The unamortized balance of the intangible asset was $4.5 million and $5.3 million at June 30, 2016 and December 31, 2015 , respectively. The Company recognized fee income of $510,000 and $912,000 for the three and six months ended June 30, 2016 , respectively. The Company recognized fee income of $896,000 and $1.9 million for the three and six months ended June 30, 2015 , respectively. With respect to four of these CLOs, the Company determined that it does not hold a controlling financial interest and, therefore, is not the primary beneficiary. One of the CLOs was liquidated in February 2013. With respect to the fifth CLO, Whitney CLO I, in October 2012, 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. In January 2016 another RCAM-managed CLO was called and $2.4 million of impairment, on a pre-tax basis, was recorded in depreciation and amortization on the Company's consolidated statements of operations the related intangible asset, as of December 31, 2015.

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 bank 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 has 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 not determined to be the primary beneficiary and, hence, not required to consolidate ZAIS CLO 4. As of June 30, 2016 , the Company had a beneficial interest of $9.9 million through ZAIS CLO 4. The Company accounts for its investment in ZAIS CLO 4 as an investment security available-for-sale in its consolidated financial statements.

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 bank loans and issue collateral loan obligations, through its wholly-owned, direct subsidiary Commercial II. 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 not determined to be the primary beneficiary and, hence, not required to consolidate the Harvest Securities. As of June 30, 2016 , the Company had investments of $4.0 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.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(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 bank 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 not determined to be the primary beneficiary and, hence, not required to consolidate Harvest CLO XV. As of June 30, 2016 , the Company's investment in Harvest CLO XV is $13.4 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 as of June 30, 2016 (in thousands):



	Unconsolidated Variable Interest Entities
	LCC		Unsecured Junior Subordinated Debentures			Resource Capital Asset Management CDOs		Investment in ZAIS and Harvest		RREF CDO 2007-1		Apidos Cinco CDO		RCM Global LLC		Pelium Capital		Total		Maximum Exposure to Loss
Investments in unconsolidated entities and Investment securities, available-for-sale	$	44,361	$	1,548		$	—	$	32,114	$	109,913	$	18,838	$	584	$	23,723	$	231,081	$	231,081
Intangible assets	—		—			4,514		—		—		—		—		—		4,514		$	4,514
Total assets	44,361		1,548			4,514		32,114		109,913		18,838		584		23,723		235,595

Borrowings	—		51,521			—		—		—		—		—		—		51,521		N/A
Total liabilities	—		51,521			—		—		—		—		—		—		51,521		N/A
Net asset (liability)	$	44,361	$	(49,973	)	$	4,514	$	32,114	$	109,913	$	18,838	$	584	$	23,723	$	184,074	N/A

As of June 30, 2016 , 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 Six Months Ended
	June 30,
	2016			2015
Non-cash investing activities include the following:
Reclassification of linked transactions, net at fair value to investment securities available-for-sale, pledged as collateral, at fair value ⁽¹⁾	$	—		$	48,605
Retained beneficial interest in unconsolidated securitization entities	$	(22,476	)	$	—
Loans acquired through collateralized debt obligation liquidation	$	(44,893	)	$	—
Securities acquired through collateralized debt obligation liquidation	$	(20,837	)	$	—

Non-cash financing activities include the following:
Distributions on common stock accrued but not paid	$	13,051		$	21,426
Distributions on preferred stock accrued but not paid	$	4,009		$	4,078
Reclassification of linked transactions, net at fair value to borrowings ⁽¹⁾	$	—		$	33,377

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)


(1)	As a result of an accounting standards update adopted on January 1, 2015, the Company unlinked its previously linked transactions, resulting in non-cash increases in both its investment securities available-for-sale, pledged as collateral, at fair value and related repurchase agreements borrowings balances.

NOTE 5 - INVESTMENT SECURITIES, TRADING

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



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
As of June 30, 2016:
Structured notes	$	5,907	$	255	$	(2,180	)	$	3,982
RMBS	1,896		—		(1,896		)	—
Total	$	7,803	$	255	$	(4,076	)	$	3,982

As of December 31, 2015:
Structured notes	$	28,576	$	1,674	$	(4,700	)	$	25,550
RMBS	1,896		—		(1,896		)	—
Total	$	30,472	$	1,674	$	(6,596	)	$	25,550

As a result of updated accounting guidance, effective January 1, 2016 ( see Note 2 ), the Company deconsolidated all of the assets of Pelium Capital, resulting in the removal of $21.9 million of investment securities, trading from its balance sheet which is the primary cause of the decrease of securities during the period. The Company sold no investment securities during the three and six months ended June 30, 2016 . The Company sold four and ten investment securities during the three and six months ended June 30, 2015 for a net realized gain of approximately $189,000 and $621,000 , respectively. The Company held six and 56 investment securities, trading as of June 30, 2016 and December 31, 2015 , respectively.

NOTE 6 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The following table summarizes the Company's investment securities, including those pledged as collateral and classified as available-for-sale. ABS may include, but are not limited to the Company's investments in RREF CDO 2007-1, Apidos Cinco CDO, Harvest CLO Securities, ZAIS and other securities backed by syndicated bank loans, and other loan obligations. These securities are carried at fair value (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value ⁽¹⁾
As of June 30, 2016:
ABS	$	162,759	$	2,865	$	(519	)	$	165,105
CMBS	89,621		441		(1,904		)	88,158
RMBS	1,919		144		(46		)	2,017
Total	$	254,299	$	3,450	$	(2,469	)	$	255,280

As of December 31, 2015:
ABS	$	41,994	$	3,218	$	(998	)	$	44,214
CMBS	158,584		2,631		(1,791		)	159,424
RMBS	2,156		122		(88		)	2,190
Corporate bonds	2,422		—		(162		)	2,260
Total	$	205,156	$	5,971	$	(3,039	)	$	208,088

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)


(1)	As of June 30, 2016 and December 31, 2015 , $88.1 million and $162.3 million , respectively, of investment securities available-for-sale were pledged as collateral under related financings.

As a result of updated accounting guidance, effective January 1, 2016 ( see Note 2 ), the Company deconsolidated all of the assets of RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO, resulting in the removal of $364.6 million of loans, pledged as collateral from its balance sheet. These investments are now recorded as investment securities available-for-sale, which is the primary cause of the increase in securities during the period.

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



Weighted Average Life	Fair Value			Amortized Cost		Weighted Average Coupon
As of June 30, 2016:
Less than one year	$	180,947	⁽¹⁾	$	182,143	8.10%
Greater than one year and less than five years	34,010			34,207		5.09%
Greater than five years and less than ten years	23,699			22,177		9.02%
Greater than ten years	16,624			15,772		14.25%
Total	$	255,280		$	254,299	8.16%

As of December 31, 2015:
Less than one year	$	117,221	⁽¹⁾	$	118,215	7.13%
Greater than one year and less than five years	71,370			68,808		5.31%
Greater than five years and less than ten years	12,382			11,271		10.45%
Greater than ten years	7,115			6,862		16.85%
Total	$	208,088		$	205,156	7.03%


(1)	The Company expects that the maturity dates of these CMBS and ABS will either be extended or that they will be paid in full.

At June 30, 2016 , the contractual maturities of the CMBS investment securities available-for-sale range from July 2016 to December 2022 . The contractual maturity date of RMBS investment securities available-for-sale is June 2029 . The contractual maturities of the ABS investment securities available-for-sale range from October 2018 to May 2029 .

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

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)



	Less than 12 Months						More than 12 Months						Total
	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities
As of June 30, 2016:
ABS	$	2,135	$	(519	)	3	$	—	$	—		—	$	2,135	$	(519	)	3
CMBS	59,858		(1,503		)	26	7,028		(401		)	7	66,886		(1,904		)	33
RMBS	1,065		(46		)	2	—		—			—	1,065		(46		)	2
Total temporarily impaired securities	$	63,058	$	(2,068	)	31	$	7,028	$	(401	)	7	$	70,086	$	(2,469	)	38

As of December 31, 2015:
ABS	$	2,330	$	(824	)	5	$	668	$	(174	)	5	$	2,998	$	(998	)	10
CMBS	79,570		(849		)	31	13,783		(942		)	15	93,353		(1,791		)	46
RMBS	1,157		(88		)	2	—		—			—	1,157		(88		)	2
Corporate bonds	65		(18		)	1	1,327		(144		)	1	1,392		(162		)	2
Total temporarily impaired securities	$	83,122	$	(1,779	)	39	$	15,778	$	(1,260	)	21	$	98,900	$	(3,039	)	60

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

During the six months ended June 30, 2016 and 2015 , the Company did not recognize any other-than-temporary impairment on its investment securities available-for-sale.

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



	For the Three Months Ended				For the Six Months Ended
	Positions Sold	Positions Redeemed	Par Amount Sold/Redeemed	Realized Gain (Loss)	Positions Sold	Positions Redeemed	Par Amount Sold/Redeemed		Realized Gain (Loss)
June 30, 2015:
ABS	3	1	$4,026	$1,841	7	3	$	15,937	$	8,110
RMBS	6	—	$28,305	$984	6	—	$	28,305	$	984

There were no sales or redemptions during the three or six months ended June 30, 2016 .

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 7 - LOANS

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



Loan Description	Principal			Unamortized (Discount) Premium, net ⁽¹⁾			Carrying Value ^{(2) (3)}
As of June 30, 2016:
CRE whole loans	$	1,428,656		$	(7,466	)	$	1,421,190
Mezzanine loans ⁽⁵⁾	—			—			—
Middle market loans	54,850			(365		)	54,485
Residential mortgage loans, held for investment	2,641			—			2,641
Subtotal loans before allowance	1,486,147			(7,831		)	1,478,316
Allowance for loan loss	(1,436		)	—			(1,436		)
Total loans held for investment, net of allowance	1,484,711			(7,831		)	1,476,880
Middle market loans held for sale	259,179			—			259,179
Residential mortgage loans held for sale, at fair value ⁽⁴⁾	161,129			—			161,129
Total loans held for sale	420,308			—			420,308
Total loans, net	$	1,905,019		$	(7,831	)	$	1,897,188

As of December 31, 2015:
Commercial real estate loans:
Whole loans	$	1,640,744		$	(9,943	)	$	1,630,801
B notes	15,934			—			15,934
Mezzanine loans	45,368			4			45,372
Total commercial real estate loans	1,702,046			(9,939		)	1,692,107
Bank loans	134,890			(373		)	134,517
Middle market loans	380,687			(1,235		)	379,452
Residential mortgage loans, held for investment	1,746			—			1,746
Subtotal loans before allowance	2,219,369			(11,547		)	2,207,822
Allowance for loan loss	(47,071		)	—			(47,071		)
Total loans held for investment, net of allowance	2,172,298			(11,547		)	2,160,751
Bank loans held for sale	1,475			—			1,475
Residential mortgage loans held for sale, at fair value ⁽⁴⁾	94,471			—			94,471
Total loans held for sale	95,946			—			95,946
Total loans, net	$	2,268,244		$	(11,547	)	$	2,256,697

(1)

Amounts included deferred amendment fees of $10,000 and deferred upfront fees of $0 being amortized over the life of the loans as of June 30, 2016 . Amounts include deferred amendment fees of $42,000 and deferred upfront fees of $12,000 being amortized over the life of the loans as of December 31, 2015 . Amounts also include loan origination fees of $7.4 million and $9.9 million as of June 30, 2016 and December 31, 2015 , respectively.


(2)	As a result of the consolidation guidance adopted January 1, 2016, the Company deconsolidated loans held for investment in the amount of $271.8 million of its CRE loans and $134.5 million of its bank loans and the related allowance for loan losses of $41.7 million ( see Note 2 ).


(3)	Substantially all loans are pledged as collateral under various borrowings at June 30, 2016 and December 31, 2015 , respectively.


(4)	Amortized cost approximates fair value.


(5)	The Company has one mezzanine loan with a par value of $28.8 million that was acquired at fair value as a result of the liquidation of RREF CDO 2006-1.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Commercial Real Estate Loans

The following is a s(in thousands):



Description	Quantity	Amortized Cost		Contracted Interest Rates	Maturity Dates ⁽³⁾
As of June 30, 2016:
Whole loans, floating rate ⁽¹⁾ ^{(3) (4) (5) (6) (7)}	80	$	1,421,190	LIBOR plus 2.50% to LIBOR plus 12.00%	August 2016 to May 2019
Mezzanine loans ⁽¹⁰⁾	1	—		N/A	September 2021
Total ^(2) (9)	81	$	1,421,190

As of December 31, 2015:
Whole loans, floating rate ^{(1) (3) (4) (5) (6) (7)}	87	$	1,630,801	LIBOR plus 1.75% to LIBOR plus 12.00%	February 2016 to February 2019
B notes, fixed rate	1	15,934		8.68%	April 2016
Mezzanine loans, fixed rate ⁽⁸⁾	2	45,372		9.01%	September 2016
Total ⁽²⁾	90	$	1,692,107


(1)	Whole loans had $78.8 million and $112.6 million in unfunded loan commitments as of June 30, 2016 and December 31, 2015 , respectively. These unfunded commitments are advanced as the borrowers formally request additional funding as permitted under the loan agreement and any necessary approvals have been obtained.


(2)	Totals do not include allowance for loan losses of $1.4 million and $41.8 million as of June 30, 2016 and December 31, 2015 , respectively.


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

(4)

Includes two whole loans with a combined $11.2 million and $51.2 million senior component that entered into modifications in 2016 and 2015 that resulted in a fixed rate of 0.50% as of June 30, 2016 and December 31, 2015 , respectively (the difference of which was a result of the deconsolidation of RREF CDO 2006-1 and RREF CDO 2007-1 - see Note 2). The two loans were previously identified as troubled debt restructurings ("TDR's").


(5)	Includes four whole loans with combined $4.5 million mezzanine components that have interest rates ranging from 1.4% to 5.2% as of June 30, 2016 and December 31, 2015 .


(6)	Includes a $799,000 junior mezzanine tranche of a whole loan that has a fixed rate of 10.0% as of June 30, 2016 and December 31, 2015 .

(7)

Contracted interest rates do not include a whole loan with an amortized cost of $2.0 million and $32.5 million that entered into a modification in 2016 and 2015 which reduced the floating rate spread to 1.00% as of June 30, 2016 and December 31, 2015 , respectively (the difference of which was a result of the deconsolidation of RREF CDO 2007-1 - see Note 2). The loan was previously identified as a TDR.


(8)	Contracted interest rates and maturity dates do not include rates or maturity dates associated with one loan with an amortized cost of $38.1 million that was fully reserved as of June 30, 2015.


(9)	As a result of updated accounting guidance, effective January 1, 2016 ( see Note 2 ), the Company deconsolidated all of the assets of RREF CDO 2006-1 and RREF CDO 2007-1, resulting in the removal of $271.8 million of loans, pledged as collateral from its balance sheet.


(10)	As a result of RREF CDO 2006-1 being called and liquidated on April 25, 2016, a mezzanine loan with a par value of $28.8 million was acquired as part of the liquidation proceeds and is reflected on the Company's balance sheet at a fair value of zero at June 30, 2016 . The mezzanine loan is comprised of two tranches, with maturity dates of November 2016 and September 2021.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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



Description	2016		2017		2018 and Thereafter		Total
As of June 30, 2016:
Whole loans	$	—	$	60,446	$	1,360,744	$	1,421,190
Mezzanine loans ⁽²⁾	—		—		—		—
Total ⁽¹⁾	$	—	$	60,446	$	1,360,744	$	1,421,190

As of December 31, 2015:	2016		2017		2018 and Thereafter		Total
B notes	$	15,934	$	—	$	—	$	15,934
Mezzanine loans	13,011		—		32,361		45,372
Whole loans	9,958		140,712		1,480,131		1,630,801
Total ⁽¹⁾	$	38,903	$	140,712	$	1,512,492	$	1,692,107


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


(2)	The Company has one mezzanine loan with a par value of $28.8 million that was acquired at fair value as a result of the liquidation of RREF 2006-1.

At June 30, 2016 , approximately 27.7% , 25.9% and 8.7% of the Company's commercial real estate portfolio was concentrated in Texas, California, and Georgia, respectively. At December 31, 2015 , approximately 28.7% , 26.8% , and 7.4% of the Company's commercial real estate loan portfolio was concentrated in California, Texas, and Georgia, respectively.

Bank Loans

The following table provides information as to the lien position and status of the Company's bank loans, at amortized cost (in thousands) prior to deconsolidation of Apidos Cinco CDO as of January 1, 2016:



	Apidos I		Apidos Cinco		Total
As of December 31, 2015:
Loans held for investment:
First lien loans	$	—	$	131,281	$	131,281
Second lien loans	—		1,692		1,692
Defaulted first lien loans	—		1,544		1,544
Defaulted second lien loans	—		—		—
Total	—		134,517		134,517
First lien loans held for sale at fair value	153		1,322		1,475
Total	$	153	$	135,839	$	135,992

At June 30, 2016 , the Company held no bank loans. At December 31, 2015 , the Company’s bank loan portfolio, including loans held for sale, consisted of $134.7 million (net of allowance of $1.3 million ) of floating rate loans, which bear interest ranging between the three month LIBOR plus 1.25% and the three month LIBOR plus 8% with maturity dates ranging from January 2016 to August 2021 .

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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



	December 31, 2015
Less than one year	$	3,922
Greater than one year and less than five years	128,480
Five years or greater	3,590
	$	135,992

At December 31, 2015 , approximately 13.5% , 13.0% and 9.6% of the Company’s bank loan portfolio was concentrated in the collective industry grouping of automobile, diversified/conglomerate service and retail stores, respectively.

Middle Market Loans

The following table provides information as to the lien position and status of middle market loans, at carrying value (in thousands):



	June 30, 2016		December 31, 2015
First Lien	$	—	$	248,367
Second Lien	54,485		127,146
First lien loans held for sale, at fair value	188,378		—
Second lien loans held for sale, at fair value	70,801		—
	$	313,664	$	375,513

At June 30, 2016 , the Company’s middle market loan portfolio consisted of $313.7 million of floating rate loans, which bear interest ranging between one or three month LIBOR plus 6.75% and one or three month LIBOR plus 12.00% with maturity dates ranging from June 2017 to July 2023 .

At December 31, 2015 , the Company’s middle market loan portfolio consisted of $375.5 million (net of allowance of $3.9 million ) of floating rate loans, which bore interest ranging between one or three month LIBOR plus 6.25% and three month LIBOR plus 12.00% with maturity dates ranging from December 2016 to July 2023 .

The following is a summary of the weighted average maturity of the Company’s middle market loans, at carrying value (in thousands):



	June 30, 2016		December 31, 2015
Less than one year	$	9,319	$	14,960
Greater than one year and less than five years	210,385		250,709
Five years or greater	93,960		109,844
	$	313,664	$	375,513

At June 30, 2016 and December 31, 2015 , approximately 14.7% and 12.8% , respectively, of the Company's middle market loan portfolio was concentrated in the collective industry grouping of diversified and conglomerate service and 15.6% and 12.4% , respectively, of the Company's middle market loan portfolio was concentrated in the collective industry grouping of healthcare, education, and childcare.

Residential Mortgage Loans

The Company originates and services residential mortgage loans through its indirect wholly-owned subsidiary PCM. PCM is an approved seller/servicer for the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association and is licensed to originate loans insured by the Federal Housing Administration, the Department of Veterans Affairs and the United States Department of Agriculture and is licensed to transact business in 41

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

states. In order to maintain its licenses and status as an approved seller/servicer, PCM must meet certain capital requirements. PCM was in compliance with those capital requirements as of June 30, 2016 .

Residential mortgage loans held for sale, at fair value, consisted of $116.4 million and $44.7 million of agency-conforming and jumbo mortgage loans (net of allowance of $11,000 ), respectively, as of June 30, 2016 . Residential mortgage loans held for sale, at fair value, consisted of $29.2 million and $65.3 million of agency-conforming and jumbo mortgage loans (net of allowance of $11,000 ), respectively, as of December 31, 2015 .

During the quarter ended June 30, 2016 , approximately 40.2% of the Company's residential mortgage loans were originated in Georgia, 15.8% in Utah, 14.7% in California, 6.0% in Virginia, and 4.9% in Florida. During the year ended December 31, 2015 , approximately 44.9% of the Company's residential mortgage loans were originated in Georgia, 11.2% in Utah, 9.1% in Virginia, 4.4% in Florida, and 4.1% in Colorado.

Allowance for Loan Losses

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



Description	Allowance for Loan Loss		Percentage of Total Allowance
As of June 30, 2016:
CRE whole loans	$	1,425	99.23%
Mezzanine loans ⁽²⁾	—		—%
Middle market loans	—		—%
Residential mortgage loans	11		0.77%
Total ⁽¹⁾	$	1,436

As of December 31, 2015:
B notes	$	15	0.03%
Mezzanine loans	38,079		80.90%
CRE whole loans	3,745		7.96%
Bank loans	1,282		2.72%
Middle market loans	3,939		8.37%
Residential mortgage loans	11		0.02%
Total	$	47,071


(1)	As a result of amendments to consolidation accounting guidance adopted January 1, 2016, the Company deconsolidated loans held for investment in the amount of $271.8 million of its CRE loans and $134.5 million of its bank loans and the related allowance for loan losses of $41.7 million ( see Note 2 ).


(2)	The Company has one mezzanine loan with a par value of $28.8 million that was acquired at fair value as a result of the liquidation of RREF 2006-1.

Principal Paydown Receivables

Principal paydown receivables represent the portion of the Company's loan portfolio for which indication has been provided through its various servicers, trustees, or its asset management group that a payoff or paydown of a loan has been received but which, as of period end, the Company has not received and applied to the outstanding loan balance. At June 30, 2016 , the Company had $8.1 million principal paydown receivables, the entirety of which the Company received in cash during July 2016. At December 31, 2015 , principal paydown receivables relating to the Company's loan portfolio totaled $17.9 million , the entirety of which the Company received in cash during January 2016.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 8 - INVESTMENTS IN UNCONSOLIDATED ENTITIES

The following table shows the Company's investments in unconsolidated entities as of June 30, 2016 and December 31, 2015 and equity in earnings of unconsolidated subsidiaries for the three and six months ended June 30, 2016 and 2015 (in thousands):



						Equity in Earnings of Unconsolidated Subsidiaries
		Balance as of		Balance as of		For the three months ended			For the six months ended			For the three months ended			For the six months ended
	Ownership %	June 30, 2016		December 31, 2015		June 30, 2016			June 30, 2016			June 30, 2015			June 30, 2015
RRE VIP Borrower, LLC ⁽¹⁾	—%	$	—	$	—	$	10		$	35		$	—		$	46
Investment in LCC Preferred Stock	29.0%	44,361		42,017		933			2,344			350			402
Investment in CVC Global Credit Opportunities Fund ⁽²⁾	—%	—		—		—			—			312			920
Pearlmark Mezz IV L.P. ⁽³⁾	47.4%	6,585		6,465		171			419			—			—
RCM Global, LLC ⁽⁴⁾	25.4%	584		—		222			399			—			—
Pelium Capital Partners, L.P. ⁽⁴⁾	80.2%	23,723		—		1,360			1,721			—			—
Subtotal		75,253		48,482		2,696			4,918			662			1,368
Investment in RCT I and II ⁽⁵⁾	3.0%	1,548		1,548		(651		)	(1,292		)	(602		)	(1,195		)
Total		$	76,801	$	50,030	$	2,045		$	3,626		$	60		$	173


(1)	The investment in RRE VIP Borrower was sold as of December 31, 2014. Earnings for the three and six months ended June 31, 2016 and 2015 are related to insurance premium refunds and the liquidation of bank accounts with respect to the underlying sold properties of the portfolio.


(2)	In December 2015, the Company elected a full redemption of its remaining investment from the fund.

(3) The Company has committed to invest up to $50.0 million in Pearlmark Mezzanine Realty Partners IV, L.P. The commitment termination date ends the earlier of when the original commitment is fully funded, or the fifth anniversary following the final closing date of June 24, 2015.


(4)	Pursuant to the new consolidation guidance adopted January 1, 2016, these previously consolidated VIEs are now accounted for under the equity method.


(5)	For the three and six months ended June 30, 2016 and 2015 , these amounts are recorded in interest expense on the Company's consolidated statements of operations.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 9 - 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			Bank Loans			Middle Market Loans			Residential Mortgage Loans			Direct Financing Leases		Total
As of June 30, 2016:
Allowance for Loan and Leases Losses:
Allowance for losses at January 1, 2016	$	41,839		$	1,282		$	3,939		$	11		$	465	$	47,536
Provision (recovery) for loan and lease losses	—			77			12,059			—			—		12,136
Loans charged-off	—			(77		)	(15,998		)	—			—		(16,075		)
Recoveries	—			—			—			—			—		—
Deconsolidation of VIEs	(40,414		)	(1,282		)	—			—			—		(41,696		)
Allowance for losses at June 30, 2016	$	1,425		$	—		$	—		$	11		$	465	$	1,901
Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	465	$	465
Collectively evaluated for impairment	$	1,425		$	—		$	—		$	11		$	—	$	1,436
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—
Loans and Leases:
Ending balance:
Individually evaluated for impairment	$	38,133		$	—		$	—		$	—		$	1,130	$	39,263
Collectively evaluated for impairment	$	1,383,057		$	—		$	54,485		$	2,641		$	—	$	1,440,183
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—

As of December 31, 2015:
Allowance for Loan and Lease Losses:
Allowance for losses at January 1, 2015	$	4,043		$	570		$	—		$	—		$	—	$	4,613
Provision for loan and lease losses	37,735			2,887			8,901			(99		)	465		49,889
Loans charged-off	—			(2,175		)	(4,962		)	110			—		(7,027		)
Recoveries	61			—			—			—			—		61
Allowance for losses at December 31, 2015	$	41,839		$	1,282		$	3,939		$	11		$	465	$	47,536
Ending balance:
Individually evaluated for impairment	$	40,274		$	1,282		$	—		$	—		$	465	$	42,021
Collectively evaluated for impairment	$	1,565		$	—		$	3,939		$	11		$	—	$	5,515
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—
Loans and Leases:
Ending balance:
Individually evaluated for impairment	$	169,707		$	1,544		$	—		$	—		$	1,396	$	172,647
Collectively evaluated for impairment	$	1,522,400		$	132,973		$	379,452		$	1,746		$	—	$	2,036,571
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Credit quality indicators

Bank Loans

Loans are graded at inception and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1 to 5 with 1 representing the Company’s highest rating and 5 representing its lowest rating. Bank 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;


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 bank loans were as follows (in thousands):



	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of December 31, 2015:
Bank loans	$	113,897	$	17,578	$	1,498	$	—	$	1,544	$	1,475	$	135,992

As of June 30, 2016 all of the Company's bank loans were deconsolidated (see Note 2). As of December 31, 2015 , all of the Company's bank loans were current with respect to debt service with the exception of one loan with an amortized aggregate cost of $1.5 million , on which there was a reserve.

Middle Market Loans

At inception, all middle market loans are graded at a 2. Updates to assigned grades are made continually 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. Middle market loans are only evaluated individually for impairment.

The characteristics of each rating category are as follows:


1.	A loan with a rating of a 1 is considered performing above expectations and the likelihood of loss is remote;


2.	A loan with a rating of a 2 is considered performing within expectations and the likelihood of loss is remote;


3.	A loan with a rating of a 3 is considered performing below expectations and requires close monitoring but no loss of interest or principal is expected. Loans receiving this rating may be out of compliance with financial covenants; however, these loans are current with respect to interest and principal;


4.	A loan with a rating of a 4 is considered performing below expectations and some loss of interest or dividend is expected but no loss of principal. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due, but generally not more than 180 days past due; and


5.	A loan with a rating of a 5 is considered performing substantially below expectations, in default and some loss of principal is expected. The borrower is out of compliance with most or all of the debt covenants and payments are substantially delinquent.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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



	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of June 30, 2016:
Middle market loans	$	—	$	48,452	$	6,033	$	—	$	—	$	259,179	$	313,664

As of December 31, 2015:
Middle market loans	$	44,252	$	305,578	$	29,622	$	—	$	—	$	—	$	379,452

All of the Company’s middle market loans were current with respect to debt service as of June 30, 2016 and December 31, 2015 .

Commercial Real Estate Loans

Loans are graded at inception and updates to assigned grades are made continually as new information is received, as such, 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 Company’s highest rating and 4 representing its lowest rating. Commercial real estate 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;

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.;

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 commercial real estate loans were as follows (in thousands):



	Rating 1 ⁽²⁾		Rating 2		Rating 3		Rating 4		Held for Sale		Total
As of June 30, 2016:
CRE whole loans	$	1,419,190	$	2,000	$	—	$	—	$	—	$	1,421,190
Mezzanine loans ⁽¹⁾	—		—		—		—		—		—
	$	1,419,190	$	2,000	$	—	$	—	$	—	$	1,421,190

As of December 31, 2015:
CRE whole loans	$	1,596,099	$	32,500	$	—	$	2,202	$	—	$	1,630,801
B notes	15,934		—		—		—		—		15,934
Mezzanine loans	7,300		—		—		38,072		—		45,372
	$	1,619,333	$	32,500	$	—	$	40,274	$	—	$	1,692,107


(1)	The Company has one mezzanine loan with a par value of $28.8 million that was acquired at fair value as a result of the liquidation of RREF 2006-1.


(2)	Includes three and four loans which were impaired as of June 30, 2016 and December 31, 2015 , respectively.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The Company had no delinquent commercial real estate loans as of June 30, 2016 . All of the Company's commercial real estate loans were current with exception of one mezzanine loan that had defaulted as of December 31, 2015 . This loan was deconsolidated as part of the Company's adoption of amendments to consolidation accounting guidance as required on January 1, 2016 (see Note 2). However, as a result of RREF CDO 2006-1 being called and liquidated on April 25, 2016, par value of $28.8 million of this mezzanine loan was acquired as part of the liquidation proceeds and is reflected on the Company's balance sheet at a fair value of zero at June 30, 2016 .

Residential Mortgage Loans

Residential mortgage loans are reviewed periodically for collectability in light of historical experience, the nature and amount of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing underlying conditions.

Direct Financing Leases

During the year ended December 31, 2015, the Company recorded a provision against the value of the direct financing leases in the amount of $465,000 . As of June 30, 2016 , the Company held $665,000 of direct financing leases, net of reserves.

Loan Portfolios Aging Analysis

The following table presents the loan and lease portfolio aging analysis as of the dates indicated at amortized cost (in thousands):



	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
As of June 30, 2016:
CRE whole loans	$	—	$	—	$	—	$	—	$	1,421,190	$	1,421,190	$	—
Mezzanine loans ⁽³⁾	—		—		—		—		—		—		—
Middle market loans	—		—		—		—		54,485		54,485		—
Direct Financing Leases	—		—		59		59		1,071		1,130		—
Residential mortgage loans ⁽¹⁾	—		—		169		169		163,601		163,770		—
Total loans	$	—	$	—	$	228	$	228	$	1,640,347	$	1,640,575	$	—

As of December 31, 2015:
CRE whole loans ⁽²⁾	$	—	$	—	$	—	$	—	$	1,630,801	$	1,630,801	$	—
B notes	—		—		—		—		15,934		15,934		—
Mezzanine loans	—		38,072		—		38,072		7,300		45,372		—
Bank loans	1,544		—		—		1,544		132,973		134,517		—
Middle market loans	—		—		—		—		379,452		379,452		—
Direct Financing Leases	12		214		—		226		1,170		1,396		—
Residential mortgage loans ⁽¹⁾	27		41		80		148		96,069		96,217		—
Total loans	$	1,583	$	38,327	$	80	$	39,990	$	2,263,699	$	2,303,689	$	—


(1)	Contains $161.1 million and $94.5 million of residential mortgage loans held for sale at fair value at June 30, 2016 and December 31, 2015 , respectively.


(2)	Current loans include one impaired whole loan with an amortized costs of $2.2 million , which was fully reserved as of December 31, 2015 .


(3)	The Company has one mezzanine loan with a par value of $28.8 million that was acquired at fair value as a result of the liquidation of RREF 2006-1.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Impaired Loans

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



	Recorded Balance ⁽¹⁾		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
As of June 30, 2016:
Loans without a specific valuation allowance:
CRE whole loans	$	38,133	$	38,133	$	—		$	38,133	$	353
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans with a specific valuation allowance:
CRE whole loans	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Total:
CRE whole loans	$	38,133	$	38,133	$	—		$	38,133	$	353
Mezzanine loans	—		—		—			—		—
Middle market loans	—		—		—			—		—
Residential mortgage loans	—		—		—			—		—
	$	38,133	$	38,133	$	—		$	38,133	$	353

As of December 31, 2015:
Loans without a specific valuation allowance:
CRE whole loans	$	129,433	$	129,433	$	—		$	128,591	$	3,939
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans with a specific valuation allowance:
CRE whole loans	$	2,202	$	2,202	$	(2,202	)	$	2,202	$	63
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	(38,072	)	$	38,072	$	(2,879	)
Bank loans	$	1,544	$	1,551	$	(1,282	)	$	1,544	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Total:
CRE whole loans	$	131,635	$	131,635	$	(2,202	)	$	130,793	$	4,002
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		(38,072		)	38,072		(2,879		)
Bank loans	1,544		1,551		(1,282		)	1,544		—
Middle market loans	—		—		—			—		—
Residential mortgage loans	—		—		—			—		—
	$	171,251	$	171,258	$	(41,556	)	$	170,409	$	1,123

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)


(1)	As a result of the adoption of new consolidation accounting guidance as required on January 1, 2016, the Company deconsolidated $91.3 million in senior participations of four loans that were previously classified as impaired loans in the Company's consolidated financial statements as of December 31, 2015 (see Note 2).

Troubled-Debt Restructurings

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



	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Six Months Ended June 30, 2016
CRE whole loans	3	$	29,459	$	29,459
Mezzanine loans	—	—		—
Middle market loans	—	—		—
Residential mortgage loans	—	—		—
Total loans	3	$	29,459	$	29,459

	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Six Months Ended June 30, 2015
CRE whole loans	2	$	67,459	$	67,459
B notes	—	—		—
Mezzanine loans	1	38,072		—
Bank loans	—	—		—
Middle market loans	—	—		—
Residential mortgage loans	—	—		—
Total loans	3	$	105,531	$	67,459

As of June 30, 2016 and 2015 , there were no commercial real estate loan troubled-debt restructurings that subsequently defaulted.

NOTE 10 - BUSINESS COMBINATIONS

On February 26, 2014, the Company made an additional capital contribution to LCF which gave the Company majority ownership at 50.2% . As a result, the Company began consolidating the LCF joint venture. The joint venture was established for the purpose of acquiring life settlement contracts through a financing facility. On April 30, 2015, the Company committed to another capital contribution in the amount of $750,000 , increasing its ownership of LCF to 60.7% . The first installment of $375,000 was funded on April 30, 2015 and the second installment of $375,000 was funded on July 30, 2015. On December 15, 2015, the Company committed to an additional capital contribution in the amount of $1.3 million , increasing its ownership of LCF to 70.9% . The first installment of $750,000 was funded on January 5, 2016 and the second installment of $500,000 was funded June 30, 2016 .

The Company engaged a third party expert to assist in determining the fair values of the assets and liabilities assumed on this investment. Based on the final valuation, which determined an enterprise value of LCF of approximately $4.1 million , and in accordance with guidance on business combinations, the Company confirmed that no further adjustments are necessary.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 11 - INTANGIBLE ASSETS

The following table summarizes the activity of intangible assets for the period indicated (in thousands):



	Management Contracts			Wholesale/Correspondent Relationships		Mortgage Servicing Rights			Total
Balance, January 1, 2016	$	5,316		$	90	$	20,822		$	26,228
Additions	—			—		8,362			8,362
Sales	—			—		—			—
Amortization	(802		)	—		(2,262		)	(3,064		)
Total before impairment adjustment	4,514			90		26,922			31,526
Temporary impairment adjustment	—			—		(4,800		)	(4,800		)
Balance, June 30, 2016	$	4,514		$	90	$	22,122		$	26,726

Management Contracts and Wholesale/Correspondent Relationships

The Company recognized fee income on management contracts of $510,000 and $912,000 for the three and six months ended June 30, 2016 , respectively, and $896,000 and $1.9 million for the three and six months ended June 30, 2015 , respectively.

For the three and six months ended June 30, 2016 the Company recorded amortization expense of $327,000 and $802,000 , respectively, in relation to the Company's management contracts. For the three and six months ended June 30, 2015 the Company recorded amortization expense of $512,000 and $1.0 million in relation to the Company's management contracts and wholesale/correspondent relationships, respectively. The Company expects to record amortization expense on its management contracts of approximately $1.5 million for the year ending December 31, 2016 , $1.3 million for the year ending December 31, 2017 , $1.2 million for the year ending December 31, 2018 , $514,000 for the year ending December 31, 2019 , and $515,000 for the year ending December 31, 2020 . The weighted average amortization period was 5.3 years and 5.8 years at June 30, 2016 and December 31, 2015 , respectively.

Mortgage Servicing Rights

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

The total servicing portfolio consists of loans associated with capitalized mortgage servicing rights (“MSRs”) and loans held for sale. In accordance with guidance on servicing assets and liabilities, the Company utilizes the amortization method for the subsequent measurement of its MSRs. The total servicing portfolio was $2.6 billion and $2.0 billion as of June 30, 2016 and December 31, 2015 , respectively. MSRs recorded in the Company's consolidated balance sheets are related to the capitalized servicing portfolio and are created through the sale of originated residential mortgage loans. Amounts related to capitalized MSRs are recorded in net realized an unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives line item in the Company's statement of operations. Amounts related to temporary impairment adjustments are recorded in fee income in the Company's statement of operations.

For the three and six months ended June 30, 2016 , the Company recognized $1.2 million and $2.3 million of amortization expense related to MSRs, respectively. For the three and six months ended June 30, 2015 , the Company recognized $1.0 million and $1.8 million , respectively. The Company expects to recognize amortization related to its MSRs portfolio in the amount of $ 4.7 million for the year ending December 31, 2016 , $3.9 million for the year ending December 31, 2017, $3.1 million for the year ending December 31, 2018, $2.6 million for the year ending December 31, 2019, and $2.2 million for the year ending December 31, 2020. The weighted average amortization period was 1.3 years and 1.2 years at June 30, 2016 and December 31, 2015 , respectively. The weighted average remaining life was 5.2 years and 6.7 years at June 30, 2016 and December 31, 2015 , respectively.

The Company also records MSRs at fair value on a non-recurring basis. MSRs are recorded at fair value at inception and at the end of each reporting period if the fair value is less than unamortized cost. The Company uses a discounted cash flow

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

approach to estimate the fair value of MSRs utilizing the valuation services of an independent third party. The key assumptions used in the estimation of the fair value of MSRs include prepayment speeds, discount rates, default rates, cost to service, contractual servicing fees and escrow earnings. The Company recorded temporary impairment of $2.3 million and $4.8 million for the three and six months ended June 30, 2016 . The fair value of MSRs was $22.0 million and $21.3 million at June 30, 2016 and December 31, 2015 , respectively.

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



	June 30, 2016			December 31, 2015
Balance, beginning of period	$	1,998,273		$	894,767
Additions	752,329			1,236,145
Payoffs, sales and curtailments	(162,102		)	(132,639		)
Balance, end of period	$	2,588,500		$	1,998,273

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



	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Servicing fees from capitalized portfolio	$	1,559	$	911	$	2,992	$	1,462
Late fees	$	50	$	18	$	99	$	41
Other ancillary servicing revenue	$	7	$	3	$	12	$	7

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 12 - BORROWINGS

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



	Principal Outstanding		Unamortized Issuance Costs and Discounts		Outstanding Borrowings		Weighted Average Borrowing Rate	Weighted Average Remaining Maturity	Value of Collateral
As of June 30, 2016:
RCC CRE Notes 2013 Senior Notes	$	47,724	$	419	$	47,305	3.46%	12.5 years	$	86,307
RCC 2014-CRE2 Senior Notes	149,960		2,394		147,566		1.87%	15.8 years	266,977
RCC 2015-CRE3 Senior Notes	221,692		2,930		218,762		2.48%	15.7 years	283,354
RCC 2015-CRE4 Senior Notes	223,735		2,815		220,920		2.16%	16.1 years	309,729
Unsecured Junior Subordinated Debentures	51,548		27		51,521		4.58%	20.3 years	—
6.0% Convertible Senior Notes	115,000		4,076		110,924		6.00%	2.4 years	—
8.0% Convertible Senior Notes	100,000		4,045		95,955		8.00%	3.5 years	—
CRE - Term Repurchase Facilities ⁽²⁾	282,863		1,583		281,280		2.78%	17 days	418,236
CMBS - Term Repurchase Facilities ⁽³⁾	83,073		37		83,036		2.48%	244 days	119,531
Trust Certificate - Term Repurchase Facility ⁽⁴⁾	26,655		357		26,298		5.95%	2.4 years	89,181
Residential Investments - Term Repurchase Facility ⁽⁵⁾	888		—		888		3.00%	5 days	1,018
Residential Mortgage Financing Agreements ⁽⁶⁾	146,764		—		146,764		3.07%	80 days	201,114
Senior Secured Revolving Credit Agreement ⁽⁸⁾	144,000		—		144,000		3.22%	2.8 years	320,447
Total	$	1,593,902	$	18,683	$	1,575,219	3.31%	7.7 years	$	2,095,894



	Principal Outstanding		Unamortized Issuance Costs and Discounts		Outstanding Borrowings		Weighted Average Borrowing Rate	Weighted Average Remaining Maturity	Value of Collateral
As of December 31, 2015:
RREF CDO 2006-1 Senior Notes ⁽¹⁾	$	52,772	$	—	$	52,772	2.60%	30.6 years	$	94,379
RREF CDO 2007-1 Senior Notes ⁽¹⁾	91,752		—		91,752		1.65%	30.8 years	210,904
RCC CRE Notes 2013 Senior Notes	58,465		664		57,801		3.21%	13.0 years	104,439
RCC 2014-CRE2 Senior Notes	198,594		2,991		195,603		1.68%	16.3 years	313,663
RCC 2015-CRE3 Senior Notes	282,127		3,466		278,661		2.25%	16.2 years	341,099
RCC 2015-CRE4 Senior Notes	223,735		3,160		220,575		2.06%	16.6 years	308,042
Apidos Cinco CDO Senior Notes ⁽¹⁾	135,417		—		135,417		1.25%	4.4 years	154,584
Unsecured Junior Subordinated Debentures	51,548		135		51,413		4.40%	20.8 years	—
6.0% Convertible Senior Notes	115,000		4,917		110,083		6.00%	2.9 years	—
8.0% Convertible Senior Notes	100,000		4,599		95,401		8.00%	4.0 years	—
CRE - Term Repurchase Facilities ⁽²⁾	225,346		2,418		222,928		2.64%	17 days	321,267
CMBS - Term Repurchase Facility ⁽³⁾	25,658		2		25,656		1.57%	18 days	31,650
Trust Certificates - Term Repurchase Facility ⁽⁴⁾	26,659		415		26,244		5.85%	2.9 years	89,181
Residential Investments - Term Repurchase Facility ⁽⁵⁾	782		—		782		2.75%	264 days	835
Residential Mortgage Financing Agreements ⁽⁶⁾	85,819		—		85,819		3.10%	257 days	120,952
CMBS - Short Term Repurchase Agreements ⁽⁷⁾	57,407		—		57,407		2.06%	18 days	79,347
Senior Secured Revolving Credit Agreement ⁽⁸⁾	190,000		3,026		186,974		3.09%	3.2 years	376,306
Total	$	1,921,081	$	25,793	$	1,895,288	2.89%	10.4 years	$	2,546,648


(1)	On January 1, 2016, RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO were deconsolidated in accordance with guidance on consolidation ( see Note 2 ).

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)


(2)	Amounts also include accrued interest expense of $356,000 and $315,000 related to CRE repurchase facilities as of June 30, 2016 and December 31, 2015 , respectively.


(3)	Amounts also include accrued interest expense of $157,000 and $18,000 related to CMBS repurchase facilities as of June 30, 2016 and December 31, 2015 , respectively. Amounts do not reflect CMBS repurchase agreement borrowings that are components of linked transactions as of December 31, 2015 .


(4)	Amounts also include accrued interest expense of $57,000 and $61,000 related to trust certificate repurchase facilities as of June 30, 2016 and December 31, 2015 , respectively.


(5)	Amounts also include accrued interest expense of $26,000 and $30,000 related to residential investment facilities as of June 30, 2016 and December 31, 2015 , respectively.


(6)	The value of collateral related to residential mortgage financing agreements is the appraised value of the collateral underlying the residential mortgage loans subject to repurchase as of June 30, 2016 and December 31, 2015 .


(7)	Amounts also include accrued interest expense of $0 and $40,000 related to CMBS short term repurchase facilities as of June 30, 2016 and December 31, 2015 .


(8)	Subsequent to June 30, 2016, the Company entered into and closed on a purchase agreement to sell its interest in Northport TRS, LLC. As a result of the transaction, $2.6 million of amortization of the remaining deferred debt issuance costs related to the credit facility was accelerated and recorded as of June 30, 2016 ( see Note 24 ).

The Company is in compliance with all covenants in the respective agreements as of June 30, 2016 .

Securitizations

The following table sets forth certain information with respect to the Company's consolidated securitizations:



Securitization	Closing Date	Maturity Date	End of Designated Principal Reinvestment Period ⁽¹⁾	Total Note Paydowns as of June 30, 2016
				(in millions)
RCC CRE Notes 2013	December 2013	December 2028	N/A	$	213.1
RCC 2014-CRE2	July 2014	April 2032	July 2016	$	85.3
RCC 2015-CRE3	February 2015	March 2032	February 2017	$	60.4
RCC 2015-CRE4	August 2015	August 2032	August 2017	$	—


(1)	The designated principal reinvestment period is the period where principal payments received by each respective securitization may be designated by the Company to purchase funding participations of existing collateral originally underwritten at the close of each securitization, which was funded outside of the deal structure.

The investments held by the Company's securitizations collateralize the securitization's borrowings and, as a result, are not available to the Company, its creditors, or stockholders. All senior notes retained at closing or subsequently repurchased by the Company as of June 30, 2016 eliminate in consolidation.

On January 1, 2016, the Company adopted the amendments to the consolidation guidance ( see Note 2 ). As a result of its evaluation, the Company deconsolidated RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Repurchase and Credit Facilities

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



	As of June 30, 2016						As of December 31, 2015
	Outstanding Borrowings		Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate	Outstanding Borrowings		Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate
CMBS Term Repurchase Facilities
Wells Fargo Bank ⁽¹⁾	$	22,593	$	28,204	20	1.67%	$	25,656	$	31,650	21	1.57%
Deutsche Bank ⁽²⁾	60,443		91,327		20	2.78%	—		—		—	—%

CRE Term Repurchase Facilities
Wells Fargo Bank ⁽³⁾	159,276		234,122		13	2.56%	123,937		179,169		9	2.39%
Morgan Stanley Bank ⁽⁴⁾	122,004		184,114		10	3.06%	98,991		142,098		7	2.96%

Trust Certificates Term Repurchase Facility
RSO Repo SPE Trust 2015 ⁽⁵⁾	26,298		89,181		1	5.95%	26,244		89,181		1	5.85%

Short-Term Repurchase Agreements - CMBS
Wells Fargo Securities, LLC	—		—		—	—%	13,548		19,829		3	1.93%
Deutsche Bank Securities, LLC	—		—		—	—%	43,859		59,518		17	2.10%

Residential Investments Term Repurchase Facility
Wells Fargo Bank	888		1,018		2	3.00%	782		835		1	2.75%

Residential Mortgage Financing Agreements
New Century Bank	52,064		67,152		241	3.13%	43,789		61,111		199	3.17%
Wells Fargo Bank	94,700		133,962		334	3.03%	42,030		59,841		166	3.03%
Totals	$	538,266	$	829,080			$	418,836	$	643,232


(1)	The Wells Fargo Bank CMBS term repurchase facility includes $1,000 and $2,000 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(2)	The Deutsche Bank CMBS term repurchase facility includes $36,000 and $0 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(3)	The Wells Fargo Bank CRE term repurchase facility includes $163,000 and $675,000 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(4)	The Morgan Stanley Bank CRE term repurchase facility includes $1.4 million and $1.7 million of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(5)	The RSO Repo SPE Trust 2015 term repurchase facility includes $357,000 and $415,000 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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



	Amount at Risk ⁽¹⁾		Weighted Average Maturity	Weighted Average Interest Rate
As of June 30, 2016:
CMBS Term Repurchase Facilities
Wells Fargo Bank, National Association	$	5,533	18 days	1.67%
Deutsche Bank AG	$	32,692	329 days	2.78%

CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	74,444	18 days	2.56%
Morgan Stanley Bank, National Association	$	60,571	15 days	3.06%

Trust Certificates Term Repurchase Facility
RSO Repo SPE Trust 2015	$	62,576	2.4 years	5.95%

Residential Investments Term Repurchase Facility
Wells Fargo Bank, National Association	$	130	5 days	3.00%

Residential Mortgage Financing Agreements
New Century Bank	$	15,088	22 days	3.13%
Wells Fargo Bank, National Association	$	39,262	59 days	3.03%



As of December 31, 2015:
CMBS Term Repurchase Facility
Wells Fargo Bank, National Association	$	6,053	18 days	1.57%

CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	54,674	18 days	2.39%
Morgan Stanley Bank, National Association	$	41,248	15 days	2.96%

Trust Certificates Term Repurchase Facility
RSO Repo SPE Trust 2015	$	62,575	2.9 years	5.85%

Short-Term Repurchase Agreements - CMBS
Wells Fargo Securities, LLC	$	6,288	11 days	1.93%
Deutsche Bank Securities, LLC	$	16,330	20 days	2.05%

Residential Investments Term Repurchase Facility
Wells Fargo Bank, National Association	$	54	264 days	2.75%

Residential Mortgage Financing Agreements
New Century Bank	$	17,322	124 days	3.17%
Wells Fargo Bank, National Association	$	17,811	134 days	3.03%


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

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Residential Investments – Term Repurchase Facility

In June 2014, the Company's wholly-owned subsidiaries, RCC Resi Portfolio, RCC Resi TRS, and RCC Resi Depositor (the “Sellers”) entered into a master repurchase and securities contract (the “2014 Facility”) with Wells Fargo Bank, NA ("Wells Fargo"). Under the 2014 Facility, from time to time, the parties may enter into transactions in which the Sellers and Wells Fargo agree to transfer from the Sellers to Wells Fargo all of their right, title and interest to certain residential mortgage backed securities and other assets against the transfer of funds by Wells Fargo to the Sellers, with a simultaneous agreement by Wells Fargo to transfer back to the Sellers such assets at a date certain or on demand, against the transfer of funds from the Sellers to Wells Fargo. In May 2016, the Company entered into a sixth amendment of the 2014 Facility that made no material changes to the facility's terms. In July 2016, the Company agreed to terminate the 2014 Facility.

CMBS – Term Repurchase Facilities

In May 2016, the Company's wholly-owned subsidiary RCC Real Estate entered into a global master repurchase agreement (the “2016 Facility”) with Deutsche Bank, AG (“DB”). Under the 2016 Facility, from time to time, the parties may enter into transactions in which RCC Real Estate and DB agree to transfer from the RCC Real Estate to DB all of their right, title and interest to certain CMBS and other assets (the "Assets") against the transfer of funds by DB to the RCC Real Estate, with a simultaneous agreement by DB to transfer back to the RCC Real Estate such Assets at a date certain, against the transfer of funds from the RCC Real Estate to DB. The maximum amount of the 2016 Facility is at DB's discretion and the minimum amount of the 2016 Facility is $50.0 million . The original term of the 2016 Facility is one year with subsequent one year extensions subject to DB's approval. The 2016 Facility includes a "makewhole" clause which entitles DB to the full original term's interest in the event of an optional termination.

The 2016 Facility contains customary events of default, including payment defaults, acts of insolvency, breaches of certain representations, and expulsion from any securities exchange and/or self-regulating organization. The remedies for such events of default are also customary for this type of transaction and include the acceleration of all obligations of the RCC Real Estate to repay the purchase price for purchased assets.

The 2016 Facility also contains margin call provisions relating to a decline in the market value of a security. Under these circumstances, DB may require the RCC Real Estate to transfer cash or securities in an amount sufficient to eliminate any margin deficit resulting from such a decline.

Under the terms of the 2016 Facility and pursuant to a guarantee agreement dated May 23, 2016 (the “2016 Guaranty”), the Company guaranteed the payment and performance of (a) all payment obligations owing by the RCC Real Estate to DB under or in connection with the 2016 Facility and any other governing agreements; and (b) all expenses, including, without limitation, reasonable attorneys' fees and disbursements, that are incurred by DB in the enforcement of any of the foregoing or any obligation of the registrant. The 2016 Guaranty includes a reporting covenant with which the Company was in compliance as of June 30, 2016 .

Residential Mortgage Financing Agreements

In July 2014, PCM entered into a master repurchase agreement (the "Wells Fargo Facility") with Wells Fargo to finance the acquisition of residential mortgage loans. In May 2016, PCM amended its agreement with Wells Fargo to increase the maximum of the amount of the Wells Fargo Facility from $100.0 million to $115.0 million for the period from May 27, 2016 to June 26, 2016. In June 2016, PCM amended its agreement with Wells Fargo to increase the maximum of the amount of the Wells Fargo Facility from $115.0 million to $150.0 million . The maximum duration for jumbo loans was increased from 90 days to 270 days. No other material changes were made to the Wells Fargo Facility's terms.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Contractual maturity dates of the Company's borrowings by category and year are presented in the table below (in thousands):



	Total		2016		2017		2018		2019		2020 and Thereafter
CRE Securitizations	$	634,553	$	—	$	—	$	—	$	—	$	634,553
Repurchase Agreements	538,266		451,525		60,443		26,298		—		—
Unsecured Junior Subordinated Debentures	51,521		—		—		—		—		51,521
6.0 % Convertible Notes	110,924		—		—		110,924		—		—
8.0 % Convertible Notes	95,955		—		—		—		—		95,955
Senior Secured Revolving Credit Facility	144,000		—		—		—		144,000		—
Total	$	1,575,219	$	451,525	$	60,443	$	137,222	$	144,000	$	782,029

NOTE 13 - SHARE ISSUANCE AND REPURCHASE



	For the Six Months Ended June 30, 2016			Total Outstanding
	Number of Shares Repurchased	Weighted Average Purchase Price		Number of Shares	Weighted Average Offering Price
8.50% Series A Preferred Stock	—	$	—	1,069,016	$	24.29
8.25% Series B Preferred Stock	195,900	$	15.80	5,544,579	$	24.02
8.625% Series C Preferred Stock	—	$	—	4,800,000	$	25.00

On or after June 14, 2017 the Company may, at its option, redeem the Series A preferred stock, in whole or part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.

On or after October 2, 2017 the Company may, at its option, redeem the Series B preferred stock, in whole or part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.

On or after July 30, 2024 , the Company may, at its option, redeem the Series C preferred stock, in whole or part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.

Under a dividend reinvestment plan authorized by the board of directors on March 21, 2013, the Company is authorized to issue up to 5,000,000 shares of common stock. During the three and six months ended June 30, 2016 , the Company sold approximately 3,000 and 6,000 shares of common stock through this program, resulting in proceeds of approximately $35,000 and $70,000 , respectively.

Under a share repurchase plan authorized by the board of directors on August 3, 2015, the Company is authorized to repurchase up to $50.0 million of its outstanding equity and debt securities. During the six months ended June 30, 2016 , the Company repurchased approximately $8.0 million of its common stock, representing approximately 703,000 shares. Since the inception of the program through June 30, 2016 , the Company has repurchased $33.9 million of its common stock, representing approximately 2.7 million shares or 8.0% of the outstanding balance. During the six months ended June 30, 2016 , the Company repurchased approximately $3.1 million of its outstanding Series B preferred stock, representing approximately 196,000 shares or 3.4% of the initial outstanding balance. In March 2016, the Company's board of directors approved a new securities repurchase program for up to $50.0 million of its outstanding securities, which replaced the August 2015 repurchase plan.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 14 - SHARE-BASED COMPENSATION

The following table summarizes the Company's restricted common stock transactions:



	Non-Employee Directors		Non-Employees		Employees		Total
Unvested shares as of January 1, 2016	15,267		617,657		58,445		691,369
Issued	23,193		230,338		50,784		304,315
Vested	(13,895	)	(307,562	)	(18,452	)	(339,909	)
Forfeited	—		—		—		—
Unvested shares as of June 30, 2016	24,565		540,433		90,777		655,775

The Company is required to value any unvested shares of restricted common stock granted to non-employees at the current market price. The estimated fair value at grant date of the unvested shares of restricted common stock granted to non-employees during the six months ended June 30, 2016 and 2015 , was $2.3 million and $4.9 million , respectively. The estimated fair value at grant date of unvested shares of restricted common stock issued to the Company’s seven non-employee directors during the six months ended June 30, 2016 and 2015 was $255,000 and $256,000 , respectively. The estimated fair value of the unvested shares of restricted common stock granted during the six months ended June 30, 2016 and 2015 , including the grant date fair value of shares issued to the Company’s employees, was $483,000 and $561,000 , respectively.

The Company records any unvested shares of restricted common stock granted to non-employee directors at the fair value on the grant date amortized over the service period. The amortization recognized during the three and six months ended June 30, 2016 and 2015 was $64,000 and $128,000 and $64,000 and $129,000 , respectively.

As of June 30, 2016 , the total unrecognized restricted common stock expense was $3.4 million , with a weighted average amortization period remaining of 2.1 years .

The following table summarizes restricted common stock grants during the six months ended June 30, 2016 :



Date	Shares	Vesting/Year	Date(s)
January 21, 2016	130,903	33.3%	1/21/17, 1/21/18, 1/21/19
January 21, 2016	50,784	33.3%	1/21/17, 1/21/18, 1/21/19
February 1, 2016	3,421	100%	2/1/17
February 5, 2016	90,595	33.3%	2/5/17, 2/5/18, 2/5/19
March 8, 2016	13,912	100%	3/8/17
March 14, 2016	3,158	100%	3/14/17
March 31, 2016	8,840	100%	5/15/17 ⁽¹⁾
June 6, 2016	2,702	100%	6/6/17

(1)

In connection with a grant of restricted common stock made on September 24, 2014 , the Company agreed to issue up to 17,682 shares of common stock if certain loan origination performance thresholds were achieved by personnel from the Company’s loan origination team. The performance criteria were measured at the end of two annual measurement periods which began April 1, 2014 . The agreement also provided dividend equivalent rights pursuant to which the dividends that would have been paid on the shares had they been issued on the date of grant were paid at the end of each annual measurement period if the performance criteria were met. If the performance criteria were not met, the accrued dividends would be forfeited. As a consequence, the Company did not record the dividend equivalent rights until earned. On March 31, 2016 , the final measurement period ended and 8,840 shares were earned. Approximately $42,000 of accrued dividend equivalent rights were paid in April 2016. These shares will vest over the subsequent 12 months at a rate of one-fourth per quarter.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The following table summarizes the status of the Company’s vested stock options as of June 30, 2016 :



Vested Options	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Vested as of January 1, 2016	26,250	$	46.60
Vested	—	—
Exercised	—	—
Forfeited	—	—
Expired	—	—
Vested as of June 30, 2016	26,250	$	46.60	2.45	$	—

There were no options granted during the six months ended June 30, 2016 or 2015 . The outstanding stock options have a contractual term of ten years, and will expire in May 2021.

The components of equity compensation expense for the periods presented as follows (in thousands):



	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Restricted shares granted to non-employees ⁽¹⁾	$	1,288	$	543	$	1,713	$	1,307
Restricted shares granted to employees	63		184		837		350
Restricted shares granted to non-employee directors	64		64		128		129
Total equity compensation expense	$	1,415	$	791	$	2,678	$	1,786

(1) Non-employees are employees of Resource America.

Under the Company's Management Agreement, incentive compensation is paid quarterly. Up to 75% of the incentive compensation is paid in cash and at least 25% is paid in the form of an award of common stock. There were no incentive fees paid to the Manager for the three and six months ended June 30, 2016 and 2015 .

Apart from incentive compensation payable under the Management Agreement, the Company has established no formal criteria for the issuance of equity awards as of June 30, 2016 . All awards are discretionary in nature and subject to approval by the compensation committee of the Company's board of directors.

On October 31, 2013, the Company, through its TRS, RCC Residential, completed a business combination whereby it acquired the assets of PCM, an Atlanta based company that originates and services residential mortgage loans, for approximately $7.6 million in cash. As part of this transaction, a key employee of PCM was granted approximately $800,000 of the Company’s restricted stock. In March 2016, this key employee ended his service period and all remaining amortization expense on unvested stock in the amount of $555,000 was accelerated. Any grants for employees of PCM are accounted for as compensation and amortized to equity compensation expense over the vesting period. Dividends declared on the stock while unvested are recorded as a general and administrative expense. Dividends declared after the stock vests are recorded as a distribution. For the three and six months ended June 30, 2016 , $63,000 and $837,000 of amortization of the stock grants was recorded to equity compensation expense, respectively. For the three and six months ended June 30, 2015 , $184,000 and $350,000 of amortization of the stock grants was recorded to equity compensation expense, respectively. For the three and six months ended June 30, 2016 , $38,000 and $76,000 of expense related to dividends on unvested shares was recorded to general and administrative expense on the Company’s consolidated statements of operations, respectively. For the three and six months ended June 30, 2015 , $43,000 and $86,000 of expense related to dividends on unvested shares was recorded to general and administrative expense on the Company’s consolidated statements of operations, respectively.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 15 - EARNINGS PER SHARE

On August 3, 2015, the Company's board of directors approved a one-for-four reverse stock split of its outstanding common stock which took effect after the close of business on August 31, 2015. Outstanding share and per-share amounts disclosed as of June 30, 2016 and for all other comparative periods provided have been retroactively adjusted to reflect the effects of the stock split.

The following table presents a reconciliation of basic and diluted earnings per share for the periods presented as follows (in thousands, except share and per share amounts):



	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2016			2015			2016		2015
Basic:
Net income (loss) allocable to common shares	$	(1,536	)	$	(31,011	)	$	8,137	$	(21,609	)
Weighted average number of shares outstanding	30,410,451			32,852,316			30,505,428		32,833,426
Basic net income (loss) per share	$	(0.05	)	$	(0.94	)	$	0.27	$	(0.66	)

Diluted:
Net income (loss) allocable to common shares	$	(1,536	)	$	(31,011	)	$	8,137	$	(21,609	)
Weighted average number of shares outstanding	30,410,451			32,852,316			30,505,428		32,833,426
Additional shares due to assumed conversion of dilutive instruments	—			—			218,844		—
Adjusted weighted-average number of common shares outstanding	30,410,451			32,852,316			30,724,272		32,833,426
Diluted net income (loss) per share	$	(0.05	)	$	(0.94	)	$	0.26	$	(0.66	)

Potentially dilutive shares consisting of 324,524 and 381,106 shares of restricted stock are not included in the calculation of diluted net income (loss) per share for the three and six months ended June 30, 2016 , respectively, because the effect was anti-dilutive. Potentially dilutive shares consisting of 9,002,864 shares issuable in connection with the potential conversion of the Company's 6.0% and 8.0% Convertible Senior Notes ( see Note 12 ) for the three and six months ended June 30, 2016 were not included in the calculation of diluted net income (loss) per share because the effect was anti-dilutive.

Potentially dilutive shares consisting of 349,880 and 305,878 shares of restricted stock are not included in the calculation of diluted net (loss) per share for the three and six months ended June 30, 2015 , respectively, because the effect was anti-dilutive. Potentially dilutive shares consisting of 9,002,864 shares issuable in connection with the potential conversion of the Company's 6.0% and 8.0% Convertible Senior Notes for both the three and six months ended June 30, 2015 were not included in the calculation of diluted net loss per share because the effect was anti-dilutive.

NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents the changes in each component of accumulated other comprehensive income for the six months ended June 30, 2016 (dollars in thousands):



	Net unrealized (loss) gain on derivatives			Net unrealized (loss) gain on securities, available-for-sale			Foreign Currency Translation			Accumulated other comprehensive income (loss)
January 1, 2016	$	(3,471	)	$	2,568		$	(63	)	$	(966	)
Other comprehensive gain (loss) before reclassifications	117			1,936			—			2,053
Amounts reclassified from accumulated other comprehensive income	(55		)	(332		)	—			(387		)
June 30, 2016	$	(3,409	)	$	4,172		$	(63	)	$	700

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 17 - RELATED PARTY TRANSACTIONS

Relationship with Resource America and Certain of its Subsidiaries

Relationship with Resource America. On September 19, 2013, the audit committee of the board of directors of Resource America concluded that Resource America should consolidate the financial statements of the Company, which was previously treated as an unconsolidated VIE. Resource America's audit committee reached this conclusion after consultations with the Office of the Chief Accountant of the Securities and Exchange Commission (the “Commission”) following comments received from the staff of the Division of Corporation Finance of the Commission and the audit committee's discussion with the Company's management and its independent registered public accounting firm. Resource America's audit committee noted that consolidation of the Company was not expected to materially affect Resource America's previously reported net income attributable to common shareholders. In December 2015, Resource America elected to early adopt consolidation guidance issued by the FASB in February 2015 (see Note 2) and was required to reevaluate whether or not the Company should be consolidated into Resource America’s financial statements. It was determined that the Company is no longer a VIE and Resource America will no longer consolidate the Company’s financial statements. On May 22, 2016 Resource America agreed to be acquired by C-III Capital Partners LLC ("C-III"), a leading commercial real estate services company engaged in a broad range of activities, including primary and special loan servicing, loan origination, fund management, CDO management, principal investment, investment sales and multifamily property management. As part of the transaction, C-III will assume the Company's management contract from Resource America and will acquire 715,396 shares of the Company's common equity ( 2.3% of outstanding the Company's shares) currently held by Resource America. The transaction is expected to close late in the third quarter or early in the fourth quarter of 2016. At June 30, 2016 , Resource America owned 715,396 shares, or 2.3% , of the Company’s outstanding common stock. On May 21, 2016, Resource America entered into a letter agreement with the Company pursuant to which the Company irrevocably waived its right to terminate the management agreement as a result of a “Change of Control” (as defined in the management agreement) resulting from the merger. Resource America agreed to pay $1.5 million to the Company at the closing of the merger.

The Company is managed by the Manager, which is a wholly-owned subsidiary of Resource America, pursuant to a Management Agreement that provides for both base and incentive management fees. For the three and six months ended June 30, 2016 the Manager earned base management fees of approximately $3.0 million and $6.9 million , respectively. For the three and six months ended June 30, 2015 the Manager earned base management fees of approximately and $3.4 million and $6.8 million , respectively. No incentive management fees were earned for the three and six months ended June 30, 2016 or 2015 . The Company also reimburses the Manager and Resource America for expenses, including the expenses of employees of Resource America who perform legal, accounting, due diligence and other services that outside professionals or consultants would otherwise perform, and for the wages, salaries and benefits of several Resource America personnel dedicated to the Company’s operations. The Company also reimburses Resource America for additional costs incurred related to the Company's life care business, Long Term Care Conversion Funding, established for the purpose of originating and acquiring life settlement contracts. The initial agreement, authorized in December 2012, provided for an annual fee of $550,000 , with a two -year term. In March 2015, the agreement was amended for an additional year through 2016. This fee is paid quarterly. For the three and six months ended June 30, 2016 the Company paid the Manager $1.5 million and $2.6 million , respectively, as expense reimbursements. For the three and six months ended June 30, 2015 the Company paid the Manager $1.6 million and $2.7 million , respectively, as expense reimbursements.

On November 24, 2010, the Company entered into an Investment Management Agreement with Resource Capital Markets, Inc. (“RCM”), a wholly-owned subsidiary of Resource America. The initial agreement provided that: (a) RCM may invest up to $5.0 million of the Company’s funds, with the investable amount being adjusted by portfolio gains (losses) and collections, and offset by expenses, taxes and realized management fees, and (b) RCM can earn a management fee in any year that the net profits earned exceed a preferred return. On June 17, 2011, the Company entered into a revised Investment Management Agreement with RCM which provided an additional $8.0 million of the Company’s funds. The management fee is 20% of the amount by which the net profits exceed the preferred return. During the three and six months ended June 30, 2016 and 2015 , RCM earned no management fees. The portfolio began a partial liquidation during the year ended December 31, 2013 that has resulted in the outstanding portfolio balance being significantly decreased. The Company holds $4.0 million in fair market value of trading securities as of June 30, 2016 , an increase of $300,000 from $3.7 million at fair market value as of December 31, 2015 . The Company also reimburses RCM for expenses paid on the Company's behalf. For the three and six months ended June 30, 2016 the Company paid RCM $0 and $8,000 , respectively, as expense reimbursements. For the three and six months ended June 30, 2015 the Company paid RCM $65,000 and $97,000 , respectively, as expense reimbursements.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

At June 30, 2016 , the Company was indebted to the Manager for $1.7 million , comprised of base management fees of $978,000 and expense reimbursements of $677,000 . At December 31, 2015 , the Company was indebted to the Manager for $2.5 million , comprised of base management fees of $978,000 and expense reimbursements of $1.6 million . At June 30, 2016 , the Company was indebted to RCM under the Company’s Investment Management Agreement for $127,000 , comprised entirely of expense reimbursements. At December 31, 2015 , the Company was indebted to RCM under the Company’s Investment Management Agreement for $152,000 , comprised entirely of expense reimbursements. The Company's base management fee payable as well as expense reimbursements payable are recorded in accounts payable and other liabilities on the consolidated balance sheets.

During the year ended December 31, 2013, the Company, through one of its subsidiaries, began originating middle-market loans. Resource America is paid origination fees in connection with the Company’s middle-market lending operations, which fees may not exceed 2% of the loan balance for any loan originated. The Company was indebted to RCM for $59,000 and $93,000 as of June 30, 2016 and December 31, 2015 , respectively, for the middle-market operations.

On November 7, 2013, the Company, through a wholly-owned subsidiary, purchased all of the membership interests in Elevation Home Loans, LLC, a start-up residential mortgage company, from a person who subsequently became an employee of Resource America for $830,000 , paid in the form of 34,165 shares of restricted Company common stock. The restricted stock vests in full on November 7, 2016, and includes dividend equivalent rights.

In May 2016, the Company made an €12.5 million investment in Harvest CLO XV, a European CLO with a total par value of €413.0 million with an unrelated third-party collateral manager. In connection with this transaction, the Company paid a $2.3 million structuring and placement fee for underwriting to Resource America.

As of June 30, 2016 , the Company retained equity in eight securitizations, which were structured for the Company by the Manager. Under the Management Agreement, the Manager was not separately compensated by the Company for executing these transactions and is not separately compensated for managing the securitizations' entities and their assets. The Company has since liquidated three of these securitizations, one in October 2013, one in October 2014 and another in June 2015. On January 1, 2016, the Company adopted new consolidation guidance on variable interest entities and, as a result, three of the Company's remaining securitizations were deconsolidated.

Relationship with LEAF Commercial Capital. LCC originated and managed equipment leases and notes on behalf of the Company. On March 5, 2010, the Company entered into agreements with Lease Equity Appreciation Fund II, L.P. (“LEAF II”) (an equipment leasing partnership sponsored by LEAF Financial and of which a LEAF Financial subsidiary is the general partner), pursuant to which the Company provided and funded an $8.0 million credit facility to LEAF II. The credit facility initially had a one year term with interest at 12% per year, payable quarterly, and was secured by all the assets of LEAF II, including its entire ownership interest in LEAF II Receivables Funding. The Company received a 1% origination fee in connection with establishing the facility. The facility originally matured on March 3, 2011 and was extended until September 3, 2011 with a 1% extension fee paid on the outstanding loan balance. On June 3, 2011, the Company entered into an amendment to extend the maturity to February 15, 2012 and to decrease the interest rate from 12% to 10% per annum resulting in a troubled-debt restructuring under current accounting guidance. On February 15, 2012, the credit facility was further amended to extend the maturity to February 15, 2013 with a 1% extension fee accrued and added to the amount outstanding. On January 11, 2013, the Company entered into another amendment to extend the maturity to February 15, 2014 with an additional 1% extension fee accrued and added to the amount outstanding. On December 17, 2013, the Company entered into another amendment to extend the maturity to February 15, 2015. At the end of 2014, the Company recorded a provision for loan loss on this loan of $1.3 million before extinguishing the loan and bringing direct financing leases in the amount of $2.1 million on the Company's books in lieu of the loan receivable. There was no provision taken during the three and six months ended June 30, 2016 . During the three and six months ended June 30, 2015 , the Company recorded a partial recovery of the previously taken provision in the amount $28,000 and $216,000 , respectively. As of June 30, 2016 , the Company held $665,000 of direct financing leases.

On November 16, 2011, the Company, together with LEAF Financial and LCC, entered into the SPA with Eos ( see Note 3 ). The Company’s resulting interest is accounted for under the equity method. For the three and six months ended June 30, 2016 the Company recorded income of $933,000 and $2.3 million , respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. For the three and six months ended June 30, 2015 the Company recorded income of $350,000 and $402,000 , respectively, which was recorded in equity in earnings of unconsolidated

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

subsidiaries on the consolidated statements of operations. The Company’s investment in LCC was $44.4 million and $42.0 million as of June 30, 2016 and December 31, 2015 , respectively.

Relationship with CVC Credit Partners. On April 17, 2012, Apidos Capital Management (“ACM”), a former subsidiary of Resource America, was sold to CVC Credit Partners, L.P. ("CVC Credit Partners"), a joint venture entity in which Resource America owns a 24% interest. CVC Credit Partners manages internally and externally originated bank loan assets on the Company’s behalf. On February 24, 2011, a subsidiary of the Company purchased 100% of the ownership interests in Churchill Pacific Asset Management LLC ("CPAM") from Churchill Financial Holdings LLC for $22.5 million . CPAM subsequently changed its name to RCAM. Through RCAM, the Company was initially entitled to collect senior, subordinated and incentive fees related to five CLOs holding approximately $1.9 billion in assets managed by RCAM. RCAM is assisted by CVC Credit Partners in managing these CLOs. CVC Credit Partners is entitled to 10% of all subordinated fees and 50% of the incentive fees received by RCAM. For the three and six months ended June 30, 2016 CVC Credit Partners earned subordinated fees of $198,000 and $307,000 , respectively, and no incentive fees. For the three and six months ended June 30, 2015 CVC Credit Partners earned subordinated fees of $221,000 and $458,000 , respectively, and no incentive fees. In October 2012, the Company purchased 66.6% of the preferred equity in one of the RCAM CLOs. In May 2013, the Company purchased additional equity in this CLO, increasing its ownership percentage to 68.3% . In 2013 two of the five CLOs were called and the notes were paid down in full. In January 2016 another RCAM-managed CLO was called and $2.4 million of the impairment, on a pre-tax basis, was recorded in depreciation and amortization on the Company's consolidated statements of operations on the related intangible asset as of December 31, 2015.

In May, June and July 2013, the Company invested a total of $15.0 million in CVC Global Credit Opportunities Fund, L.P. which generally invests in assets through the Master Fund. The fund pays the investment manager a quarterly management fee in advance calculated at the rate of 1.5% annually based on the balance of each limited partner's capital account. The Company's management fee was waived upon entering the agreement because the Company is a related party of CVC Credit Partners. For the three and six months ended June 30, 2015 , the Company recorded earnings of $312,000 and $920,000 , which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. In March 2015, the Company elected to withdraw $5.0 million from the fund. In July 2015, a $625,000 withdrawal was requested and received. In October 2015, another $4.0 million withdrawal was requested and received. In December 2015, the Company elected to withdraw the remaining $8.6 million from the fund. The Company retained no investment in the fund as of December 31, 2015.

Relationship with Resource Real Estate. Resource Real Estate, a subsidiary of Resource America, originates, finances and manages the Company’s commercial real estate loan portfolio. The Company reimburses Resource Real Estate for loan origination costs associated with all loans originated. The Company had a receivable in the amount of $0 and $2,500 due from Resource Real Estate for loan origination costs in connection with the Company’s commercial real estate loan portfolio as of June 30, 2016 and December 31, 2015 , respectively.

On December 1, 2009, the Company purchased a membership interest in RRE VIP Borrower, LLC (an unconsolidated VIE that held an interest in a real estate joint venture) from Resource America for $2.1 million , its book value. RREM was asset manager of the venture and received a monthly asset management fee equal to 1.0% of the combined investment calculated as of the last calendar day of the month. There were no fees incurred for the three and six months ended June 30, 2016 and 2015 , as the last property associated with the joint venture was sold in July 2014. For the three and six months ended June 30, 2016 the Company recorded income of $10,000 and $35,000 , respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. For the three and six months ended June 30, 2015 the Company recorded income of $0 and $46,000 , respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. The income recorded in 2016 and 2015 was related to insurance premium refunds and the liquidation of bank accounts with respect to the underlying sold properties of the portfolio.

On January 15, 2010, the Company loaned $2.0 million to Resource Capital Partners, Inc. (“RCP”), a wholly-owned subsidiary of Resource America, so that it could acquire a 5.0% limited partnership interest in Resource Real Estate Opportunity Fund, L.P. (“RRE Opportunity Fund”). RCP is the general partner of the RRE Opportunity Fund. The loan was secured by RCP’s partnership interest in the RRE Opportunity Fund. The promissory note bore interest at a fixed rate of 8.0% per annum on the unpaid principal balance. In the event of default, interest accrued at a rate of 5.0% in excess of the fixed rate. Interest was payable quarterly. Mandatory principal payments were required to the extent distributable cash or other proceeds from RRE Opportunity Fund represent a return of RCP’s capital. The loan had an original maturity date of January 14, 2015, with two one -year extensions. RCP exercised the first option, extending the maturity to January 14, 2016. The loan was paid in full in April 2015 .

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The Company has closed the following four real estate securitization transactions, which provide financing for commercial real estate loans: RCC CRE Notes 2013, a $307.8 million securitization in December 2013; RCC 2014-CRE2, a $353.9 million securitization on July 30, 2014; RCC 2015-CRE3, a $346.2 million securitization on February 24, 2015; and RCC 2015-CRE4, a $312.9 million securitization on August 18, 2015. Resource Real Estate serves as special servicer for each transaction. With respect to each specialty service mortgage loan, Resource Real Estate receives an amount equal to the product of (a) the special servicing fee rate, 0.25% per annum, and (b) the outstanding principal balance of such specialty service mortgage loan. The servicing fee is payable monthly, on an asset-by-asset basis. The Company utilizes the brokerage services of Resource Securities, Inc. (“Resource Securities”), a wholly-owned broker-dealer subsidiary of Resource America, on a limited basis to conduct some of its asset trades. The Company paid Resource Securities placement agent fees in connection with each transaction as follows: $205,000 , $175,000 , $100,000 , and $85,000 , respectively.

In July 2014, the Company formed RCM Global Manager to invest in RCM Global, an entity formed to hold a portfolio of structured product securities. The Company contributed $15.0 million for a 63.8% membership interest in RCM Global. A five member board manages RCM Global, and all actions, including purchases and sales, must be approved by no less than three of the five members of the board. The portion of RCM Global that the Company does not own is presented as non-controlling interests as of the dates and for the periods presented in the Company's consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation. In March and June 2015, the Company requested and received a proportional, in-kind distribution in certain securities held by RCM Global. The distribution of and subsequent sale of those securities by the Company through its subsidiary, RCC Residential, resulted in the realization of $5.0 million of net gains for the year ended December 31, 2015. During the six months ended June 30, 2016 RCC Residential received a cash distribution in the amount of $599,000 . The Company's ownership interest decreased to 25.9% as of June 30, 2016 . On January 1, 2016, the Company adopted new consolidation guidance on variable interest entities and, as a result, the Company deconsolidated RCM Global and now accounts for this investment as an investment in unconsolidated entities on the consolidated balance sheet ( see Note 2 ). For the three and six months ended June 30, 2016 , the Company recorded earnings of $222,000 and $399,000 which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations, respectively.

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 , as of February 1, 2015. The Company will receive 10% of the carried interest in the partnership for the first five years, and can increase its interest to 20% if the Company's capital contributions aggregate $40.0 million . Resource America contributed securities valued at $2.8 million to the formation of Pelium Capital. The portion of the fund that the Company does not own is presented as non-controlling interests as of the dates and for the periods presented in the Company's consolidated financial statements. Pelium Capital was determined not to be a VIE as there was sufficient equity at risk, the Company does not have disproportionate voting rights and Pelium Capital's partners have all of the following characteristics: (1) the power to direct the activities of Pelium; (2) the obligation to absorb losses; and (3) the right to receive residual returns. However, Pelium Capital was consolidated as a result of the Company's majority ownership and the Company's unilateral kick-out rights. The non-controlling interest in Pelium Capital is owned by Resource America and outside investors. All intercompany accounts and transactions were eliminated in consolidation as of December 31, 2015. The Company's ownership interest in Pelium Capital was 80.2% as of June 30, 2016 . On January 1, 2016, the Company adopted new consolidation guidance on variable interest entities and, as a result, the Company deconsolidated Pelium Capital and now accounts for this investment as an investment in unconsolidated entities on the consolidated balance sheet ( see Note 2 ). For the three and six months ended June 30, 2016 , the Company recorded earnings of $1.4 million and $1.7 million which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations, respectively.

On April 10, 2015, the Company entered into two first mortgage bridge loans in the amount of $2.5 million and $3.3 million with two funds sponsored by Resource America, Resource Real Estate Investors LP and Resource Real Estate Investors

II, LP. Each loan carried an interest rate of LIBOR plus 5.75% with a LIBOR floor of 0.25% . The loans had a maturity date of May 5, 2016, with two consecutive one -year options to extend upon the first maturity date. The loan in the amount of $2.5 million was repaid in full with interest on April 29, 2015. The second loan in the amount of $3.3 million was repaid in full with interest on July 31, 2015.

On June 24, 2015, the Company committed to invest up to $50.0 million in Pearlmark Mezzanine Realty Partners IV, L.P. ("Pearlmark Mezz IV L.P."), a Delaware limited partnership. The contractual fund manager of the fund is Pearlmark Real Estate LLC ("Pearlmark"), a Delaware limited liability company that is 50% owned by Resource America. The Company will

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

pay Pearlmark Mezz IV L.P management fees of 1.0% on the unfunded committed capital and 1.5% on the invested capital. The Company is entitled to a management fee rebate of 25% for the first year of the fund. As of June 30, 2016 , the Company is indebted for $193,000 for management fees, net of the rebate. Resource America has agreed that it will credit any such fees paid by the Company to Pearlmark against the base management fee that the Company pays to Resource America. The Company has invested an aggregate of $7.6 million in capital in Pearlmark Mezz IV L.P. For the three and six months ended June 30, 2016 , the Company recorded earnings of $171,000 and $419,000 which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. As of June 30, 2016 , the Company has an investment balance of $6.6 million and a 47.4% ownership interest in the fund.

Relationship with Law Firm . Until 1996, Edward E. Cohen, a director who was the Company’s Chairman from its inception until November 2009, was of counsel to Ledgewood, P.C., a law firm. In addition, one of the Company’s executive officers, Jeffrey F. Brotman, was employed by Ledgewood until 2007. Mr. E. Cohen receives certain debt service payments from Ledgewood related to the termination of his affiliation with Ledgewood and its redemption of his interest in the firm. Mr. Brotman also receives certain debt service payments from Ledgewood related to the termination of his affiliation with the firm. For the three and six months ended June 30, 2016 the Company paid Ledgewood $72,000 and $168,000 , respectively, in connection with legal services rendered to the Company. For the three and six months ended June 30, 2015 the Company paid Ledgewood $61,000 and $334,000 , respectively, in connection with legal services rendered to the Company.

NOTE 18 - DISTRIBUTIONS

For the quarter ended June 30, 2016 , the Company declared and subsequently paid a dividend of $0.42 per common share.

In order to qualify as a REIT, the Company must currently distribute at least 90% of its taxable income. In addition, the Company must distribute 100% of its taxable income in order not to be subject to corporate federal income taxes on retained income. The Company anticipates it will distribute substantially all of its taxable income to its stockholders. Because taxable income differs from cash flow from operations due to non-cash revenues or expenses (such as provisions for loan and lease losses and depreciation), in certain circumstances, the Company may generate operating cash flow in excess of its distributions or, alternatively, may be required to borrow to make sufficient distribution payments.

The Company’s 2016 dividends will be determined by the Company’s board of directors which will also consider the composition of any dividends declared, including the option of paying a portion in cash and the balance in additional common shares.

The following tables present dividends declared (on a per share basis) for the three and six months ended June 30, 2016 and for the year ended December 31, 2015 :



Common Stock
	Date Paid	Total Dividend Paid		Dividend Per Share
		(in thousands)
2016
March 31	April 28	$	13,073	$	0.42
June 30	July 28	$	13,051	$	0.42
2015
March 31	April 28	$	21,444	$	0.64
June 30	July 28	$	21,426	$	0.64
September 30	October 28	$	20,667	$	0.64
December 31	January 28, 2016	$	13,274	$	0.42

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)



Preferred Stock
Series A						Series B					Series C
	Date Paid	Total Dividend Paid		Dividend Per Share		Date Paid	Total Dividend Paid		Dividend Per Share		Date Paid	Total Dividend Paid		Dividend Per Share
		(in thousands)					(in thousands)					(in thousands)
2016
March 31	May 2	$	568	$	0.531250	May 2	$	2,859	$	0.515625	May 2	$	2,588	$	0.539063
June 30	August 1	$	568	$	0.531250	August 1	$	2,859	$	0.515625	August 1	$	2,588	$	0.539063
2015
March 31	April 30	$	568	$	0.531250	April 30	$	2,960	$	0.515625	April 30	$	2,588	$	0.539063
June 30	July 30	$	568	$	0.531250	July 30	$	2,960	$	0.515625	July 30	$	2,588	$	0.539063
September 30	October 30	$	568	$	0.531250	October 30	$	2,960	$	0.515625	October 30	$	2,588	$	0.539063
December 31	February 1, 2016	$	568	$	0.531250	February 1, 2016	$	2,960	$	0.515625	February 1, 2016	$	2,588	$	0.539063

NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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



	Level 1		Level 2		Level 3		Total
As of June 30, 2016:
Assets:
Investment securities, trading	$	—	$	—	$	3,982	$	3,982
Investment securities available-for-sale	—		2,017		253,263		255,280
Loans held for sale	—		116,385		44,744		161,129
Derivatives	—		722		5,411		6,133
Total assets at fair value	$	—	$	119,124	$	307,400	$	426,524

Liabilities:
Derivatives	$	—	$	3,035	$	49	$	3,084
Total liabilities at fair value	$	—	$	3,035	$	49	$	3,084

As of December 31, 2015:
Assets:
Investment securities, trading	$	—	$	—	$	25,550	$	25,550
Investment securities available-for-sale	—		4,451		203,637		208,088
Loans held for sale	—		66,588		29,358		95,946
Derivatives (net)	—		826		2,620		3,446
Total assets at fair value	$	—	$	71,865	$	261,165	$	333,030

Liabilities:
Derivatives	$	—	$	—	$	3,941	$	3,941
Total liabilities at fair value	$	—	$	—	$	3,941	$	3,941

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The Company's residential mortgage loan portfolio included in loans held for sale is comprised of both agency loans and non-agency jumbo loans. The fair values of the Company's agency loan portfolio are generally classified as Level 2 in the fair value hierarchy, as those values are determined based on quoted market prices for similar assets or upon other observable inputs. The fair values of the Company's jumbo loan portfolio are generally classified as Level 3 in the fair value hierarchy, as those values are based upon the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan including the value attributable to servicing rights and credit risk. Loans are adjusted for spread to agency mortgage back securities of similar mortgage loans, at rates ranging between 0.7% and 7.0% .

The fair value of interest rate lock commitments ("IRLCs") is estimated as the fair value of the of the underlying mortgage loan to be sold, which is based on quoted mortgage-backed securities ("MBSs") prices, plus the estimated fair value of the mortgage servicing rights, less the price committed to the borrower or mortgage lender and direct origination costs, adjusted for the probability that the mortgage will fund ("pull-through" rate). The estimated pull-through rate is based on the Company's historical data. IRLCs are included in derivatives on the Company's consolidated balance sheets.

The average pull-through percentage used in measuring the fair value of IRLCs as of June 30, 2016 was 81.9% for assets and 68.1% for liabilities. The pull-through percentage is considered a significant unobservable input and is estimated based on changes in pricing and actual borrower behavior using a historical analysis of loan closing data. Generally, a change in interest rates is accompanied by a directionally opposite change in the assumption used for the pull-through percentage, and the impact to fair value of a change in pull-through would be partially offset by the related change in price.

Forwards - residential mortgage loans fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. The fair value of forward delivery commitments is primarily based upon the current agency mortgage-backed security market to-be-announced pricing specific to the loan program, delivery coupon and delivery date of the trade. Best effort sales commitments are also executed for certain loans at the time the borrower commitment is made. These best effort sales commitments are valued using the committed price to the counterparty against the current market price of the interest rate lock commitment or mortgage loan held for sale. Forwards are included in derivatives on the Company's consolidated balance sheets.

As part of the origination of a certain middle market loan, the Company received warrants as consideration at the loan's origination.The fair value of the warrants was $850,000 and calculated by performing a Black-Scholes analysis and the significant unobservable inputs were a measure of 50.0% for the annual volatility over the term of the warrants and a market capitalization of $172.7 million .

In accordance with guidance on fair value measurements and disclosures, the Company is not required to disclose quantitative information with respect to unobservable inputs contained in fair value measurements that are not developed by the Company. As a consequence, the Company has not disclosed such information associated with fair values obtained for investment securities trading and investment securities available for sale from third-party pricing sources.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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



	CMBS			ABS			Structured Finance Securities			Loans Held for Sale			Warrants			Interest Rate Lock Commitments			Forwards - Residential Mortgage Loans			Total
Balance, January 1, 2016	$	159,424		$	44,213		$	25,550		$	29,358		$	1,051		$	1,224		$	345		$	261,165
Included in earnings ⁽¹⁾	(302		)	295			328			(330		)	(198		)	14,165			(199		)	13,759
Purchases/Originations	5,138			44,700			—			77,745			—			—			—			127,583
Sales	—			(67,639		)	—			(60,595		)	—			—			—			(128,234		)
Paydowns	(19,283		)	(27,837		)	(140		)	(1,434		)	—			—			—			(48,694		)
Issuances	—			—			—			—			—			—			—			—
Settlements	—			—			96			—			—			(10,992		)	15			(10,881		)
Capitalized Interest	—			8,437			—			—			—			—			—			8,437
Included in OCI	(1,043		)	(9,218		)	—			—			—			—			—			(10,261		)
Deconsolidation of VIEs	(55,776		)	172,154			(21,852		)	—			—			—			—			94,526
Transfers into Level 3	—			—			—						—			—			—			—
Balance, June 30, 2016	$	88,158		$	165,105		$	3,982		$	44,744		$	853		$	4,397		$	161		$	307,400


(1)	Structured finance securities, loans held for sale, interest rate lock commitments, and forwards on residential mortgage loans include $328,000 , $(3,400) , $0 , and $(8,000) , respectively, in earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date for the six months ended June 30, 2016 .

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



	Interest Rate Swaps			Forwards - Residential Mortgage Loans			Interest Rate Lock Commitments			Total
Beginning balance, January 1, 2016	$	3,459		$	479		$	3		$	3,941
Included in earnings	50			(252		)	67			(135		)
Settlements	—			(214		)	(34		)	(248		)
Unrealized gains - included in accumulated other comprehensive income	(3,509		)	—			—			(3,509		)
Ending balance, June 30, 2016	$	—		$	13		$	36		$	49

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

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



	Level 1		Level 2		Level 3		Total
As of June 30, 2016:
Assets :
Loans held for sale	$	—	$	2,564	$	256,615	$	259,179
Impaired loans	—		—		38,133		38,133
Mortgage servicing rights	—		—		20,560		20,560
Total assets at fair value	$	—	$	2,564	$	315,308	$	317,872

As of December 31, 2015:
Assets :
Loans held for sale	$	—	$	1,279	$	153	$	1,432
Impaired loans	—		262		129,433		129,695
Total assets at fair value	$	—	$	1,541	$	129,586	$	131,127

Loans held for sale consist of middle market loans identified for sale. The fair value of Level 2 middle market loans held for sale are based on quoted market prices for similar assets or upon other observable inputs. The fair value of Level 3 middle market loans held for sale may be determined using a market or income approach methodology, both of which may require significant judgment or estimation for factors such as EBITA multiples, market capitalization rates or discount rates, depending on the methodology used. The following unobservable inputs were used in the determination of fair value with respect to Level 3 middle market loans at June 30, 2016: market yields ranged from 9.0% to 14.7% and EBITDA multiples ranged from 6.0 x - 11.8 x .

Impaired loans consist of CRE loans for which an impairment analysis was conducted during the period. For the Company’s CRE loans for which there is no primary market, fair value is measured using discounted cash flow analysis and other valuation techniques, and these loans are classified as nonrecurring Level 3.

For the three and six months ended June 30, 2016 there were no nonrecurring fair value losses for specifically impaired loans. The amounts of nonrecurring fair value losses for specifically impaired loans for the three and six months ended June 30, 2015 were $38.9 million and $41.4 million , respectively. The amounts of nonrecurring fair value losses for loans held for sale for the three and six months ended June 30, 2016 were $14.5 million and $14.5 million , respectively. The amounts of nonrecurring fair value losses for loans held for sale for the three and six months ended June 30, 2015 were $86,000 and $806,000 , respectively.

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair values of the Company's short-term financial instruments such as cash and cash equivalents, restricted cash, principal paydown receivable, interest receivable, distribution payable, accrued interest expense, repurchase agreements and the secured revolving credit agreement approximate their carrying value on the consolidated balance sheets. The fair values of the Company’s investment securities, trading are reported in Note 5 . The fair values of the Company’s investment securities available-for-sale are reported in Note 6 . The fair values of the Company’s derivative instruments are reported in Note 20 .

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

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

Junior subordinated notes are estimated by discounted cash flows with discount rates of 13.28% and 13.29% used in the evaluation of RCT I and RCT II, respectively.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Repurchase agreements and the senior secured revolving credit agreement are variable rate debt instruments indexed to LIBOR that reset periodically and, as a result, their carrying value approximates their fair value.

The fair value of the convertible notes was determined using a discounted cash flow model that discounts the expected future cash flows using current interest rates on similar debts that do not have a conversion option. The 6.0% Convertible Senior Notes are discounted at a rate of 7.00% and the 8.0% Convertible Senior Notes are discounted at a rate of 8.60% . The fair value of the CRE portfolio was determined using a discounted cash flow model that discounts the expected future cash flows at current rates at which similar loans would be made to borrowers with similar credit ratings and with the same remaining maturities. Discount rates used range between 15%-25% .

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



			Fair Value Measurements
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets of Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of June 30, 2016:
Loans held-for-investment	$	1,476,880	$	1,471,811	$	—	$	51,602	$	1,420,209
CDO notes	$	634,553	$	628,499	$	—	$	—	$	628,499
Junior subordinated notes	$	51,521	$	24,369	$	—	$	—	$	24,369
Convertible notes	$	206,879	$	215,000	$	—	$	—	$	215,000
Repurchase agreements	$	537,670	$	539,648	$	—	$	—	$	539,648
Senior secured revolving credit agreement	$	144,000	$	144,000	$	—	$	—	$	144,000

As of December 31, 2015:
Loans held-for-investment	$	2,160,751	$	2,150,061	$	—	$	222,100	$	1,927,961
CDO notes	$	1,032,581	$	923,817	$	—	$	—	$	923,817
Junior subordinated notes	$	51,413	$	17,907	$	—	$	—	$	17,907
Convertible notes	$	205,484	$	205,484	$	—	$	—	$	205,484
Repurchase agreements	$	418,836	$	418,836	$	—	$	—	$	418,836
Senior secured revolving credit agreement	$	186,974	$	186,974	$	—	$	—	$	186,974

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 20 - MARKET RISK AND DERIVATIVE INSTRUMENTS

The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company's financial performance and are referred to as "market risks." When deemed appropriate, the Company uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are interest rate risk and foreign currency exchange rate risk.

The Company may hold various derivatives in the ordinary course of business, including warrants, interest rate swaps, forward contracts, options and interest rate lock commitments. Warrants are securities that give the holder the right, but not the obligation, to purchase securities from an issuer at a specific price and within a specified time period. Options are contracts sold by one party to another that give the buyer the right, but not the obligation, to buy or sell a financial asset at an agreed-upon price during a certain period of time or on a specific date. Interest rate swap agreements are contracts between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. Forward contracts represent future commitments to either purchase or to deliver loans (residential mortgage lending), securities (TBA securities) or a quantity of a currency (foreign currency hedging) at a predetermined future date, at a predetermined rate or price and are used to manage interest rate risk on loan commitments and mortgage loans held for sale as well as currency risk with respect to the Company's long positions in foreign currency-denominated investment securities. Rate lock commitments represent commitments to fund loans at a specific rate and by a specified time and are used to mitigate risk of changes in interest rate in the Company's residential mortgage loan portfolio.

A significant market risk to the Company is interest rate risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with the interest-bearing liabilities, by affecting the spread between the interest-earning assets and interest-bearing liabilities. Changes in the level of interest rates also can affect the value of the Company’s interest-earning assets and the Company’s ability to realize gains from the sale of these assets. A decline in the value of the Company’s interest-earning assets pledged as collateral for borrowings could result in the counterparties demanding additional collateral pledges or liquidation of some of the existing collateral to reduce borrowing levels.

The Company seeks to manage the extent to which net income changes as a function of changes in interest rates by matching adjustable-rate assets with variable-rate borrowings. The Company mitigates the potential impact on net income of periodic and lifetime coupon adjustment restrictions in its investment portfolio by entering into interest rate hedging agreements such as interest rate caps and interest rate swaps.

On January 1, 2016, RREF CDO 2006-1 and RREF CDO 2007-1 were deconsolidated in accordance with new guidance on consolidation of VIEs ( see Note 2 ). The Company deconsolidated six interest rate swap contracts as part of the deconsolidation. The aggregate notional amount of these deconsolidated interest rate swaps was $99.9 million at January 1, 2016.

During the three months ended June 30, 2016, the Company requested and canceled its remaining interest rate swap contract through accumulated other comprehensive income (loss), to be amortized through earnings over the life of the remaining debt. As of June 30, 2016 , the Company had no interest rate swap contracts outstanding. The Company had master netting agreements with Credit Suisse International and Wells Fargo at June 30, 2016 . Regulations promulgated under the Dodd-Frank Act mandate that the Company clear certain new interest rate swap transactions through a central counterparty. Transactions that are centrally cleared result in the Company facing a clearing house, rather than a swap dealer, as counterparty. Central clearing requires the Company to post collateral in the form of initial and variation margin to satisfy potential future obligations. As of June 30, 2016 , there were no centrally cleared interest rate swap contracts. The Company classifies its hedges as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability. The Company records changes in fair value of derivatives designated and effective as cash flow hedges in other comprehensive income, and records changes in fair value of derivatives designated and ineffective as cash flow hedges in earnings.

At December 31, 2015 , the Company had nine interest rate swap contracts outstanding whereby the Company paid an average fixed rate of 5.38% and received a variable rate equal to one-month LIBOR . The aggregate notional amount of these contracts was $102.8 million at December 31, 2015 . The counterparties for the Company’s designated interest rate hedge contracts are Credit Suisse International and Wells Fargo with which the Company has master netting agreements.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The estimated fair value of the Company’s liability related to interest rate swaps was $0 and $3.5 million as of June 30, 2016 and December 31, 2015 , respectively. The Company had aggregate unrealized losses of $67,000 and $3.5 million on the interest rate swap agreements as of June 30, 2016 and December 31, 2015 , respectively, which is recorded in accumulated other comprehensive income and a portion is recognized through earnings. The amortization is reflected in interest expense in the Company’s consolidated statements of operations.

The Company is also exposed to foreign currency exchange risk, a form of risk that arises from the change in price of one currency against another. Substantially all of the Company's revenues are transacted in U.S. dollars; however, a significant amount of the Company's capital is exposed to other currencies, primarily the Euro and, to a lesser extent, the pound sterling. To address this market risk, the Company generally hedges foreign currency-denominated exposures (typically investments in debt instruments, including forecasted principal and interest payments) with foreign currency forward contracts. The Company classifies these hedges as fair value hedges, which are hedges that mitigate the risk of changes in the fair values of assets, liabilities, and certain types of firm commitments. The Company records changes in fair value of derivatives designated and effective as fair value hedges in earnings offset by corresponding changes in the fair values of the hedged items.

Forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the parties to deliver commitments are unable to fulfill their obligations, the Company could potentially incur significant additional costs by replacing the positions at then current market rates. The Company manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. The Company does not expect any counterparty to default on its obligations and, therefore, the Company does not expect to incur any cost related to counterparty default.

The Company is exposed to interest rate risk on loans held for sale and interest rate lock commitments. As market interest rates increase or decrease, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase accordingly. To offset this interest rate risk, the Company may enter into derivatives such as forward contracts to sell loans. The fair value of these forward sales contracts will change as market interest rates change, and the change in the value of these instruments is expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective of this activity is to minimize the exposure to losses on rate lock commitments and loans held for sale due to market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors, including market interest rate volatility, the amount of interest rate lock commitments that close, the ability to fill the forward contracts before expiration, and the time period required to close and sell loans.

During the warehousing phase of the Company’s investments in certain structured vehicles, the Company may enter into total return swaps to finance the Company’s exposure to assets that will ultimately be securitized. A total return swap is a swap agreement in which one party makes payments based on a set rate, while the other party makes payments based on the return of an underlying asset. Traditionally, the Company pays either an indexed or fixed interest payment to the warehousing lender and receives the net interest income and realized capital gains of the referenced portfolio of assets, generally loans, to be securitized that are owned and held by the warehousing lender. Upon the close of the warehousing period, the Company’s invested equity plus net interest and any capital gains realized during the warehousing period are returned to the Company. Additionally, upon the close of the securitization, the Company may purchase beneficial interests in the securitization at fair value.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The following tables present the fair value of the Company’s derivative financial instruments as well as their classification on the Company's consolidated balance sheets and on the consolidated statements of operations for the periods presented:

Fair Value of Derivative Instruments as of June 30, 2016

(in thousands)



	Asset Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate lock agreements	$	270,487	Derivatives, at fair value	$	4,397
Forward contracts - residential mortgage lending	$	60,857	Derivatives, at fair value	$	161
Forward contracts - foreign currency, hedging ⁽¹⁾⁽²⁾	$	26,640	Derivatives, at fair value	$	722
Warrants ⁽³⁾	$	553	Derivatives, at fair value	$	853
	Liability Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate lock agreements	$	2,646	Derivatives, at fair value	$	36
Forward contracts - residential mortgage lending	$	363,721	Derivatives, at fair value	$	2,881
Forward contracts - TBA securities	$	41,000	Derivatives, at fair value	$	167

Interest rate swap contracts, hedging	$	—	Accumulated other comprehensive (income) loss	$	67


(1)	Foreign currency forward contracts are accounted for as fair value hedges.


(2)	Notional amount presented on currency converted basis. The base currency notional amount of the Company's foreign currency hedging forward contracts was €24.0 million as of June 30, 2016 .


(3)	The notional amount of the Company's warrants is calculated by multiplying the number of shares available for purchase by exercise price.

Fair Value of Derivative Instruments as of December 31, 2015

(in thousands)



	Asset Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate lock agreements ⁽¹⁾	$	105,385	Derivatives, at fair value	$	1,224
Forward contracts - residential mortgage lending	$	92,413	Derivatives, at fair value	$	345
Forward contracts - foreign currency, hedging ⁽²⁾⁽³⁾	$	24,850	Derivatives, at fair value	$	727
Forward contracts - TBA securities	$	29,500	Derivatives, at fair value	$	99
Warrants ⁽⁴⁾	$	553	Derivatives, at fair value	$	1,051
	Liability Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate swap contracts, hedging ⁽⁵⁾	$	102,799	Derivatives, at fair value	$	3,459
Interest rate lock agreements ⁽⁶⁾	$	505	Derivatives, at fair value	$	3
Forward contracts - residential mortgage lending	$	143,553	Derivatives, at fair value	$	479
Forward contracts - TBA securities	$	1,500	Derivatives, at fair value	$	—

Interest rate swap contracts, hedging	$	102,799	Accumulated other comprehensive (income) loss	$	(3,471	)


(1)	The notional amount of the Company's interest rate lock agreements in an asset position is the pull-through weighted total commitments with a weighted average pull-through percentage of 85.9% .


(2)	Notional amount presented on currency converted basis. The base currency notional amount of the Company's foreign currency hedging forward contracts was €22.9 million as of December 31, 2015 .

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)


(3)	Foreign currency forward contracts are accounted for as fair value hedges.


(4)	The notional amount of the Company's warrants is calculated by multiplying the number of shares available for purchase by the exercise price.


(5)	Interest rate swap contracts are accounted for as cash flow hedges.


(6)	The notional amount of the Company's interest rate lock agreements in a liability position is the pull-through weighted total commitments with a weighted average pull-through percentage of 19.5% .

The Effect of Derivative Instruments on the Statements of Operations for the

Six Months Ended June 30, 2016 (in thousands)



	Derivatives
		Statement of Operations Location	Realized and Unrealized Gain (Loss) ⁽¹⁾
Interest rate swap contracts, hedging		Interest expense	$	(70	)
Interest rate lock agreements		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	3,141
Forward contracts - residential mortgage lending		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	(2,587	)
Forward contracts - foreign currency, hedging		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	(62	)
Forward contracts - TBA securities		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	(830	)


(1)	Negative values indicate a decrease to the associated consolidated statements of operations line items.

The Effect of Derivative Instruments on the Statements of Operations for the

Six Months Ended June 30, 2015 (in thousands)



	Derivatives
		Statement of Operations Location	Realized and Unrealized Gain (Loss) ⁽¹⁾
Interest rate swap contracts, hedging		Interest expense	$	3,152
Interest rate swap contracts, hedging		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	206
Interest rate lock agreements		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	1,061
Forward contracts - RMBS securities		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	57
Forward contracts - residential mortgage lending		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	1,989
Forward contracts - foreign currency, hedging		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	1,790
Options - U.S. Treasury futures		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	184
Forward contracts - TBA securities		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	56


(1)	Negative values indicate a decrease to the associated consolidated statements of operations line items.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 21 - OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

The following table presents a summary of the Company's offsetting of derivative assets for the periods presented (in thousands):



							(iv) Gross Amounts Not Offset in the Consolidated Balance Sheets
	(i) Gross Amounts of Recognized Assets		(ii) Gross Amounts Offset in the Consolidated Balance Sheets		(iii) = (i) - (ii) Net Amounts of Assets Included in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Pledged		(v) = (iii) - (iv) Net Amount
As of June 30, 2016:
Derivative hedging instruments, at fair value	$	6,133	$	—	$	6,133	$	—	$	—	$	6,133
Total	$	6,133	$	—	$	6,133	$	—	$	—	$	6,133

As of December 31, 2015:
Derivative hedging instruments, at fair value	$	3,446	$	—	$	3,446	$	—	$	—	$	3,446
Total	$	3,446	$	—	$	3,446	$	—	$	—	$	3,446

The following table presents a summary of the Company's offsetting of financial liabilities and derivative liabilities for the periods presented as follows (in thousands):



							(iv) Gross Amounts Not Offset in the Consolidated Balance Sheets
	(i) Gross Amounts of Recognized Liabilities		(ii) Gross Amounts Offset in the Consolidated Balance Sheets		(iii) = (i) - (ii) Net Amounts of Liabilities Included in the Consolidated Balance Sheets		Financial Instruments ⁽¹⁾		Cash Collateral Pledged ⁽²⁾		(v) = (iii) - (iv) Net Amount
As of June 30, 2016:
Derivative hedging instruments, at fair value	$	3,084	$	—	$	3,084	$	—	$	—	$	3,084
Repurchase agreements and term facilities ⁽⁴⁾	538,266		—		538,266		538,266		—		—
Total	$	541,350	$	—	$	541,350	$	538,266	$	—	$	3,084

As of December 31, 2015:
Derivative hedging instruments, at fair value ⁽³⁾	$	3,941	$	—	$	3,941	$	—	$	500	$	3,441
Repurchase agreements and term facilities ⁽⁴⁾	418,836		—		418,836		418,836		—		—
Total	$	422,777	$	—	$	422,777	$	418,836	$	500	$	3,441


(1)	Amounts represent collateral pledged that is available to be offset against liability balances associated with term facilities, repurchase agreements and derivative transactions.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)


(2)	Amounts represent amounts pledged as collateral against derivative transactions.


(3)	The fair value of securities and/or cash and cash equivalents pledged against the Company's swaps was $500,000 at December 31, 2015 .


(4)	The combined fair value of securities and loans pledged against the Company's various term facilities and repurchase agreements was $829.1 million and $643.2 million at June 30, 2016 and December 31, 2015 , respectively.

In the Company's consolidated balance sheets, all balances associated with repurchase agreement and derivatives transactions are presented on a gross basis.

Certain of the Company's repurchase agreements and derivative transactions are governed by underlying agreements that generally provide for a right of offset in the event of default or in the event of a bankruptcy of either party to the transaction.

NOTE 22 - COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in litigation on various matters, including disputes arising out of loans in the Company's portfolio and agreements to purchase or sell assets. Given the nature of the Company's business activities, the Company considers these matters to be routine and in the ordinary conduct of its business. The resolution of these matters may result in adverse judgments, fines, penalties, injunctions and other relief against the Company as well as monetary payments or other agreements and obligations. Alternately, the Company may engage in settlement discussions on certain matters in order to avoid the additional costs of engaging in litigation.

In September 2015, Daren Levin filed a putative class action in the United States District Court for the Southern District of New York on behalf of all persons who purchased the Company's common stock between March 2, 2015 and August 4, 2015. In November 2015, the Court appointed Douglas Drees as the lead plaintiff in the action, and thereafter entered a stipulation and order directing the lead plaintiff to file an amended complaint. In February 2016, the lead plaintiff filed an amended complaint, alleging that the Company and certain of its officers and directors materially misrepresented certain risks of its commercial loan portfolio and its processes and controls for assessing the quality of its portfolio. Based on these allegations, the amended complaint asserts claims for violation of the securities laws and seeks a variety of relief, including unspecified monetary damages as well as costs and attorneys’ fees. The Company believes the amended complaint is without merit and intends to defend itself vigorously. In April 2016, the Company filed a motion to dismiss the amended complaint, which remains pending.

In December 2015, Josh Reaves filed a shareholder derivative suit in the Supreme Court of New York alleging that the Company's directors and certain officers breached their fiduciary duties by causing the Company to misrepresent certain risks in its commercial loan portfolio, by failing to employ adequate internal and financial controls, and by failing to disclose the alleged internal control deficiencies. The complaint purports to seek relief on behalf of the Company for unspecified damages as well as costs and attorneys’ fees. The Company believes that the plaintiff, who failed to make a pre-suit demand on the board of directors, lacks standing to assert claims derivatively on the Company's behalf, and the Company intends to respond accordingly. In April 2016, the parties entered into a stipulation staying this proceeding until such time as the court has ruled on the pending motion to dismiss the Levin action referenced above or certain other triggering events occur.

PCM is a party to various claims and legal proceedings at various times. If PCM believes that a loss arising from any of these matters is probable and can be reasonably estimated, the loss is recorded. Some of these claims may relate to claims for repurchases or indemnifications on loans that PCM has sold to investors. Such claims are included in the reserve for mortgage repurchases and indemnifications. There was no additional accrual for litigation outcomes as of June 30, 2016 or December 31, 2015.

On May 13, 2014, ResCap Liquidating Trust (“ResCap”), as successor to Residential Funding Company, LLC (“RFC”), filed an adversary proceeding against PCM in United States Bankruptcy Court of the Southern District of New York. ResCap has sued some 90 sellers of residential mortgage loans for alleged breaches of warranty in various loans sold to RFC. RFC contends that such breaches caused it damages from loan losses and liability to other transferee's of the loans. The case remains pending and has been consolidated with other cases for discovery and pre-trial purposes. PCM intends to defend the action vigorously.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

The maximum exposure to credit loss in the event of an indemnification or loan repurchase would be the unpaid principal balance of the loan along with any premium paid by the investor when the loan was purchased, accrued but unpaid interest and other minor cost reimbursements. This maximum exposure is at least partially mitigated by the value of the collateral underlying the mortgage loan.

As of June 30, 2016 , outstanding demands for indemnification, repurchase or make whole payments totaled approximately $20.5 million , of which a substantial portion related to loans sold to four investors prior to 2011. Furthermore, a significant portion of these demands are involved in litigation with the investor.

On February 3, 2016, Lehman Brothers Holding, Inc. (“LBHI”) filed an adversary proceeding against PCM in United States Bankruptcy Court of the Southern District of New York. LBHI has sued approximately 145 sellers of residential mortgage loans for alleged breaches of warranty in various loans sold to it. LBHI contends that such breaches caused it damages from loan losses and liability to other transferees of the loans. PCM intends to defend the action vigorously.

Unfunded commitments on the Company’s originated CRE loans generally fall into two categories: (1) pre-approved capital improvement projects; and (2) new or additional construction costs subject, in each case, to the borrower meeting specified criteria. Upon completion of the improvements or construction, the Company would receive additional interest income on the advanced amount. Unfunded commitments on the Company's originated middle market loans fall into two categories: (1) revolving credit facility; and (2) unfunded commitments subject to the borrower meeting pre-specified criteria.

Except as previously discussed, the Company is unaware of any contingencies arising from such routine litigation that would require accrual or disclosure in the consolidated financial statements as of June 30, 2016 .

NOTE 23 - SEGMENT REPORTING

The Company has five reportable operating segments: Commercial Real Estate Lending, Commercial Finance, Middle Market Lending, Residential Mortgage Lending, and Corporate & Other. The reportable operating segments are business units that offer different products and services. The Commercial Real Estate Lending operating segment includes the Company’s activities and operations related to commercial real estate loans, commercial real estate-related securities, and investments in real estate. The Commercial Finance operating segment includes the Company’s activities and operations related to bank loans, bank loan-related securities, and direct financing leases. The Middle Market Lending operating segment includes the Company’s activities and operations related to the origination and purchase of middle market loans. The Residential Mortgage Lending operating segment includes the Company’s activities and operations related to the origination and servicing of residential mortgage loans and the investment in RMBS. The Corporate & Other segment includes corporate level interest income, interest expense, and general and administrative expense.

The accounting policies of the operating segments are the same as those described in Note 2 . The Company accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Relevant expenses incurred at the Corporate & Other segment are allocated to TRS subsidiaries based on their percentage of adjusted pre-tax net income (loss), which excludes unrealized gains and losses and provisions on loan and lease losses that are specific to the periods presented.

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

Summarized operating segment data are as follows (in thousands):



	Commercial Real Estate Lending			Commercial Finance			Middle Market Lending			Residential Mortgage Lending			Corporate & Other ^(1)(2)(3)			Total
For the Three Months Ended June 30, 2016:
Interest income:
External customers	$	25,201		$	737		$	8,176		$	1,468		$	113		$	35,695
Other	3			2,288			11			1			4			2,307
Total interest income	25,204			3,025			8,187			1,469			117			38,002
Interest expense	8,364			(2		)	4,017			1,174			5,083			18,636
Net interest income	16,840			3,027			4,170			295			(4,966		)	19,366
Amortization of MSRs	—			—			—			(1,205		)	—			(1,205		)
Other income from external customers	—			762			—			546			17			1,325
Total revenues	16,840			3,789			4,170			(364		)	(4,949		)	19,486
Less:
Segment operating expenses	67			301			997			102			3,048			4,515
General and administrative	865			350			959			7,111			1,868			11,153
Depreciation and amortization	—			327			4			140			33			504
Provision (recovery) for loan losses	(68		)	215			11,952			—			—			12,099
Equity in earnings of unconsolidated subsidiaries	(181		)	(2,515		)	—			—			—			(2,696		)
Gain on sale of mortgages	—			—			—			(4,768		)	—			(4,768		)
Other (income) expense	(847		)	465			198			(687		)	(1,490		)	(2,361		)
Income (loss) before taxes	17,004			4,646			(9,940		)	(2,262		)	(8,408		)	1,040
Income tax (expense) benefit	—			2,629			—			1,007			(147		)	3,489
Net income (loss)	$	17,004		$	7,275		$	(9,940	)	$	(1,255	)	$	(8,555	)	$	4,529

	Commercial Real Estate Lending			Commercial Finance			Middle Market Lending			Residential Mortgage Lending			Corporate & Other ^(1)(2)(3)			Total
For the Three Months Ended June 30, 2015:
Interest income:
External customers	$	22,245		$	4,843		$	7,324		$	1,010		$	—		$	35,422
Other	66			1,039			1			1			12			1,119
Total interest income	22,311			5,882			7,325			1,011			12			36,541
Interest expense	7,838			787			1,321			872			4,985			15,803
Net interest income	14,473			5,095			6,004			139			(4,973		)	20,738
Amortization of MSRs	—			—			—			(1,006		)	—			(1,006		)
Other income from external customers	—			1,150			—			2,672			17			3,839
Total revenues	14,473			6,245			6,004			1,805			(4,956		)	23,571
Less:
Segment operating expenses	—			249			663			(110		)	3,513			4,315
General and administrative	333			498			797			5,846			2,520			9,994
Depreciation and amortization	—			448			—			140			33			621
Provision (recovery) for loan losses	38,072			290			755			(307		)	—			38,810
Equity in earnings of unconsolidated subsidiaries	—			(662		)	—			—			—			(662		)
Gain on sale of mortgages	—			—			—			(4,168		)	—			(4,168		)
Other (income) expense	154			(5,680		)	(125		)	(3,581		)	3,690			(5,542		)
Income (loss) before taxes	(24,086		)	11,102			3,914			3,985			(14,712		)	(19,797		)
Income tax (expense) benefit	1			(1,548		)	—			(1,475		)	104			(2,918		)
Net income (loss)	$	(24,085	)	$	9,554		$	3,914		$	2,510		$	(14,608	)	$	(22,715	)

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)




	Commercial Real Estate Lending			Commercial Finance			Middle Market Lending			Residential Mortgage Lending			Corporate & Other ^(1)(2)(3)			Total
For the Six Months Ended June 30, 2016:
Interest income:
External customers	$	50,240		$	1,366		$	20,381		$	2,451		$	113		$	74,551
Other	24			3,497			16			—			11			3,548
Total interest income	50,264			4,863			20,397			2,451			124			78,099
Interest expense	16,588			(2		)	5,714			1,946			10,161			34,407
Net interest income	33,676			4,865			14,683			505			(10,037		)	43,692
Amortization of MSRs	—			—			—			(2,262		)	—			(2,262		)
Other income from external customers	—			1,334			—			330			35			1,699
Total revenues	33,676			6,199			14,683			(1,427		)	(10,002		)	43,129
Less:
Segment operating expenses	133			570			2,511			909			5,695			9,818
General and administrative	1,256			701			2,013			13,400			3,853			21,223
Depreciation and amortization	—			802			4			271			68			1,145
Impairment losses	—			—			—			—			—			—
Provision (recovery) for loan losses	—			76			12,060			—			—			12,136
Equity in earnings of unconsolidated subsidiaries	(453		)	(4,465		)	—			—			—			(4,918		)
Gain on sale of mortgages	—			—			—			(7,901		)	—			(7,901		)
Other (income) expense	(843		)	(976		)	198			(1,610		)	(967		)	(4,198		)
Income (loss) before taxes	33,583			9,491			(2,103		)	(6,496		)	(18,651		)	15,824
Income tax (expense) benefit	—			264			—			2,592			(131		)	2,725
Net income (loss)	$	33,583		$	9,755		$	(2,103	)	$	(3,904	)	$	(18,782	)	$	18,549

(Back to Index)

RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)




	Commercial Real Estate Lending			Commercial Finance			Middle Market Lending			Residential Mortgage Lending			Corporate & Other ^(1)(2)(3)			Total
For the Six Months Ended June 30, 2015:
Interest income:
External customers	$	44,591		$	11,159		$	13,835		$	2,647		$	—		$	72,232
Other	70			1,804			2			1			74			1,951
Total interest income	44,661			12,963			13,837			2,648			74			74,183
Interest expense	14,929			1,857			2,201			1,989			9,729			30,705
Net interest income	29,732			11,106			11,636			659			(9,655		)	43,478
Amortization of MSRs	—			—			—			(1,831		)	—			(1,831		)
Other income from external customers	—			2,365			—			3,452			33			5,850
Total revenues	29,732			13,471			11,636			2,280			(9,622		)	47,497
Less:
Segment operating expenses	6			668			1,203			1,544			5,478			8,899
General and administrative	749			1,669			1,284			11,880			4,023			19,605
Depreciation and amortization	—			892			1			231			62			1,186
Impairment losses	—			59			—			—			—			59
Provision (recovery) for loan losses	38,072			1,518			3,320			(110		)	—			42,800
Equity in earnings of unconsolidated subsidiaries	(46		)	(1,322		)	—			—			—			(1,368		)
Gain on sale of mortgages	—			—			—			(7,702		)	—			(7,702		)
Other (income) expense	847			(8,694		)	(108		)	(5,882		)	(2,165		)	(16,002		)
Income (loss) before taxes	(9,896		)	18,681			5,936			2,319			(17,020		)	20
Income tax (expense) benefit	(39		)	(1,497		)	—			(2,981		)	(248		)	(4,765		)
Net income (loss)	$	(9,935	)	$	17,184		$	5,936		$	(662	)	$	(17,268	)	$	(4,745	)


(1)	Includes interest expense for the Convertible Senior Notes of $4.4 million and $8.9 million for the three and six months ended June 30, 2016 and $4.4 million and $8.5 million for the three and six months ended June 30, 2015 .


(2)	Includes interest expense for the Unsecured Junior Subordinated Debentures of $651,000 and $1.3 million for the three and six months ended June 30, 2016 and $602,000 and $1.2 million for the three months and six ended June 30, 2015 .


(3)	Includes general corporate expenses not allocable to any particular operating segment.

The following table presents total assets by segment for the periods indicated (in thousands):



Total Assets ⁽²⁾	Commercial Real Estate Lending		Commercial Finance		Middle Market Lending		Residential Mortgage Lending		Corporate & Other ⁽¹⁾		Total
June 30, 2016	$	1,680,996	$	137,621	$	321,460	$	223,326	$	26,441	$	2,389,844
December 31, 2015	$	1,907,951	$	298,028	$	384,973	$	149,351	$	20,129	$	2,760,432


(1)	Includes assets not allocable to any particular operating segment.


(2)	On January 1, 2016, we adopted amendments to the consolidation accounting guidance (see Note 2) and deconsolidated two and three VIEs in the Commercial Real Estate Lending and Commercial Finance operating segments, respectively.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2016

(unaudited)

NOTE 24 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this report and determined that there have not been any events that have occurred that would require adjustments to or disclosures in the consolidated financial statements, except the following:

On July 21, 2016, the Company agreed to a modification of the terms of the Wells CRE repurchase facility agreement. The modification extends the facility's maturity date to July 21, 2018, subject to the Company’s three one -year extension rights which may extend the maturity to July 21, 2021. The amendment also modified certain financing rates and required debt yields. The Company paid an extension fee as well as other reasonable closing costs.

On August 1, 2016, the Company entered into a purchase agreement to sell Northport TRS, LLC to CVC Credit Partners, an affiliated party, and to other third parties for $247.0 million . The transaction includes substantially all of the direct origination middle market loans and one syndicated loan with a par balance of $257.0 million and the assumption of the senior secured revolving credit agreement, for net proceeds of approximately $102.0 million . The Company will retain the remaining broadly syndicated middle market loans and one direct origination middle market loan totaling $68.0 million , at carrying value, with an weighted average interest rate of 9.83% . During the second quarter, the Company recorded $9.0 million provision for loan losses on the loans sold to adjust the portfolio to fair value included in the purchase price and accelerated the amortization of the remaining deferred debt issuance costs of $2.6 million pertaining to the Credit Facility. The ownership of Northport TRS, LLC is held approximately 70.0% in a taxable subsidiary and 30.0% in a non-taxable subsidiary. The impact of the added provisions and write-off of the remaining debt issuance costs, net of tax, is $8.2 million during the three months ended June 30, 2016.

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ITEM 2 .	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion provides information to assist you in understanding our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion contains forward-looking statements. Actual results could differ materially from those expressed in or implied by those forward-looking statements. Additionally, please see the sections “Forward-Looking Statements” and “Risk Factors” for a discussion of certain risks, uncertainties and assumptions associated with those statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

We are a diversified real estate investment trust, or REIT, that is primarily focused on originating, holding and managing commercial mortgage loans and other commercial real estate-related debt and equity investments. We also make commercial finance investments. We are organized and conduct our operations to qualify as a REIT under Subchapter M of the Internal Revenue Code of 1986, as amended. Our objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies. We invest in a combination of real estate-related assets and, to a lesser extent, higher-yielding commercial finance assets. We have financed a substantial portion of our portfolio investments through borrowing strategies seeking to match the maturities and repricing dates of our financings with the maturities and repricing dates of those investments, and have sought to mitigate interest rate risk through derivative instruments.

We are externally managed by Resource Capital Manager, Inc., or the Manager, an indirect wholly-owned subsidiary of Resource America, Inc. (NASDAQ: REXI), or Resource America, a specialized asset management company that uses industry-specific expertise to evaluate, originate, service and manage investment opportunities through its commercial real estate, financial fund management and commercial finance operating segments. As of June 30, 2016, Resource America managed or co-managed approximately $23.0 billion of assets in these sectors. To provide its services, the Manager draws upon Resource America, its management team and their collective investment experience. On May 22, 2016 Resource America agreed to be acquired by C-III Capital Partners LLC ("C-III"), a leading commercial real estate services company engaged in a broad range of activities, including primary and special loan servicing, loan origination, fund management, CDO management, principal investment, investment sales and multifamily property management. As part of the transaction, C-III will assume the management contract from Resource America and will acquire 715,396 shares of our common equity ( 2.3% of our outstanding shares) currently held by Resource America. On May 21, 2016, Resource America entered into a letter agreement with us pursuant to which we irrevocably waived our right to terminate the management agreement as a result of a “Change of Control” (as defined in the management agreement) resulting from the merger. Resource America agreed to pay $1.5 million to us at the closing of the merger. The transaction is expected to close late in the third quarter or early in the fourth quarter of 2016.

We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance the purchase of those assets, from management of assets and from hedging interest rate risks. We generate revenues from the interest and fees we earn on our whole loans, commercial mortgage-backed securities, or CMBS, middle market loans, other asset-backed securities, or ABS, and structured note investments. We also generate revenues from fees we receive for the management of externally originated bank loans, from our residential mortgage origination business and from our investment in an equipment leasing business. Historically, we have used a substantial amount of leverage to enhance our returns and we have financed each of our different asset classes with different degrees of leverage. The cost of borrowings to finance our investments is a significant part of our expenses. Our net income depends on our ability to control these expenses relative to our revenue. In our bank loan, CMBS and ABS portfolios, we historically have used warehouse facilities as a short-term financing source and collateralized debt obligations, or CDOs, and collateralized loan obligations, or CLOs and, to a lesser extent, other term financing as long-term financing sources. In our commercial real estate loan portfolio, we historically have used repurchase agreements as a short-term financing source, and CDOs and, to a lesser extent, other term financing as long-term financing sources. Our other term financing has consisted of long-term, match-funded financing provided through long-term bank financing and asset-backed financing programs, depending upon market conditions and credit availability.

The current state of moderate growth in the United States economy has allowed us to make new investments, particularly in our primary business of commercial real estate lending. During 2015 and through June 30, 2016, we have underwritten 42 new commercial real estate, or CRE, loans for a total of $803.8 million. These loans were initially financed in part through our CRE term facilities and then financed longer-term through CRE securitizations. We also purchased seven newly underwritten CMBS for $13.6 million during the same time period, all of which were financed through our Wells Fargo facility. As a result of the equity market conditions discussed below, and to maintain our market presence and relationship with our borrower base, we intend to modestly grow our commercial real estate lending program, primarily by using recycled capital coupled with debt financing,

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principally through the $77.4 million and $240.7 million of existing capacity on our Wells Fargo CMBS and CRE term credit facilities, respectively, and the $126.7 million of existing capacity on our Morgan Stanley CRE credit facility.

On January 1, 2016, we adopted amendments to the consolidation accounting guidance as required. As a result of our re-evaluation, we determined we are no longer the primary beneficiary of the following variable interest entities ("VIEs"); and, therefore, they were deconsolidated: Resource Real Estate Funding CDO 2006-1, Ltd. (“RREF CDO 2006-1”), Resource Real Estate Funding CDO 2007-1, Ltd. (“RREF CDO 2007-1”), Apidos Cinco CDO, Ltd. (“Apidos Cinco CDO”), Pelium Capital Partners, L.P., ("Pelium Capital"), and RCM Global, LLC ("RCM Global"). After the three-month period ended March 31, 2016, RREF CDO 2006-1 was terminated and we received the remaining $66.6 million of assets in exchange for our preference shares and equity notes in the securitization. Therefore, we now reflect these assets (loans and securities) on our balance sheet at fair market value. As a result of the other four deconsolidations, we no longer reflect the underlying collateral (loans and securities) of those VIEs in our consolidated financial statements. Instead, we reflect in our balance sheet our direct investments (the "retained investments") in the issued and outstanding securities of those VIEs. Our retained investments in RREF CDO 2007-1 and Apidos Cinco CDO are now accounted for as investment securities, available-for-sale and, as a result, are marked-to-market while our retained investments in Pelium Capital Partners, L.P., and RCM Global, LLC are accounted for as equity method investments. We have elected to retrospectively reflect the deconsolidation of these entities on a modified basis, which resulted in a reduction to the beginning balance of retained earnings as of January 1, 2016, of $16.9 million. The reduction to retained earnings represents the effect of marking the investments to market as of the date of the required adoption and represents discounts to par due to illiquidity premiums and other market forces which we expect to be recovered over time as the investments approach their respective maturities. To reflect the impact of this expectation, we present a reconciliation from GAAP book value to economic book value as an addendum to our book value reconciliation.

Although economic conditions in the United States have improved modestly, we have been impacted more so as a result of a certain transaction we have recently entered into and certain recent changes in authoritative guidance on consolidation accounting. On August 1, 2016, we entered into a purchase agreement to sell our interest in Northport TRS, LLC ("Northport LLC"), our self-originated middle market lending business and an indirect wholly-owned subsidiary for $247.0 million. The transaction, which closed on August 4, 2016, included substantially all of our direct origination middle market loans and one syndicated loan with a par balance of $257.0 million. We recorded a provision for loan loss of $9.0 million associated with this transaction in the three months ended June 30, 2016 as the other $1.0 million was taken in the first quarter of 2016. In addition, we recorded a $3.4 million loss on one direct origination loan we have retained, which was partially offset by an improvement of approximately $500,000 on another position. As it relates to changes in consolidation accounting, we deconsolidated RREF CDO 2006-1 and RREF CDO 2007-1 as of January 1, 2016 and consequently removed $40.3 million of specific reserves and $142,000 of general reserves. In addition, we deconsolidated Apidos Cinco and removed $1.3 million of specific reserves on bank loans as of the same date. On our remaining CRE loan portfolio, we reduced our general allowance for loan losses by $68,000 during the June period. We currently have no CRE senior whole loans or middle market loans delinquent with respect to debt service obligations due.

In the latter half of 2013, we invested funds into a middle market lending operation run by our Manager. We made additional investments since then and held approximately $313.7 million of middle market loans in this portfolio as of June 30, 2016, prior to the sale of a significant portion of the business as described above. The middle market business was held approximately 70% in a taxable subsidiary and 30% in a non-taxable subsidiary, and we expect to generate tax savings from the disposal as well as simplify our operations in a more real estate-centric based firm. We retain approximately $68.0 million of this middle market portfolio after the sale, comprised of one self-originated loan and the preponderance of the syndicated loans, which we intend to hold. We netted proceeds of $102.0 million, which we expect to primarily reinvest in our CRE loan origination platform. These retained investments and strategic deployment of the proceeds, we expect, will generate sufficient revenues to replace those lost from the former construct of this investment portfolio.

We have also experienced a reduction in our commercial finance assets, as one of our bank loan CLOs was substantially liquidated in 2014 and another liquidated in 2015. This trend resulted in a substantial decline in our net interest income from bank loans in 2014 and continued through 2015. We expect this trend to continue in 2016 when we liquidate our investment in Apidos Cinco CDO, our one remaining legacy bank loan CLO. We began to mitigate this trend by investing in new CLOs and European structured notes in 2014 and 2015 and we have seen and expect to continue to see similar opportunities in 2016.

In 2013, we, through RCC Residential, Inc., a taxable REIT subsidiary, acquired a residential mortgage origination company, Primary Capital Mortgage LLC, or PCM, an Atlanta-based firm. Our acquisition of PCM represents a return to the residential mortgage investment market, by providing us with our first residential mortgage origination platform. PCM is now licensed in 41 states, up from seven states when we acquired the business. We intend to cautiously expand the volume of our residential mortgage originations, including the residential jumbo loan area, over the coming year while continuing to add technology, staff and infrastructure and expect to have the investment show modest profitability in 2016.

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Despite our ability to access equity markets in 2014 and early 2015, during the latter half of the year, our common shares began to trade at prices below book value and began to trade well below our book value per share. As a result of these conditions, we have sought to enhance shareholder value by instituting, on August 4, 2015, a $50.0 million securities repurchase program. Through June 30, 2016, we have repurchased approximately $37.0 million of our common and preferred shares. In March 2016, our board of directors approved a new securities repurchase program for up to $50.0 million of our outstanding securities.

In the past, we had at our disposal the use of recycled capital within our CLO and CDO structures to make new investments. However, as of June 30, 2016, our four most recent securitizations were structured as static pools and, as such, they do not have reinvestment periods. Instead, principal payments, for a stipulated period, may be used to purchase funding participations with respect to existing collateral held outside of three of the securitizations. This allows us to recycle some repaid capital and convert the designated principal for funded companion participation acquisition cash, which would otherwise be used to pay down the most senior notes, thereby reducing leverage and potential returns within the securitization. If the amount of principal repaid exceeds the available participations for purchase or is repaid, at the end of the stipulated period, principal would pay down the CLO or CDO notes in accordance with their respective indentures.

As of June 30, 2016, we had allocated our invested equity capital among our targeted asset classes as follows: 72% in total real estate assets, 27% in commercial finance assets and 1% in other investments. As of December 31, 2015, we had allocated our invested equity capital as follows: 72% in total real estate assets, 27% in commercial finance assets and 1% in other assets. We plan to grow our equity allocation in CRE assets to a minimum 75% level during the remainder of 2016.

Results of Operations

Our net income (loss) allocable to common shares for the three and six months ended June 30, 2016 was $(1.5) million or $(0.05) per share-basic ( $(0.05) per share-diluted) and $8.1 million or $0.27 per share-basic ( $0.26 per share diluted) respectively, as compared to net loss allocable to common shares of $(31.0) million , or $(0.94) per share-basic ( $(0.94) per share-diluted) and $(21.6) million or $(0.66) per share-basic ( $(0.66) per share-diluted) for the three and six months ended June 30, 2015 respectively.

Interest Income

The following tables set forth information relating to our interest income recognized for the periods presented (in thousands, except percentages):



	For the Three Months Ended			For the Three Months Ended
	June 30, 2016			June 30, 2015
	Weighted Average			Weighted Average
	Yield	Balance		Yield	Balance
Interest income:
Interest income from loans:
Commercial real estate loans	5.92%	$	1,464,869	5.18%	$	1,536,262
Middle market loans	10.00%	$	323,385	9.93%	$	291,803
Residential mortgage loans	2.06%	$	149,270	1.89%	$	107,847
Bank loans	—%	$	—	4.12%	$	259,498

Interest income from securities:
ABS	8.07%	$	158,008	16.16%	$	53,128
CMBS-private placement	5.41%	$	89,531	7.04%	$	184,700
RMBS	4.66%	$	1,921	5.15%	$	7,038
Corporate bonds	—%	$	—	4.94%	$	2,383

Preference payments on structured notes ^{(1) (2)}	19.76%	$	43,489	16.67%	$	25,458


(1)	Interest income used to calculate the weighted average yield has been adjusted by $577,000 due to an increase in the rate of return at the Harvest XV warehouse closing over the original estimated rate of return for the three months ended June 30, 2016 .


(2)	Interest income used to calculate the weighted average yield has been adjusted by $493,000 due to a one time interest payment received from an investment held at Resource TRS for the three months ended June 30, 2016 .

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	For the Six Months Ended			For the Six Months Ended
	June 30, 2016			June 30, 2015
	Weighted Average			Weighted Average
	Yield	Balance		Yield	Balance
Interest income:
Interest income from loans:
Commercial real estate loans	5.89%	$	1,449,483	5.69%	$	1,475,878
Middle market loans	11.70%	$	344,445	9.91%	$	277,561
Residential mortgage loans	3.37%	$	122,823	3.99%	$	118,413
Bank loans	—%	$	—	4.56%	$	288,862

Interest income from securities:
ABS	7.90%	$	173,260	16.87%	$	51,576
CMBS-private placement	5.48%	$	92,737	4.98%	$	187,700
RMBS	4.77%	$	2,002	3.74%	$	19,001
Corporate bonds	—%	$	—	5.13%	$	2,455

Preference payments on structured notes ⁽¹⁾	18.68%	$	41,041	14.63%	$	24,743


(1)	Interest income used to calculate the weighted average yield has been adjusted by $493,000 due to a one time interest payment received from an investment held at Resource TRS for the six months ended June 30, 2016 .

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The following tables summarize interest income for the periods indicated (in thousands, except percentages):



Type of Security	Weighted Average Coupon Interest		Unamortized (Discount) Premium			Net Amortization/ Accretion			Interest Income		Fee Income		Total
For the Three Months Ended June 30, 2016
Commercial real estate loans	5.37	%	$	(8,817	)	$	—		$	19,774	$	2,000	$	21,774
Middle market loans	9.93	%	$	(366	)	61			8,115		—		8,176
Residential mortgage Loans	—	%	$	—		—			1,369		—		1,369
Bank loans	—	%	$	—		—			46		—		46
Total interest income from loans						61			29,304		2,000		31,365
ABS	N/A		$	—		—			3,158		—		3,158
CMBS-private placement	5.19	%	$	276		(49		)	1,162		—		1,113
RMBS	4.66	%	$	35		20			—		—		20
Corporate bonds	—	%	$	—		—			—		—		—
Total interest income from securities						(29		)	4,320		—		4,291
Direct Financing Leases	N/A		N/A			—			39		—		39
Total interest income from leasing						—			39		—		39
Preference payments on structured notes	N/A		N/A			—			2,288		—		2,288
Other	N/A		N/A			—			19		—		19
Total interest income - other						—			2,307		—		2,307
Total interest income						$	32		$	35,970	$	2,000	$	38,002

For the Three Months Ended June 30, 2015
Commercial real estate loans	5.14	%	$	(28	)	$	10		$	18,572	$	385	$	18,967
Middle market loans	9.73	%	$	(437	)	17			7,174		133		7,324
Residential mortgage loans	—	%	$	—		(10		)	923		—		913
Bank loans	3.76	%	$	(503	)	229			2,286		40		2,555
Total interest income from loans						246			28,955		558		29,759
ABS	14.59	%	$	(682	)	95			2,022		—		2,117
CMBS-private placement	5.20	%	$	(2,212	)	849			2,429		—		3,278
Corporate bonds	4.94	%	$	(36	)	2			30		—		32
RMBS	5.01	%	$	30		(2		)	75		—		73
Total interest income from securities						944			4,556		—		5,500
Direct Financing Leases	N/A		N/A						163				163
Total interest income from leasing						—			163		—		163
Preference payments on structured notes	N/A		N/A			—			1,046		—		1,046
Other	N/A		N/A			—			73		—		73
Total interest income - other						—			1,119		—		1,119
Total interest income						$	1,190		$	34,793	$	558	$	36,541

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Type of Security	Weighted Average Coupon Interest		Unamortized (Discount) Premium			Net Amortization/ Accretion			Interest Income			Fee Income		Total
For the Six Months Ended June 30, 2016:
Commercial real estate loans	5.36	%	$	(7,348	)	$	—		$	40,544		$	2,207	$	42,751
Middle market loans	9.81	%	$	(366	)	707			17,117			2,598		20,422
Residential mortgage loans	—	%	$	—		—			2,253			—		2,253
Bank loans	—	%	$	—		—			45			6		51
Total interest income from loans						707			59,959			4,811		65,477
ABS	N/A		$	—		—			6,785			—		6,785
CMBS-private placement	5.19	%	$	276		(137		)	2,412			—		2,275
RMBS	4.77	%	$	35		(1		)	30			—		29
Total interest income from securities						(138		)	9,227			—		9,089
Direct Financing Leases	N/A		N/A			—			(15		)	—		(15		)
Total interest income from leasing						—			(15		)	—		(15		)
Preference payments on structured notes	N/A		N/A			—			3,497			—		3,497
Other	N/A		N/A			—			51			—		51
Total interest income - other						—			3,548			—		3,548
Total interest income						$	569		$	72,719		$	4,811	$	78,099

For the Six Months Ended June 30, 2015:
Commercial real estate loans	5.28	%	$	(28	)	$	21		$	38,990		$	753	$	39,764
Middle market loans	9.52	%	$	(437	)	29			13,284			495		13,808
Bank loans	3.78	%	$	(503	)	444			5,720			391		6,555
Residential mortgage loans	—	%	$	—		(53		)	2,348			—		2,295
Total interest income from loans						441			60,342			1,639		62,422
CMBS-private placement	5.04	%	$	(2,212	)	(64		)	4,891			$	—	4,827
ABS	15.25	%	$	(682	)	217			4,122			—		4,339
RMBS	4.10	%	$	30		(33		)	356			—		323
Corporate bonds	4.88	%	$	(36	)	3			60			—		63
Total interest income from securities						123			9,429			—		9,552
Direct Financing Leases	N/A		N/A			—			258			—		258
Total interest income from leasing						—			258			—		258
Preference payments on structured notes	N/A		N/A			—			1,810			—		1,810
Other	N/A		N/A			—			141			—		141
Total interest income - other						—			1,951			—		1,951
Total interest income						$	564		$	71,980		$	1,639	$	74,183

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	For the Three Months Ended
	June 30,
	2016		2015		Dollar Change			Percent Change
Interest income:
Interest income from loans:
Commercial real estate loans	$	21,774	$	18,967	$	2,807		15	%
Middle market loans	8,176		7,324		852			12	%
Residential mortgage loans	1,369		913		456			50	%
Bank loans	46		2,555		(2,509		)	(98	)%
Total interest income from loans	31,365		29,759		1,606			5	%

Interest income from securities:
ABS	3,158		2,117		1,041			49	%
CMBS-private placement	1,113		3,278		(2,165		)	(66	)%
RMBS	20		73		(53		)	(73	)%
Corporate bonds	—		32		(32		)	(100	)%
Total interest income from securities	4,291		5,500		(1,209		)	(22	)%

Interest income from leasing:
Direct financing leases	39		163		(124		)	(76	)%
Total interest income from leasing	39		163		(124		)	(76	)%

Interest income - other:
Preference payments on structured notes	2,288		1,046		1,242			119	%
Temporary investment in over-night repurchase agreements	19		73		(54		)	(74	)%
Total interest income - other	2,307		1,119		1,188			106	%
Total interest income	$	38,002	$	36,541	$	1,461		4	%

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	Six Months Ended
	June 30,
	2016			2015		Dollar Change			Percent Change
Interest income:
Interest income from loans:
Commercial real estate loans	$	42,751		$	39,764	$	2,987		8	%
Middle market loans	20,422			13,808		$	6,614		48	%
Residential mortgage loans	2,253			2,295		(42		)	(2	)%
Bank loans	51			6,555		(6,504		)	(99	)%
Total interest income from loans	65,477			62,422		3,055			5	%

Interest income from securities:
ABS	6,785			4,339		$	2,446		56	%
CMBS-private placement	2,275			4,827		(2,552		)	(53	)%
Corporate bonds	—			63		(63		)	(100	)%
RMBS	29			323		(294		)	(91	)%
Total interest income from securities	9,089			9,552		(463		)	(5	)%

Interest income from leasing:
Direct financing leases	(15		)	258		(273		)	(106	)%
Total interest income from leasing	(15		)	258		(273		)	(106	)%

Interest income - other:
Preference payments on structured notes	3,497			1,810		1,687			93	%
Temporary investment in over-night repurchase agreements	51			141		(90		)	(64	)%
Total interest income - other	3,548			1,951		1,597			82	%
Total interest income	$	78,099		$	74,183	$	3,916		5	%

Three and Six Months Ended June 30, 2016 as compared to Three and Six Months Ended June 30, 2015

Aggregate interest income increased $1.5 million and $3.9 million to $38.0 million and $78.1 million for the three and six months ended June 30, 2016 , respectively, as compared to $36.5 million and $74.2 million for the three and six months ended June 30, 2015 respectively. We attribute these changes to the following:

Interest Income from Loans

Commercial real estate loans. Interest income on CRE loans increased $2.8 million and $3.0 million to $21.8 million and $42.8 million for the three and six months ended June 30, 2016 . This increase is due primarily to the origination of loans in our newest CRE securitization, RCC 2015-CRE4, that closed in August 2015, and to an increase in weighted average yield from 5.18% to 5.92% and from 5.69% to 5.89% for the three and six months ended June 30, 2016 and June 30, 2015 , respectively, due to an increase in the one-month LIBOR rate over the floor. This increase was partially offset by the impact of the deconsolidation of CRE loans at RREF CDO 2006-1 and RREF CDO 2007-1.

Middle market loans. Through focused efforts in 2015 to increase the investment in our middle market lending business, the portfolio grew from a weighted average balance of $291.8 million and from $277.6 million for the three and six months ended June 30, 2015 to a weighted average balance of $323.4 million and $344.4 million for the three and six months ended June 30, 2016 . The weighted average yield on investments increased from 9.93% and 9.91% for the three and six months ended June 30, 2015 to 10.00% and 11.70% for the three and six months ended June 30, 2016 , which was primarily driven by $2.6 million of prepayment fees earned during for the six months ended June 30, 2016 .

Residential Mortgage Loans. The weighted average loan balance of our portfolio increased by $41.4 million and $4.4 million to $149.3 million and $122.8 million for the three and six months ended June 30, 2016 , primarily due to an increase in

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residential mortgage loan originations at PCM. The average yield increased from 1.89% and 3.99% to 2.06% and 3.37% for the three and six months ended June 30, 2016 . Interest income increased $456,000 to $1.4 million for the three months ended June 30, 2016 due to an increase in residential mortgage loan originations at PCM. However, interest income decreased $42,000 to $2.3 million for the six months ended June 30, 2016, attributable to the reduction of jumbo loans held this year as compared to the same period last year.

Bank loans. The weighted average loan balance on our bank loan portfolio decreased by $259.5 million and $288.9 million for three and six months ended June 30, 2016 , due to the liquidation of Apidos CDO III, Ltd. (“Apidos CDO III”) in June 2015 and the deconsolidation of Apidos Cinco CDO as of January 1, 2016, which is now recorded in interest income from securities.

Interest Income from Securities

Asset-Backed Securities, or ABS. Interest income from ABS increased $1.0 million and $2.4 million to $3.2 million and $6.8 million for the three and six months ended June 30, 2016 . The increase for the three and six months ended June 30, 2016 is primarily attributable to the deconsolidation of RREF CDO 2006-1, RREF CDO 2007-1, and Apidos Cinco CDO on January 1, 2016. As a result of the deconsolidation, their income is now reported as interest income from available-for-sale securities as compared to loan interest income in the prior year. This significantly contributed to the increase in the weighted average balance of ABS from $53.1 million to $158.0 million and from $51.6 million to $173.3 million for the three and six months ended June 30, 2016 . The decrease in weighted average yield from 16.16% to 8.07% and from 16.87% to 7.90% directly relates to the deconsolidation of RCM Global and Pelium Capital whose income is now reported under earnings in unconsolidated entities.

Interest income - other. Interest income - other increased $1.2 million and $1.6 million to $2.3 million and $3.5 million for the three and six months ended June 30, 2016 . The increase is related to income earned on our investments in ZWH4, LLC ("ZAIS") and Harvest XV; our initial investments in each warehouse were made in February 2015 and September 2015, respectively. The warehouse periods ended and both Harvest CLO XV and ZAIS CLO 4 closed in May 2016.

Interest Expense

The following tables set forth information relating to our interest expense incurred for the periods presented by asset class (in thousands, except percentages):



	For the Three Months Ended				For the Three Months Ended
	June 30, 2016				June 30, 2015
	Weighted Average				Weighted Average
	Cost of Funds		Balance		Cost of Funds		Balance
Interest expense:
Commercial real estate loans	3.13	%	$	1,017,357	2.67	%	$	1,014,331
Residential mortgage loans	2.20	%	$	216,635	4.13	%	$	79,545
Convertible senior notes	8.26	%	$	215,000	8.12	%	$	213,736
Middle market loans	11.52	%	$	139,923	3.12	%	$	138,641
CMBS-private placement	2.11	%	$	64,698	1.58	%	$	81,981
General	5.01	%	$	51,548	4.62	%	$	51,548
Hedging instruments	—	%	$	1,880	5.06	%	$	118,705
Bank loans	—	%	$	—	1.08	%	$	271,765
RMBS	—	%	$	—	3.49	%	$	21,658
Securitized borrowings	—	%	$	—	3.16	%	$	5,193

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	For the Six Months Ended				For the Six Months Ended
	June 30, 2016				June 30, 2015
	Weighted Average				Weighted Average
	Cost of Funds		Balance		Cost of Funds		Balance
Interest expense:
Commercial real estate loans	3.08	%	$	1,021,588	2.61	%	$	979,677
Convertible senior notes	8.26	%	$	215,000	8.21	%	$	207,735
Residential mortgage loans	3.64	%	$	108,317	4.79	%	$	71,985
Middle market loans	7.22	%	$	158,104	2.93	%	$	124,146
CMBS-private placement	2.02	%	$	65,450	1.57	%	$	81,077
General	4.96	%	$	51,548	4.61	%	$	51,548
Hedging instruments	7.33	%	$	1,880	5.24	%	$	119,082
Bank loans	—	%	$	—	0.95	%	$	293,870
RMBS	—	%	$	—	3.48	%	$	21,849
Securitized borrowings	—	%	$	—	9.82	%	$	5,193



Type of Security	Coupon Interest		Unamortized Deferred Debt Expense		Net Amortization		Interest Expense			Total
For the Three Months Ended June 30, 2016
Commercial real estate loans	2.45	%	$	3,150	$	1,379	$	6,631		$	8,010
Convertible senior notes	6.93	%	$	3,316	705		3,725			4,430
Middle market loans	3.42	%	$	—	2,793		1,224			4,017
Residential Mortgage Loans	—	%	$	—	—		1,174			1,174
General	4.58	%	$	27	54		597			651
CMBS-private placement	2.11	%	$	1	—		379			379
Hedging	5.24	%	$	—	—		(25		)	(25		)
Total interest expense					$	4,931	$	13,705		$	18,636

For the Three Months Ended June 30, 2015
Commercial real estate loans	1.90	%	$	2,703	$	1,000	$	4,917		5,917
Convertible senior notes	6.94	%	$	—	633		3,747			4,380
Hedging	5.06	%	$	—	—		1,518			1,518
Middle market loans	3.12	%	$	3,491	213		1,108			1,321
Residential mortgage loans	—	%	$	—	—		811			811
Bank loans	0.98	%	$	—	72		673			745
General	4.22	%	$	4,728	51		555			606
CMBS-private placement	1.58	%	$	—	—		329			329
RMBS	1.18	%	$	—	—		135			135
Securitized borrowings	—	%	$	—	—		41			41
Total interest expense					$	1,969	$	13,834		$	15,803

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Type of Security	Coupon Interest		Unamortized Deferred Debt Expense		Net Amortization		Interest Expense		Total
For the Six Months Ended June 30, 2016:
Commercial real estate loans	2.43	%	$	3,150	$	2,618	$	13,200	$	15,818
Convertible senior notes	6.93	%	$	3,316	1,415		7,450		8,865
Middle market loans	3.34	%	$	—	3,025		2,688		5,713
Residential mortgage loans	—	%	$	—	—		1,946		1,946
General	4.54	%	$	27	108		1,187		1,295
CMBS-private placement	2.02	%	$	1	1		699		700
Hedging	5.25	%	$	—	—		70		70
Total interest expense					$	7,167	$	27,240	$	34,407

For the Six Months Ended June 30, 2015:
Commercial real estate loans	1.89	%	$	2,703	$	1,706	$	9,384	$	11,090
Convertible senior notes	6.90	%	$	—	1,360		7,161		8,521
Hedging	5.07	%	$	—	—		3,152		3,152
Middle market loans	2.93	%	$	3,491	319		1,882		2,201
Residential mortgage loans	—	%	$	—	—		1,700		1,700
Bank loans	0.95	%	$	—	201		1,401		1,602
General	4.21	%	$	4,728	103		1,105		1,208
CMBS-private placement	1.57	%	$	—	—		649		649
RMBS	1.17	%	$	—	—		327		327
Securitized borrowings	—	%	$	—	—		255		255
Total interest expense					$	3,689	$	27,016	$	30,705



	For the Three Months Ended
	June 30,
	2016			2015		Dollar Change			Percent Change
Interest expense:
Commercial real estate loans	$	8,010		$	5,917	$	2,093		35	%
Convertible senior notes	4,430			4,380		50			1	%
Middle market loans	4,017			1,321		2,696			204	%
Residential mortgage loans	1,174			811		363			45	%
General	651			606		45			7	%
CMBS-private placement	379			329		50			15	%
Hedging instruments	(25		)	1,518		(1,543		)	(102	)%
Bank loans	—			745		(745		)	(100	)%
RMBS	—			135		(135		)	(100	)%
Securitized borrowings	—			41		(41		)	(100	)%
Total interest expense	$	18,636		$	15,803	$	2,833		18	%

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	For the Six Months Ended
	June 30,
	2016		2015		Dollar Change			Percent Change
Interest expense:
Commercial real estate loans	$	15,818	$	11,090	$	4,728		43	%
Convertible senior notes	8,865		8,521		344			4	%
Middle market loans	5,713		2,201		3,512			160	%
Residential mortgage loans	1,946		1,700		246			14	%
General	1,295		1,208		87			7	%
CMBS-private placement	700		649		51			8	%
Hedging instruments	70		3,152		(3,082		)	(98	)%
Bank loans	—		1,602		(1,602		)	(100	)%
RMBS	—		327		(327		)	(100	)%
Securitized borrowings	—		255		(255		)	(100	)%
Total interest expense	$	34,407	$	30,705	$	3,702		12	%

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Three and Six Months Ended June 30, 2016 as compared to Three and Six Months Ended June 30, 2015

Aggregate interest expense increased $2.8 million and $3.7 million to $18.6 million and $34.4 million for the three and six months ended June 30, 2016 respectively. We attribute the increases to the following:

Commercial real estate loans. Interest expense on commercial real estate loans increased $2.1 million and $4.7 million to $8.0 million and $15.8 million for the three and six months ended June 30, 2016 . The increases are related to the increased borrowings from the consolidation of our securitization, RCC 2015-CRE4, which closed in August 2015 and, to a lesser extent, our securitization, RCC 2015-CRE3, that closed in February 2015. Current year interest expense also included a new financing facility to fund the production of new loans that was not included in the same period last year. These increases were partially offset by a decrease in interest expense due to the deconsolidation of RREF CDO 2006-1 and RREF CDO 2007-1.

Middle market loans. Interest expense on middle market loans increased $2.7 million and $3.5 million to $4.0 million and $5.7 million for the three and six months ended June 30, 2016 , as compared to $1.3 million and $2.2 million for the three and six months ended June 30, 2015 . Subsequent to June 30, 2016, we entered into and closed on a purchase agreement to sell Northport LLC. As a result of the transaction, $2.6 million of amortization of the remaining deferred debt issuance costs related to the credit facility were accelerated and recorded as interest expense as of June 30, 2016.

Residential Mortgage Loans. Interest expense on residential mortgage loans increased $363,000 and $246,000 to $1.2 million and $1.9 million for the three and six months ended June 30, 2016 . The increase is due to increased borrowings on the residential mortgage financing agreements.

Hedging Instruments. Interest expense on hedging instruments decreased $1.5 million and $3.1 million for the three and six months ended June 30, 2016 . The decrease is related to the deconsolidation of six hedge contracts in accordance with the deconsolidation of RREF CDO 2006-1 and RREF CDO 2007-1 on January 1, 2016 and maturity of two hedge contracts during the first quarter of 2016.

Bank loans. Interest expense on bank loans decreased $745,000 and $1.6 million for the three and six months ended June 30, 2016 . The decrease is due to the deconsolidation of our remaining CLO, Apidos Cinco CDO, and, to a lesser extent, the liquidation of Apidos CDO III, Ltd. (“Apidos CDO III”) in June 2015.

Revenue

The following table sets forth information relating to our non-interest revenue for the periods presented (in thousands):



	For the Three Months Ended
	June 30,
	2016		2015		Dollar Change			Percent Change
Revenue:
Dividend income	$	18	$	17	$	1		6	%
Fee income	103		2,816		(2,713		)	(96	)%
Total revenue	$	121	$	2,833	$	(2,712	)	(96	)%



	For the Six Months Ended
	June 30,
	2016			2015		Dollar Change			Percent Change
Revenue:
Dividend income	$	35		$	33	$	2		6	%
Fee income	(598		)	3,986		(4,584		)	(115	)%
Total revenue	$	(563	)	$	4,019	$	(4,582	)	(114	)%

Three and Six Months Ended June 30, 2016 as compared to Three and Six Months Ended June 30, 2015

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Fee income. Fee income decreased $2.7 million and $4.6 million to $103,000 and a loss of $598,000 for the three and six months ended June 30, 2016 , respectively. These decreases relate to mortgage servicing rights temporary impairment of $2.3 million and $4.8 million against income from our mortgage servicing rights portfolio and its corresponding amortization for the three and six months ended June 30, 2016 as compared to a recovery of income on our mortgage servicing rights portfolio of $800,000 and $250,000 for the three and six months ended June 30, 2015, respectively. In addition, there was a decrease in income resulting from the run-off of managed assets related to our investment in Resource Capital Asset Management, or RCAM, which holds management contracts that entitle us to collect senior, subordinated, and incentive fees related to two of RCAM's remaining CLO issuers that it manages.

Operating Expenses

The following table sets forth information relating to our operating expenses incurred for the periods presented (in thousands):



	For the Three Months Ended
	June 30,
	2016		2015		Dollar Change			Percent Change
Operating expenses:
Management fees - related party	$	3,099	$	3,500	$	(401	)	(11	)%
Equity compensation - related party	1,415		791		624			79	%
Lease operating	1		24		(23		)	(96	)%
General and administrative	11,153		9,994		1,159			12	%
Depreciation and amortization	504		621		(117		)	(19	)%
Provision (recovery) for loan and lease losses	12,099		38,810		(26,711		)	(69	)%
Total operating expenses	$	28,271	$	53,740	$	(25,469	)	(47	)%



	For the Six Months Ended

	June 30,
	2016		2015		Dollar Change			Percent Change
Operating expenses:
Management fees − related party	$	7,136	$	7,060	$	76		1	%
Equity compensation − related party	2,678		1,786		892			50	%
Rental operating expense	—		6		(6		)	(100	)%
Lease operating	4		47		(43		)	(91	)%
General and administrative	21,223		19,605		1,618			8	%
Depreciation and amortization	1,145		1,186		(41		)	(3	)%
Net impairment losses recognized in earnings	—		59		(59		)	(100	)%
Provision (recovery) for loan losses	12,136		42,800		(30,664		)	(72	)%
Total operating expenses	$	44,322	$	72,549	$	(28,227	)	(39	)%

Three and Six Months Ended June 30, 2016 as compared to Three and Six Months Ended June 30, 2015

Management fees − related party. Management fees-related party decreased $401,000 and increased $76,000 to $3.1 million and $7.1 million for the three and six months ended June 30, 2016 , respectively as compared to $3.5 million and $7.1 million for the three and six months ended June 30, 2015 , respectively. This expense represents compensation in the form of base management fees and incentive management fees pursuant to our management agreement as well as fees to the manager of our structured note portfolio. The changes are described below:

•

Base management fee is a monthly fee equal to 1/12th of the amount of our equity multiplied by 1.50%. Under the management agreement, "equity" is equal to the net proceeds from any issuance of shares of capital stock less offering related costs, plus or minus our retained earnings (excluding non-cash equity compensation incurred in current or prior periods) less any amounts we have paid for stock repurchases. The calculation is adjusted for one-time events due to changes in GAAP, as well as other non-cash charges upon approval of our independent directors. The base management fee decreased for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 due to

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decreased stockholders' equity, a component in the formula by which base management fees are calculated, primarily as a result of our repurchase of approximately 8% of our outstanding shares as part of our $50.0 million repurchase plan and quarterly dividend distributions. The base management fee increased for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 as a result of a cumulative adjustment to correct the calculation regarding treatment of preferred dividends in prior periods which was recorded during the first quarter.


•	Incentive management fees are based upon the excess of adjusted operating earnings, as defined in the management agreement, over a variable base rate. There were no fees paid for the three and six months ended June 30, 2016 or three and six months ended June 30, 2015 .

•

An oversight management fee is a quarterly fee paid to Resource America to reimburse it for additional costs incurred related to our life care business, Long Term Care Conversion Funding, established for the purpose of acquiring life settlement contracts. The initial agreement, authorized in December 2012, provided for an annual fee of $550,000, with a two year term. In March 2015, the agreement was amended to extend the term for an additional two years. The oversight management fee was approximately $137,000 and $273,000 for both the three and six months ended June 30, 2016 and June 30, 2015 .

Equity compensation - related party. Equity compensation - related party increased $624,000 and $892,000 to $1.4 million and $2.7 million for the three and six months ended June 30, 2016 , respectively as compared to $791,000 and $1.8 million for the three and six months ended June 30, 2015 , respectively. These expenses relate to the amortization of annual grants of restricted common stock to our non-employee independent directors, and annual and discretionary grants of restricted stock to employees of Resource America who provide investment management services to us through our Manager as well as employees of our recently acquired residential mortgage company subsidiary. This increase was primarily attributable to accelerated amortization of $555,000 of equity compensation expense recorded at PCM in connection with an employment separation agreement during the six months ended June 30, 2016. In addition, there was an increase in our stock price for the three months ended June 30, 2016 , which directly impacts our quarterly measurement of compensation expense.

General and administrative expense. General and administrative expense increased $1.2 million and $1.6 million to $11.2 million and $21.2 million for the three and six months ended June 30, 2016 , respectively, as compared to $10.0 million and $19.6 million for the three and six months ended June 30, 2015 , respectively. The following table presents the allocation of general and administrative expenses between Corporate and Residential Mortgage Lending:



	For the Three Months Ended
	June 30,
	2016		2015		Dollar Change		Percent Change
General and administrative expenses:
Corporate	$	4,200	$	4,081	$	119	3	%
Residential Mortgage Lending	6,953		5,913		1,040		18	%
Total	$	11,153	$	9,994	$	1,159	12	%



	For the Six Months Ended
	June 30,
	2016		2015		Dollar Change			Percent Change
General and administrative expenses:
Corporate	$	8,186	$	8,865	$	(679	)	(8	)%
Residential Mortgage Lending	13,037		10,740		2,297			21	%
Total	$	21,223	$	19,605	$	1,618		8	%

General and administrative expense - Corporate. General and administrative expense - Corporate increased $119,000 and decreased $679,000 to $4.2 million and $8.2 million for the three and six months ended June 30, 2016 , respectively, as compared

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to $4.1 million and $8.9 million for the three and six months ended June 30, 2015 . The increase in expenses for the three months ended June 30, 2016 is primarily attributable to legal expenses related to the modification of one of our CRE loans. The decrease in expenses for the six months ended June 30, 2016 is related to the deconsolidation of RCM Global, Pelium, Apidos Cinco CDO, and RREF CDO 2006-1 and RREF CDO 2007-1. Specific expenses are no longer recorded on an entity level basis for these entities. Prior to deconsolidation, each of the three CDOs recorded an average of $50,000 of general and administrative expenses each quarter and Pelium recorded approximately $75,000 each quarter. The decrease year over year was also related to a non-recurring expense of approximately $399,000 relating to a proposed restructuring which we determined not to pursue during the six months ended June 30, 2015.

General and administrative expense - Residential Mortgage Lending. General and administrative expense - Residential Mortgage Lending increased $1.0 million and $2,297,000 to $7.0 million and $13.0 million for the three and six months ended June 30, 2016 , respectively, as compared to $5.9 million and $10.7 million for the three and six months ended June 30, 2015 , respectively. The increase is attributable to an increase in compensation costs to support PCM's continued geographic expansion.

Depreciation and amortization. Depreciation and amortization decreased $117,000 and $41,000 to $504,000 and $1.1 million for the three and six months ended June 30, 2016 respectively, as compared to $621,000 and $1.2 million for the three and six months ended June 30, 2015 , respectively. The decrease for the three and six months ended June 30, 2016 was primarily due to an RCAM-managed CLO being called in January 2016 and, as a result, termination of amortization on the underlying intangible asset.

Provision for loan and lease losses. Provision for loan and lease losses decreased $26.7 million and $30.7 million to a provision of $12.1 million and $12.1 million for the three and six months ended June 30, 2016 , respectively, as compared to a provision of $38.8 million and $42.8 million for the three and six months ended June 30, 2015 , respectively. The following table summarizes the information relating to our provision for loan losses for the periods presented (in thousands):



	For the Three Months Ended
	June 30,
	2016			2015			Dollar Change			Percent Change
CRE loan portfolio	$	(68	)	$	38,072		$	(38,140	)	(100	)%
Bank loan portfolio	215			318			(103		)	(32	)%
Middle market loan portfolio	11,952			755			11,197			1,483	%
Residential mortgage loans	—			(307		)	307			100	%
Loan receivable-related party	—			(28		)	28			100	%
Total provision for loan and lease losses	$	12,099		$	38,810		$	(26,711	)	(69	)%



	For the Six Months Ended
	June 30,
	2016		2015			Dollar Change			Percent Change
CRE loan portfolio	$	—	$	38,072		$	(38,072	)	(100	)%
Bank loan portfolio	77		1,734			(1,657		)	(96	)%
Middle market loan portfolio	12,059		3,320			8,739			263	%
Residential mortgage loans	—		(110		)	110			100	%
Loan receivable-related party	—		(216		)	216			100	%
Total provision for loan and lease losses	$	12,136	$	42,800		$	(30,664	)	(72	)%

CRE loan portfolio provision - The CRE loan portfolio provision decreased by $38.1 million for both the three and six months ended June 30, 2016 . During the quarter ended June 30, 2015, we recorded an allowance for loan loss on a subordinated mezzanine loan position that was acquired in 2007. The outstanding loan balance of $38.1 million was fully reserved and associated accrued interest of $3.0 million was reversed against interest income, for a total charge to operations of $41.1 million. The loan was originally supported by a portfolio of 13 hotel properties, most of which were luxury brand hotels. As of June 30, 2015, of the original 13 hotel properties securing the loan, three properties remained, all of which were located in or near San Juan, Puerto Rico. As a result of economic and credit disruptions in Puerto Rico, we determined that the loan was impaired and required a full reserve as of June 30, 2015.

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Bank loan portfolio provision - The bank loan provision decreased by $103,000 and $1.7 million for the three and six months ended June 30, 2016 , respectively. These decreases are due to the call and liquidation of Apidos CDO III in June 2015 and the deconsolidation of Apidos Cinco CDO on January 1, 2016. The provision recorded in 2016 is due to the write-off of unsettled positions that remained at the time of liquidation.

Middle market loan portfolio provision - The middle market loan provision increased by $11.2 million and $8.7 million for the three and six months ended June 30, 2016 , respectively. During the three months ended June 30, 2016 , we recorded a provision of approximately $12.0 million . This is comprised of a $9.0 million loss related to the anticipated sale of the direct origination loans, an additional loss of $3.4 million on the one direct origination loan remaining with RSO, offset by a $480,000 improvement in fair value mark on another position.

Other Income (Expense)

The following table sets forth information relating to our other income (expense) incurred for the periods presented (in thousands):



	For the Three Months Ended
	June 30,
	2016		2015			Dollar Change			Percent Change
Other Income (Expense):
Equity in earnings of unconsolidated subsidiaries	$	2,696	$	662		$	2,034		307	%
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	6,946		9,580			(2,634		)	(27	)%
Net realized and unrealized gain (loss) on investment securities, trading	183		279			(96		)	(34	)%
(Loss) on reissuance/gain on extinguishment of debt	—		(171		)	171			100	%
(Loss) gain on sale of real estate	—		22			(22		)	(100	)%
Total other income (expense)	$	9,825	$	10,372		$	(547	)	(5	)%



	For the Six Months Ended
	June 30,
	2016			2015			Dollar Change			Percent Change
Other Income (Expense):
Equity in earnings of unconsolidated subsidiaries	$	4,918		$	1,368		$	3,550		260	%
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	11,774			22,187			(10,413		)	(47	)%
Net realized and unrealized gain (loss) on investment securities, trading	328			2,353			(2,025		)	(86	)%
Unrealized gain (loss) and net interest income on linked transactions, net	—			235			(235		)	(100	)%
(Loss) on reissuance/gain on extinguishment of debt	—			(1,071		)	1,071			100	%
(Loss) gain on sale of real estate	(3		)	—			(3		)	(100	)%
Total other income (expense)	$	17,017		$	25,072		$	(8,055	)	(32	)%

Three and Six Months Ended June 30, 2016 as compared to Three and Six Months Ended June 30, 2015

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Equity in earnings of unconsolidated subsidiaries. Equity in earnings of unconsolidated subsidiaries increased $2.0 million and $3.6 million to $2.7 million and $4.9 million for the three and six months ended June 30, 2016 respectively, as compared to $662,000 and $1.4 million for the three and six months ended June 30, 2015 , respectively. An increase in earnings of approximately $1.6 million and $2.1 million, respectively, was primarily related to two of our previously consolidated VIEs, RCM Global and Pelium, which are now accounted for as equity method investments due to a new amendment to the consolidation guidance which we adopted on January 1, 2016. In addition, our investment in Leaf Commercial Capital realized a $583,000 and $1.9 million increase in income year over year due to increased lease originations.

Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans. Net realized and unrealized gain (loss) on investment securities available-for-sale and loans decreased $2.6 million and $10.4 million to $6.9 million and $11.8 million for the three and six months ended June 30, 2016 , respectively as compared to $9.6 million and $22.2 million for the three and six months ended June 30, 2015 , respectively. During 2015, we recognized increased gains related to the net gain on the sale and settlement of certain securities in the RCM Global portfolio, and the in-kind distribution and subsequent sale of those securities, net realized and unrealized gains on foreign exchange transactions from the settlement of contracts, and unrealized gains on interest rate lock commitments on our residential loan portfolio. We had no such gains during the three and six months ended June 30, 2016 . In addition, the RCM Global portfolio was deconsolidated effective January 1, 2016 and is now accounted for as an equity method investment.

Net realized and unrealized (loss) gain on investment securities, trading. Net realized and unrealized (loss) gain on investment securities, trading decreased $96,000 and $2.0 million to $183,000 and $328,000 during the three and six months ended June 30, 2016 , respectively, as compared to $279,000 and $2.4 million for the three and six months ended June 30, 2015 , respectively. The 2015 activity was primarily related to unrealized and realized gains recognized on Pelium Capital which invested in structured securities classified as trading securities. The Pelium Capital portfolio was deconsolidated effective January 1, 2016 and is now accounted for as an equity method investment.

Loss on reissuance/gain on extinguishment of debt. Loss on reissuance/gain on extinguishment of debt was $171,000 and $1.1 million for the three and six months ended June 30, 2015 , respectively. There were no losses for the three and six months ended June 30, 2016 . The transactions that give rise to the recognition of a loss on the reissuance of debt resulted from the reissuance of previously repurchased senior and junior notes in our consolidated VIEs in the open market. These senior and junior notes were originally repurchased at discounts to par and represented an opportunity to provide us strategic financing at beneficial rates upon reissuance. At the date these notes were repurchased, a gain, representative of the difference between the repurchase price and the par value of the note, was recognized. As the same notes are reissued at a price less than par, an unrealized loss equal to the difference between the reissued price and the par value of the note is recognized in current earnings.

Financial Condition

Summary.

Our total assets were $2.4 billion at June 30, 2016 as compared to $2.8 billion at December 31, 2015 . The decrease in total assets was principally due to the adoption of the consolidation guidance on VIEs and the resulting deconsolidation of the following entities: RREF CDO 2006-1, RREF CDO 2007-1, Apidos Cinco CDO, Pelium Capital and RCM Global.

Investment Portfolio.

The table below summarizes the amortized cost and net carrying amount of our investment portfolio, classified by asset type. The following table includes both (i) the amortized cost of our investment portfolio and (ii) the net carrying amount of our investment portfolio for the period presented as follows (in thousands, except percentages):

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	Amortized Cost		Net Carrying Amount		Percent of Portfolio		Weighted Average Coupon
As of June 30, 2016
Loans Held for Investment:
CRE whole loans ⁽¹⁾	$	1,421,190	$	1,419,765	63.55	%	5.50%
Middle market loans	54,485		54,485		2.44	%	8.63%
Residential mortgage loans ⁽⁷⁾	2,641		2,630		0.12	%	4.16%
	1,478,316		1,476,880		66.11	%
Loans held for sale ⁽⁴⁾ :
Middle market loans	259,179		259,179		11.60	%	10.13%
Residential mortgage loans	161,129		161,129		7.21	%	3.75%
	420,308		420,308		18.81	%
Investments in Available-for-Sale Securities:
CMBS-private placement	89,621		88,158		3.95	%	5.15%
RMBS	1,919		2,017		0.09	%	4.51%
ABS	162,759		165,105		7.39	%	N/A ⁽³⁾
	254,299		255,280		11.43	%
Investment Securities-Trading:
Structured notes	5,907		3,982		0.18	%	N/A ⁽³⁾
RMBS	1,896		—		—	%	N/A ⁽³⁾
	7,803		3,982		0.18	%
Other (non-interest bearing):
Investment in unconsolidated entities	76,801		76,801		3.44	%	N/A ⁽³⁾
Direct Financing Leases ⁽⁸⁾	1,130		665		0.03	%	5.66%
	77,931		77,466		3.47	%
Total Investment Portfolio	$	2,238,657	$	2,233,916	100.00	%

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	Amortized cost		Net Carrying Amount		Percent of portfolio		Weighted average coupon
As of December 31, 2015
Loans Held for Investment:
Commercial real estate loans ⁽²⁾ :
Whole loans	$	1,630,801	$	1,627,056	64.02	%	5.09%
B notes	15,934		15,919		0.63	%	8.68%
Mezzanine loans	45,372		7,293		0.29	%	9.01%
Bank loans ⁽⁵⁾	134,517		133,235		5.24	%	3.80%
Middle market loans ⁽⁶⁾	379,452		375,513		14.78	%	9.72%
Residential mortgage loans ⁽⁷⁾	1,746		1,735		0.07	%	4.44%
	2,207,822		2,160,751		85.03	%
Loans held for sale ⁽⁴⁾ :
Bank loans	1,475		1,475		0.06	%	0.84%
Residential mortgage loans	94,471		94,471		3.72	%	3.92%
	95,946		95,946		3.78	%
Investments in Available-for-Sale Securities:
CMBS-private placement	158,584		159,424		6.27	%	5.21%
RMBS	2,156		2,190		0.08	%	4.87%
ABS	41,994		44,214		1.74	%	N/A ⁽³⁾
Corporate Bonds	2,422		2,260		0.09	%	4.88%
	205,156		208,088		8.18	%
Investment Securities-Trading:
Structured notes	28,576		25,550		1.00	%	N/A ⁽³⁾
RMBS	1,896		—		—	%	N/A ⁽³⁾
	30,472		25,550		1.00	%
Other (non-interest bearing):
Investment in unconsolidated entities	50,030		50,030		1.97	%	N/A ⁽³⁾
Direct financing leases ⁽⁸⁾	1,396		931		0.04	%	5.66%
	51,426		50,961		2.01	%
Total Investment Portfolio	$	2,590,822	$	2,541,296	100.00	%


(1)	Net carrying amount includes allowance for loan losses of $1.4 million at June 30, 2016 .


(2)	Net carrying amount includes allowance for loan losses of $41.8 million at December 31, 2015 , allocated as follows: general allowance: B notes $15,000 , mezzanine loans $38.1 million and whole loans $3.7 million .


(3)	There is no stated rate associated with these securities.


(4)	Loans held for sale are carried at the lower of cost or market. Amortized cost approximates fair value.


(5)	Net carrying amount includes allowance for loan losses of $1.3 million at December 31, 2015 .


(6)	Net carrying amount includes allowance for loan losses of $3.9 million at December 31, 2015 .


(7)	Net carrying amount includes allowance for loan losses of $11,000 at June 30, 2016 and December 31, 2015 .


(8)	Net carrying amount includes allowance for lease losses of $465,000 at June 30, 2016 and December 31, 2015 .

Commercial Mortgage-Backed Securities-Private Placement. In the aggregate, we purchased our CMBS portfolio at a net discount to par value. At June 30, 2016 and December 31, 2015 , the remaining discount to be accreted into income over the remaining lives of the securities was $168,000 and $1.7 million , respectively. This decrease is primarily due to the deconsolidation of RREF CDO 2006-1 and RREF CDO 2007-1 and the underlying collateral held at these entities. At June 30, 2016 and December 31, 2015 , the remaining premium to be amortized into income over the remaining lives of the securities was $444,000 and $710,000 , respectively. These securities are classified as available-for-sale and, as a result, are carried at their fair value.

We had no losses included in earnings due to other-than-temporary impairment charges during the three and six months ended June 30, 2016 and 2015 , respectively, on positions that supported our CMBS investments. S ecurities classified as available-for-sale have decreased on a net basis as of June 30, 2016 as compared to December 31, 2015 primarily due to the deconsolidation of RREF CDO 2006-1 and RREF CDO 2007-1 effective January 1, 2016, and to $18.7 million of paydowns during the period. We perform an on-going review of third-party reports and updated financial data on the underlying property financial information to analyze current and projected loan performance. Rating agency downgrades are considered with respect to our income approach

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when determining other-than-temporary impairment and, when inputs are stressed, the resulting projected cash flows reflect a full recovery of principal.

The following table summarizes our CMBS-private placement at fair value (in thousands, except percentages):



	Fair Value at																Fair Value at
	December 31, 2015		CMBS included in Deconsolidated Entities effective January 1, 2016			Net Purchases		Upgrades/Downgrades			Paydowns			MTM Change Same Ratings			June 30, 2016
Moody's Ratings Category:
Aaa	$	22,414	$	(1,443	)	$	711	$	168		$	(3,609	)	$	81		$	18,322
Aa1 through Aa3	10,417		(10,255		)	—		(162		)	—			—			—
A1 through A3	7,650		(6,662		)	—		10			(998		)	—			—
Baa1 through Baa3	18,485		(13,262		)	—		4,926			(2,676		)	(170		)	7,303
Ba1 through Ba3	21,702		(7,003		)	—		14,893			(594		)	(469		)	28,529
B1 through B3	45,056		(12,149		)	3,742		(10,966		)	(8,861		)	(443		)	16,379
Caa1 through Caa3	2,013		(1,017		)	—		(996		)	—			—			—
Ca through C	559		(523		)	—		(16		)	—			—			20
Non-Rated	31,128		(3,462		)	—		(7,857		)	(2,009		)	(195		)	17,605
Total	$	159,424	$	(55,776	)	$	4,453	$	—		$	(18,747	)	$	(1,196	)	$	88,158

S&P Ratings Category:
AAA	$	4,039	$	—		$	—	$	719		$	(2,468	)	$	(8	)	$	2,282
AA+ through AA-	5,235		(5,235		)	—		—			—			—			—
A+ through A-	2		—			—		(2		)	—			—			—
BBB+ through BBB-	30,838		(17,114		)	—		4,887			(998		)	(169		)	17,444
BB+ through BB-	38,264		(12,077		)	—		7,321			(7,591		)	(440		)	25,477
B+ through B-	34,596		(4,972		)	3,742		(4,561		)	(1,500		)	(651		)	26,654
CCC+ through CCC-	6,759		(6,148		)	—		195			(594		)	1			213
D	50		(39		)	—		6			—			(17		)	—
Non-Rated	39,641		(10,191		)	711		(8,565		)	(5,596		)	88			16,088
Total	$	159,424	$	(55,776	)	$	4,453	$	—		$	(18,747	)	$	(1,196	)	$	88,158

Investment Securities, Trading. The following table summarizes our structured notes and RMBS securities, which are classified as investment securities, trading, and are carried at fair value as follows (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
As of June 30, 2016:
Structured notes	$	5,907	$	255	$	(2,180	)	$	3,982
RMBS	1,896		—		(1,896		)	—
Total	$	7,803	$	255	$	(4,076	)	$	3,982

As of December 31, 2015:
Structured notes	$	28,576	$	1,674	$	(4,700	)	$	25,550
RMBS	1,896		—		(1,896		)	—
Total	$	30,472	$	1,674	$	(6,596	)	$	25,550

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As a result of updated accounting guidance, effective January 1, 2016 we deconsolidated all of the assets of Pelium, which resulted in the removal of $21.9 million of investment securities, trading from our balance sheet which is the primary cause of the decrease during the period. We sold no securities during the six months ended June 30, 2016 . We sold four securities during the six months ended June 30, 2015 , for a net realized gain of approximately $189,000 . We held six and 56 investment securities, trading as of June 30, 2016 and December 31, 2015 , respectively.

Real Estate Loans. The following table is a summary of the loans in our commercial real estate loan portfolio as follows (in thousands):



Description	Quantity	Amortized Cost		Contracted Interest Rates	Maturity Dates ⁽³⁾
As of June 30, 2016:
Whole loans, floating rate ^{(1) (3) (4) (5) (6) (7)}	80	$	1,421,190	LIBOR plus 2.50% to LIBOR plus 12.00%	August 2016 to May 2019
Mezzanine loans ⁽¹⁰⁾	1	—		N/A	September 2021
Total ⁽²⁾ ⁽⁹⁾	81	$	1,421,190

As of December 31, 2015:
Whole loans, floating rate ^{(1) (3) (4) (5) (6) (7)}	87	$	1,630,801	LIBOR plus 1.75% to LIBOR plus 12.00%	February 2016 to February 2019
B notes, fixed rate	1	15,934		8.68%	April 2016
Mezzanine loans, fixed rate ⁽⁸⁾	2	45,372		9.01%	September 2016
Total ⁽²⁾	90	$	1,692,107


(1)	Whole loans had $78.8 million and $112.6 million in unfunded loan commitments as of June 30, 2016 and December 31, 2015 , 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 $1.4 million and $41.8 million as of June 30, 2016 and December 31, 2015 , respectively.


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

(4)


(5)	Includes four whole loans with combined $4.5 million mezzanine components that have interest rates ranging from 1.4% to 5.2% as of June 30, 2016 and December 31, 2015 .


(6)	Includes a $799,000 junior mezzanine tranche of a whole loan that has a fixed rate of 10.0% as of June 30, 2016 and December 31, 2015 .

(7)


(8)	Contracted interest rates and maturity dates do not include rates or maturity dates associated with one loan with an amortized cost of $38.1 million that was fully reserved as of June 30, 2015.


(9)	As a result of updated accounting guidance, effective January 1, 2016 ( see Note 2 ), we deconsolidated all of the assets of RREF CDO 2006 and RREF CDO 2007, resulting in the removal of $271.8 million of loans, pledged as collateral.


(10)	As a result of RREF CDO 2006-1 being called and liquidated on April 25, 2016, a mezzanine loan with a par value of $28.8 million was acquired as part of the liquidation proceeds and is reflected on the Company's balance sheet at a fair value of zero at June 30, 2016 . The mezzanine loan is comprised of two tranches, with maturity dates of November 2016 and September 2021.

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Bank Loans. At June 30, 2016 , we held no bank loans on our balance sheet as a result of the deconsolidation of Apidos Cinco on January 1, 2016. The following table summarizes our bank loan investments as of December 31, 2015 (in thousands):



	As of December 31, 2015
	Amortized cost		Fair Value ⁽¹⁾
Moody’s ratings category:
Baa1 through Baa3	$	9,715	$	9,693
Ba1 through Ba3	81,986		81,201
B1 through B3	37,103		35,916
Caa1 through Caa3	3,802		2,377
Ca through C	—		—
No rating provided	3,386		3,327
Total	$	135,992	$	132,514

S&P ratings category:
BBB+ through BBB-	$	20,805	$	20,769
BB+ through BB-	64,136		63,602
B+ through B-	44,315		41,896
CCC+ through CCC-	2,876		2,447
CC+ through CC-	—		—
C+ through C-	—		—
D	—		—
No rating provided	3,860		3,800
Total	$	135,992	$	132,514

Weighted average rating factor	1,701

(1) The bank loan portfolio's fair value is determined using dealer quotes.

The following table provides information as to the lien position and status of our bank loans, at amortized cost (in thousands):



	Apidos I		Apidos Cinco		Total

As of December 31, 2015:
Loans held for investment:
First lien loans	$	—	$	131,281	$	131,281
Second lien loans	—		1,692		1,692
Third lien loans	—		—		—
Defaulted first lien loans	—		1,544		1,544
Defaulted second lien loans	—		—		—
Total	—		134,517		134,517
First lien loans held for sale at fair value	153		1,322		1,475
Total	$	153	$	135,839	$	135,992

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Middle market loans. At June 30, 2016 , Northport LLC, our middle market lending platform, had loans held for investment with a carrying value of $54.5 million and loans held for sale with a fair value of $259.2 million. The middle market loans held by Northport LLC serve to collateralize its senior secured revolving credit agreement. The aggregate fair value of middle market loans held decreased by $65.5 million over the fair value at December 31, 2015 . This decrease was primarily due to loans being marked to the lower of cost or market associated with the proposed sale of certain loans as well as due to loans paying off compounded by reductions in new originations in the middle market platform.



	As of June 30, 2016				As of December 31, 2015
	Amortized cost		Fair Value		Amortized cost		Fair Value
Moody’s ratings category:
Baa1 through Baa3	$	—	$	—	$	—	$	—
Ba1 through Ba3	—		—		—		—
B1 through B3	—		—		—		—
Caa1 through Caa3 ⁽¹⁾	46,045		44,357		47,166		46,245
Ca	—		—		—		—
No rating provided ⁽²⁾	267,619		266,424		332,286		330,061
Total	$	313,664	$	310,781	$	379,452	$	376,306

S&P ratings category:
BBB+ through BBB-	$	—	$	—	$	—	$	—
BB+ through BB-	—		—		—		—
B+ through B-	—		—		—		—
CCC+ through CCC- ⁽¹⁾	46,045		44,357		47,166		46,245
CC+ through CC-	—		—		—		—
C+ through C-	—		—		—		—
D	—		—		—		—
No rating provided ⁽²⁾	267,619		266,424		332,286		330,061
Total	$	313,664	$	310,781	$	379,452	$	376,306

Weighted average rating factor	782				678

(1) The middle market loan portfolio's fair value is determined using dealer quotes.

(2) The middle market loan portfolio's fair value is determined using third party valuations.

The following table provides information as to the lien position and status of middle market loans, at carrying value (in thousands):



	As of June 30, 2016		As of December 31, 2015
First Lien	$	—	$	248,367
Second Lien	54,485		127,146
First lien loans held for sale at fair value	188,378		—
Second lien loans held for sale at fair value	70,801		—
Second Lien Defaulted	—		—
	$	313,664	$	375,513

Asset-backed securities. At June 30, 2016 , we held a total of $165.1 million of ABS at fair value through RCC Real Estate, Resource TRS III, RCC Residential, Resource TRS and RCC Commercial II. At December 31, 2015 , we held a total of $44.2 million of ABS at fair value through Apidos Cinco CDO, RCM Global, ZAIS and RCC Commercial II. The increase in total ABS was due to the reclassification of investments in deconsolidated entities RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO that occurred during the first quarter 2016.

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The following table summarizes our ABS at fair value (in thousands):



	As of June 30, 2016				As of December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Moody’s ratings category:
Aaa	$	—	$	—	$	3,701	$	3,976
Aa1 through Aa3	307		287		—		—
A1 through A3	—		—		—		—
Baa1 through Baa3	—		—		—		—
Ba1 through Ba3	—		—		377		347
B1 through B3	905		676		—		—
Caa1 through Caa3	84,866		84,866		—		—
Ca	1,028		1,625		—		—
No rating provided	75,653		77,651		37,916		39,891
Total	$	162,759	$	165,105	$	41,994	$	44,214

S&P ratings category:
AAA	$	—	$	—	$	3,681	$	3,956
AA+ through AA-	—		—		—		—
A+ through A-	—		—		—		—
BBB+ through BBB-	—		—		—		—
BB+ through BB-	—		—		377		347
B+ through B-	—		—		—		—
CCC+ through CCC-	1,028		1,625		—		—
No rating provided	161,731		163,480		37,936		39,911
Total	$	162,759	$	165,105	$	41,994	$	44,214

Weighted average rating factor	4,108				154

Corporate bonds . At June 30, 2016 , we held no corporate bonds on our balance sheet as a result of the deconsolidation of Apidos Cinco CDO on January 1, 2016. At December 31, 2015 , Apidos Cinco CDO, held a total of $2.3 million of corporate bonds at fair value, which secure the debt issued by this entity. We recorded the bonds at fair value, with any unrealized gain or loss reported in the stockholder’s equity section of the balance sheet.

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The following table summarizes our corporate bonds at fair value (in thousands):



	December 31, 2015
	Amortized Cost		Fair Value
Moody’s ratings category:
B1 through B3	$	868	$	868
Ca	1,471		1,327
Caa1 through Caa3	83		65
No rating provided	—		—
Total	$	2,422	$	2,260

S&P ratings category:
B+ through B-	$	868	$	868
CCC+ through CCC-	1,554		1,392
D	—		—
Total	$	2,422	$	2,260
Weighted average rating factor	7,512

Investment in Unconsolidated Entities. The following table shows our investments in unconsolidated entities as of June 30, 2016 and December 31, 2015 , and equity in earnings of unconsolidated entities for the three and six months ended June 30, 2016 and three and six months ended June 30, 2015 (in thousands):



						Equity in Earnings of Unconsolidated subsidiaries
		Balance as of		Balance as of		For the three months ended			For the six months ended			For the three months ended			For the six months ended
	Ownership %	June 30, 2016		December 31, 2015		June 30, 2016			June 30, 2016			June 30, 2015			June 30, 2015
RRE VIP Borrower, LLC ⁽¹⁾	—%	$	—	$	—	$	10		$	35		$	—		$	46
Investment in LCC Preferred Stock	29.0%	44,361		42,017		933			2,344			350			402
Investment in CVC Global Credit Opportunities Fund ⁽²⁾	—%	—		—		—			—			312			920
Pearlmark Mezz IV L.P. ⁽³⁾	47.4%	6,585		6,465		171			419			—			—
RCM Global, LLC ⁽⁴⁾	25.4%	584		—		222			399			—			—
Pelium Capital Partners, L.P. ⁽⁴⁾	80.2%	23,723		—		1,360			1,721			—			—
Subtotal		75,253		48,482		2,696			4,918			662			1,368
Investment in RCT I and II ⁽⁵⁾	3.0%	1,548		1,548		(651		)	(1,292		)	(602		)	(1,195		)
Total		$	76,801	$	50,030	$	2,045		$	3,626		$	60		$	173

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

(2) In December 2015, we elected a full redemption of its remaining investment from the fund.

(3) We have committed to invest up to $50.0 million in Pearlmark Mezzanine Realty Partners IV, L.P. The commitment termination date ends when the original commitment is fully funded, or the fifth anniversary following the final closing date of June 24, 2015.


(4)	Pursuant to the new consolidation guidance adopted January 1, 2016, these previously consolidated VIEs are now accounted for under the equity method.


(5)	For the three and six months ended June 30, 2016 and 2015 , these amounts are recorded in interest expense on our consolidated statements of operations.

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Financing Receivables

The following tables show the allowance for loan and lease losses and recorded investments in loans and leases as of the dates indicated (in thousands):



	Commercial Real Estate Loans			Bank Loans			Middle Market Loans			Residential Mortgage Loans			Direct Financing Leases		Total
As of June 30, 2016:
Allowance for Loan and Leases Losses:
Allowance for losses at January 1, 2016	$	41,839		$	1,282		$	3,939		$	11		$	465	$	47,536
Provision (recovery) for loan and lease losses	—			77			12,059			—			—		12,136
Loans charged-off	—			(77		)	(15,998		)	—			—		(16,075		)
Recoveries	—			—			—			—			—		—
Deconsolidation of VIEs	(40,414		)	(1,282		)	—			—			—		(41,696		)
Allowance for losses at June 30, 2016	$	1,425		$	—		$	—		$	11		$	465	$	1,901
Ending balance:
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	465	$	465
Collectively evaluated for impairment	$	1,425		$	—		$	—		$	11		$	—	$	1,436
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—
Loans and Leases:
Ending balance:
Individually evaluated for impairment	$	38,133		$	—		$	—		$	—		$	1,130	$	39,263
Collectively evaluated for impairment	$	1,383,057		$	—		$	54,485		$	2,641		$	—	$	1,440,183
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—

As of December 31, 2015:
Allowance for Loan and Lease Losses:
Allowance for losses at January 1, 2015	$	4,043		$	570		$	—		$	—		$	—	$	4,613
Provision for loan and lease losses	37,735			2,887			8,901			(99		)	465		49,889
Loans charged-off	—			(2,175		)	(4,962		)	110			—		(7,027		)
Recoveries	61			—			—			—			—		61
Allowance for losses at December 31, 2015	$	41,839		$	1,282		$	3,939		$	11		$	465	$	47,536
Ending balance:
Individually evaluated for impairment	$	40,274		$	1,282		$	—		$	—		$	465	$	42,021
Collectively evaluated for impairment	$	1,565		$	—		$	3,939		$	11		$	—	$	5,515
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—
Loans and Leases:
Ending balance:
Individually evaluated for impairment	$	169,707		$	1,544		$	—		$	—		$	1,396	$	172,647
Collectively evaluated for impairment	$	1,522,400		$	132,973		$	379,452		$	1,746		$	—	$	2,036,571
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—	$	—

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Credit quality indicators

Bank Loans

Loans are graded at inception and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1 to 5 with 1 representing our highest rating and 5 representing our lowest rating. Bank 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;


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 bank loans were as follows (in thousands):



	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of December 31, 2015:
Bank loans	$	113,897	$	17,578	$	1,498	$	—	$	1,544	$	1,475	$	135,992

As of June 30, 2016 all of our bank loans were deconsolidated. As of December 31, 2015 , all of our bank loans were current with respect to debt service with the exception of one loan with an aggregate amortized cost of $1.5 million , on which there was a reserve.

Middle Market Loans

At inception, all middle market loans are graded at a 2. Updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1 to 5 with 1 representing our highest rating and 5 representing our lowest rating. Middle market loans are only evaluated individually for impairment.

The characteristics of each rating category are as follows:


1.	A loan with a rating of a 1 is considered performing above expectations and the likelihood of loss is remote;


2.	A loan with a rating of a 2 is considered performing within expectations and the likelihood of loss is remote;


3.	A loan with a rating of a 3 is considered performing below expectations and requires close monitoring but no loss of interest or principal is expected. Loans receiving this rating may be out of compliance with financial covenants; however, these loans are current with respect to interest and principal;


4.	A loan with a rating of a 4 is considered performing below expectations and some loss of interest or dividend is expected but no loss of principal. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due, but generally not more than 180 days past due; and


5.	A loan with a rating of a 5 is considered performing substantially below expectations, in default and some loss of principal is expected. The borrower is out of compliance with most or all of the debt covenants and payments are substantially delinquent.

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



	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of June 30, 2016:
Middle market loans	$	—	$	48,452	$	6,033	$	—	$	—	$	259,179	$	313,664

As of December 31, 2015:
Middle market loans	$	44,252	$	305,578	$	29,622	$	—	$	—	$	—	$	379,452

All of our middle market loans were current with respect to debt service as of June 30, 2016 .

Commercial Real Estate Loans

Loans are graded at inception and updates to assigned grades are made continually as new information is received, as such, 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 our highest rating and 4 representing our lowest rating. Commercial real estate 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;


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 commercial real estate loans were as follows (in thousands):



	Rating 1 ⁽²⁾		Rating 2		Rating 3		Rating 4		Held for Sale		Total
As of June 30, 2016:
CRE whole loans	$	1,419,190	$	2,000	$	—	$	—	$	—	$	1,421,190
Mezzanine loans ⁽¹⁾	—		—		—		—		—		—
	$	1,419,190	$	2,000	$	—	$	—	$	—	$	—

As of December 31, 2015:
CRE whole loans	$	1,596,099	$	32,500	$	—	$	2,202	$	—	$	1,630,801
B notes	15,934		—		—		—		—		15,934
Mezzanine loans	7,300		—		—		38,072		—		45,372
	$	1,619,333	$	32,500	$	—	$	40,274	$	—	$	1,692,107


(1)	The Company has one mezzanine loan with a par value of $28.8 million that was acquired at fair value as a result of the liquidation of RREF 2006-1.


(2)	Includes three and four loans which were impaired as of June 30, 2016 and December 31, 2015 , respectively.

We had no delinquent commercial real estate loans as of June 30, 2016 . All of our commercial real estate loans were current with exception of one mezzanine loan that was defaulted as of December 31, 2015 . This loan was deconsolidated as part of our adoption of amendments to consolidation accounting guidance as required on January 1, 2016. However, as a result of

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RREF CDO 2006-1 being called and liquidated on April 25, 2016, par value of $28.8 million of this mezzanine loan was acquired as part of the liquidation proceeds and is reflected on the Company's balance sheet at a fair value of zero at June 30, 2016 .

Residential Mortgage Loans

Direct Financing Leases

During the year ended December 31, 2015, we recorded a provision against the value of our direct financing leases in the amount of $465,000 . As of June 30, 2016 , we held $665,000 of direct financing leases, net of reserves.

Loan Portfolios Aging Analysis

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



	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
As of June 30, 2016:
CRE whole loans	$	—	$	—	$	—	$	—	$	1,421,190	$	1,421,190	$	—
Mezzanine loans ⁽³⁾	—		—		—		—		—		—		—
Middle market loans	—		—		—		—		54,485		54,485		—
Direct Financing Leases	—		—		59		59		1,071		1,130		—
Residential mortgage loans ⁽¹⁾	—		—		169		169		163,601		163,770		—
Total loans	$	—	$	—	$	228	$	228	$	1,640,347	$	1,640,575	$	—

As of December 31, 2015:
CRE whole loans ⁽²⁾	$	—	$	—	$	—	$	—	$	1,630,801	$	1,630,801	$	—
B notes	—		—		—		—		15,934		15,934		—
Mezzanine loans	—		38,072		—		38,072		7,300		45,372		—
Bank loans	1,544		—		—		1,544		132,973		134,517		—
Middle Market	—		—		—		—		379,452		379,452		—
Direct Financing Leases	12		214		—		226		1,170		1,396		—
Residential mortgage loans ⁽¹⁾	27		41		80		148		96,069		96,217		—
Total loans	$	1,583	$	38,327	$	80	$	39,990	$	2,263,699	$	2,303,689	$	—


(1)	Contains $161.1 million and $94.5 million of residential mortgage loans held for sale at fair value June 30, 2016 and December 31, 2015 , respectively.


(2)	Current loans include one impaired whole loan with an amortized costs of $2.2 million , which was reserved as of December 31, 2015 .


(3)	The Company has one mezzanine loan with a par value of $28.8 million that was acquired at fair value as a result of the liquidation of RREF 2006-1.

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Impaired Loans

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



	Recorded Balance ⁽¹⁾		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
As of June 30, 2016:
Loans without a specific valuation allowance:
CRE whole loans	$	38,133	$	38,133	$	—		$	38,133	$	353
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans with a specific valuation allowance:
CRE whole loans	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Total:
CRE whole loans	$	38,133	$	38,133	$	—		$	38,133	$	353
Mezzanine loans	—		—		—			—		—
Middle market loans	—		—		—			—		—
Residential mortgage loans	—		—		—			—		—
	$	38,133	$	38,133	$	—		$	38,133	$	353

As of December 31, 2015:
Loans without a specific valuation allowance:
CRE whole loans	$	129,433	$	129,433	$	—		$	128,591	$	3,939
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	—	$	—	$	—		$	—	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans with a specific valuation allowance:
CRE whole loans	$	2,202	$	2,202	$	(2,202	)	$	2,202	$	63
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	(38,072	)	$	38,072	$	(2,879	)
Bank loans	$	1,544	$	1,551	$	(1,282	)	$	1,544	$	—
Middle market loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Total:
CRE whole loans	$	131,635	$	131,635	$	(2,202	)	$	130,793	$	4,002
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		(38,072		)	38,072		(2,879		)
Bank loans	1,544		1,551		(1,282		)	1,544		—
Middle market loans	—		—		—			—		—
Residential mortgage loans	—		—		—			—		—
	$	171,251	$	171,258	$	(41,556	)	$	170,409	$	1,123


(1)	As a result of the adoption of new consolidation accounting guidance as required on January 1, 2016, we deconsolidated $91.3 million of senior participations in four loans that were previously classified as impaired loans in our consolidated financial statements as of December 31, 2015.

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Troubled-Debt Restructurings

The following tables show troubled-debt restructurings in our loan portfolio (in thousands):



	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
For the Six Months Ended June 30, 2016:
CRE whole loans	3	$	29,459	$	29,459
Mezzanine loans	—	—		—
Middle market loans	—	—		—
Residential mortgage loans	—	—		—
Total loans	3	$	29,459	$	29,459

	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
For the Six Months Ended June 30, 2015:
CRE whole loans	2	$	67,459	$	67,459
B notes	—	—		—
Mezzanine loans	1	38,072		—
Bank loans	—	—		—
Middle market loans	—	—		—
Residential mortgage loans	—	—		—
Total loans	3	$	105,531	$	67,459

As of June 30, 2016 and 2015 , there were no commercial real estate loan troubled-debt restructurings that subsequently defaulted.

Restricted Cash

At June 30, 2016 , we had restricted cash of $6.8 million , which consisted of $6.6 million of restricted cash held by seven securitizations, $30,000 held as margin and $197,000 held in various reserve accounts. At December 31, 2015 , we had restricted cash of $40.6 million , which consisted of $39.0 million of restricted cash in our eight securitizations, $1.4 million held as margin and $195,000 held in various reserve accounts. The decrease of $33.8 million is primarily related to the deconsolidation of Apidos Cinco CDO, which had $16.7 million in restricted cash and also a reduction of $14.1 million of restricted cash in our CRE securitizations used to fund our future funding commitments.

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Interest Receivable

The following table summarizes our interest receivable as of the periods indicated (in thousands):



	June 30, 2016		December 31, 2015		Net Change
Interest receivable from loans	$	7,965	$	10,322	$	(2,357	)
Interest receivable from securities	897		2,510		(1,613		)
Interest receivable other	—		1,171		(1,171		)
Interest receivable from escrow and sweep accounts	6		6		—
Total	$	8,868	$	14,009	$	(5,141	)

At June 30, 2016 , we had interest receivable of $8.9 million , which primarily consisted of interest on our loans and securities and $6,000 of interest earned on escrow and sweep accounts. At December 31, 2015, we had interest receivable of $14.0 million , which primarily consisted of interest on our loans, securities and an equity investment in a warehouse facility and $6,000 of interest earned on escrow and sweep account. The $5.1 million decrease was primarily attributable to the deconsolidation of Pelium Capital, Apidos Cinco CDO, RREF CDO 2006-1 and RREF CDO 2007-1. As a result of the new accounting guidance, all of the assets of these four entities were deconsolidated on January 1, 2016. Additionally, there was also a decrease in interest receivable of $1.2 million related to the closing of ZAIS, our syndicated bank loans warehouse, in May 2016.

Prepaid Expenses

The following table summarizes our prepaid expenses at the periods indicated (in thousands):



	June 30, 2016		December 31, 2015		Net Change
Prepaid taxes	$	3,321	$	1,598	$	1,723
Prepaid insurance	351		224		127
Other prepaid expenses	1,386		1,358		28
Total	$	5,058	$	3,180	$	1,878

Prepaid expenses increased $1.9 million to $5.1 million as of June 30, 2016 from $3.2 million as of December 31, 2015 . The primarily cause was an increase in prepaid taxes of $1.7 million due to the payment of estimated taxes during the three months ended June 30, 2016 . Additionally, prepaid insurance increased $127,000 due to the timing of payments on the annual renewal of our director's and officer's insurance policy and an increase in other prepaid expenses of $28,000 .

Other Assets

The following table summarizes our other assets as of the periods indicated (in thousands):



	June 30, 2016		December 31, 2015		Net Change
Other receivables	$	2,749	$	12,578	$	(9,829	)
Investment in life settlement contracts	5,268		4,584		684
Tax receivable	874		482		392
Management fees receivable	420		1,904		(1,484		)
Fixed assets - non real estate	2,568		2,488		80
Other assets	258		259		(1		)
Total	$	12,137	$	22,295	$	(10,158	)

The decrease of approximately $10.2 million in other assets is primarily due to a decrease in other receivables of $9.8 million ; $8.6 million of this amount relates to the cash receipt for the return of principal from our investment in CVC Credit Opportunities Fund, L.P., $850,000 of this amount relates to a receivable accrued in December 2015 for a cash distribution from RCC 2015-CRE3; $400,000 relates to a decrease in the amount of a loan receivable due from LCF to fund new life settlement contracts, partially offset by other miscellaneous receivables. Additionally, there was a decrease in management fees receivable of $1.5 million due to an incentive management fee earned on RCAM in December 2015 and paid in January 2016. These decreases were offset by an increase of $684,000 in life settlement contracts from the net acquisition of new contracts, $392,000 of tax receivable due to the timing of tax payments made, and $80,000 due to the acquisition of fixed assets at PCM.

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Hedging Instruments

A significant market risk to us is interest rate risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with the interest-bearing liabilities, by affecting the spread between the interest-earning assets and interest-bearing liabilities. Changes in the level of interest rates also can affect the value of our interest-earning assets and our ability to realize gains from the sale of these assets. A decline in the value of our interest-earning assets pledged as collateral for borrowings could result in the counterparties demanding additional collateral pledges or liquidation of some of the existing collateral to reduce borrowing levels.

We are also exposed to foreign currency exchange risk, a form of risk that arises from the change in price of one currency against another. Substantially all of our revenues are transacted in U.S. dollars; however, a portion of our capital is exposed to other currencies, primarily the Euro and, to a lesser extent, the pound sterling. To address this market risk, we generally hedge our foreign currency-denominated exposures (typically investments in debt instruments, including forecasted principal and interest payments) with foreign currency forward contracts. We classify these hedges as fair value hedges, which are hedges that mitigate the risk of changes in the fair values of assets, liabilities, and certain types of firm commitments. We record changes in the fair value of derivatives designated and effective as fair value hedges in earnings offset by corresponding changes in the fair values of the hedged items.

The following tables present the fair value of our derivative financial instruments as well as their classification on our consolidated balance sheets and on the consolidated statements of operations for the years presented:

Fair Value of Derivative Instruments as of June 30, 2016

(in thousands)



	Asset Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate lock agreements	$	270,487	Derivatives, at fair value	$	4,397
Forward contracts - residential mortgage lending	$	60,857	Derivatives, at fair value	$	161
Forward contracts - foreign currency, hedging ⁽¹⁾⁽²⁾	$	26,640	Derivatives, at fair value	$	722
Warrants ⁽³⁾	$	553	Derivatives, at fair value	$	853

	Liability Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate lock contracts	$	2,646	Derivatives, at fair value	$	36
Forward contracts - residential mortgage lending	$	363,721	Derivatives, at fair value	$	2,881
Forward contracts - TBA securities	$	41,000	Derivatives, at fair value	$	167

Interest rate swap contracts, hedging	$	—	Accumulated other comprehensive (income) loss	$	67


(1)	Notional amount presented on currency converted basis. The base currency notional amount of our foreign currency hedging forward contracts was €24.0 million as of June 30, 2016 .


(2)	Foreign currency forward contracts are accounted for as fair value hedges.


(3)	The notional amount of our warrants is calculated by multiplying the number of shares available for purchase by exercise price.

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Fair Value of Derivative Instruments as of December 31, 2015 :

(in thousands)



	Asset Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate lock agreements ⁽¹⁾	$	105,385	Derivatives, at fair value	$	1,224
Forward contracts - residential mortgage lending	$	92,413	Derivatives, at fair value	$	345
Forward contracts - foreign currency, hedging ⁽²⁾⁽³⁾	$	24,850	Derivatives, at fair value	$	727
Forward contracts - TBA securities	$	29,500	Derivatives, at fair value	$	99
Warrants ⁽⁴⁾	$	553	Derivatives, at fair value	$	1,051
	Liability Derivatives
	Notional Amount		Balance Sheet Location	Fair Value
Interest rate swap contracts, hedging ⁽⁵⁾	$	102,799	Derivatives, at fair value	$	3,459
Interest rate lock agreements ⁽⁶⁾	$	505	Derivatives, at fair value	$	3
Forward contracts - residential mortgage lending	$	143,553	Derivatives, at fair value	$	479
Forward contracts - TBA securities	$	1,500	Derivatives, at fair value	$	—

Interest rate swap contracts, hedging	$	102,799	Accumulated other comprehensive (income) loss	$	(3,471	)


(1)	The notional amount of our interest rate lock agreements in an asset position is the pass-through weighted total commitments with a weighted average pass-through percentage of 85.9%.


(2)	Notional amount presented on currency converted basis. The base currency notional amount of our foreign currency hedging forward contracts was €22.9 million as of December 31, 2015.


(3)	Foreign currency forward contracts are accounted for as fair value hedges.


(4)	The notional amount of our warrants is the calculated number of shares available for purchase.


(5)	Interest rate swap contracts are accounted for as cash flow hedges.


(6)	The notional amount of our interest rate lock agreements in a liability position is the pass-through weighted total commitments with a weighted average pass-through percentage of 19.5%.

The Effect of Derivative Instruments on the Statements of Operations for the

Six Months Ended June 30, 2016

(in thousands)



	Derivatives
		Statement of Operations Location	Realized and Unrealized Gain (Loss) ⁽¹⁾
Interest rate swap contracts, hedging		Interest expense	$	(70	)
Interest rate lock agreements		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	3,141
Forward contracts - residential mortgage lending		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	(2,587	)
Forward contracts - foreign currency, hedging		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	(62	)
Forward contracts - TBA securities		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	(830	)

(1) Negative values indicate a decrease to the associated balance sheets or consolidated statements of operations line items.

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The Effect of Derivative Instruments on the Statements of Operations for the

Six Months Ended June 30, 2015

(in thousands)



	Derivatives
		Statement of Operations Location	Realized and Unrealized Gain (Loss) ⁽¹⁾
Interest rate swap contracts, hedging		Interest expense	$	3,152
Interest rate swap contracts, hedging		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	206
Interest rate lock agreements		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	1,061
Forward contracts - RMBS securities		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	57
Forward contracts - residential mortgage lending		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	1,989
Forward contracts - foreign currency, hedging		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	1,790
Options - U.S. Treasury futures		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	184
Forward contracts - TBA securities		Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives	$	56

(1) Negative values indicate a decrease to the associated balance sheets or consolidated statements of operations line items.

On January 1, 2016, we deconsolidated RREF CDO 2006-1 and RREF CDO 2007-1 in accordance with guidance on consolidation. This resulted in the deconsolidation of six CRE interest rate swaps.

During the three months ended June 30, 2016 , we requested and canceled our remaining interest rate swap contract through accumulated other comprehensive income (loss), to be amortized through earnings over the life of the remaining debt. As of June 30, 2016 , the Company had no interest rate swap contracts outstanding.

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Repurchase and Credit Facilities

Borrowings under our repurchase agreement facilities were guaranteed by us or one of our subsidiaries. The following table sets forth certain information with respect to our borrowings as of the periods indicated (dollars in thousands):



	June 30, 2016						December 31, 2015
	Outstanding Borrowings		Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate	Outstanding Borrowings		Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate
CMBS Term Repurchase Facilities
Wells Fargo Bank ⁽¹⁾	$	22,593	$	28,204	20	1.67%	$	25,656	$	31,650	21	1.57%
Deutsche Bank ⁽²⁾	60,443		91,327		20	2.78%	—		—		—	—%

CRE Term Repurchase Facilities
Wells Fargo Bank ⁽³⁾	159,276		234,122		13	2.56%	123,937		179,169		9	2.39%
Morgan Stanley Bank ⁽⁴⁾	122,004		184,114		10	3.06%	98,991		142,098		7	2.96%

Trust Certificates Term Repurchase Facility
RSO Repo SPE Trust 2015 ⁽⁵⁾	26,298		89,181		1	5.95%	26,244		89,181		1	5.85%

Short-Term Repurchase Agreements - CMBS
Wells Fargo Securities, LLC	—		—		—	—%	13,548		19,829		3	1.93%
Deutsche Bank Securities, LLC	—		—		—	—%	43,859		59,518		17	2.1%

Residential Investments Term Repurchase Facility
Wells Fargo Bank	888		1,018		2	3.00%	782		835		1	2.75%

Residential Mortgage Financing Agreements
New Century Bank	52,064		67,152		241	3.13%	43,789		61,111		199	3.17%
Wells Fargo Bank	94,700		133,962		334	3.03%	42,030		59,841		166	3.03%
Totals	$	538,266	$	829,080			$	418,836	$	643,232


(1)	The Wells Fargo Bank CMBS term repurchase facility borrowing includes $1,000 and $2,000 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(2)	The Deutsche Bank CMBS term repurchase facility includes $36,000 and $0 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(3)	The Wells Fargo Bank CRE term repurchase facility borrowing includes $163,000 and $675,000 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(4)	The Morgan Stanley Bank CRE term repurchase facility includes $1.4 million and $1.7 million of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.


(5)	The RSO Repo SPE Trust 2015 term repurchase facility includes $357,000 and $415,000 of deferred debt issuance costs as of June 30, 2016 and December 31, 2015 , respectively.

We are in compliance with all financial covenants as defined in the respective agreements as of June 30, 2016 .

Residential Investments – Term Repurchase Facility

In June 2014, our wholly-owned subsidiaries, RCC Resi Portfolio, RCC Resi TRS, and RCC Resi Depositor (the “Sellers”) entered into a master repurchase and securities contract (the “2014 Facility”) with Wells Fargo Bank, NA ("Wells Fargo"). Under the 2014 Facility, from time to time, the parties may enter into transactions in which the Sellers and Wells Fargo agree to transfer from the Sellers to Wells Fargo all of their right, title and interest to certain residential mortgage backed securities and other assets against the transfer of funds by Wells Fargo to the Sellers, with a simultaneous agreement by Wells Fargo to transfer back to the Sellers such assets at a date certain or on demand, against the transfer of funds from the Sellers to Wells Fargo. In May 2016, we

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entered into a sixth amendment of the 2014 Facility that made no material changes to the facility's terms. In July 2016, we agreed to terminate the 2014 Facility.

CMBS – Term Repurchase Facilities

In May 2016, our wholly-owned subsidiary RCC Real Estate entered into a global master repurchase agreement (the “2016 Facility”) with Deutsche Bank, AG (“DB”). Under the 2016 Facility, from time to time, the parties may enter into transactions in which RCC Real Estate and DB agree to transfer from the RCC Real Estate to DB all of their right, title and interest to certain CMBS and other assets (the "Assets") against the transfer of funds by DB to the RCC Real Estate, with a simultaneous agreement by DB to transfer back to the RCC Real Estate such Assets at a date certain, against the transfer of funds from the RCC Real Estate to DB. The maximum amount of the 2016 Facility is at DB's discretion and the minimum amount of the 2016 Facility is $50.0 million . The original term of the 2016 Facility is one year with subsequent one year extensions subject at DB's approval. The 2016 Facility includes a "makewhole" clause which entitles DB to the full original term's interest in the event of an optional termination.

Under the terms of the 2016 Facility and pursuant to a guarantee agreement dated May 23, 2016 (the “2016 Guaranty”), we guaranteed the payment and performance of (a) all payment obligations owing by the RCC Real Estate to DB under or in connection with the 2016 Facility and any other governing agreements; (b) all expenses, including, without limitation, reasonable attorneys' fees and disbursements, that are incurred by DB in the enforcement of any of the foregoing or any obligation of the registrant.. The 2016 Guaranty includes a reporting covenant that we were in compliance with as of June 30, 2016 .

Residential Mortgage Financing Agreements

Securitizations

As of June 30, 2016 , we had executed eight and currently retain equity in eight of these securitizations. Pertinent information about our securitizations that occurred during the first six months of 2016 is as follows:


•	On January 1, 2016, we deconsolidated RREF CDO 2006-1, RREF CDO 2007-1, and Apidos Cinco CDO in accordance with guidance on consolidation.


•	On April 25, 2016, we called RREF CDO 2006-1 and in exchange for our equity notes and preference share, received the remaining collateral.

Senior Secured Revolving Credit Agreement

As of June 30, 2016 , Northport LLC, our wholly-owned subsidiary, had $144.0 million outstanding on a syndicated senior secured revolving credit facility ("Northport Credit Facility") with JP Morgan as our agent bank. At June 30, 2016 , there was an unused balance of $81.0 million on the Northport Credit Facility.

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On August 1, 2016, we entered into a purchase agreement to sell Northport LLC. This transaction includes the assumption of the Credit Facility. Accelerated amortization of the remaining deferred debt issuance costs in the amount of $2.6 million pertaining to the Northport Credit Facility was recorded as of June 30, 2016.

Equity

Total equity at June 30, 2016 was $776.4 million and gave effect to $3.4 million of unrealized losses on our cash flow hedges and $4.2 million of net unrealized gains on our available-for-sale portfolio, shown as a component of accumulated other comprehensive income. Equity at December 31, 2015 was $826.8 million and gave effect to $3.5 million of unrealized losses on our cash flow hedges and $611,000 of net unrealized gains on our available-for-sale portfolio, shown as a component of accumulated other comprehensive income. The decrease in equity during the six months ended June 30, 2016 was principally due to the deconsolidation of RREF CDO 2006-1, RREF CDO 2007-1, Apidos Cinco CDO, Pelium Capital and RCM Global as a result of the consolidation guidance on variable interest entities which we adopted on January 1, 2016. Equity also decreased due to stock repurchases and distributions on our common stock and preferred stock in excess of earnings.

Balance Sheet - Book Value Reconciliation



	Amount			Per Share
Book value at December 31, 2015, allocable to common shares ⁽¹⁾	$	544,161		$	17.63
Net income allocable to common shares	8,137			0.26

Change in other comprehensive income (loss):
Available-for-sale securities	157			—
Derivatives	3,403			0.11
Foreign currency conversion	62			—
Common dividends	(25,520		)	(0.84		)
Common dividends on unvested shares	(658		)	(0.02		)
Effect of fair value impact to retained earnings on deconsolidated VIE's ⁽²⁾	(16,933		)	(0.55		)
Accretion from share repurchases during the period ⁽³⁾	(7,998		)	0.15
Accretion (dilution) from additional shares issued during the period and other ⁽⁴⁾	2,662			(0.11		)
Total net decrease	(36,688		)	(1.00		)
Book value at June30, 2016, allocable to common shares ⁽¹⁾⁽⁵⁾	$	507,473		$	16.63


(1)	Per share calculations exclude unvested restricted stock, as disclosed on the consolidated balance sheet, of 655,775 and 691,369 shares as of June 30, 2016 and December 31, 2015 , respectively. The denominator for the calculation is 30,508,005 and 30,871,355 as of June 30, 2016 and December 31, 2015 , respectively.


(2)	Pursuant to updated accounting guidance adopted on January 1, 2016 on consolidation of variable interest entities, we deconsolidated and recorded fair value adjustments on RREF CDO 2006-1 of ($1.5 million) or ($0.05) per share, RREF CDO 2007-1 of ($9.8 million) or ($0.32) per share and Apidos Cinco CDO of ($5.6 million) or ($0.18) per share reflected in book value as of June 30, 2016 .


(3)	Under our repurchase plan, we purchased 2.7 million shares for $33.9 million through June 30, 2016 , including 703,000 shares or $8.0 million during the six months ended June 30, 2016.


(4)	Includes issuance of common shares from our dividend reinvestment plan of 6,000 shares and 255,000 net change of unvested shares of restricted stock.


(5)	Book value allocable to common shares is calculated as total stockholders' equity of $777.6 million less preferred stock equity of $270.1 million as of June 30, 2016 .

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Balance Sheet - Economic Book Value Reconciliation ⁽²⁾



	June 30, 2016
Total stockholders' equity per GAAP ⁽¹⁾	$	777,561
Preferred stock equity	(270,087		)
Stockholders' equity allocable to common shares	507,474

Add:
Deconsolidation of RREF CDO 2006-1 ^{(3) (4)}	370
Deconsolidation of RREF CDO 2007-1 ^{(3) (4)}	9,492
Deconsolidation of Apidos Cinco CDO ^{(3) (4)}	3,953
Net unrealized losses - investment securities available-for-sale and derivatives ⁽⁵⁾	700
Economic book value	$	521,989
Shares outstanding	30,508,005
Economic book value per share	$	17.11


(1)	Book value allocable to common shares is calculated as total stockholders' equity of $777.6 million less preferred stock equity of $270.1 million as of June 30, 2016 .

(2)

Our management views economic book value, a non-GAAP measure, as a useful and appropriate supplement to GAAP stockholders' equity and book value per share. This serves as an additional measure of our value because it facilitates evaluation of our balance sheet without the effects of unrealized losses on investments and derivatives, for which we expect to recover net realizable value at maturity, in excess of our value at risk. Unrealized losses that are in excess of our maximum value at risk and unrealized net discounts on loans and securities are added back to stockholders' equity in arriving at economic book value. Economic book value should be reviewed in connection with GAAP stockholders' equity as set forth in our consolidated balance sheets, to help analyze our value to investors. Economic book value is defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our economic book value to that of other REITs.

(3)

Effective January 1, 2016, we deconsolidated RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO upon the adoption of new accounting guidance. We retain investment securities and preferred interests in the CDO vehicles, which we account for as investments securities, available-for-sale. The reduction to retained earnings of $16.9 million represents the effect of marking these investments to market as of the date of the required adoption and represents discounts to par due to illiquidity premiums and other market forces and are expected to be recovered over time as the investments approach their respective maturities. On April 25, 2016 we called RREF CDO 2006-1 and in exchange for RSO's equity notes and preference shares, received the remaining collateral. We recorded the collateral of RREF CDO 2006-1 at fair market value. This resulted in recording a gain on acquisition of $846,000 during the three months ended June 30, 2016 and there remains an unamortized discount of $370,000 as of June 30, 2016 on the original $1.5 million charge to retained earnings related to the valuation of RREF CDO 2006-1 as of January 1, 2016.

(4)

We will recognize the excess of all cash flows attributable to the beneficial interest estimated at the date of the required adoption over the fair value of the investment (the accretable yield) at January 1, 2016, as interest income over the life of the beneficial interest using the effective interest method. The cash flows are subject to changes in prepayment speeds and potential impairments of the underlying investments, which would have an impact on the net realizable value and future income. These assumptions are reviewed quarterly.

(5)

We add back unrealized net accretion of securities that will be accreted into interest income over the lives of the securities using the effective interest method, adjusted for the effects of estimated prepayments. If the investment is purchased at a discount or at a premium, the effective interest is computed based on the contractual interest rate increased for the accretion of a purchase discount or decreased for the amortization of a purchase premium. The effective interest method requires us to make estimates of future prepayment rates for its investments that can be contractually prepaid before their contractual maturity date so that the purchase discount can be accreted, or the purchase premium can be amortized, over the estimated remaining life of the investment. The cash flows are subject to changes in prepayment speeds and potential impairments of the underlying investments, which would have an impact on the net realizable value and future income. These assumptions are reviewed quarterly.

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Funds from Operations

We evaluate our performance based on several performance measures, including funds from operations, or FFO, and adjusted funds from operations, or AFFO, in addition to net income. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts as net income (computed in accordance with GAAP), excluding gains or losses on the sale of depreciable real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures.

AFFO is a computation made by analysts and investors to measure a real estate company’s operating performance. We calculate AFFO by adding or subtracting from FFO the impact of non-cash accounting items as well as the effects of items that we deem to be non-recurring in nature. We deem transactions to be non-recurring if a similar transaction has not occurred in the past two years, and if we do not expect a similar transaction to occur in the next two years. We adjust for these non-cash and nonrecurring items to analyze our ability to produce cash flow from on-going operations, which we use to pay dividends to our shareholders. Non-cash adjustments to FFO include the following: impairment losses resulting from fair value adjustments on financial instruments; provisions for loan losses; equity investment gains and losses; straight-line rental effects; share based compensation expense; amortization of various deferred items and intangible assets; gains on sales of property that are wholly owned or owned through a joint venture; the cash impact of capital expenditures that are related to our real estate owned; and REIT tax planning adjustments, which primarily relate to accruals for owned properties for which we made a foreclosure election and adjustments to tax estimates with respect to the final resolution of foreclosed property when it is listed for sale. In addition, we calculate AFFO by adding and subtracting from FFO the realized cash impacts of the following: extinguishment of debt, reissuances of debt, sales of property and capital expenditures.

Management believes that FFO and AFFO are appropriate measures of our operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs. Management uses FFO and AFFO as measures of its operating performance, and believes they are also useful to investors because they facilitate an understanding of our operating performance apart from non-cash and non-recurring items, which may not necessarily be indicative of current operating performance and that may not allow accurate period to period comparisons of our operating performance.

While our calculations of AFFO may differ from the methodology used for calculating AFFO by other REITs and our FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our performance with some other REITs. Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and AFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to GAAP net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of its liquidity.

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The following table reconciles GAAP net income (loss) to FFO and AFFO for the periods presented (in thousands):



	For the Three Months Ended												For the Six Months Ended
	June 30,												June 30,
	2016			Per Share Data			2015			Per Share Data			2016			Per Share Data			2015			Per Share Data
Net income (loss) allocable to common shares - GAAP	$	(1,536	)	$	(0.05	)	$	(31,011	)	$	(0.94	)	$	8,137		$	0.26		$	(21,609	)	$	(0.66	)
Adjustments:
(Gains) losses on sales of property ⁽¹⁾	(10		)	—			(22		)	—			(32		)	—			—			—
FFO allocable to common shares	(1,546		)	(0.05		)	(31,033		)	(0.94		)	8,105			0.26			(21,609		)	(0.66		)
Adjustments:
Non-cash items:
Provision (recovery) for loan losses	1,277			0.04			38,117			1.16			1,420			0.05			41,741			1.27
Amortization of deferred costs (non real estate) and intangible assets	3,321			0.11			2,986			0.09			6,491			0.21			5,853			0.18
Amortization of discount on convertible senior notes	705			0.02			633			0.02			1,415			0.05			949			0.03
Acceleration of deferred debt issuance costs from sale of Northport loans	2,560			0.08			—			—			2,560			0.08			—			—
Equity investment (gains) losses	(933		)	(0.03		)	(350		)	(0.01		)	(2,344		)	(0.08		)	(402		)	(0.01		)
Share-based compensation	1,415			0.05			791			0.02			2,678			0.09			1,786			0.06
Impairment losses	—			—			—			—			—			—			59			—
Unrealized losses (gains) on CMBS marks - linked transactions ⁽²⁾	—			—			—			—			—			—			(235		)	—
Unrealized (gains) losses on trading portfolio	(183		)	(0.01		)	(155		)	—			(118		)	(0.01		)	(1,319		)	(0.04		)
Unrealized (gains) losses on foreign exchange transactions	(80		)	—			5,510			0.17			(246		)	(0.01		)	4,851			0.15
Unrealized (gains) losses on derivatives	(834		)	(0.03		)	—			—			(2,212		)	(0.07		)	1,075			0.03
Loss on resale of debt	—			—			171			0.01			—			—			1,071			0.03
Change in mortgage servicing rights valuation reserve	2,300			0.08			(800		)	(0.02		)	4,800			0.16			(250		)	(0.01		)
Change in residential loan warranty reserve	213			0.01			400			—			332			0.01			400			0.01
Dead deal costs	—			—			—			—			—			—			399			0.01
REIT tax planning adjustments	—			—			—			—			—			—			317			0.01
Cash items:
Gains (losses) on sale of property ⁽¹⁾	10			—			22			—			32			—			—			—
Gains (losses) on extinguishment of debt	6,303			0.21			3,765			0.11			6,303			0.21			6,645			0.20
AFFO allocable to common shares	$	14,528		$	0.48		$	20,057		$	0.61		$	29,216		$	0.95		$	41,331		$	1.26

Weighted average shares – diluted	30,410						32,852						30,724						32,833

AFFO per share – diluted	$	0.48					$	0.61					$	0.95					$	1.26


(1)	Amount represents gains/losses on sales of owned real estate as well as sales of joint venture real estate interests that were recorded by us on an equity basis.


(2)	Due to a change in accounting guidance, as of January 1, 2015, the concept of linked transactions no longer exists.

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Liquidity and Capital Resources

During the six months ended June 30, 2016 , our principal sources of liquidity were: liquidation of our investment in CVC Global Opportunities Fund, LP which returned $8.6 million of principal in January 2016, proceeds from our CRE securitizations which purchased future funding commitments utilizing repaid principal of $9.0 million, $114.6 million of repayments on our Northport LLC middle market loan portfolio and cash flow from operations. These sources of liquidity principally provided the $65.2 million of unrestricted cash we held at June 30, 2016 . In addition, we had capital available through a CMBS term facility to help finance the purchase of CMBS securities of $77.4 million and $367.4 million combined from two CRE term facilities for the origination of commercial real estate loans.

On February 27, 2012, we entered into a master repurchase and securities agreement (the "Wells CRE Facility”) with Wells Fargo Bank, NA to finance the origination of commercial real estate loans. On October 31, 2014, we agreed to a modification of the terms of the Wells CRE Facility. The modification increases the facility maximum by $150.0 million to $400.0 million. On July 21, 2016, we agreed to a modification of the terms of the Wells CRE Facility. The modification extends the facility's maturity date to July 21, 2018, subject to three one-year extension rights which may extend the maturity to July 21, 2021. The amendment also modified certain financing rates and required debt yields. We paid extension fees as well as other reasonable closing costs.

On September 20, 2015, we entered into a master repurchase and securities agreement (the "Morgan Stanley Facility”) with Morgan Stanley Bank, NA to finance the origination of commercial real estate loans. We paid a commitment fee of 0.65% of the maximum facility amount, as well as other standard closing costs. The Morgan Stanley Facility has a maximum capacity of $250.0 million and an initial three year term that expires on September 10, 2018 with annual one year extension options.

In February 2011, we entered into a master repurchase and securities agreement ("Wells CMBS Facility") to finance the purchase of CMBS. The maximum amount of the Wells CMBS Facility is $100.0 million which had an original two year term with a one year option to extend. In April 2014, we agreed to a third amendment of the facility, which extended the termination date to January 31, 2016. In May 2015, we agreed to a fourth amendment of the facility, which extended the termination date to January 31, 2017. We may enter into interest rate swaps and cap agreements for securities whose average life exceeds two years to mitigate interest rate risk under the Wells CMBS Facility.

During the second quarter 2015, we entered into the first and second amendments of Northport LLC's Senior Secured Revolving Credit Agreement, or Northport Credit Facility, which increased the original commitment from $225.0 million to $300.0 million and secured $85.0 million of additional availability, bringing the total available under the Northport Credit Facility to $225.0 million as of June 30, 2016 . As of June 30, 2016 , $144.0 million was outstanding on the Northport Credit Facility. Under the first amendment both the ability to access to draws on the Northport Credit Facility and maturity have been extended six months until March 31, 2018 and March 31, 2019, respectively. At June 30, 2016 , there was an unused balance of $81.0 million on the facility. On August 1, 2016, we entered into a purchase agreement to sell its interest in Northport LLC for $247.0 million. The transaction, which closed on August 4, 2016, included substantially all of the direct origination middle market loans and one syndicated loan with a par balance of $257.0 million and the assumption of the J. P. Morgan Senior Secured Credit Facility, for net proceeds of approximately $102.0 million.

During the year ended December 31, 2015 , our principal sources of liquidity were: net proceeds from our 8.0% convertible notes offering on January 13, 2015 of $97.0 million, the return of equity at the close of RCC 2015-CRE3 on February 24, 2015 of $78.0 million, the return of equity at the close of RCC 2015-CRE4 on August 18, 2015 of $29.7 million, liquidation of Moselle CLO S.A. which returned $30.0 million (which included $1.0 million of proceeds from forward currency contracts), liquidation of Apidos CDO III in June 2015 which returned $12.8 million of principal, cash flow from operations and $3.0 million of net proceeds from the sale of our 8.25% Series B Preferred Stock through our at the market, or ATM, program in January 2015. These sources of liquidity principally provided the our $78.8 million of unrestricted cash we held at December 31, 2015 . In addition, we had capital available through a CMBS term facility to help finance the purchase of CMBS securities of $74.4 million and $425.0 million combined from two CRE term facilities for the origination of commercial real estate loans.

Our on-going liquidity needs consist principally of funds to make investments, make debt repurchases, make distributions to our stockholders and pay our operating expenses, including management fees. Our ability to meet our on-going liquidity needs will be subject to our ability to generate cash from operations and, with respect to our investments, our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to above.

Since December 2013, we have met a significant portion of our debt funding requirements for CRE loans through securitizations. In February 2015, we closed a $346.2 million CRE securitization, and in August 2015, we closed a $312.9 million CRE securitization, which brings our total to just in excess of $1.3 billion of mortgage loans financed during that period. We expect to derive substantial operating cash from our equity investments in the four newest securitizations, which do not have the

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same asset and interest coverage tests as are required by our CDOs. These CRE securitizations do not have reinvestment periods; however, principal payments, for a stipulated period, may be used to purchase funding participations with respect to existing collateral held outside of the securitizations. This will allow us to recycle some capital repaid and convert the designated principal for funded companion participation acquisition cash which would otherwise be used to pay down the most senior notes and reduce leverage and potential returns within the securitization.

Historically, we have financed a substantial portion of our portfolio investments through securitized notes that essentially match the maturity and repricing dates of these financing vehicles with the maturities and repricing dates of our investments, and, in view of current market conditions, we may continue to seek this type of securitization financing. We derive substantial operating cash from our equity investments in our securitizations which, if the securitizations fail to meet certain tests, will cease. Through June 30, 2016 , we have not experienced difficulty in maintaining our existing securitized note financing and have passed all of the critical tests required by these financings. However, we cannot assure you that we will continue securitization financing to meet all such critical tests in the future. If we are unable to renew, replace or expand our sources of existing financing on substantially similar terms, we may be unable to implement our investment strategies successfully and may be required to liquidate portfolio investments. If required, a sale of portfolio investments could be at prices lower than the carrying value of such assets, which would result in losses and reduced income.

The following table sets forth the distributions made and coverage test summaries for each of our securitizations for the periods presented (in thousands):



Name	Cash Distributions				Annualized Interest Coverage Cushion		Overcollateralization Cushion
	Six Months Ended June 30,		Year Ended December 31,		As of June 30,		As of June 30,		As of Initial Measurement Date
	2016		2015		2016 ^{(1) (2)}		2016 ⁽³⁾		As of Initial Measurement Date
Apidos Cinco CDO ⁽⁴⁾	$	1,733	$	6,336	$	3,956	$	20,860	$	17,774
RREF CDO 2006-1 ^{(4) (9)}	$	1,394	$	3,451	$	—	$	—	$	24,941
RREF CDO 2007-1 ⁽⁴⁾	$	1,001	$	6,102	$	15,250	$	67,491	$	26,032
RCC CRE Notes 2013	$	2,217	$	9,129	N/A		N/A		N/A
RCC 2014-CRE2 ⁽⁵⁾	$	6,894	$	15,826	N/A		$	50,660	$	20,663
RCC 2015-CRE3 ⁽⁶⁾	$	5,954	$	9,186	N/A		$	26,092	$	20,313
RCC 2015-CRE4 ⁽⁷⁾	$	6,024	$	3,291	N/A		$	9,397	$	9,397
Moselle CLO S.A. ⁽⁸⁾	$	183	$	29,099	N/A		N/A		N/A


(1)	Interest coverage includes annualized amounts based on the most recent trustee statements.


(2)	Interest coverage cushion represents the amount by which annualized interest income expected exceeds the annualized amount payable on all classes of securitization notes senior to our preference shares.


(3)	Overcollateralization cushion represents the amount by which the collateral held by the securitization issuer exceeds the maximum amount required.


(4)	Apidos Cinco CDO, RREF CDO 2006-1, and RREF CDO 2007-1 were deconsolidated as a result of the new consolidation accounting guidance adopted effective January 1, 2016.

(5)

Resource Capital Corp. 2014-CRE2 has no reinvestment period; however, principal repayments, for a period ending in July 2016, may be designated to purchase loans held outside of the securitization that represent the funded commitments of existing collateral in the securitization that were not funded as of the date the securitization was closed. Additionally, the indenture contains no interest coverage test provisions.

(6)

Resource Capital Corp. 2015-CRE3 closed on February 24, 2015; the first distribution was in March 2015. There is no reinvestment period; however, principal repayments, for a period ending in February 2017, may be designated to purchase loans held outside of the securitization that represent the funded commitments of existing collateral in the securitization that were not funded as of the date the securitization was closed. Additionally, the indenture contains no interest coverage test provisions.

(7)

Resource Capital Corp. 2015-CRE4 closed on August 18, 2015; the first distribution was in September 2015. There is no reinvestment period; however, principal repayments, for a period ending in September 2017, may be designated to purchase loans held outside of the securitization that represent the funded commitments of existing collateral in the securitization that were not funded as of the date the securitization was closed. Additionally, the indenture contains no interest coverage test provisions.


(8)	Moselle CLO S.A. was acquired on February 24, 2014 and the reinvestment period for this securitization expired prior to the acquisition. In the fourth quarter of 2014 we began to liquidate Moselle CLO S.A. and, by January 2015, all of the assets were sold.


(9)	RREF CDO 2006-1 was liquidated on April 25, 2016 and as a result, all $66.3 million of the remaining assets were returned to RSO in exchange for our preference shares and equity notes in the securitization.

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At June 30, 2016 , our liquidity is derived from three primary sources:


•	unrestricted cash and cash equivalents of $65.2 million and restricted cash of $30,000 in margin call accounts;


•	capital available for reinvestment in two of our CRE securitizations of $6.3 million ; and


•	loan principal repayments of $178,000 that will pay down outstanding CLO note balances, as well as interest collections of $113,000 . In addition, we had $197,000 in restricted deposits related to certain of our investments.

We also had $240.7 million and $126.7 million , respectively, available through two term financing facilities to finance the origination of CRE loans, and $77.4 million available through a term financing facility to finance the purchase of CMBS.

Our leverage ratio, defined as the ratio of borrowings to stockholders' equity may vary as a result of the various funding strategies we use. As of June 30, 2016 and December 31, 2015 , our leverage ratio was 2.0 times and 2.3 times, respectively. Our leverage has decreased primarily as a result of the deconsolidation of RREF CDO 2006-1, RREF CDO 2007-1 and Apidos Cinco CDO, offset by the reduction of stockholder's equity due to the fair value adjustment recorded through retained earnings on those deconsolidated entities, as well as repurchases of our common stock and Series B preferred stock.

Several of our legacy CDOs and CLOs have been liquidated over the last few years. This trend continued in 2016. On April 25, 2016, we called and liquidated our investment in RREF CDO 2006-1. Our one remaining legacy CRE securitization and one remaining bank loan securitization have seen substantial pay downs of notes issued under their indentures as the underlying collateral has paid down or paid off in full. The table and footnotes below indicate what remains in these legacy securitizations as well as our remaining equity and, in the case of our legacy CRE CDO, our share of notes repurchased and discounted purchase price of those notes. In the case of the CRE CDO, we expect to have loan assets distributed to us once the outstanding notes held by third parties have been paid off. Once the loan assets are distributed we expect to be able to finance the loan assets on existing credit facilities.

The following tables presents the legacy securitizations' (deconsolidated at January 1, 2016) remaining equity as of June 30, 2016 :



Name of Securitization	Fair Value of Asset Collateral		Cash		Total Assets		Outstanding Notes Held by Third Parties (at par)		Net Equity Held by RSO
RREF CDO 2007-1 ⁽¹⁾	$	165,249	$	—	$	165,249	$	44,471	$	120,778
Apidos Cinco CDO	$	96,226	$	6,389	$	102,615	$	82,139	$	20,476

(1)

Subsequent to the closing of the securitization, we purchased notes in RREF CDO 2007-1 at substantial discounts to par and certain of those notes had either been repaid or canceled. Of those repurchased notes that have not been repaid, cash gains on the extinguishment of debt of $13.8 million has not been recognized in AFFO as of June 30, 2016 on $20.3 million of notes purchased at a weighted average price of $31.81. Additionally, of those notes that were not canceled and included in the net equity held by RSO are $26.0 million of notes purchased at a weighted average price of $32.40 with $17.6 million that has not been recognized in AFFO as of June 30, 2016.

Subsequent to the closing of the securitization, we purchased notes in RREF CDO 2006-1 at substantial discounts to par and certain of those notes had either been repaid or canceled. Of those repurchased notes that have not been repaid or canceled, cash gains on the extinguishment of debt of $21.4 million has not been recognized in AFFO prior to liquidation on $32.4 million of notes purchased at a weighted average price of $33.85. We then were able to finance a portion of the collateral after liquidation and recorded a cash gain on extinguishment adjustment of $6.3 million during the three months ended June 30, 2016 and $15.1 million of cash gains remain.

Distributions

In order to maintain our qualification as a REIT and to minimize corporate-level income tax on our income, we intend to make regular quarterly distributions of all or substantially all of our net REIT taxable income to holders of our common stock. This requirement can impact our liquidity and capital resources.

The following tables present dividends declared (on a per share basis) for the three and six months ended June 30, 2016 and the year ended December 31, 2015 .

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Common Stock
	Date Paid	Total Dividend Paid		Dividend Per Share
		(in thousands)
2016
March 31	April 28	$	13,073	$	0.42
June 30	July 28	$	13,051	$	0.42
2015
March 31	April 28	$	21,444	$	0.64
June 30	July 28	$	21,426	$	0.64
September 30	October 28	$	20,667	$	0.64
December 31	January 28, 2016	$	13,274	$	0.42



Preferred Stock
Series A						Series B					Series C
	Date Paid	Total Dividend Paid		Dividend Per Share		Date Paid	Total Dividend Paid		Dividend Per Share		Date Paid	Total Dividend Paid		Dividend Per Share
		(in thousands)					(in thousands)					(in thousands)
2016
March 31	May 2	$	568	$	0.531250	May 2	$	2,859	$	0.515625	May 2	$	2,588	$	0.539063
June 30	August 1	$	568	$	0.531250	August 1	$	2,859	$	0.515625	August 1	$	2,588	$	0.539063
2015
March 31	April 30	$	568	$	0.531250	April 30	$	2,960	$	0.515625	April 30	2,588		0.539063
June 30	July 30	$	568	$	0.531250	July 30	$	2,960	$	0.515625	July 30	$	2,588	$	0.539063
September 30	October 30	$	568	$	0.531250	October 30	$	2,960	$	0.515625	October 30	$	2,588	$	0.539063
December 31	February 1, 2016	$	568	$	0.531250	February 1, 2016	$	2,960	$	0.515625	February 1, 2016	$	2,588	$	0.539063

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Contractual Obligations and Commitments



	Contractual Commitments ⁽⁸⁾
	(dollars in thousands)
	Payments due by Period
	Total		Less than 1 year		1 - 3 years		3- 5 years		More than 5 years
CRE Securitizations	$	634,553	$	—	$	—	$	—	$	634,553
Repurchase Agreements ⁽¹⁾	538,266		511,968		26,298		—		—
Unsecured Junior Subordinated Debentures ⁽²⁾	51,521		—		—		—		51,521
6.0 % Convertible Notes ⁽³⁾	110,924		—		110,924		—		—
8.0 % Convertible Notes ⁽⁴⁾	95,955		—		—		95,955		—
Unfunded Commitments on CRE Loans ⁽⁵⁾	78,842		—		78,842		—		—
Revolver Draws Available on Middle Market Loans ⁽⁶⁾	7,079		2,702		3,425		952		—
Base Management Fees ⁽⁷⁾	11,942		11,942		—		—		—
Senior Secured Revolving Credit Facility	144,000		—		144,000		—		—
Pearlmark Mezz IV L.P. ⁽⁹⁾	40,664		—		—		40,664		—
Total	$	1,713,746	$	526,612	$	363,489	$	137,571	$	686,074


(1)	Contractual commitments include $552,000 of interest expense payable through the maturity dates on our repurchase agreements.


(2)	Contractual commitments do not include $29.5 million and $30.3 million of estimated interest expense payable through the maturity dates of June 2036 and October 2036, respectively, on our trust preferred securities.


(3)	Contractual commitments do not include $17.5 million of interest expense payable through the maturity date of December 1, 2018 on our 6.0% Convertible Senior Notes.


(4)	Contractual commitments do not include $32.5 million of interest expense payable through the maturity date of January 15, 2020 on our 8.0% Convertible Senior Notes.


(5)	Unfunded commitments on our originated CRE loans generally fall into two categories: (1) pre-approved capital improvement projects; and (2) new or additional construction costs subject, in each case, to the borrower meeting specified criteria. Upon completion of the improvements or construction, we would receive additional loan interest income on the advanced amount.

(6)

The financing or credit agreements on our originated middle market loans, in some cases, allow for subsequent advances. All advances require compliance with the contractual criteria and terms as specifically described in the individual financing or credit agreement, and therefore are subject to the approval of the appropriate portfolio manager. Loans earn income, typically in the form of interest and fees, as specifically outlined in the documentation of each loan.


(7)	Calculated only for the next 12 months based on our current equity, as defined in our management agreement. Our management agreement also provides for an incentive fee arrangement that is based on operating performance. Because the incentive fee is not a fixed and determinable amount, it is not included in this table.


(8)	Contractual commitments on borrowings are presented net of deferred debt issuance costs.


(9)	We have committed to invest up to $50.0 million in Pearlmark Mezzanine Realty Partners IV, L.P. The commitment termination date ends the earlier of when the original commitment is fully funded, or the fifth anniversary following the final closing date of June 24, 2015.

Off-Balance Sheet Arrangements

General

As of June 30, 2016 , we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities not established for those purposes. Except as set forth below, as of June 30, 2016 , we had not guaranteed obligations of any such unconsolidated entities or entered into any commitment or letter of intent to provide additional funding to any such entities.

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Unfunded Commercial Real Estate Loan Commitments

In the ordinary course of business, we make commitments to borrowers whose loans are in our commercial real estate loan portfolio to provide additional loan funding in the future. These commitments generally fall into two categories: (1) pre-approved capital improvement projects; and (2) new or additional construction costs. Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. Upon disbursement of funds, we receive loan interest income on any such advanced funds. As of June 30, 2016 , we had 43 loans with unfunded commitments totaling $78.8 million, which we intend to fund through principal repayments on other loans in our portfolio and the ability to fund in our newest securitizations within a specified time period and cash flow from normal operating activities. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Unfunded Middle Market Loan Commitments

During the year ended December 31, 2013, we began originating middle-market loans through RCC Commercial, Inc. and Resource TRS, LLC. In September 2014, RCC Commercial and Resource TRS, LLC transferred all of the middle-market loans to a newly formed subsidiary of ours, Northport LLC. Resource America is paid origination fees in connection with our middle-market lending operations, and such fees may not exceed 2% of the loan balance for any loan originated. The executed agreements between us and borrowers within our portfolio contain commitments to provide additional loan funding in the future. These commitments generally fall into two categories: (1) revolving credit facility; and (2) unfunded commitments. Disbursement of funds pursuant to these commitments are subject to the borrower meeting pre-specified criteria and in some instances at our discretion. Upon disbursement of funds, we receive loan interest income on any such advanced funds. As of June 30, 2016 , we had four loans with unfunded commitments totaling $7.1 million, all of which would be funded by Northport LLC. On August 1, 2016, we entered into an agreement to sell substantially all of our direct loans in our middle market portfolio. At the time of the sale, there were three loans with unfunded commitments totaling $4.4 million, of which, we will have a remaining commitment of $950,000. We intend to fund these commitments through cash flow from normal operating activities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.


ITEM 3 .	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2016 , the primary component of our market risk was interest rate risk, as described below. While we do not seek to avoid risk completely, we do seek to assume risk that can be quantified from historical experience, to actively manage that risk, to earn sufficient compensation to justify assuming that risk and to maintain capital levels consistent with the risk we undertake or to which we are exposed.

Effect on Fair Value

A component of interest rate risk is the effect changes in interest rates will have on the fair value of our assets. We face the risk that the fair value of our assets will increase or decrease at different rates than that of our liabilities, including our hedging instruments.

We primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration essentially measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data. Different models and methodologies can produce different duration numbers for the same securities.

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The following sensitivity analysis tables present, at June 30, 2016 and December 31, 2015 , the estimated impact on the fair value of our interest rate-sensitive investments and liabilities of changes in interest rates, assuming rates instantaneously fall 100 basis points and rise 100 basis points (dollars in thousands):



	June 30, 2016
	Interest rates fall 100 basis points			Unchanged			Interest rates rise 100 basis points
CMBS – private placement ⁽¹⁾ :
Fair value	$	77,720		$	77,323		$	76,934
Change in fair value	$	397		$	—		$	(389	)
Change as a percent of fair value	0.51		%	—		%	(0.50		)%



	December 31, 2015
	Interest rates fall 100 basis points			Unchanged			Interest rates rise 100 basis points
CMBS – private placement ⁽¹⁾ :
Fair value	$	145,175		$	144,178		$	143,201
Change in fair value	$	997		$	—		$	(977	)
Change as a percent of fair value	0.69		%	—		%	(0.68		)%

Hedging instruments:
Fair value	$	(4,713	)	$	(3,459	)	$	(1,704	)
Change in fair value	$	(1,254	)	$	—		$	1,755
Change as a percent of fair value	(36.25		)%	—		%	50.74		%

(1) Includes the fair value of available-for-sale investments that are sensitive to interest rate change.

For purposes of the table, we have excluded our investments with variable interest rates that are indexed to LIBOR. Because the variable rates on these instruments are short-term in nature, we are not subject to material exposure to movements in fair value as a result of changes in interest rates.

It is important to note that the impact of changing interest rates on fair value can change significantly when interest rates change beyond 100 basis points from current levels. Therefore, the volatility in the fair value of our assets could increase significantly when interest rates change beyond 100 basis points from current levels. In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown above and such difference might be material and adverse to our stockholders.

Risk Management

To the extent consistent with maintaining our status as a REIT, we seek to manage our interest rate risk exposure to protect our portfolio of fixed-rate commercial real estate mortgages and CMBS and related debt against the effects of major interest rate changes. We generally seek to manage our interest rate risk by:


•	monitoring and adjusting, if necessary, the reset index and interest rate related to our mortgage-backed securities and our borrowings;


•	attempting to structure our borrowing agreements for our CMBS to have a range of different maturities, terms, amortizations and interest rate adjustment periods; and


•	using derivatives, financial futures, swaps, options, caps, floors and forward sales, to adjust the interest rate sensitivity of our fixed-rate commercial real estate mortgages and CMBS and our borrowing which we discuss in “Financial Condition-Hedging Instruments.”

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ITEM 4.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our Chief Executive Officer and Chief Financial Officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three and six months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II


ITEM 1.	LEGAL PROCEEDINGS

In September 2015, Daren Levin filed a putative class action in the United States District Court for the Southern District of New York on behalf of all persons who purchased our common stock between March 2, 2015 and August 4, 2015. In November 2015, the Court appointed Douglas Drees as the lead plaintiff in the action, and thereafter entered a stipulation and order directing the lead plaintiff to file an amended complaint. In February 2016, the lead plaintiff filed an amended complaint, alleging that we and certain of our officers and directors materially misrepresented certain risks of our commercial loan portfolio and our processes and controls for assessing the quality of our portfolio. Based on these allegations, the amended complaint asserts claims for violation of the securities laws and seeks a variety of relief, including unspecified monetary damages as well as costs and attorneys’ fees. We believe the amended complaint is without merit and intend to defend ourselves vigorously. In April 2016, we filed a motion to dismiss the amended complaint, which remains pending.

In December 2015, Josh Reaves filed a shareholder derivative suit in the Supreme Court of New York alleging that our directors and certain officers breached their fiduciary duties by causing us to misrepresent certain risks of our commercial loan portfolio, by failing to employ adequate internal and financial controls, and by failing to disclose the alleged internal control deficiencies. The complaint purports to seek relief on behalf of us for unspecified damages as well as costs and attorneys’ fees. We believe that the plaintiff, who failed to make a pre-suit demand on the board of directors, lacks standing to assert claims derivatively on our behalf, and we intend to respond accordingly. In April 2016, the parties entered into a stipulation staying this proceeding until such time as the court has ruled on the pending motion to dismiss the Levin action referenced above or certain other triggering events occur.

On May 13, 2014, ResCap Liquidating Trust (“ResCap”) as successor to Residential Funding Company, LLC (“RFC”), filed an adversary proceeding against PCM in United States Bankruptcy Court of the Southern District of New York. ResCap has sued some 90 sellers of residential mortgage loans for alleged breaches of warranty in various loans sold to RFC. RFC contends that such breaches caused it damages from loan losses and liability to other transferees of the loans. The case remains pending and has been consolidated with other cases for discovery and pre-trial purposes. PCM intends to defend the action vigorously.

Loans on one-to-four family residential mortgages originated by PCM are sold to various financial institutions and governmental entities with representations and warranties that are usual and customary for the industry. In the event of a breach of any of the representations and warranties related to a loan sold, PCM may be required to indemnify the investor against future losses, repurchase the mortgage loan or reimburse the investor for actual losses incurred (referred to as “make whole payments”). The maximum exposure to credit loss in the event of an indemnification or loan repurchase would be the unpaid principal balance of the loan along with any premium paid by the investor when the loan was purchased, accrued but unpaid interest and other minor cost reimbursements. This maximum exposure is at least partially mitigated by the value of the collateral underlying the mortgage loan.

As of June 30, 2016, outstanding demands for indemnification, repurchase or make whole payments totaled approximately $20.5 million, of which a substantial portion related to loans sold to four investors prior to 2011. Furthermore, a significant portion of these demands are involved in litigation with the investor.

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

On August 3, 2015, our Board of Directors authorized a program to repurchase up to $50.0 million of its outstanding equity and debt securities. In March 2016, the Company's board of directors approved a new securities repurchase program for up to $50.0 million of its outstanding securities, which replaced the August 2015 repurchase plan.

The following tables provide information about our common and 8.25% Series B Preferred Stock repurchases made during the six months ended June 30, 2016 in accordance with the previously mentioned stock repurchase program:



Common Stock
Period	Total Number of Shares Purchased	Average Price Paid per Share ⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans of Programs
January 2016	196,562	$	12.81	196,562	$	21,662,186
February 2016	198,979	$	10.08	198,979	$	19,662,182
March 2016	247,904	$	11.14	247,904	$	13,812,184
April 2016	22,013	$	11.12	22,013	$	13,567,967
May 2016	37,200	$	12.61	37,200	$	13,099,763
June 2016	—	$	—	—	$	13,099,763
	702,658	$	11.38	702,658

(1) The average price per share as reflected above includes broker fees and commissions.



8.25% Series B Preferred Stock
Period	Total Number of Shares Purchased	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans of Programs
January 2016	—	$	—	—	$	—
February 2016	—	$	—	—	$	—
March 2016	195,900	$	15.90	195,900	$	13,812,184
April 2016	—	$	—	—	$	—
May 2016	—	$	—	—	$	—
June 2016	—	$	—	—	$	—
	195,900	$	15.90	195,900

(1) The average price per share as reflected above includes broker fees and commissions.

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ITEM 6.	EXHIBITS



Exhibit No.		Description
3.1(a)		Restated Certificate of Incorporation of Resource Capital Corp. (1)
3.1(b)		Articles of Amendment to Restated Certificate of Incorporation of Resource Capital Corp. (29)
3.1(c)		Articles Supplementary 8.50% Series A Cumulative Redeemable Preferred Stock. (16)
3.1(d)		Articles Supplementary 8.50% Series A Cumulative Redeemable Preferred Stock. (17)
3.1(e)		Articles Supplementary 8.25% Series B Cumulative Redeemable Preferred Stock. (18)
3.1(f)		Articles Supplementary 8.25% Series B Cumulative Redeemable Preferred Stock. (22)
3.1(g)		Articles Supplementary 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (9)
3.2		Amended and Restated Bylaws of Resource Capital Corp. (as Amended January 31, 2014) (12)
4.1(a)		Form of Certificate for Common Stock for Resource Capital Corp. (1)
4.1(b)		Form of Certificate for 8.50% Series A Cumulative Redeemable Preferred Stock. (13)
4.1(c)		Form of Certificate for 8.25% Series B Cumulative Redeemable Preferred Stock (18)
4.1(d)		Form of Certificate for 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (9)
4.2(a)		Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated May 25, 2006. (2)
4.2(b)		Amendment to Junior Subordinated Indenture and Junior Subordinated Note due 2036 between Resource Capital Corp. and Wells Fargo Bank, N.A., dated October 26, 2009 and effective September 30, 2009. (6)
4.3(a)		Amended and Restated Trust Agreement among Resource Capital Corp., Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company and the Administrative Trustees named therein, dated May 25, 2006. (2)
4.3(b)		Amendment to Amended and Restated Trust Agreement and Preferred Securities Certificate among Resource Capital Corp., Wells Fargo Bank, N.A. and the Administrative Trustees named therein, dated October 26, 2009 and effective September 30, 2009. (6)
4.4		Amended Junior Subordinated Note due 2036 in the principal amount of $25,774,000, dated October 26, 2009. (6)
4.5(a)		Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated September 29, 2006. (3)
4.5(b)		Amendment to Junior Subordinated Indenture and Junior Subordinated Note due 2036 between Resource Capital Corp. and Wells Fargo Bank, N.A., dated October 26, 2009 and effective September 30, 2009. (6)
4.6(a)		Amended and Restated Trust Agreement among Resource Capital Corp., Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company and the Administrative Trustees named therein, dated September 29, 2006. (3)
4.6(b)		Amendment to Amended and Restated Trust Agreement and Preferred Securities Certificate among Resource Capital Corp., Wells Fargo Bank, N.A. and the Administrative Trustees named therein, dated October 26, 2009 and effective September 30, 2009. (6)
4.7		Amended Junior Subordinated Note due 2036 in the principal amount of $25,774,000, dated October 26, 2009. (6)
4.8(a)		Senior Indenture between the Company and Wells Fargo Bank, National Association, as Trustee, dated October 21, 2013. (25)
4.8(b)		First Supplemental Indenture between the Company and Wells Fargo Bank, National Association, as Trustee (including the form of 6.00% Convertible Senior Note due 2018). (25)
4.8(c)		Form of 6.00% Convertible Senior Note due 2018 (included in Exhibit 4.8(b)).
4.8(d)		Second Supplemental Indenture, dated January 13, 2015, between Resource Capital Corp. and Wells Fargo Bank, National Association, as Trustee (including the form of 8.00% Convertible Senior Note due 2020). (20)
4.8(e)		Form of 8.00% Convertible Senior Note due 2020 (included in Exhibit 4.8(d)).
10.1(a)		Second Amended and Restated Management Agreement between Resource Capital Corp, Resource Capital Manager, Inc. and Resource America, Inc. dated as of June 13, 2012. (28)
10.1(b)		Amendment No.1 to Second Amended and Restated Management Agreement between Resource Capital Corp, Resource Capital Manager, Inc. and Resource America, Inc. dated as of November 7, 2013.(4)
10.2(a)		2005 Stock Incentive Plan. (1)
10.2(b)		Form of Stock Award Agreement. (8)
10.2(c)		Form of Stock Option Agreement. (8)
10.3(a)		Amended and Restated Omnibus Equity Compensation Plan. (7)
10.3(b)		Form of Stock Award Agreement. (27)
10.3(c)		Form of Stock Award Agreement (for employees with Resource America, Inc. employment agreements). (27)

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10.4		Services Agreement between Resource Capital Asset Management, LLC and Apidos Capital Management, LLC, dated February 24, 2011. (11)
10.5		8.50% Series A Cumulative Redeemable Preferred Stock, 8.25% Series B Cumulative Redeemable Preferred Stock, 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock At-the-Market Issuance Sales Agreement, dated November 19, 2014 among the Company, Resource Capital Manager Inc. and MLV & Co., LLC. (26)
10.6		Senior Secured Revolving Credit Agreement, dated September 18, 2014, among Northport TRS, LLC, as borrower, Resource Capital Corp., as guarantor, JP Morgan Chase Bank, N.A., as administrative agent, and the lenders thereto. (19)
10.7		Letter Agreement between Resource Capital Corp. and Resource America, Inc.
12.1		Statements re Computation of Ratios
31.1		Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31.2		Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
32.1		Certification Pursuant to 18 U.S.C. Section 1350.
32.2		Certification Pursuant to 18 U.S.C. Section 1350.
99.1(a)		Master Repurchase and Securities Contract by and among RCC Commercial, Inc., RCC Real Estate Inc. and Wells Fargo Bank, National Association, dated February, 1, 2011. (10)
99.1(b)		Guaranty Agreement made by Resource Capital Corp. in favor of Wells Fargo Bank, National Association, dated February 1, 2011. (10)
99.2(a)		Master Repurchase and Securities Contract for $150,000,000 between RCC Real Estate SPE 4, LLC, as Seller, and Wells Fargo Bank, National Association, as Buyer, Dated February 27, 2012. (14)
99.2(b)		Guaranty made by Resource Capital Corp. as guarantor, in favor of Wells Fargo Bank, National Association, dated February 27, 2012 (14)
99.2(c)		First Amendment to Master Repurchase and Securities Contract and Other Documents between RCC Real Estate SPE 4, LLC, as seller, and Wells Fargo Bank, National Association, as buyer, dated April 2, 2013. (23)
99.3(a)		Master Purchase Agreement by and between RCC Real Estate SPE 5, LLC, as, master seller, and Deutsche Bank AG, Cayman Islands Branch, as buyer, dated as of July 19, 2013. (24)
99.4(a)		Master Repurchase and Securities Contract dated as of June 20, 2014 with Well Fargo Bank, National Association. (5)
99.4(b)		Guaranty Agreement dated as of June 20, 2014, made by Resource Capital Corp., as guarantor, in favor of Wells Fargo Bank, National Association. (5)
99.5(a)		Master Repurchase and Securities Contract Agreement between RCC Real Estate 6, LLC and Morgan Stanley Bank, NA, dated as of September 10, 2015. (30)
99.5(b)		Guarantee dated as of September 10, 2015, made by Resource Capital Corp., as guarantor, in favor of Morgan Stanley Bank, N.A. (30)
101		Interactive Data Files.

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(1)		Filed previously as an exhibit to the Company’s registration statement on Form S-11, Registration No. 333-126517.
(2)		Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.
(3)		Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
(4)		Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
(5)		Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 26, 2014.
(6)		Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
(7)		Filed previously as an exhibit to the Company’s Proxy Statement filed on April 16, 2014.
(8)		Filed previously as an exhibit to the Company’s Registration Statement on Form S-11 (File No. 333-132836).
(9)		Filed previously as an exhibit to the Company’s Registration Statement on Form 8-A filed on June 9, 2014.
(10)		Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
(11)		Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on March 2, 2011.
(12)		Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 4, 2014.
(13)		Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 18, 2013.
(14)		Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on March 2, 2012.
(15)		Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 13, 2012.
(16)		Filed previously as an exhibit to the Company’s registration statement on Form 8-A filed on June 8, 2012.
(17)		Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 29, 2012.
(18)		Filed previously as an exhibit to the Company's Registration Statement on Form 8-A filed on September 28, 2012.
(19)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 23, 2014.
(20)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on January 13, 2015.
(21)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on October 1, 2012.
(22)		Filed previously as an exhibit to the Company Current Report on Form 8-K filed on March 19, 2013.
(23)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on April 8, 2013.
(24)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on July 25, 2013.
(25)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on October 21, 2013.
(26)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on November 20, 2014.
(27)		Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.
(28)		Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
(29)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 1, 2015.
(30)		Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 16, 2015.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		RESOURCE CAPITAL CORP.
		(Registrant)

August 9, 2016	By:	/s/ David J. Bryant
		David J. Bryant
		Senior Vice President
		Chief Financial Officer and Treasurer

August 9, 2016	By:	/s/ Eldron C. Blackwell
		Eldron C. Blackwell
		Vice President
		Chief Accounting Officer

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124

May 22, 2016

Resource Capital Corp.

712 5th Avenue, 12th Floor

New York, New York 10019

Attention: Chief Executive Officer

Board of Directors

Ladies and Gentlemen:

Reference is made to that certain Second and Amended Restated Management Agreement, dated as of June 14, 2012, by and among Resource Capital Corp. (“you” or the “Company”), Resource Capital Manager, Inc. (the “Manager”) and Resource America, Inc. (“Resource America”) (as amended or amended and restated, the “Management Agreement”). Resource America, Inc. and C-III Capital Partners LLC (“Parent”) are contemporaneously herewith executing a definitive transaction agreement (the “Merger Agreement”) in the form attached hereto as Exhibit A providing for the merger of Resource America with a wholly owned subsidiary of Parent, with Resource America surviving as the continuing entity and a wholly owned subsidiary of Parent (the “Merger”).

By countersigning below, you hereby waive the Company’s right under Section 15(a)(iv) of the Management Agreement to terminate the Management Agreement as a result of the Change of Control (as defined in the Management Agreement) of the Manager resulting from the Merger. You also represent and warrant that the Special Committee of independent directors of the Board of Directors of the Company has duly authorized and approved the execution of this letter and the waiver described in the preceding sentence.


2.	Attached as Exhibit B is a true, correct and complete copy of the resolutions of the board of directors of the Company (the “Board”) appointing the persons set forth therein to the Board, subject to and effective upon the closing of the Merger.


3.	Resource America agrees that it shall pay $1,500,000 to the Company at the closing of the Merger (the “Closing”), by wire transfer of immediately available funds to a bank account designated in writing by the Company at least three (3) business days prior to the Closing.

Please send (i) a countersigned copy of this letter by e-mail to JBrotman@resourceamerica.com and (ii) a countersigned original of this letter to the following address:

Resource Capital Manager, Inc. c/o Resource America, Inc. 1845 Walnut Street, 18 ^th Floor

Philadelphia, PA 19103

Attention: Jeffrey Brotman, EVP and Senior Counsel

Exhibit A

Merger Agreement

AGREEMENT AND PLAN OF MERGER

dated as of

May 22, 2016

by and among

RESOURCE AMERICA, INC.,

C-III CAPITAL PARTNERS LLC,

and

REGENT ACQUISITION INC.

TABLE OF CONTENTS




ARTICLE 1

DEFINITIONS

Section 1.01	Definitions	2
Section 1.02	Other Definitional and Interpretative Provisions	15

ARTICLE 2

THE MERGER; EFFECT ON THE CAPITAL STOCK; EXCHANGE OF CERTIFICATES

Section 2.01	The Merger	16
Section 2.02	Closing	16
Section 2.03	Effective Time	16
Section 2.04	Effects of the Merger	17
Section 2.05	Effect of the Merger on Capital Stock of the Company and Merger Sub	17
Section 2.06	Certain Adjustments	17
Section 2.07	Appraisal Shares	18
Section 2.08	Payment of Merger Consideration	18
Section 2.09	Further Assurances	21
Section 2.10	Treatment of Company Equity Awards	21

ARTICLE 3

THE SURVIVING CORPORATION

Section 3.01	Surviving Corporation Matters	22

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 4.01	Corporate Existence and Power	23
Section 4.02	Corporate Authorization	23
Section 4.03	Governmental Authorization	23
Section 4.04	Non-contravention	24
Section 4.05	Capitalization	25
Section 4.06	Subsidiaries	26
Section 4.07	SEC Filings and the Sarbanes-Oxley Act	27
Section 4.08	Financial Statements	28
Section 4.09	Disclosure Documents	29
Section 4.10	Absence of Certain Changes	29
Section 4.11	No Undisclosed Material Liabilities	29
Section 4.12	Compliance with Laws and Court Orders; Governmental Authorizations	30
Section 4.13	Litigation	30



Section 4.14	Properties	30
Section 4.15	Intellectual Property	31
Section 4.16	Taxes	32
Section 4.17	Employee Benefit Plans	33
Section 4.18	Labor Matters	34
Section 4.19	Environmental Matters	35
Section 4.20	Material Contracts	35
Section 4.21	Finders’ Fees, etc.	38
Section 4.22	Opinion of Financial Advisor	38
Section 4.23	Related Party Transactions	38
Section 4.24	Antitakeover Statutes	38
Section 4.25	Insurance	38
Section 4.26	Broker-Dealer and Other Regulated Subsidiaries	39
Section 4.27	Material Advisory Contracts	40
Section 4.28	Joint Ventures	41
Section 4.29	Funds and Managed REITs	41
Section 4.30	Anti-Corruption	42
Section 4.31	Material Broker-Dealers	42
Section 4.32	REIT Status	43
Section 4.33	CDO Issuers	43
Section 4.34	No Additional Representations	43

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Section 5.01	Corporate Existence and Power	44
Section 5.02	Corporate Authorization	44
Section 5.03	Governmental Authorization	44
Section 5.04	Non-contravention	45
Section 5.05	Merger Sub	45
Section 5.06	Disclosure Documents	45
Section 5.07	Sufficient Funds	45
Section 5.08	Financial Statements	46
Section 5.09	Solvency	46
Section 5.10	Litigation	46
Section 5.11	No Member Vote Required	46
Section 5.12	Finders’ Fees, etc	46
Section 5.13	No Additional Representations	46

ARTICLE 6

COVENANTS OF THE COMPANY

Section 6.01	Conduct of the Company	47
Section 6.02	Company Stockholder Meeting	50
Section 6.03	Cooperation	51
Section 6.04	Public Fund Advisory Contract Consents; Public Fund Proxy Statements	52





ARTICLE 7

COVENANTS OF PARENT AND MERGER SUB

Section 7.01	Conduct of Parent	54
Section 7.02	Obligations of Merger Sub	54
Section 7.03	Director and Officer Indemnification	54
Section 7.04	Employee Matters	56
Section 7.05	Section 15(f) of the Investment Company Act	59

ARTICLE 8

COVENANTS OF PARENT AND THE COMPANY

Section 8.01	Efforts	59
Section 8.02	Proxy Statement	62
Section 8.03	No Solicitation	63
Section 8.04	Public Announcements	67
Section 8.05	Notices of Certain Events	67
Section 8.06	Access to Information	67
Section 8.07	Section 16 Matters	68
Section 8.08	Stock Exchange De-listing; 1934 Act Deregistration	68
Section 8.09	Stockholder Litigation	68
Section 8.10	Managed Entities	68
Section 8.11	Closing Payment by Parent	69

ARTICLE 9

CONDITIONS TO THE MERGER

Section 9.01	Conditions to Obligations of Each Party	69
Section 9.02	Conditions to the Obligations of Parent and Merger Sub	70
Section 9.03	Conditions to the Obligations of the Company	71

ARTICLE 10

TERMINATION

Section 10.01	Termination	72
Section 10.02	Effect of Termination	73
Section 10.03	Termination Fees	73

iii



ARTICLE 11

MISCELLANEOUS

Section 11.01	No Survival of Representations and Warranties	75
Section 11.02	Amendment and Modification	75
Section 11.03	Extension; Waiver	75
Section 11.04	Expenses	76
Section 11.05	Disclosure Letter References	76
Section 11.06	Notices	76
Section 11.07	Counterparts	77
Section 11.08	Entire Agreement; Third Party Beneficiaries	77
Section 11.09	Severability	77
Section 11.10	Assignment	78
Section 11.11	Governing Law	78
Section 11.12	Enforcement; Exclusive Jurisdiction	78
Section 11.13	WAIVER OF JURY TRIAL	79

DISCLOSURE LETTERS

Company Disclosure Letter

Parent Disclosure Letter

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of May 22, 2016, is by and among Resource America, Inc., a Delaware corporation (the “ Company ”), C-III Capital Partners LLC, a Delaware limited liability company (“ Parent ”), and Regent Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“ Merger Sub ”). Parent, Merger Sub and the Company are referred to individually as a “ Party ” and collectively as “ Parties ”.

W I T N E S S E T H :

WHEREAS, the Parties intend that, on the terms and subject to the conditions set forth in this Agreement, Merger Sub will merge with and into the Company, with the Company surviving the merger as the surviving corporation (the “ Merger ”) and each of the Company’s issued and outstanding shares of common stock, par value $0.01 per share (the “ Company Stock ”), other than shares of Company Stock owned, directly or indirectly, by Parent, the Company or Merger Sub, will be converted into the right to receive the Merger Consideration (as defined herein);

WHEREAS, the Boards of Directors of the Company and Merger Sub and the manager of Parent have each unanimously (i) determined that the Merger, this Agreement and the transactions contemplated hereby, are fair and in the best interests of their respective companies and stockholders or members, as applicable, and (ii) approved and declared advisable this Agreement, the Merger and the other transactions contemplated hereby;

WHEREAS, Parent, as sole stockholder of Merger Sub, has adopted this Agreement and approved the Merger by written consent in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”);

WHEREAS, the Board of Directors of the Company (the “ Company Board ”) has unanimously resolved to recommend that the Company’s stockholders approve the adoption of this Agreement;

WHEREAS, contemporaneously with the execution and delivery of this Agreement, and as a condition and a mutual inducement to Parent and Merger Sub’s willingness to enter into this Agreement, each of the stockholders listed on Schedule 1 has entered into a voting agreement with Parent, substantially in the form attached hereto as Exhibit A (each, a “ Voting Agreement ”);

WHEREAS, contemporaneously with the execution and delivery of this Agreement, and as a condition and a mutual inducement to Parent and Merger Sub’s willingness to enter into this Agreement, each of the individuals listed on Schedule 2 has entered into an employment agreement with the Company (together, the “ Employment Agreements ”), each of which shall become effective at the time of Closing;

WHEREAS, contemporaneously with the execution and delivery of this Agreement, and as a condition and a mutual inducement to Parent and Merger Sub’s willingness to enter into this Agreement, each of the individuals listed on Schedule 3 has entered into an amendment to his employment agreement with the Company (together, the “ Employment Agreement Amendments ”), which shall become effective as of immediately prior to the Closing; and

WHEREAS, Parent, the Company and Merger Sub desire to make certain representations, warranties, covenants and agreements specified herein in connection with this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, the Parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01 Definitions . (a) As used herein, the following terms have the following meanings:

“ 1933 Act ” means the U.S. Securities Act of 1933, as amended.

“ 1934 Act ” means the U.S. Securities Exchange Act of 1934, as amended.

“ Advisers Act ” means the Investment Advisers Act of 1940, and the rules and regulations promulgated thereunder, as amended.

“ Advisory Client ” shall mean any Person to which the Company or any of its Subsidiaries or Trapeza, directly or indirectly, provides investment advisory services pursuant to an Advisory Contract.

“ Advisory Contract ” shall mean any investment advisory, sub-advisory, investment management, collateral management, collateral administration, trust or similar agreement with any Advisory Client to which the Company or any of its Subsidiaries or Trapeza is a party, including those with the Public Funds, Private Funds, Managed REITs and CDO Issuers.

“ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by, or is under common control with such Person.

“ Apartment REIT III ” means Resource Apartment REIT III, Inc., a Maryland corporation.

“ Broker-Dealer ” shall mean a “broker” or “dealer” (as defined in Sections 3(a)(4) and 3(a)(5) of the 1934 Act).

“ Business Day ” means any day that is not a Saturday, a Sunday or other day that (i) is a statutory holiday under the federal Laws of the United States or (ii) is otherwise a day on which banks in New York, New York are authorized or obligated by Law or executive order to close.

“ CDO Issuer ” means an issuer of any collateralized debt obligation or collateralized loan obligation that is a party to an Advisory Contract with the Company or any of its Subsidiaries or Trapeza pursuant to which the Company or any of its Subsidiaries or Trapeza serves as a collateral manager, collateral administrator or in a similar capacity.

“ Closing Date ” means the date of the Closing.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Company Acquisition Proposal ” means any proposal, indication of interest or offer from any Person or “group” (as defined under Section 13(d) of the 1934 Act and the rules and regulations thereunder) (other than Parent and its Subsidiaries or Affiliates) relating to (i) any direct or indirect acquisition or purchase of the business or assets (including equity interests in Subsidiaries) of the Company or any of its Subsidiaries representing 25% or more of the consolidated revenues, net income or assets of the Company, (ii) any issuance, sale or other disposition, directly or indirectly, to any Person or group of securities representing 25% or more of the total voting power of the Company, (iii) any tender offer or exchange offer that if consummated would result in any Person or group, directly or indirectly, beneficially owning 25% or more of any class of equity securities of the Company, (iv) any merger, consolidation, amalgamation, share exchange, business combination, joint venture, reorganization, recapitalization, liquidation, dissolution, or similar transaction involving the Company or any of its Subsidiaries that would (A) result in any Person or group, directly or indirectly, beneficially owning 25% or more of the total voting power of the outstanding common stock of the Company or the surviving entity or (B) result in the Company’s stockholders immediately prior to the consummation of such transaction beneficially owning less than 75% of the total voting power of the outstanding common stock of the Company or the surviving entity, or (v) any combination of the foregoing.

“ Company Adverse Recommendation Change ” means any of the following actions by the Company Board: (i) withholding or withdrawing (or modifying or qualifying in a manner adverse to Parent) or proposing publicly to withhold or withdraw (or modify or qualify in a manner adverse to Parent), the Company Board Recommendation, (ii) failing to include the Company Board Recommendation in the Proxy Statement, in each case, subject to the terms and conditions of this Agreement, (iii) approving, recommending, or otherwise declaring to be advisable or publicly proposing to approve, recommend or determine to be advisable any Company Acquisition Proposal, (iv) following any Company Acquisition Proposal structured as a tender offer or exchange offer, failing, within ten (10) Business Days of the commencement thereof pursuant to Rule 14d-2 of the 1934 Act, to recommend against acceptance of any such tender offer or exchange offer by the Company’s stockholders (it being understood that the Company Board or any committee thereof may elect to take no position with respect to a Company Acquisition Proposal until the close of business on the tenth (10th) Business Day after the commencement of such tender offer or exchange offer pursuant to Rule 14e-2 under the 1934 Act without such action in and of itself being considered a Company Adverse Recommendation Change) or (v) publicly announcing an intention, or resolve, to take any of the foregoing actions.

“ Company Balance Sheet ” means the consolidated balance sheet of the Company as of March 31, 2016 and the footnotes thereto.

“ Company Balance Sheet Date ” means March 31, 2016.

“ Company Benefit Plan ” means each “employee benefit plan,” as defined in Section 3(3) of ERISA, whether or not subject to ERISA, and each other plan, policy, program, agreement or arrangement relating to stock options, stock purchases, equity compensation, deferred compensation, bonus, severance, retention, employment, profit-sharing, change of control, vacation, fringe benefits, supplemental benefits or other employee benefits, in each case, maintained, sponsored or contributed to (or required to be maintained, sponsored or contributed to) by the Company or any of its Subsidiaries for the benefit of any current or former employee, officer or director of the Company or any of its Subsidiaries, other than a Multiemployer Plan.

“ Company Disclosure Letter ” means the disclosure letter delivered by the Company to Parent and Merger Sub in connection with, and upon the execution of, this Agreement.

“ Company Material Adverse Effect ” means: any effect, change, development, occurrence or event that has a material adverse effect on the business or financial condition of the Company and its Subsidiaries, taken as a whole, excluding any effect, change, development, occurrence or event resulting from or arising out of (A) changes in or affecting the financial, securities or credit markets or general economic, regulatory or political conditions in the United States or any foreign jurisdiction, including changes in interest and exchange rates, except to the extent any such effect, change, development, occurrence or event has a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industries in which the Company operates, (B) changes or conditions generally affecting the asset management business or the subsegments thereof in which the Company operates, except to the extent any such effect, change, development, occurrence or event has a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industries in which the Company operates, (C) geopolitical conditions, the outbreak or escalation of hostilities, civil disobedience, acts of war, sabotage or terrorism or any escalation or worsening of the foregoing or any natural disasters (including hurricanes, tornadoes, floods or earthquakes) or pandemic, except to the extent any such effect, change, development, occurrence or event has a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industries in which the Company operates, (D) any failure by the Company and its Subsidiaries to meet any internal or published projections, forecasts or predictions in respect of financial or operating performance for any period (it being understood that this clause (D) shall not prevent a Party from asserting that any effect, change, development, occurrence or event that may have contributed to such failure and that are not otherwise excluded from the definition of Company Material Adverse Effect may be taken into account in determining whether there has been a Company Material Adverse Effect), (E) changes or proposed changes in Law or authoritative interpretation thereof, except to the extent any such effect, change, development, occurrence or event has a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other participants in the industries in which the Company operates, (F) changes or proposed changes to, or the implementation of, the proposed amendments to NASD Rule 2340 and FINRA Rule 2310 described in FINRA Regulatory Notice 15-02 and any changes or proposed changes to, or the implementation of, the United States Department of Labor’s proposed amendments to the definition of “fiduciary” and related proposals, including the Best Interest Contract Exemption and Exemption for Principal Transactions in Certain Debt Securities, (G) changes in GAAP or authoritative interpretation thereof, (H) the taking of any specific action expressly required or expressly permitted by, or the failure to take any specific

action expressly prohibited by, this Agreement, (I) any change in the market price or trading volume of the Company’s securities or in its credit ratings (it being understood that this clause (I) shall not prevent a Party from asserting that any effect, change, development, occurrence or event that may have contributed to such failure and that are not otherwise excluded from the definition of Company Material Adverse Effect may be taken into account in determining whether there has been a Company Material Adverse Effect), and (J) the negotiation, execution, delivery, announcement, pendency or performance of this Agreement or the transactions contemplated hereby, including the impact thereof on the relationships, contractual or otherwise, of the Company or any of its Subsidiaries with investors, employees, customers, suppliers or partners and including any litigation arising in connection with or relating to this Agreement or the transactions contemplated hereby.

“ Company Non-Employee Director Stock Plans ” means the Company’s 2012 Non-Employee Director Deferred Stock Plan, the Company’s 2002 Non-Employee Director Deferred Stock and Deferred Compensation Plan, and the Company’s 1997 Non-Employee Director Deferred Stock and Deferred Compensation Plan.

“ Company Stock Plans ” means the Company’s Amended and Restated Omnibus Equity Compensation Plan, the Company’s Amended and Restated 2005 Omnibus Equity Compensation Plan, the Company’s 2002 Key Employee Stock Option Plan, the Company’s 1999 Key Employee Stock Option Plan and the Company’s 1997 Key Employee Stock Option Plan.

“ Competition Laws ” means the Sherman Antitrust Act, as amended, the Clayton Antitrust Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other U.S. Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization, lessening of competition or restraint of trade.

“ Confidentiality Agreement ” means, the Confidentiality Agreement, dated May 3, 2016, by and between the Company and Parent.

“ Contract ” means any written or oral agreement, arrangement, contract, understanding, instrument, note, bond, mortgage, indenture, deed of trust, lease, license or other commitment.

“ control ” (including its correlative meanings “controlled” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies of a Person (whether through ownership of 50% or more of such Person’s securities or partnership or other ownership interests, or by Contract or otherwise).

“ Disclosure Letter ” means, as the context requires, the Company Disclosure Letter and/or the Parent Disclosure Letter.

“ Diversified Income Fund ” means Resource Real Estate Diversified Income Fund.

“ Environmental Claim ” means any claim, action, suit, proceeding, Order, demand or notice (written or oral) alleging potential or actual Liability (including liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, attorneys’ fees, fines or penalties) arising out of, based on, resulting from or relating to (i) the presence, Release of, or exposure to any Hazardous Substances, (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law; or (iii) any other matters covered or regulated by, or for which liability is imposed under, Environmental Laws.

“ Environmental Law ” means any Law or Order relating to pollution, the protection, restoration or remediation of or prevention of harm to the environment or natural resources, or the protection of human health and safety, including any Law or Order relating to: (i) the exposure to, or Releases or threatened Releases of, Hazardous Substances; (ii) the generation, manufacture, processing, distribution, use, treatment, containment, disposal, storage, transport or handling of Hazardous Substances; or (iii) recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances.

“ Environmental Permits ” means all Governmental Authorizations relating to or required by Environmental Laws.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” of any entity means each entity that is or has been at any relevant time treated as a single employer with such entity for purposes of Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code.

“ FCA ” means the Financial Conduct Authority of the United Kingdom of Great Britain and Northern Ireland.

“ FCA Approval ” means each required notification from the FCA, pursuant to Section 189(4)(a) of the FSMA, that the FCA approves of Parent (and any other potential controllers in Parent’s group, to the extent required) acquiring control of any Subsidiaries of the Company or Joint Venture that is registered with the FCA, to the extent required by applicable Law, or shall have been treated as giving such approval pursuant to Section 189(6) of the FSMA.

“ FINRA ” means the Financial Industry Regulatory Authority.

“ FINRA Approval ” means the written approval from FINRA pursuant to NASD Rule 1017 (or such other applicable rule promulgated by FINRA) in connection with the Merger.

“ FSMA ” means the Financial Services and Markets Act (2000) of the United Kingdom of Great Britain and Northern Ireland.

“ Fund SEC Documents ” means the reports, schedules, forms, statements, prospectuses, registration statements and other documents required to be filed or furnished, as the case may be, by any Public Fund or Managed REIT with, or furnished to, the SEC (together with any exhibits and schedules thereto and other information incorporated therein).

“ GAAP ” means generally accepted accounting principles in the United States.

“ Governmental Authority ” means any (i) nation or government, any federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency, merger control authority, (ii) any federal, state, local or foreign court, tribunal or arbitrator, (iii) any national securities exchange, or (iv) other governmental entity or quasi-governmental entity or self-regulatory body or authority created or empowered under a statute (or rule, regulation or ordinance promulgated thereunder) or at the direction of any governmental authority (including FINRA), including those set forth in clauses (i), (ii) or (iii) of this definition, and that is empowered thereunder or thereby to exercise executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Governmental Authorization ” means any licenses, approvals, clearances, permits, certificates, waivers, amendments, consents, exemptions, variances, expirations and terminations of any waiting period requirements, other actions by, and notices, filings, registrations, qualifications, declarations and designations with, and other authorizations and approvals issued by or obtained from a Governmental Authority.

“ Hazardous Substance ” means any material, substance, chemical, or waste (or combination thereof) that (i) is listed, defined, designated, regulated or classified as hazardous, toxic, radioactive, dangerous, a pollutant, a contaminant, petroleum, oil, or words of similar meaning or effect under any Law or Order relating to pollution, waste, the environment, or the protection of human health and safety; or (ii) can form the basis of any Liability under any Law or Order relating to pollution, waste, the environment, or the protection of human health and safety.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“ Innovation Office REIT ” means Resource Innovation Office REIT, Inc., a Maryland corporation.

“ Intellectual Property Rights ” means any and all intellectual property rights or similar proprietary rights throughout the world, including all (i) patents, trademarks, service marks, trade names, domain names, copyrights, designs and trade secrets, (ii) applications for and registrations of patents, trademarks, service marks, trade dress, trade names, domain names, copyrights and designs, (iii) processes, formulae, methods, schematics, technology, know-how, data, computer software programs and applications, and (iv) trade secrets and other tangible or intangible proprietary or confidential information and materials.

“ Intervening Event ” means an effect, change, development, occurrence or event that was not known to the Company Board as of or prior to the date of this Agreement or, if known, the material consequences of which (based on facts known to the Company Board as of the date of this Agreement) were not known by the Company Board; provided , however , that in no event will any of the following constitute an Intervening Event: (i) the receipt, existence or terms of a Company Acquisition Proposal; and (ii) changes in market price or trading volume of the Company Stock, in and of itself.

“ Investment Company Act ” means the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.

“ JFSC ” means the Jersey Financial Services Commission.

“ JFSC Approval ” means the written approval from the JFSC that the JFSC approves of Parent (and any other potential controller in Parent’s group to the extent required) acquiring control of any Joint Venture that is registered with the JFSC, to the extent required by applicable Law.

“ Joint Venture ” means any Person in which the Company or any of its Subsidiaries holds (or holds the right or option to acquire) 50% or less of the equity interests therein that is governed by the terms of a joint venture agreement, alliance agreement, partnership agreement, limited partnership agreement, limited liability company operating agreement (or the equivalent) pursuant to which the Company or any of its Subsidiaries is a party (it being understood that LEAF Commercial Capital, Inc. and its Subsidiaries shall be deemed Joint Ventures of the Company).

“ Joint Venture Agreement ” means any joint venture agreement, alliance agreement, partnership agreement, limited partnership agreement, limited liability company operating agreement (or the equivalent), together with all amendments, amendment and restatements, addendums and joinders in respect of which any Joint Venture is governed.

“ Joint Venture Partner ” means any Person, other than the Company or a Subsidiary of the Company, which holds (or holds the right or option to acquire) an equity interest in a Joint Venture.

“ knowledge ” means (i) with respect to the Company, the actual knowledge of each of the individuals listed in Section 1.01(b) of the Company Disclosure Letter and (ii) with respect to Parent, the actual knowledge of each of the individuals listed in Section 1.01(b) of the Parent Disclosure Letter.

“ Laws ” means any United States, federal, state or local or any foreign law (in each case, statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, statute, regulation or other similar requirement enacted, issued, adopted, promulgated, entered into or applied by a Governmental Authority.

“ Liability ” means any and all liabilities, obligations, debts and commitments of any kind, character or description, whether known or unknown, asserted or not asserted, absolute or continent, fixed or unfixed, matured or unmatured, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, due or to become due, determined, determinable or otherwise, whenever or however incurred or arising.

“ Licensed Intellectual Property Rights ” means any and all material Intellectual Property Rights owned by a Third Party and licensed or sublicensed to the Company or any of its Subsidiaries or for which the Company or any of its Subsidiaries has obtained a covenant not to be sued.

“ Lien ” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, restriction, right of way, easement, or title defect or encumbrance of any kind in respect of such property or asset, including any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership.

“ Managed REIT ” means each of RCC, Opportunity REIT, Opportunity REIT II, Apartment REIT III and Innovation Office REIT.

“ Minimum Net Capital Requirement ” means the then current minimum net capital any Broker-Dealer is required to have and maintain pursuant to SEC Rule 15c3-1.

“ Multiemployer Plan ” means a “multiemployer plan” as defined in Section 3(37) of ERISA.

“ Opportunity REIT ” means Resource Real Estate Opportunity REIT, Inc., a Maryland corporation.

“ Opportunity REIT II ” means Resource Real Estate Opportunity REIT II, Inc., a Maryland corporation.

“ Order ” means any order, writ, injunction, decree, consent decree, judgment, award, injunction, settlement or stipulation issued, promulgated, made, rendered or entered into by or with any Governmental Authority (in each case, whether temporary, preliminary or permanent).

“ Owned Intellectual Property Rights ” means any and all Intellectual Property Rights owned or purported to be owned by the Company or any of its Subsidiaries.

“ Parent Disclosure Letter ” means the disclosure letter delivered by Parent to the Company in connection with, and upon the execution of, this Agreement.

“ Parent Material Adverse Effect ” means any effect, change, development, occurrence or event that would prevent, materially delay or materially impair the consummation by Parent or Merger Sub of the Merger and other transactions contemplated by this Agreement in accordance with the terms of this Agreement (including payment of the Merger Consideration hereunder).

“ Permitted Liens ” means (i) Liens for Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings and for which adequate reserves (as determined in accordance with GAAP) have been established on the Company Balance Sheet, (ii) Liens in favor of carriers, warehousemen, repairmen, mechanics, workmen, materialmen, construction or similar Liens or other encumbrances arising in the ordinary course of business with respect to amounts not yet overdue or the validity of which is being contested in good faith by appropriate proceedings or that are otherwise not material, (iii) pledges or deposits in connection with workers’ compensation, unemployment insurance, and other social security legislation arising in the ordinary course of business, (iv) Liens reflected in the Company Balance Sheet, (v) non-exclusive licenses of Intellectual Property Rights in the ordinary course

of business, the written terms and conditions of the license applicable thereto being made available to Parent, (vi) purchase money security interests, equipment leases, or similar financing arrangements with respect to equipment or other assets acquired for use in the business of the Company and its Subsidiaries, (vii) with respect to any Real Property Lease, Liens that do not materially impair the value or use of such Real Property Lease or are being contested in the ordinary course of business in good faith, or (viii) with respect to real property, (A) Liens imposed or promulgated by operation of applicable Law, (B) zoning regulations, permits, licenses and similar Liens imposed or promulgated by any Governmental Authority, (C) title defects or irregularities, (D) easements, covenants, rights of way and other similar restrictions of record, provided that in the case of the foregoing subclauses (A) through (D), such Liens would not, individually or in the aggregate, reasonably be expected to impair the continued use and operation of the applicable real property for the purposes for which it is currently used in connection with the Company’s and its Subsidiaries’ businesses.

“ Person ” means an individual, corporation, partnership, limited liability company, association, company, joint venture, estate, trust, association other entity or organization of any kind or nature, including a Governmental Authority, or group (within the meaning of Section 13(d)(3) of the 1934 Act).

“ Private Fund ” means any pooled investment vehicle for which the Company or any of its Subsidiaries acts as investment adviser, investment sub-adviser, general partner, managing member, manager, sponsor or in a similar capacity that is not registered under the Investment Company Act or the securities of which are not and have not been offered under a registration statement under the 1933 Act.

“ Proceeding ” means any suit, action, claim, proceeding, arbitration, mediation, audit or hearing (in each case, whether civil, criminal or administrative) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority.

“ Public Fund ” means any pooled investment vehicle (including each portfolio or series thereof, if any) for which the Company or any of its Subsidiaries acts as investment adviser, investment sub-adviser, general partner, managing member, sponsor, manager or in a similar capacity, and which is registered as an investment company under the Investment Company Act, including Diversified Income Fund and Resource Credit Income Fund.

“ RCC ” means Resource Capital Corporation, a Maryland corporation.

“ REIT ” means a real estate investment trust within the meaning of Section 856 et. seq. of the Code.

“ REIT Election Year ” means (i) with respect to RCC, the taxable year ended December 31, 2005, (ii) with respect to Opportunity REIT, the taxable year ended December 31, 2010, (iii) with respect to Opportunity REIT II, the taxable year ended December 31, 2014, (iv) with respect to Apartment REIT III, the taxable year ending December 31, 2016 and (v) with respect to Innovation Office REIT, the taxable year ending December 31, 2016.

“ Release ” means any release, spill, emission, discharge, leaking, pouring, dumping or emptying, pumping, injection, deposit, disposal, dispersal, leaching or migration into the indoor or outdoor environment (including soil, ambient air, surface water, groundwater and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Substances through or in the air, soil, surface water, groundwater or property.

“ Sarbanes-Oxley Act ” means the Sarbanes-Oxley Act of 2002, as amended.

“ SEC ” means the Securities and Exchange Commission.

“ Subsidiary ” means, with respect to any Person, another Person (other than a natural Person), of which such first Person owns directly or indirectly (a) an aggregate amount of the voting securities, other voting ownership or voting partnership interests to elect or appoint a majority of the board of directors or other governing body or (b) more than 50% of the equity interests therein (it being understood that LEAF Commercial Capital, Inc. and its Subsidiaries shall not be deemed direct or indirect Subsidiaries of the Company or the Company’s Subsidiaries).

“ Superior Proposal ” means a bona fide written Company Acquisition Proposal from any Person (other than Parent and its Subsidiaries or Affiliates) (with all references to “25% or more” in the definition of Company Acquisition Proposal being deemed to reference “50% or more”) providing for a transaction which the Company Board determines in its good faith judgment is more favorable to its stockholders from a financial point of view than the transactions contemplated by this Agreement after taking into account the likelihood and timing of consummation (as compared to the transactions contemplated hereby) and such other matters that the Company Board deems relevant, including legal, financial (including the financing terms of any such Company Acquisition Proposal), regulatory and other aspects of such Company Acquisition Proposal.

“ Tax ” means any tax, customs, duty, fee or other like assessment or charge of any kind whatsoever, together with any interest, penalty, addition to tax or additional amount imposed by any Governmental Authority (a “ Taxing Authority ”) responsible for the imposition of any such tax, customs, duty, fee, assessment or charge (domestic or foreign).

“ Tax Return ” means any report, return, document, declaration or other information or filing (including any amendment thereof) required to be supplied to any Taxing Authority with respect to Taxes, including elections, information returns, schedules or claims for refund, any documents with respect to or accompanying payments of estimated Taxes, or with respect to or accompanying requests for the extension of time in which to file any such report, return, document, declaration or other information.

“ Tax Sharing Agreements ” means all existing agreements binding a party or any of its Subsidiaries that provide for the allocation, apportionment, sharing or assignment of any Tax Liability or benefit (excluding any indemnification agreement or arrangement pertaining to the sale or lease of assets or subsidiaries and any commercially reasonable indemnity, sharing or similar agreements or arrangements where the inclusion of a Tax indemnification or allocation provision is customary or incidental to an agreement the primary nature of which is not Tax sharing or indemnification).

“ Third Party ” means any Person other than Parent, the Company or any of their respective Affiliates.

“ Trapeza ” means Trapeza Capital Management, LLC and its Subsidiaries.

“ Treasury Regulations ” means the regulations promulgated under the Code.

(b) Each of the following terms is defined in the Section set forth opposite such term:




Term		Section
1933 Act		Section 1.01(a)
1934 Act		Section 1.01(a)
2016 Bonus Amount		Section 7.04(c)
Acceptable Confidentiality Agreement		Section 8.03(a)
Acceptable Interim IAA		Section 6.04(a)
Action		Section 7.03(a)
Advisers Act		Section 1.01(a)
Advisory Client		Section 1.01(a)
Advisory Contract		Section 1.01(a)
Affiliate		Section 1.01(a)
Agreement		Preamble
Alternative Acquisition Agreement		Section 8.03(a)
Apartment REIT III		Section 1.01(a)
Appraisal Shares		Section 2.07
Bonus Plan Participant		Section 7.04(c)
Book-Entry Shares		Section 2.05(c)
Broker-Dealer		Section 1.01(a)
Business Day		Section 1.01(a)
Capitalization Date		Section 4.05(a)
Cause		Section 7.04(a)
CDO Issuer		Section 1.01(a)
Certificate		Section 2.05(c)
Certificate of Merger		Section 2.03
Change of Control Consents		Section 4.04(b)
Closing		Section 2.02
Closing Date		Section 1.01(a)
CMA		Section 8.01(a)
Code		Section 1.01(a)
Company		Preamble
Company Acquisition Proposal		Section 1.01(a)
Company Adverse Recommendation Change		Section 1.01(a)
Company Balance Sheet		Section 1.01(a)
Company Balance Sheet Date		Section 1.01(a)



Company Benefit Plan		Section 1.01(a)
Company Board		Recitals
Company Board Recommendation		Section 4.02(b)
Company Deferred Stock Unit		Section 2.10(c)
Company Disclosure Letter		Section 1.01(a)
Company Equity Awards		Section 2.10(c)
Company Indemnified Party		Section 7.03(a)
Company Material Adverse Effect		Section 1.01(a)
Company Material Contract		Section 4.20(a)
Company Non-Employee Director Stock Plans		Section 1.01(a)
Company Option		Section 2.10(a)
Company Real Property		Section 4.14(a)
Company Restricted Stock Award		Section 2.10(b)
Company SEC Documents		Section 4.07(a)
Company Securities		Section 4.05(b)
Company Stock		Recitals
Company Stock Plans		Section 1.01(a)
Company Stockholder Approval		Section 4.02(a)
Company Stockholder Meeting		Section 6.02
Company Subsidiary Securities		Section 4.06(b)
Company Termination Fee		Section 10.03(a)
Competition Laws		Section 1.01(a)
Confidentiality Agreement		Section 1.01(a)
Consents and Approvals		Section 4.03
Continuation Period		Section 7.04(a)
Continuing Employee		Section 7.04(a)
Contract		Section 1.01(a)
control		Section 1.01(a)
D&O Insurance		Section 7.03(c)
DGCL		Recitals
Disclosure Letter		Section 1.01(a)
Diversified Income Fund		Section 1.01(a)
Effective Time		Section 2.03
Employment Agreement Amendments		Recitals
Employment Agreements		Recitals
End Date		Section 10.01(b)(i)
Environmental Claim		Section 1.01(a)
Environmental Law		Section 1.01(a)
Environmental Permits		Section 1.01(a)
ERISA		Section 1.01(a)
ERISA Affiliate		Section 1.01(a)



FCA		Section 1.01(a)
FCA Approval		Section 1.01(a)
FINRA		Section 1.01(a)
FINRA Approval		Section 1.01(a)
FSMA		Section 1.01(a)
Fund SEC Documents		Section 1.01(a)




GAAP		Section 1.01(a)
Governmental Authority		Section 1.01(a)
Governmental Authorization		Section 1.01(a)
Hazardous Substance		Section 1.01(a)
HSR Act		Section 1.01(a)
Innovation Office REIT		Section 1.01(a)
Intellectual Property Rights		Section 1.01(a)
internal controls		Section 4.07(f)
Intervening Event		Section 1.01(a)
Investment Company Act		Section 1.01(a)
JFSC		Section 1.01(a)
JFSC Approval		Section 1.01(a)
Joint Venture		Section 1.01(a)
Joint Venture Agreement		Section 1.01(a)
Joint Venture Partner		Section 1.01(a)
knowledge		Section 1.01(a)
Laws		Section 1.01(a)
Liability		Section 1.01(a)
Licensed Intellectual Property Rights		Section 1.01(a)
Lien		Section 1.01(a)
Managed Entities		Section 8.10(a)
Managed REIT		Section 1.01(a)
Material Advisory Contracts		Section 4.27
Material Broker-Dealer		Section 4.31
Merger		Recitals
Merger Consideration		Section 2.05(b)
Merger Fund		Section 2.08(a)
Merger Sub		Preamble
Minimum Net Capital Requirement		Section 1.01(a)
Multiemployer Plan		Section 1.01(a)
New IAA		Section 6.04(a)
Opportunity REIT		Section 1.01(a)



Opportunity REIT II		Section 1.01(a)
Order		Section 1.01(a)
Owned Intellectual Property Rights		Section 1.01(a)
Owned Real Property		Section 4.14(a)
Parent		Preamble
Parent Disclosure Letter		Section 1.01(a)
Parent Material Adverse Effect		Section 1.01(a)
Parent Plans		Section 7.04(b)
Parties		Preamble
Party		Preamble
Paying Agent		Section 2.08(a)
Permitted Liens		Section 1.01(a)



Person		Section 1.01(a)
Premium Cap		Section 7.03(c)
Private Fund		Section 1.01(a)
Proceeding		Section 1.01(a)
Proxy Date		Section 6.02
Proxy Statement		Section 4.09
Public Fund		Section 1.01(a)
Public Fund Board Approval		Section 6.04(a)
Public Fund Proxy Statement		Section 6.04(b)
Public Fund Shareholder Approval		Section 6.04(a)
Public Fund Shareholder Meeting		Section 6.04(b)
RCC		Section 1.01(a)
Real Property Lease		Section 4.14(a)
REIT		Section 1.01(a)
REIT Election Year		Section 1.01(a)
Release		Section 1.01(a)
Release of Claims		Section 7.04(a)
Representatives		Section 8.06(a)
Resignations		Section 8.10(a)
Sarbanes-Oxley Act		Section 1.01(a)
SEC		Section 1.01(a)
Section 262		Section 2.07
Subsidiary		Section 1.01(a)
Superior Proposal		Section 1.01(a)
Surviving Corporation		Section 2.01
Tax		Section 1.01(a)
Tax Return		Section 1.01(a)
Tax Sharing Agreements		Section 1.01(a)
Taxing Authority		Section 1.01(a)
Third Party		Section 1.01(a)
Transaction Litigation		Section 8.09
Trapeza		Section 1.01(a)
Treasury Regulations		Section 1.01(a)
Voting Agreement		Recitals

Section 1.02 Other Definitional and Interpretative Provisions . The words “ hereof ”, “ herein ” and “ hereunder ” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this

Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall

have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. The definitions contained in this Agreement are applicable to the masculine as well as to the feminine and neuter genders of such term. Whenever the words “ include ”, “ includes ” or “ including ” are used in this Agreement, they shall be deemed to be followed by the words “ without limitation ”, whether or not they are in fact followed by those words or words of like import. “ Writing ”, “ written ” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any statute shall be deemed to refer to such statute as amended from time to time and to any rules or regulations promulgated thereunder. References to any Contract are to such Contract as amended, modified or supplemented (including by waiver or consent) from time to time in accordance with the terms hereof and thereof. References to “the transactions contemplated by this Agreement” or words with a similar import shall be deemed to include the Merger. References to any Person include the successors and permitted assigns of such Person. References herein to “$” or dollars will refer to United States dollars, unless otherwise specified. References to any period of days will be deemed to be to the relevant number of calendar days unless otherwise specified. The phrase “ made available ” shall be deemed to include any documents filed or furnished with the SEC. This Agreement will be construed as if drafted jointly by the Parties hereto, and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

ARTICLE 2

THE MERGER; EFFECT ON THE CAPITAL STOCK; EXCHANGE OF CERTIFICATES

Section 2.01 The Merger . Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time (as defined below), Merger Sub shall be merged with and into the Company, whereupon the separate existence of Merger Sub will cease and the Company shall continue as the surviving corporation (the “ Surviving Corporation ”). As a result of the Merger, the Surviving Corporation shall become a wholly owned Subsidiary of Parent.

Section 2.02 Closing . Subject to the provisions of this Agreement, the closing of the Merger (the “ Closing ”) shall take place in New York City at the offices of Wachtell, Lipton, Rosen & Katz, New York, New York on the second Business Day following the satisfaction or, to the extent permitted hereunder, waiver of the conditions set forth in Article 9 (except for any conditions that by their nature can only be satisfied on the Closing Date, but subject to the satisfaction of such conditions or waiver by the Party entitled to waive such conditions), unless another date, time or place is agreed to in writing by Parent and the Company.

Section 2.03 Effective Time . Subject to the provisions of this Agreement, as soon as practicable on the Closing Date, the Company shall file with the Secretary of State of the State of Delaware the certificate of merger relating to the Merger (the “ Certificate of Merger ”), executed and acknowledged in accordance with the relevant provisions of the DGCL. The Merger shall become effective at the time that the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware, or at such later time as Parent and the Company shall agree and specify in the Certificate of Merger (the time the Merger becomes effective, the “ Effective Time ”).

Section 2.04 Effects of the Merger . At and after the Effective Time, the Merger shall have the effects set forth in this Agreement and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, the Surviving Corporation shall possess all of the property, rights, privileges, immunities, powers and franchises of the Company and Merger Sub and be subject to all of the obligations, liabilities and duties of the Company and Merger Sub, all as provided under the DGCL.

Section 2.05 Effect of the Merger on Capital Stock of the Company and Merger Sub . At the Effective Time, by virtue of the Merger and without any action on the part of any holder of any securities of the Company or Merger Sub:

(a) All shares of Company Stock that are owned, directly or indirectly, by Parent, the Company (including shares held as treasury stock or otherwise) or Merger Sub immediately prior to the Effective Time shall be automatically cancelled and shall cease to exist and no consideration shall be delivered in exchange therefor.

(b) Each share of Company Stock issued and outstanding immediately prior to the Effective Time (other than (i) shares to be cancelled in accordance with Section 2.05(a) , (ii) subject to the provisions of Section 2.07 , Appraisal Shares, or (iii) shares subject to Company Restricted Stock Awards, which are subject to the provisions of Section 2.10(b) ) shall at the Effective Time be converted into the right to receive $9.78 in cash, without interest (the “ Merger Consideration ”), less any withholding in accordance with Section 2.08(b)(i) .

(c) As of the Effective Time, all shares of Company Stock converted into the right to receive the Merger Consideration pursuant to this Section 2.05 shall automatically be cancelled and shall cease to exist, and each holder of (1) a certificate that immediately prior to the Effective Time represented any such shares of Company Stock (a “ Certificate ”) or (2) shares of Company Stock held in book-entry form (“ Book-Entry Shares ”) shall cease to have any rights with respect thereto, except (subject to Section 2.07 ) the right to receive the Merger Consideration.

(d) Each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation.

Section 2.06 Certain Adjustments . Notwithstanding anything in this Agreement to the contrary, if, from the date of this Agreement until the earlier of (i) the Effective Time or (ii) any termination of this Agreement in accordance with Article 10 , the outstanding shares of Company Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, stock split (including a reverse stock split), recapitalization, split-up, combination or other similar transaction, or a stock dividend thereon shall be declared with a record date within said period, then the Merger Consideration shall be appropriately adjusted to provide the holders of Company Stock (including Company Equity Awards) the same economic effect as contemplated by this Agreement prior to such event. Nothing in this Section 2.06 shall be construed to permit any Party to take any action that is otherwise prohibited or restricted by any other provision of this Agreement.

Section 2.07 Appraisal Shares . Notwithstanding anything in this Agreement to the contrary, shares of Company Stock that are outstanding immediately prior to the Effective Time and that are held by any Person who is entitled to demand and properly demands appraisal of such shares (“ Appraisal Shares ”) pursuant to, and who complies in all respects with, Section 262 of the DGCL (“ Section 262 ”) shall not be converted into the right to receive the Merger Consideration as provided in Section 2.05 , but rather the holders of Appraisal Shares shall be entitled to payment by the Surviving Corporation of the “fair value” of such Appraisal Shares in accordance with Section 262; provided , however , that if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262, then the right of such holder to be paid the fair value of such holder’s Appraisal Shares shall cease and such Appraisal Shares shall be deemed to have been converted as of the Effective Time into, and to have become exchangeable solely for, the right to receive the Merger Consideration as provided in Section 2.05 . The Company shall provide prompt notice to Parent of any demands received by the Company for appraisal of any shares of Company Stock, withdrawals of such demands and any other instruments served pursuant to Section 262 received by the Company. Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

Section 2.08 Payment of Merger Consideration . (a) Prior to the Effective Time, Parent shall (i) enter into a customary exchange agreement with a nationally recognized financial institution designated by Parent and reasonably acceptable to the Company (the “ Paying Agent ”), and (ii) deposit with the Paying Agent for the benefit of the holders of shares of Company Stock cash in an aggregate amount necessary to pay the Merger Consideration (such cash provided to the Paying Agent, hereinafter referred to as the “ Merger Fund ”). The Paying Agent shall deliver the Merger Consideration to be issued pursuant to Section 2.05 out of the Merger Fund. Except as provided in Section 2.08(g) , the Merger Fund shall not be used for any other purpose.

(b) Payment Procedures .

(i) Certificates . Parent shall instruct the Paying Agent to mail, as soon as reasonably practicable after the Effective Time and in any event not later than the third Business Day following the Closing Date, to each holder of record of a Certificate whose shares of Company Stock were converted into the right to receive the Merger Consideration pursuant to Section 2.05 , (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in customary form and have such other provisions as Parent and the Company reasonably agree) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent, together with such letter of transmittal, duly executed, and such other documents

as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor, and Parent shall cause the Paying Agent to pay and deliver in exchange thereof as promptly as practicable, the aggregate Merger Consideration in respect thereof, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Company Stock that is not registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer (and accompanied by all documents reasonably required by the Paying Agent) and the Person requesting such payment shall pay any transfer or other similar Taxes required by reason of the payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of the Paying Agent that such Tax has been paid or is not applicable. Except with respect to Appraisal Shares, until surrendered as contemplated by this Section 2.08(b) , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration into which the shares of Company Stock theretofore represented by such Certificate have been converted pursuant to Section 2.05(b) . No interest shall be paid or accrue on any cash payable upon surrender of any Certificate.

(ii) Book-Entry Shares . Notwithstanding anything to the contrary contained in this Agreement, any holder of Book-Entry Shares shall not be required to deliver a Certificate or an executed letter of transmittal to the Paying Agent to receive the Merger Consideration that such holder is entitled to receive pursuant to this Article 2 . In lieu thereof, each holder of record of one or more Book-Entry Shares whose shares of Company Stock were converted into the right to receive the Merger Consideration pursuant to Section 2.05 shall automatically upon the Effective Time be entitled to receive, and Parent shall cause the Paying Agent to pay and deliver, the Merger Consideration with respect to such Book-Entry Shares as promptly as practicable after the Effective Time. No interest shall be paid or accrue on any cash payable upon conversion of any Book-Entry Shares.

(c) The Merger Consideration paid in accordance with the terms of this Article 2 upon the surrender of the Certificates (or, immediately, in the case of the Book-Entry Shares) shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of Company Stock. At the Effective Time, the share transfer books of the Company shall be closed, and thereafter there shall be no further recording or registration of transfers of shares of Company Stock. If, after the Effective Time, any Certificates formerly representing shares of Company Stock are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be cancelled and exchanged as provided in this Article 2 .

(d) Any portion of the Merger Fund that remains undistributed to the former holders of Company Stock for one year after the Effective Time shall be returned to Parent, upon demand, and any former holder of Company Stock who has not theretofore complied with this Article 2 shall thereafter look only to Parent for payment of its claim for the Merger Consideration.

(e) None of Parent, Merger Sub, the Company, the Surviving Corporation or the Paying Agent, or any employee, officer, director, agent or Affiliate of any of them, shall be liable to any Person in respect of any amount delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. Any Merger Consideration remaining unclaimed by former holders of Company Stock immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Authority shall, to the fullest extent permitted by applicable Law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto.

(f) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit, in form and substance reasonably acceptable to Parent, of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent or the Paying Agent, the posting by such Person of a bond in reasonable amount as Parent or the Paying Agent may direct, as indemnity against any claim that may be made against it or the Surviving Corporation with respect to such Certificate, the Paying Agent will issue the Merger Consideration in exchange for such lost, stolen or destroyed Certificate.

(g) The Paying Agent shall invest the Merger Fund as directed by Parent; provided , however , that no such investment income or gain or loss thereon shall affect the amounts payable to holders of Company Stock. Any interest, gains and other income resulting from such investments shall be the sole and exclusive property of Parent payable to Parent upon its request, and no part of such interest, gains and other income shall accrue to the benefit of holders of Company Stock; provided , however , that any investment of such cash shall in all events be limited to direct short-term obligations of, or short-term obligations fully guaranteed as to principal and interest by, the U.S. government, in commercial paper rated A-1 or P-1 or better by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, respectively, or in certificates of deposit, bank repurchase agreements or banker’s acceptances of commercial banks with capital exceeding $10 billion (based on the most recent financial statements of such bank that are then publicly available), and that no such investment or loss thereon shall affect the amounts payable to holders of Company Stock pursuant to this Article 2 . If for any reason (including losses) the cash in the Merger Fund shall be insufficient to fully satisfy all of the payment obligations to be made in cash by the Paying Agent hereunder, Parent shall promptly deposit cash into the Merger Fund in an amount which is equal to the deficiency in the amount of cash required to fully satisfy such cash payment obligations.

(h) Parent, Merger Sub, the Company, the Surviving Corporation or the Paying Agent shall be entitled to deduct and withhold from the consideration or amounts otherwise payable to any former holder of Company Stock or holder of Company Equity Awards pursuant to this Agreement such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of state, local or foreign tax Law. Any amount deducted or withheld pursuant to this Section 2.08(h) and paid over to the relevant Taxing Authority shall be treated as having been paid to the holder of Company Stock or Company Equity Awards in respect of which such deduction or withholding was made. Parent or the applicable withholding agent shall pay, or shall cause to be paid, all amounts so deducted or withheld to the appropriate Taxing Authority within the period required under applicable Law.

Section 2.09 Further Assurances . If, at any time after the Effective Time, the Surviving Corporation shall determine that any actions are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Company or Merger Sub acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, then the officers and directors of the Surviving Corporation shall be authorized to take all such actions as may be necessary or desirable to vest all right, title or interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

Section 2.10 Treatment of Company Equity Awards .

(a) Company Options . As of immediately prior to the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each option to purchase shares of Company Stock granted under any Company Stock Plan (each, a “ Company Option ”) that is outstanding and unexercised immediately prior to the Effective Time shall become fully vested (to the extent not vested) and be cancelled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Company Stock subject to such Company Option multiplied by (ii) the excess, if any, of the Merger Consideration over the exercise price per share of such Company Option. Any Company Option for which the exercise price per share equals or exceeds the Merger Consideration shall be cancelled as of immediately prior to the Effective Time for no consideration. The Surviving Corporation or one of its Subsidiaries, as applicable, shall pay to the holders of Company Options (through the applicable payroll system, if practical) the cash amounts described in this Section 2.10(a) , less such amounts as are required to be withheld or deducted under the Code or any provision of state, local or foreign Tax Law with respect to the making of such payment, within five (5) Business Days following the Effective Time.

(b) Company Restricted Stock Awards . As of immediately prior to the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each outstanding award of restricted Company Stock granted under any Company Stock Plan (each, a “ Company Restricted Stock Award ”) shall become fully vested (with any performance-based vesting conditions deemed fully satisfied), and shall be cancelled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Company Stock subject to such Company Restricted Stock Award multiplied by (ii) the Merger Consideration. The Surviving Corporation or one of its Subsidiaries, as applicable, shall pay to the holders of Company Restricted Stock Awards (through the applicable payroll system, if practical) the cash amounts described in this Section 2.10(b) , less such amounts as are required to be withheld or deducted under the Code or any provision of state, local or foreign Tax Law with respect to the making of such payment, within five (5) Business Days following the Effective Time.

(c) Deferred Stock Units . Prior to the Effective Time, the Company shall take all actions necessary (including adopting any necessary resolutions of the Company Board (or any appropriate committee thereof) and providing all required notices in connection therewith) to terminate each of the Company Non-Employee Director Stock Plans, effective as of the Effective Time and subject to the occurrence of the Effective Time. As of immediately prior to the

Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each deferred stock unit (each, a “ Company Deferred Stock Unit ” and, together with the Company Options and the Company Restricted Stock Awards, the “ Company Equity Awards ”) that is granted under any Company Non-Employee Director Stock Plan and outstanding immediately prior the Effective Time shall become fully vested (to the extent unvested) and shall be cancelled and converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Company Stock subject to such Company Deferred Stock Unit multiplied by (ii) the Merger Consideration. The Surviving Corporation or one of its Subsidiaries, as applicable, shall pay to the holders of Company Deferred Stock Units (through the applicable payroll system, if practical) the cash amounts described in this Section 2.10(c) , less such amounts as are required to be withheld or deducted under the Code or any provision of state, local or foreign Tax Law with respect to the making of such payment, within five (5) Business Days following the Effective Time.

(d) Certain Tax Considerations . The actions contemplated by this Section 2.10 shall be taken in accordance with Section 409A of the Code.

(e) Company Actions . Prior to the Effective Time, the Company shall take all actions necessary to effectuate the actions contemplated by this Section 2.10 .

ARTICLE 3

THE SURVIVING CORPORATION

Section 3.01 Surviving Corporation Matters . (a) At the Effective Time, the certificate of incorporation of the Company, as in effect immediately prior to the Effective Time, but as amended as set forth on Exhibit B hereto, shall be the certificate of incorporation of the Surviving Corporation until further amended in accordance with applicable Law.

(b) At the Effective Time, the bylaws of the Surviving Corporation shall be amended so as to read in their entirety as the by-laws of Merger Sub as in effect immediately prior to the Effective Time, except the references to Merger Sub’s name shall be replaced by references to “Resource America, Inc.” until further amended in accordance with the provisions thereof and applicable Law.

(c) From and after the Effective Time, until their successors have been duly elected or appointed and qualified, or until their earlier death, resignation or removal: (i) the directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and (ii) the initial officers of the Surviving Corporation shall be those individuals designated by Parent.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except (a) as disclosed in the Company SEC Documents publicly filed or furnished by the Company to the SEC on or after December 31, 2014 and prior to the date of this Agreement (other than any risk factor disclosure

under the heading “Risk Factors” or disclosure set forth in any “forward looking statements” or “market risk” disclaimer or other forward-looking disclosures that are cautionary or predictive in nature) or (b) subject to Section 11.05 , as set forth in the Company Disclosure Letter, the Company represents and warrants to Parent and Merger Sub as follows:

Section 4.01 Corporate Existence and Power . The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has all corporate power and authority to own, lease and operate its assets and carry on its business as now conducted and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except where any failure to have such power or authority or to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Company Material Adverse Effect. Prior to the date of this Agreement, the Company has delivered or made available to Parent true and complete copies of the certificate of incorporation and bylaws of the Company and the certificate of incorporation and bylaws (or similar organizational or governing documents) of each Subsidiary of the Company, in each case as amended to date and as in effect on the date of this Agreement. Neither the Company nor any of its Subsidiaries is in violation of, or in conflict with, or in default under, its certificate of incorporation or bylaws (or similar organizational or governing documents).

Section 4.02 Corporate Authorization . (a) The execution, delivery and performance by the Company of this Agreement and, subject to receipt of the Company Stockholder Approval, the consummation by the Company of the transactions contemplated hereby are within the Company’s corporate power and authority and have been duly authorized by all necessary corporate action on the part of the Company. The affirmative vote of the holders of a majority of the outstanding shares of Company Stock (the “ Company Stockholder Approval ”) is the only vote of the holders of any of the Company’s capital stock necessary in connection with the consummation of the transactions contemplated hereby, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby, other than, with respect to the Merger, (i) the Company Stockholder Approval and (ii) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State. This Agreement, assuming due authorization, execution and delivery by Parent and Merger Sub, constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at Law).

(b) At a meeting duly called and held, as of the date of this Agreement, the Company Board unanimously has (i) determined that this Agreement and the transactions contemplated hereby are fair to and in the best interests of the Company’s stockholders, (ii) approved and declared advisable this Agreement and the transactions contemplated hereby and (iii) resolved to recommend adoption of this Agreement by its stockholders (such recommendation, the “ Company Board Recommendation ”).

Section 4.03 Governmental Authorization . The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Authority, other than (i) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (ii) compliance with any applicable requirements of the HSR Act and any Competition Laws, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable state or federal securities laws, (iv) compliance with any applicable requirements of the NASDAQ Global Select Market, (v) any required consent, non-objection, approval, order or authorization of, or registration, declaration or filing with or from, FINRA, the FCA or the JFSC (clauses (i), (ii), (iii), (iv) and (v), collectively the “ Consents and Approvals ”) and (vi) any actions or filings the absence of which have not had and would not reasonably be expected, individually or in the aggregate, to (x) have a Company Material Adverse Effect or (y) prevent, materially delay or materially impair the ability of the Company to perform its obligations under this Agreement or to consummate the Merger.

Section 4.04 Non-contravention . (a) The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby by the Company do not and will not (i) assuming the authorizations, consents and approvals referred to in Section 4.03 and the Company Stockholder Approval are obtained, contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of the Company or the equivalent organizational or governing documents of any Subsidiary of the Company, (ii) assuming the authorizations, consents and approvals referred to in Section 4.03 and the Company Stockholder Approval are obtained, contravene, conflict with or result in a violation or breach of any provision of any Law or Order, (iii) assuming the authorizations, consents and approvals referred to in Section 4.03 and the Company Stockholder Approval are obtained, require any consent or other action by any Person under, constitute a default or a violation, or an event that, with or without notice or lapse of time or both, would constitute a default or a violation, under or of, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which the Company or any of its Subsidiaries is entitled under, any provision of any agreement or other instrument binding upon the Company, any of its Subsidiaries or Trapeza, any obligation to which the Company, any of its Subsidiaries or Trapeza is a party or by which the Company or any of its Subsidiaries or any of their respective assets may be bound or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of the Company and its Subsidiaries, or (iv) result in the creation or imposition of any Lien (other than a Permitted Lien) on any asset of the Company or any of the Company’s Subsidiaries, except, in the case of each of clauses (ii), (iii) and (iv), which have not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(b) The Company has obtained the written consent or waiver of each of the Managed REITs under its Advisory Contract in connection with the Merger, in each case, a true, correct and complete copy of which has been delivered to Parent (the “ Change of Control Consents ”). Each Change of Control Consent is valid and binding and in full force and effect, and the Company has not waived or released any right, claim or benefit thereunder.

Section 4.05 Capitalization . (a) The authorized capital stock of the Company consists of 49,000,000 shares of Company Stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par value $1.00 per share, of the Company. As of May 20, 2016 (the “ Capitalization Date ”), there were outstanding 20,830,289 shares of Company Stock (including 1,684,761 shares subject to Company Restricted Stock Awards (assuming any performance-based vesting conditions are fully satisfied)). As of the Capitalization Date, (i) there were (A) outstanding Company Stock Options to purchase an aggregate of 134,000 shares of Company Stock, (B) 318,770 shares of Company Stock subject to outstanding Company Deferred Stock Units, (C) no shares of preferred stock of the Company outstanding, and (D) no shares of other series of common stock of the Company outstanding, and (ii) 470,352 shares of Company Stock were available for issuance of future awards under the Company Stock Plans and 112,475 shares of Company Stock were available for issuance of future awards under the Company Non-Employee Director Stock Plans.

(b) Except (x) as set forth in Section 4.05(a) , and (y) for any Company Equity Awards that are granted in accordance with the terms of this Agreement, there are no issued, reserved for issuance or outstanding (i) shares of capital stock or other voting securities of or other ownership interests in the Company, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or other voting securities of or other ownership interests in the Company, (iii) warrants, calls, options or other rights to acquire from the Company, or other obligation of the Company to issue, any shares of capital stock, voting securities or securities convertible into or exchangeable for capital stock or other voting securities of or other ownership interests in the Company or (iv) restricted shares, stock appreciation rights, performance units, contingent value rights, “phantom” stock or similar securities or rights issued or granted by the Company or any of its Subsidiaries that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital stock or other voting securities of or other ownership interests in the Company (the items in clauses (i) through (iv) being referred to collectively as the “ Company Securities ”).

(c) There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any of the Company Securities. Neither the Company nor any of its Subsidiaries is a party to any voting trust, proxy, voting agreement or other similar agreement with respect to the voting of any Company Securities. All outstanding shares of capital stock of the Company have been, and all shares that may be issued pursuant to any equity compensation plan or arrangement will be, when issued in accordance with the respective terms thereof, duly authorized and validly issued, fully paid and nonassessable and free of preemptive rights. No Subsidiary of the Company owns any shares of capital stock of the Company or any Company Securities. There are no outstanding bonds, debentures, notes or other indebtedness of the Company having the right to vote (whether on an as-converted basis or otherwise) (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote.

(d) Section 4.05(d) of the Company Disclosure Letter sets forth for each holder of Company Equity Awards outstanding as of the date of this Agreement (i) the name of the holder of each Company Equity Award, (ii) the maximum number of shares of Company Stock underlying or issuable in respect of such Company Equity Award, (iii) the date of grant of such Company Equity Award, and (iv) the vesting schedule and/or performance metrics, as applicable, for such Company Equity Award.

Section 4.06 Subsidiaries . (a) Each Subsidiary of the Company is an entity duly incorporated or otherwise duly organized, validly existing and (where applicable or recognized) in good standing under the laws of its jurisdiction of incorporation or organization, except, in the case of any such Subsidiary, where the failure to be so incorporated, organized, existing or in good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Each Subsidiary of the Company has all corporate, limited liability company or comparable power and authority to own, lease and operate its assets and carry on its business as now conducted, except for those powers or Governmental Authorizations the absence of which has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Each such Subsidiary is duly qualified to do business as a foreign entity and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Except as set forth in Section 4.06(a) of the Company Disclosure Letter (such Section 4.06(a) to include the type of and percentage of voting, equity, profits, capital and other beneficial interest held by the Company in such Subsidiary), each Subsidiary of the Company is directly or indirectly wholly owned by the Company.

(b) All of the outstanding capital stock or other voting securities of or other ownership interests in each Subsidiary of the Company that are owned by the Company, directly or indirectly, are so owned free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or other ownership interests), in each case other than (w) Liens existing under the terms of the certificate of incorporation, limited liability company agreement, limited partnership agreement, bylaws or other organizational documents of such Subsidiary (x) statutory or other liens for Taxes or assessments which are not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves are being maintained, (y) transfer and other restrictions under applicable federal and state securities Laws and (z) in the case of Subsidiaries that are immaterial to the Company and its Subsidiaries, taken as a whole, immaterial Liens. There are no issued, reserved for issuance or outstanding (i) securities of the Company or any of its Subsidiaries convertible into, or exchangeable for, shares of capital stock or other voting securities of or other ownership interests in any Subsidiary of the Company, (ii) warrants, calls, options or other rights to acquire from the Company or any of its Subsidiaries, or other obligations of the Company or any of its Subsidiaries to issue, any shares of capital stock or other voting securities of or other ownership interests in or any securities convertible into, or exchangeable for, any shares of capital stock or other voting securities of or other ownership interests in any Subsidiary of the Company or (iii) restricted shares, stock appreciation rights, performance units, contingent value rights, “phantom” stock or similar securities or rights issued or granted by the Company or any of its Subsidiaries that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock or other voting securities of or other ownership interests in any Subsidiary of the Company (the items in clauses (i) through (iii) being referred to collectively as the “ Company Subsidiary Securities ”). There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any of the Company Subsidiary Securities.

Section 4.07 SEC Filings and the Sarbanes-Oxley Act . (a) The Company has timely filed with or furnished to the SEC (including following any extensions of time for filing provided by Rule 12b-25 promulgated under the 1934 Act) all reports, schedules, forms, statements, prospectuses, registration statements and other documents required to be filed or furnished, as the case may be, by the Company since December 31, 2014 (collectively, together with any exhibits and schedules thereto and other information incorporated therein, the “ Company SEC Documents ”).

(b) As of its filing date (or, if amended or supplemented, as of the date of the most recent amendment or supplement filed prior to the date of this Agreement), each Company SEC Document complied in all material respects with the applicable requirements of the 1933 Act and the 1934 Act and the Sarbanes-Oxley Act, and any rules and regulations promulgated thereunder, as the case may be.

(c) As of its filing date (or, if amended or supplemented, as of the date of the most recent amendment or supplement filed prior to the date of this Agreement), each Company SEC Document filed or furnished pursuant to the 1934 Act did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d) Each Company SEC Document that is a registration statement or prospectus, including any financial statements or schedules included or incorporated by reference therein, as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such registration statement or prospectus was filed or became effective, as applicable, or, if amended or supplemented, and as of the date of such amendment or supplemental filing made at least two (2) Business Days prior to the date of this Agreement, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in any material respect. As of the date hereof, none of the Company’s Subsidiaries is required to file periodic reports with the SEC pursuant to Section 13(a) or 15(d) of the 1934 Act.

(e) The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15 under the 1934 Act). Such disclosure controls and procedures are reasonably designed to ensure that: material information relating to the Company, including its consolidated Subsidiaries, is made known to the Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the 1934 Act are being prepared, and that all such information is communicated in a timely fashion to the Company’s principal executive officer and principal financial officer to allow timely decisions regarding the disclosure of such information in the Company’s periodic and current reports required under the 1934 Act. For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.

(f) The Company and its Subsidiaries have established and maintained a system of internal controls over financial reporting (as defined in Rule 13a-15 under the 1934 Act) (“ internal controls ”). Such internal controls are sufficient to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of Company financial statements for external purposes in accordance with GAAP. The Company has disclosed, based on its most recent evaluation of internal control prior to the date of this Agreement, to the Company’s auditors and audit committee (i) any significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in internal controls.

(g) Neither the Company nor any of its Subsidiaries has extended or maintained credit, arranged for the extension of credit, or renewed an extension of credit, in the form of a personal loan to or for any executive officer of the Company (as defined in Rule 3b-7 under the 1934 Act) or director of the Company in violation of Section 402 of the Sarbanes-Oxley Act.

(h) Since the Company Balance Sheet Date, there has been no transaction, or series of similar transactions, agreements, arrangements or understandings, nor is there any proposed transaction as of the date of this Agreement, or series of similar transactions, agreements, arrangements or understandings to which the Company or any of its Subsidiaries was or is to be a party, that would be required to be disclosed under Item 404 of Regulation S-K promulgated under the 1933 Act that has not been disclosed in the Company SEC Documents publicly filed or furnished with the SEC prior to the date of this Agreement.

(i) As of the date of this Agreement, there are no outstanding or unresolved comments in comment letters received from the SEC staff with respect to any of the Company SEC Documents, and, to the knowledge of the Company, none of the Company SEC Documents are subject to ongoing SEC review.

(j) Each of the principal executive officer and principal financial officer of the Company (or each former principal executive officer and principal financial officer of the Company, as applicable) has made all certifications required by Rule 13a-14 and 15d-14 under the 1934 Act and Sections 302 and 906 of the Sarbanes-Oxley Act and any related rules and regulations promulgated by the SEC and the NASDAQ Global Select Market, and the statements contained in any such certifications are complete and correct in all material respects.

Section 4.08 Financial Statements . The audited consolidated financial statements and unaudited consolidated interim financial statements of the Company included or incorporated by reference in the Company SEC Documents (including all related notes and schedules thereto) (a) fairly present in all material respects, the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and their consolidated results of operations, stockholders’ equity and cash flows for the periods then ended (subject to normal year-end audit adjustments in the case of any unaudited interim financial statements), (b) comply in all material respects with the applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and (c) have been prepared in accordance with

GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto and except, in the case of the unaudited interim statements, as may be permitted under Form 10-Q of the 1934 Act).

Section 4.09 Disclosure Documents . The information supplied or to be supplied by or on behalf of the Company for inclusion or incorporation by reference in the definitive proxy statement to be sent to the Company stockholders in connection with the Merger and the other transactions contemplated by this Agreement (including a letter to stockholders, notice of meeting and form of proxy accompanying the proxy statement and any amendments or supplements thereto, the “ Proxy Statement ”), at the date it is first mailed to the Company stockholders or at the time of the Company Stockholder Meeting, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing provisions of this Section 4.09 , no representation or warranty is made by the Company with respect to information or statements made or incorporated by reference in the Proxy Statement which were not supplied by or on behalf of the Company.

Section 4.10 Absence of Certain Changes . (a) From the Company Balance Sheet Date through the date of this Agreement, (i) the business of the Company and its Subsidiaries has been conducted in the ordinary course of business consistent with past practice in all material respects, (ii) there has not been any effect, event, occurrence or development that has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect and (iii) neither the Company nor its Subsidiaries has taken any action that, if taken after the date of this Agreement, would have required the consent of Parent under clauses (d) , (e) , (g) , (h) , (k) , (o) , (p) or (q) of Section 6.01 .

(b) Since the date of this Agreement, there has not been any effect, event, occurrence or development that has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

Section 4.11 No Undisclosed Material Liabilities . There are no liabilities or obligations of the Company or any of its Subsidiaries that would be required by GAAP to be reflected on the consolidated balance sheet of the Company (including the notes thereto), other than:

(a) liabilities or obligations disclosed, reflected, reserved against or otherwise provided for in the Company Balance Sheet;

(b) liabilities or obligations incurred in the ordinary course of business since the Company Balance Sheet Date;

(d) liabilities or obligations that have not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

Section 4.12 Compliance with Laws and Court Orders; Governmental Authorizations .

(a) Except for matters that have not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company and each of its Subsidiaries is and since December 31, 2014 has been in compliance with, and to the knowledge of the Company, is not under investigation by a Governmental Authority with respect to, any Law or Order. This section does not relate to Intellectual Property Rights matters, Tax matters, employee benefits matters or environmental matters, each of which are the subjects of Sections 4.15 , 4.16 , 4.17 and 4.19 , respectively.

(b) Except as has not had and would not reasonably be expected to, individually or in the aggregate, (i) have a Company Material Adverse Effect or (ii) materially delay or materially impair the ability of the Company to perform its obligations under this Agreement or to consummate the Merger, the Company and each of its Subsidiaries has all Governmental Authorizations necessary for the ownership and operation of its businesses as presently conducted, and each such Governmental Authorization is in full force and effect. Except as would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (i) the Company and each of its Subsidiaries is and since December 31, 2014, has been in compliance with the terms of all Governmental Authorizations necessary for the ownership and operation of its businesses and (ii) since December 31, 2014, neither the Company nor any of its Subsidiaries has received written notice from any Governmental Authority alleging any conflict with or breach of any such Governmental Authorization.

Section 4.13 Litigation . Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or would not reasonably be expected, individually or in the aggregate, to prevent the ability of the Company to perform its obligations under this Agreement or to consummate the Merger, (a) there is no Proceeding pending against, or, to the knowledge of the Company, threatened by or against the Company or any of its Subsidiaries or their respective assets or properties, and (b) there are no investigations or inquiries pending or, to the knowledge of the Company, threatened by Governmental Authorities against the Company or any of its Subsidiaries or any malfeasance of any other Person for whom the Company or any of its Subsidiaries may be liable. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, neither the Company nor any Company Subsidiary, nor any of the Company’s or any Company Subsidiary’s respective property, is subject to any outstanding Order.

Section 4.14 Properties . (a) The Company or one of its Subsidiaries owns good and marketable fee simple title or valid leasehold interest (as applicable) to the real properties owned by the Company or any of its Subsidiaries as of the date of this Agreement (the “ Owned Real Property ”) and the leases, subleases, licenses or other occupancies to which the Company or any of its Subsidiaries is a party as tenant for real property (the “ Real Property Lease ”, together with the Owned Real Property, the “ Company Real Property ”) and all property and assets reflected on the Company Balance Sheet or acquired after the Company Balance Sheet Date, in each case, free and clear of all Liens, except (i) for Permitted Liens, (ii) for the property and assets that have been disposed of since the Company Balance Sheet Date in the ordinary course of business consistent with past practice and (iii) as would not reasonably be expected to be, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole.

Section 4.14(a) of the Company Disclosure Letter sets forth a true and complete list (including addresses) of all Company Real Property. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, none of the Company, any Company Subsidiary or any Owned Real Property is in default under any agreement evidencing any Lien or other agreement affecting the Owned Real Property.

(b) With respect to each Real Property Lease under which the Company or any of its Subsidiaries leases, subleases, licenses or otherwise occupies any real property (i) such Real Property Lease is valid, binding and in full force and effect, (ii) there are no written disputes with respect to any Real Property Lease and (iii) neither the Company or any of its Subsidiaries, as applicable, nor, to the knowledge of the Company, any other party to the Real Property Lease is in breach or default under such Real Property Lease, and, to the knowledge of the Company, no event has occurred or circumstance exists which, with the delivery of notice, the passage of time or both, would constitute such a breach or default, except in each case of clauses (i) through (iii) as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. True and complete copies of all Real Property Leases, in each case as in effect as of the date hereof, together with all material amendments, modifications, supplements, renewals, extensions and associated guarantees relating thereto, have been made available to Parent.

Section 4.15 Intellectual Property . (a) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company and its Subsidiaries own or have a valid and enforceable license to use all Intellectual Property Rights necessary to, or material and used or held for use in, the conduct of the business of the Company and its Subsidiaries as currently conducted, and the Company and its Subsidiaries are currently taking commercially reasonable actions that are reasonably necessary to maintain and protect each material Owned Intellectual Property Right that they own.

(b) Neither the Company nor any of its Subsidiaries has infringed, misappropriated or otherwise violated any Intellectual Property Right of any Person except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. There is no Proceeding pending against, or, to the knowledge of the Company, threatened against, the Company or any of its Subsidiaries (A) based upon, or challenging or seeking to deny or restrict, the rights of the Company or any of its Subsidiaries in any of the Owned Intellectual Property Rights or Licensed Intellectual Property Rights, (B) alleging that any Owned Intellectual Property Right or Licensed Intellectual Property Right is invalid or unenforceable, or (C) alleging that the use of any of the Owned Intellectual Property Rights or Licensed Intellectual Property Rights or that the conduct of the business of the Company or any of its Subsidiaries do or may conflict with, misappropriate, infringe or otherwise violate any Intellectual Property Right of any Person, except for matters that have not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(c) None of the material Owned Intellectual Property Rights has been adjudged invalid or unenforceable in whole or part, and to the knowledge of the Company, all issued or registered material Owned Intellectual Property Rights are valid and enforceable in all respects, except where the failure to be valid or enforceable has not had and would not

reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. To the knowledge of the Company, no Person has infringed, misappropriated or otherwise violated any material Owned Intellectual Property Right, except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

Section 4.16 Taxes . Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:

(a) (i) Each income or franchise Tax Return and each other Tax Return required to be filed with any Taxing Authority by the Company or any of its Subsidiaries have been filed when due (taking into account extensions) and is true and complete;

(ii) the Company and each of its Subsidiaries have timely paid to the appropriate Taxing Authority all Taxes due and payable (whether or not shown, or required to be shown, on any Tax Return);

(iii) the Company and each of its Subsidiaries have complied with all applicable laws, rules, and regulations relating to the payment and withholding of Taxes and have, within the time and in the manner prescribed by law, withheld and paid over to the proper Governmental Authority all amounts required to be so withheld and paid over, except, in each case of clauses (ii) and (iii), with respect to matters contested in good faith and for which adequate accruals or reserves have been established, in accordance with GAAP, on the Company Balance Sheet;

(iv) there is no Proceeding pending or, to the Company’s knowledge, threatened against, and there is no written claim or deficiency asserted, with respect to the Company or any of its Subsidiaries in respect of any Tax; and

(v) there are no Liens for Taxes on any of the assets of the Company or any of its Subsidiaries other than Permitted Liens.

(b) During the two-year period ending on the date of this Agreement, neither the Company nor any of its Subsidiaries was a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.

(c) Neither the Company nor any of its Subsidiaries is or has been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

(d) Neither the Company nor any of its Subsidiaries is, or was, a party to any Tax Sharing Agreement (other than an agreement exclusively between or among the Company and its Subsidiaries or among the Company’s Subsidiaries) and no Person has raised in writing, or to the knowledge of the Company, threatened to raise, a claim against the Company or any of its Subsidiaries for any breach of any Tax Sharing Agreement and none of the transactions contemplated by this Agreement will give rise to any obligation to make any payments for Taxes after the Effective Time.

(e) Neither the Company nor any of its Subsidiaries has been a member of an affiliated, combined or unitary group filing a consolidated federal, state, local or foreign income Tax Return (other than a group the common parent of which is or was the Company or any of its Subsidiaries).

(f) Neither the Company nor any of its Subsidiaries has any liability for the Taxes of any Person (other than the Company or any of its Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor, by Contract or otherwise.

(g) Neither the Company nor any of its Subsidiaries has participated in a “listed transaction,” or to the knowledge of the Company, any “reportable transactions,” within the meaning of Treasury Regulations Section 1.6011-4(b).

(h) During the past six (6) years, no jurisdiction in which neither the Company nor any of its Subsidiaries files income or franchise Tax Returns has asserted that the Company or any of its Subsidiaries is or may be liable for income or franchise Tax in that jurisdiction.

Section 4.17 Employee Benefit Plans . (a) Section 4.17 of the Company Disclosure Letter contains a correct and complete list identifying each material Company Benefit Plan. The Company has made available to Parent the following with respect to each material Company Benefit Plan (to the extent applicable): (i) copies of such material Company Benefit Plan, all material amendments thereto and all related trust documents, (ii) the most recent annual report (Form 5500), if any, required under ERISA or the Code in connection with such Company Benefit Plan, (iii) the most recent actuarial report and audited financial statements for such Company Benefit Plan, (iv) the most recent summary plan description, if any, required under ERISA with respect to such Company Benefit Plan, and (v) the most recent Internal Revenue Service determination or opinion letter issued with respect to any such Company Benefit Plan intended to be qualified under Section 401(a) of the Code. No Company Benefit Plan is mandated by a government other than the United States or subject to the Laws of a jurisdiction outside of the United States.

(b) No Company Benefit Plan to which the Company, any of its Subsidiaries, any of their respective ERISA Affiliates made, or was required to make, contributions, or which any of them maintained or sponsored, during the past six (6) years, is (or was) subject to Section 302 or Title IV of ERISA or Section 412 or 430 of the Code. None of the Company, any of its Subsidiaries or any of their respective ERISA Affiliates contributes to, or has during the past six (6) years contributed to, a Multiemployer Plan or a plan that has two or more contributing sponsors at least two of whom are not under common control within the meaning of Section 4063 of ERISA.

(c) Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect: (i) each Company Benefit Plan intended to qualify under Section 401(a) of the Code has received a favorable determination or opinion letter from the Internal Revenue Service upon which it may rely regarding its tax-qualified status under the Code and, to the Company’s knowledge, no event has occurred that

would reasonably be expected to cause the loss of such qualification, (ii) all payments required to be paid by the Company or any of its Subsidiaries pursuant to the terms of a Company Benefit Plan or by applicable Law with respect to all prior periods have been made or provided for by the Company or its Subsidiaries or their respective ERISA Affiliates in accordance with GAAP, the provisions of such Company Benefit Plan or applicable Law, (iii) no proceeding has been instituted or, to the Company’s knowledge, is threatened against or involving any of the Company Benefit Plans (other than non-material routine claims for benefits and appeals of such claims), (iv) each Company Benefit Plan complies in form and has been administered, maintained and operated in all material respects in accordance with its terms and applicable Law, including, without limitation, ERISA and the Code, (v) no Company Benefit Plan is under, and neither the Company nor its Subsidiaries has received any written notice of, an audit or investigation by the Internal Revenue Service, U.S. Department of Labor, Pension Benefit Guaranty Corporation or any other Governmental Authority, (vi) no Company Benefit Plan provides any employer premium subsidies with respect to post-retirement health and/or welfare benefits to any current or former employee of the Company or its Subsidiaries, except as required under Section 4980B of the Code, Part 6 of Title I of ERISA or any other applicable state or local Law, (vii) there is no binding promise or commitment to create any additional Company Benefit Plan or modify any existing Company Benefit Plan, and (viii) no non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) has occurred.

(d) None of the execution and delivery of this Agreement, the obtaining of the Company Stockholder Approval or the consummation of the Merger or other transactions contemplated by this Agreement will (whether alone or together with any other event) (i) entitle any current or former employee, officer or director of the Company or its Subsidiaries to severance or termination pay, (ii) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, any Company Benefit Plan, (iii) increase the amount payable or trigger any other financial or material obligation pursuant to any Company Benefit Plan or (iv) result in any amounts payable to any “disqualified individual” (within the meaning of Section 280G of the Code) failing to be deductible for federal income tax purposes by virtue of Section 280G of the Code or subject to an excise tax under Section 4999 of the Code. Neither the Company nor any of its Subsidiaries has any obligation to gross-up, indemnify or otherwise reimburse any current or former employee, officer or director of the Company or any of its Subsidiaries for any Tax incurred by such individual under Section 409A or 4999 of the Code.

(e) Assuming the Closing occurs on or prior to December 31, 2016, the maximum amount of cash severance payable, as a result of the Merger, to each of the executives whose names are set forth in Section 4.17(e) of the Company Disclosure Letter under their respective employment agreements (as set forth in Section 4.17(e) of the Company Disclosure Letter) is set forth in Section 4.17(e) of the Company Disclosure Letter.

Section 4.18 Labor Matters . Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect: (i) there are no labor organizational campaigns, petitions or demands for recognition at the Company or any of its Subsidiaries; (ii) there are no unfair labor practice charges, grievances, arbitrations or other complaints or union matters before the National Labor Relations Board or other labor

board of Governmental Authority in respect of employees of the Company and its Subsidiaries; and (iii) there currently are not, and since December 31, 2014 there have not been, or, to the Company’s knowledge, threatened, any strikes, slowdowns, lockouts, organized labor disputes or work stoppages.

Section 4.19 Environmental Matters . (a) Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, there is no Environmental Claim pending or, to the knowledge of the Company, threatened against the Company, any of its Subsidiaries or, to the knowledge of the Company, against any Person whose Liability for such Environmental Claims the Company or any of its Subsidiaries has or may have retained or assumed either contractually or by operation of law.

(b) Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company and its Subsidiaries are and, since December 31, 2014, have been in compliance with all Environmental Laws and have obtained, maintained and been in compliance with all Environmental Permits, and all such Environmental Permits are in good standing.

(c) Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (i) neither the Company nor any of its Subsidiaries has caused, and to the knowledge of the Company, no other Person has caused any release of a Hazardous Substance that would be required to be investigated or remediated by the Company or its Subsidiaries under any Environmental Law and (ii) there is no site to which the Company or any of its Subsidiaries has transported or arranged for the transport of Hazardous Substances which, to the knowledge of the Company, is the subject of any Action under Environmental Law.

Section 4.20 Material Contracts . (a) Section 4.20(a) of the Company Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list of each of the following types of Contracts (excluding any Company Benefit Plans) to which the Company, any of its Subsidiaries or, in the case of clause (iv) below, Trapeza, is a party or by which any of their respective properties or assets is bound and which:

(i) (A) contains any exclusivity or similar provision that is binding on the Company or any of its Subsidiaries or (B) otherwise limits or restricts the Company or any of its Subsidiaries from (1) engaging or competing in any line of business in any location or with any Person, (2) selling any products or services of or to any other Person or in any geographic region or (3) obtaining products or services from any Person;

(ii) includes (A) any arrangement under which the Company grants any “most favored nation” terms and conditions, right of first refusal or right of first offer or similar right to a Third Party or (B) other than leases entered into in the ordinary course of business, any arrangement between the Company and a Third Party that limits or purports to limit in any respect the ability of the Company or its Subsidiaries to own, operate, sell, license, transfer, pledge or otherwise dispose of any assets or business;

(iii) is a Joint Venture Agreement;

(iv) is an Advisory Contract with a Managed REIT, a Private Fund, a Public Fund or a CDO Issuer;

(v) is a loan, guarantee of indebtedness or credit agreement, note, bond, mortgage, indenture or other binding commitment (other than letters of credit and those between the Company and its Subsidiaries) relating to indebtedness for borrowed money in an amount in excess of $1,000,000 individually;

(vi) is a Contract with respect to an interest, rate, currency or other swap or derivative transaction (other than those between the Company and its wholly owned Subsidiaries) with a fair value in excess of $1,000,000;

(vii) is a material Contract with respect to Licensed Intellectual Property Rights (other than commercially available software or hardware);

(viii) is an acquisition agreement, asset purchase or sale agreement, stock purchase or sale or purchase agreement or other similar agreement pursuant to which (A) the Company reasonably expects that it is required to pay total consideration including assumption of debt after the date of this Agreement to be in excess of $1,000,000, (B) any other Person has the right to acquire any material assets of the Company or any of its Subsidiaries after the date of this Agreement with a purchase price of more than $1,000,000 or (C) any other Person has the right to acquire any interests in the Company or any of its Subsidiaries, excluding, in the case of clauses (A) and (B), acquisitions or dispositions of supplies, inventory, merchandise or products in the ordinary course of business or of supplies, inventory, merchandise, products, properties or other assets that are obsolete, worn out, surplus or no longer used or useful in the conduct of business of the Company or its Subsidiaries;

(ix) is a Contract (or series of related Contracts) for the acquisition or disposition of assets or equity interests of any Person pursuant to which the Company or any Subsidiary has continuing “earn-out” or similar obligation, or for which an indemnification claim has been made in writing, that would reasonably be expected to result in the Company or any of its Subsidiaries making payments in excess of $1,000,000 in the aggregate;

(x) is a Contract (or series of related Contracts) that obligates the Company or any of its Subsidiaries to make any capital commitment, loan or capital expenditure in an amount in excess of $1,000,000 in the aggregate after the date of this Agreement;

(xi) is a mortgage, indenture, guarantee, loan or credit agreement, security agreement or other Contract providing for or securing indebtedness for borrowed money, whether as borrower or lender, in each case in excess of $1,000,000, other than (A) accounts receivables and payables, and (B) loans to direct or indirect wholly owned Subsidiaries of the Company;

(xii) other than the organizational documents of the Company and its Subsidiaries, is a Contract which obligates the Company or any of its Subsidiaries to

indemnify any past or present directors, officers or trustees of the Company or any of its Subsidiaries or has any current, or ongoing obligations to, or rights in favor of such Persons;

(xiii) is a settlement or similar Contract with any Governmental Authority or Order of a Governmental Authority to which the Company or any of its Subsidiaries is subject involving future performance by the Company or any of its Subsidiaries which is material to the Company and its Subsidiaries, taken as a whole;

(xiv) is a Contract (other than employment-related Contracts) containing change in control provisions or other similar payment obligations that would reasonably be expected to involve aggregate payments by the Company and its Subsidiaries in excess of $1,000,000 in connection with the consummation of the transactions contemplated hereby;

(xv) is a Contract involving aggregate payment(s) by the Company in excess of $2,000,000 and which cannot be cancelled by the Company without penalty upon notice of 60 days or less;

(xvi) is a dealer-manager agreement, selling agreement or similar Contract with a Material Broker-Dealer or between a Subsidiary of the Company that is a Broker-Dealer, on the one hand, and a Public Fund or Managed REIT, on the other hand; and

(xvii) is a Contract that would be required to be filed by the Company pursuant to Item 601(b)(10) of Regulation S-K under the 1934 Act or disclosed by the Company under Item 1.01 on a Current Report on Form 8-K.

Each Contract of the type described in clauses (i) through (xvii) , and each Employment Agreement or Employment Agreement Amendment, is referred to herein as a “ Company Material Contract ”).

(b) Except as has not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, each Company Material Contract is valid and binding and in full force and effect and, to the Company’s knowledge, enforceable against the other party or parties thereto in accordance with its terms. The Company and/or its Subsidiaries party thereto, as applicable, and, to the knowledge of the Company, each other party thereto, has performed its obligations required to be performed by it, as and when required, under each Company Material Contract, except for failures to perform that have not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Except for breaches, violations or defaults which have not had, and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, neither the Company nor any of its Subsidiaries, nor to the Company’s knowledge any other party to a Company Material Contract, has violated any provision of, or taken or failed to take any act which, with or without notice, lapse of time, or both, would constitute a default under the provisions of such Company Material Contract, and neither the Company nor any of its Subsidiaries has received written notice that it has breached, violated or

defaulted under any Company Material Contract. True and complete copies of the Company Material Contracts and any material amendments thereto have been made available to Parent prior to the date of this Agreement.

Section 4.21 Finders’ Fees, etc. Except for Evercore Group L.L.C., there is no investment banker, broker or finder that has been retained by or is authorized to act on behalf of the Company or any of its Subsidiaries who might be entitled to any fee or commission from the Company or any of its Affiliates in connection with the transactions contemplated by this Agreement.

Section 4.22 Opinion of Financial Advisor . The Company Board has received the opinion of Evercore Group L.L.C., financial advisor to the Company, to the effect that, as of the date of such opinion, and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be received by the holders of Company Stock entitled to receive such Merger Consideration pursuant to this Agreement is fair to such holders from a financial point of view.

Section 4.23 Related Party Transactions . No current director, officer or Affiliate of the Company or any of its Subsidiaries is a party to, or directly or indirectly benefits from, any Contract, arrangement, transaction or understanding with the Company or any of its Subsidiaries of a type that would be required to be disclosed under Item 404 of Regulation S-K under the 1933 Act.

Section 4.24 Antitakeover Statutes . The Company has taken all action necessary to exempt the Merger, this Agreement, the Voting Agreements and the transactions contemplated hereby and thereby from Section 203 of DGCL, and, accordingly, neither such provision of the DGCL nor any other antitakeover or similar statute or regulation applies or purports to apply to any such transactions. No other “control share acquisition,” “fair price,” “moratorium” or other antitakeover laws enacted under U.S. state or federal laws apply to this Agreement, the Voting Agreements or any of the transactions contemplated hereby or thereby.

Section 4.25 Insurance . Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (a) each of the insurance policies and self-insurance programs and arrangements relating to the business, assets and operations of the Company is in full force and effect, (b) neither the Company nor any of its Subsidiaries is in breach or default of any of the insurance policies (including any breach or default with respect to the payment of premiums), and (c) such policies provide coverage in such amounts and against such risks as are consistent with the past business practice of the Company and its Subsidiaries and with applicable Law. Since December 31, 2014, through the date of this Agreement, neither the Company nor any of its Subsidiaries has received any written notice regarding any actual or possible: (x) cancellation or invalidation of any such insurance policy, other than such cancellation or invalidation that has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect; or (y) written notice of refusal of any coverage or rejection of any claim under any such insurance policy that if not paid has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. With respect to each Proceeding that has been filed or investigation initiated against the Company or any of its Subsidiaries since

December 31, 2014, no insurance carrier has issued a denial of coverage or a reservation of rights with respect to any such Proceeding or investigation, or informed any of the Company nor any of its Subsidiaries of its intent to do so, other than a denial or reservation that has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

Section 4.26 Broker-Dealer and Other Regulated Subsidiaries . (a) The Company and each of its Subsidiaries that is required to be registered as a Broker-Dealer with the SEC under the 1934 Act is so registered, and, to the knowledge of the Company is duly registered, licensed or qualified where it is required to be so registered under applicable state Laws, except where the failure to be so registered, licensed or qualified would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole.

(b) The Company and each of its Subsidiaries that is engaged in the investment advisory or investment management activities is, to the extent required under the Advisers Act, duly registered as an investment adviser under the Advisers Act.

(c) The Company and each of its Subsidiaries that is required to be registered under the FSMA is duly registered with the FCA.

(d) Each applicable Subsidiary of the Company has publicly filed or made available to Parent prior to the date hereof true, correct and complete copies of (i) the Uniform Application for Broker-Dealer Registration on Form BD and the Uniform Application for Investment Adviser Registration on Form ADV, as filed with FINRA or the SEC, respectively, by each such applicable Subsidiary of the Company, and (ii) each application for FCA authorization, approval of such application and any scope of permission or similar notices. To the knowledge of the Company, such forms are in compliance with all applicable Laws, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole.

(e) Each of the applicable Subsidiaries of the Company is a member in good standing of FINRA and each other Governmental Authority where the conduct of its business requires membership or association.

(f) Each of the applicable Subsidiaries of the Company has established, maintains and enforces written compliance and supervisory policies and procedures and maintains books and records in compliance with all applicable Laws, and each of the applicable Subsidiaries of the Company has been and remains in compliance with such policies and procedures, in each case, except where the failure to establish, maintain, enforce or comply would not, individually or in the aggregate, has not had and reasonably be expected to have a Company Material Adverse Effect.

(g) To the knowledge of the Company, the directors, officers, employees, “associated persons” (as defined in the 1934 Act) and independent contractors of each of the applicable Subsidiaries of the Company who are required to be registered, licensed or qualified with any Governmental Authority as a registered principal, registered representative or registered investment adviser representative is duly and properly registered, licensed or qualified as such,

and has been so registered, licensed or qualified at all times while in the employ or under contract with such applicable Subsidiary, and such licenses are in full force and effect, or are in the process of being registered as such within the time periods required by applicable Law, except where the failure to be so registered, licensed or qualified has not had and would not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.

(h) Each of the applicable Subsidiaries of the Company has timely made or given all required filings, applications, notices and amendments with or to each Governmental Authority that regulates such applicable Subsidiary or its business and all such filings, applications, notices and amendments are accurate, complete and up to date, except where the failure to do so has not had and would not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.

(i) No disciplinary proceeding or order is pending or, to the knowledge of the Company, threatened against the Company, its applicable Subsidiaries nor, to the knowledge of the Company, any of their respective directors, officers, employees, independent contractors, registered representatives or “associated persons” (as defined in the 1934 Act). None of FINRA, the SEC or any other Governmental Authority has commenced or to the knowledge of the Company, threatened any action or proceeding to revoke, limit, suspend or qualify any such membership, registration, license or qualification. The Company and each of its applicable Subsidiaries is in compliance with all applicable regulatory net capital requirements, including the Minimum Net Capital Requirements applicable to each Subsidiary of the Company that is a Broker-Dealer, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole. The Company and each of its applicable Subsidiaries is in compliance with all applicable regulatory requirements for the protection of customer funds and securities, except where such failure to do so would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole.

(j) Except as disclosed on the Form BD or Form U4 or U5 or as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, none of the Company’s Subsidiaries that is required to be registered as a Broker-Dealer nor any of their respective directors, officers, employees, independent contractors, registered representatives or “associated persons” (as defined in the 1934 Act) is ineligible to serve as a Broker-Dealer or an associated person of a Broker-Dealer under Section 15(b) of the 1934 Act (including being subject to any “statutory disqualification,” as defined in Section 3(a)(39) of the 1934 Act).

Section 4.27 Material Advisory Contracts . Except as would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole, each Advisory Contract with each Managed REIT and Diversified Income Fund (collectively, the “ Material Advisory Contracts ”) is valid and binding and in full force (except for the automatic termination of the Material Advisory Contract with Diversified Income Fund that will occur under the Investment Company Act as a result of the Closing) and effect and, to the knowledge of the Company, enforceable against the other party or parties thereto in accordance with its terms. Except as would not, individually or in the aggregate, reasonably be

expected to be material to the Company and its Subsidiaries, taken as a whole, (a) the Company and/or its Subsidiaries party thereto, as applicable, and, to the knowledge of the Company, each other party thereto, has performed its obligations required to be performed by it in all material respects, as and when required, under each Material Advisory Contract, (b) neither the Company nor any of its Subsidiaries, nor to the knowledge of the Company any other party to a Material Advisory Contract, has violated any provision of, or taken or failed to take any act which, with or without notice, lapse of time, or both, would constitute a default under the provisions of such Material Advisory Contract or give rise to a right of termination by the counterparty to such Material Advisory Contract (except for an automatic termination of the Material Advisory Contract with Diversified Income Fund that occurs under the Investment Company Act as a result of the Closing, if applicable), and (c) as of the date hereof, neither the Company nor any of its Subsidiaries has received written notice that it has breached, violated or defaulted under any Material Advisory Contract.

Section 4.28 Joint Ventures . Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect, (i) all of the capital obligations of the Company and its Subsidiaries and, to the knowledge of the Company, all of the capital obligations of any Joint Venture Partner, with respect to any Joint Venture, have been fully funded, (ii) to the knowledge of the Company, there are no pending capital calls, and (iii) as of the date of this Agreement, no right of first offer or similar right under any Joint Venture Agreement as to or affecting any equity interests in any Joint Venture has been exercised by the Company or any of its Subsidiaries, on the one hand, or any Joint Venture Partner, on the other hand, nor is the exercise of any such right now pending or proposed, and no such right would become exercisable as a result of the entry into this Agreement or the consummation of the transactions contemplated hereby.

Section 4.29 Funds and Managed REITs .

(a) Each Public Fund is, and at all times required under applicable Law has been, duly registered with the SEC as an investment company under the Investment Company Act. No Private Fund is required to register as an investment company under the Investment Company Act. Neither the Company nor any of its Subsidiaries acts as investment adviser, investment sub-adviser, general partner, managing member, sponsor or manager of any pooled investment vehicle other than the Public Funds, the Private Funds listed on Section 4.29(a) of the Company Disclosure Letter and the Managed REITs.

(b) Each Public Fund, Private Fund and Managed REIT is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite corporate, trust, company, partnership power and authority or similar power and authority, to own its properties and to carry on its business conducted as of the date of this Agreement, and is qualified to do business in each jurisdiction where it is required to be so qualified under applicable Law, except for such failures to have such power and authority or to be so qualified that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

(c) Except for matters that have not had and would not reasonably be expected to have, individually or in the aggregate, (x) to the knowledge of the Company, a material adverse effect with respect to the applicable Public Fund, Private Fund or Managed REIT or (y) a Company Material Adverse Effect, (i) each Public Fund, Private Fund and Managed REIT is, and since December 31, 2014 has been, in compliance with, and to the knowledge of the Company, is not under investigation by a Governmental Authority with respect to, any Law or Order, (ii) as of the date hereof, there is no Proceeding pending against, or, to the knowledge of the Company, threatened against any Public Fund, Private Fund or Managed REIT or any of their respective assets or properties, and (iii) as of the date hereof, no Public Fund, Private Fund or Managed REIT, and none of their respective assets or properties, is subject to any outstanding Order.

(d) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, (x) to the knowledge of the Company, a material adverse effect with respect to the applicable Public Fund or the Managed REIT or (y) a Company Material Adverse Effect, (i) each Public Fund and Managed REIT has, since December 31, 2014, filed all Fund SEC Documents in compliance with applicable Law, and (ii) since December 31, 2014, each Public Fund’s and Managed REIT’s Fund SEC Documents did not at the time they were filed (if required to be filed), and did not during the period of their authorized use, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were or are made, not misleading.

Section 4.30 Anti-Corruption . Except as would not be material to the Company and its Subsidiaries, taken as a whole, the Company and its Subsidiaries have been and are in compliance with all applicable anti-corruption Laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended (15 U.S.C. § 78dd-1, et seq.), and neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any director, officer, agent or employee of the Company or any of its Subsidiaries acting on its behalf has, directly or indirectly, given, made, offered or received or agreed to give, make, offer or receive any payment, bribe, gift, contribution, expenditure or other advantage: (i) which would violate any applicable Law; or (ii) to or for a public official with the intention of: (A) improperly influencing any act or decision of such public official; (B) inducing such public official to do or omit to do any act in violation of his lawful duty; or (C) securing any improper advantage, in each case in order to obtain or retain business or any business advantage.

Section 4.31 Material Broker-Dealers . (a) Section 4.31 of the Company Disclosure Letter sets forth (i) a true and complete list of the top ten (10) Third Party Broker-Dealers for sales of securities of each Managed REIT and Diversified Income Fund, by dollar volume, since the date of inception of each such entity through April 30, 2016 on an entity-by-entity basis (each, a “ Material Broker-Dealer ”), and (ii) the total dollar volume of sales of securities of each such entity by each Material Broker-Dealer.

(b) Except as would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole, neither the Company nor any of its Subsidiaries has received written notice as of the date hereof that it has breached, violated or defaulted under any Company Material Contract of the type described in Section 4.20(a)(xvi) .

Section 4.32 REIT Status . To the knowledge of the Company:

(a) (i) RCC, for all of its taxable years, commencing with its REIT Election Year and through and including its taxable year ended December 31, 2015, has been subject to taxation as a REIT and has satisfied all the requirements to qualify as a REIT, and has so qualified, for U.S. federal Tax purposes, for such taxable years, (ii) RCC has been organized and operated since January 1, 2016 to the date hereof, and intends to continue to operate, in such a manner so as to continue to qualify as a REIT for U.S. federal income Tax purposes, and (iii) each Subsidiary of RCC has been since the later of its acquisition or formation, and continues to be, treated for U.S. federal and state income Tax purposes as (A) a partnership (or a disregarded entity) and not as a corporation or an association or publicly traded partnership taxable as a corporation, (B) a “qualified REIT subsidiary” within the meaning of Section 856(i)(2) of the Code or (C) a “taxable REIT subsidiary” within the meaning of Section 856(l) of the Code;

(b) each of Opportunity REIT and Opportunity REIT II for all of its taxable years, commencing with its REIT Election Year and through and including its taxable year ended December 31, 2015, has been subject to taxation as a REIT and has satisfied all the requirements to qualify as a REIT, and has so qualified, for U.S. federal Tax purposes, for such taxable years;

(c) each Managed REIT (other than RCC, which is addressed in Section 4.32(a) ) has been organized and operated since January 1, 2016 to the date hereof, and intends to continue to operate, in such a manner so as to qualify or continue to qualify as a REIT for U.S. federal income Tax purposes; and

(d) each Subsidiary of each Managed REIT (other than RCC, which is addressed in Section 4.32(a) ) has been since the later of its acquisition or formation, and continues to be, treated for U.S. federal and state income Tax purposes as (i) a partnership (or a disregarded entity) and not as a corporation or an association or publicly traded partnership taxable as a corporation, (ii) a “qualified REIT subsidiary” within the meaning of Section 856(i)(2) of the Code or (iii) a “taxable REIT subsidiary” within the meaning of Section 856(l) of the Code.

Section 4.33 CDO Issuers . Section 4.33 of the Company Disclosure Letter sets forth a true and complete list of all CDO Issuers. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, the Company and each of its Subsidiaries and, to the knowledge of the Company, Trapeza has complied with the terms of each Advisory Contract with a CDO Issuer.

Section 4.34 No Additional Representations . Except for the representations and warranties made by Parent and Merger Sub in Article 5 , the Company acknowledges that none of Parent, Merger Sub or any other Person makes any express or implied representation or warranty whatsoever and specifically (but without limiting the foregoing), that none of Parent, Merger Sub or any other Person makes any representation or warranty with respect to (a) Parent or its Subsidiaries or any of their respective businesses, affairs, operations, assets, liabilities, conditions (financial or otherwise), prospects or any other matter relating to Parent or its Subsidiaries or (b) any documentation, forecasts, budgets, projections, estimates or other information (including the accuracy or completeness of, or the reasonableness of the assumptions

underlying, such documentation, forecasts, budgets, projections, estimates or other information) provided by Parent or any other Person, including in any “data rooms” or management presentations. The Company has not relied on any such information or any representation or warranty not set forth in Article 5.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Except as set forth in the Parent Disclosure Letter, Parent and Merger Sub represent and warrant to the Company as follows:

Section 5.01 Corporate Existence and Power . Parent is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Each of Parent and Merger Sub has all limited liability or corporate power and authority, as applicable, to own, lease and operate its assets and carry on its business as now conducted and is duly qualified to do business as a foreign limited liability company or corporation, as applicable, and is in good standing in each jurisdiction where such qualification is necessary, except where any failure to have such power or authority or to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Parent Material Adverse Effect.

Section 5.02 Corporate Authorization . The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by Parent and Merger Sub of the transactions contemplated hereby are within the limited liability or corporate power, as applicable, and authority of Parent and Merger Sub have been duly authorized by all necessary limited liability or corporate action, as applicable, on the part of Parent and Merger Sub. No other limited liability company or corporate proceeding on the part of Parent or Merger Sub is necessary to authorize this Agreement or to consummate the transactions contemplated hereby, other than, with respect to the Merger, the filing of the certificate of merger with respect to the Merger with the Delaware Secretary of State. This Agreement, assuming due authorization, execution and delivery by the Company, constitutes a valid and binding agreement of each of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors’ rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at Law).

Section 5.03 Governmental Authorization . The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by Parent and Merger Sub of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Authority, other than (i) the filing of the certificate of merger with respect to the Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which Parent is qualified to do business, (ii) compliance with any applicable requirements of the HSR Act and any non-U.S. Competition Laws, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable state or

federal securities laws, (iv) any required consent, non-objection, approval, order or authorization of, or registration, declaration or filing with or from, FINRA and (v) any actions or filings the absence of which would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.

Section 5.04 Non-contravention . The execution, delivery and performance by Parent and Merger Sub of this Agreement and the consummation by Parent and Merger Sub of the transactions contemplated hereby do not and will not (i) assuming the authorizations, consents and approvals referred to in Section 5.03 are obtained, contravene, conflict with, or result in any violation or breach of any provision of the organizational documents of Parent and Merger Sub, (ii) assuming the authorizations, consents and approvals referred to in Section 5.03 are obtained, contravene, conflict with or result in a violation or breach of any Law or Order or (iii) assuming the authorizations, consents and approvals referred to in Section 5.03 are obtained, require any consent or other action by any Person under, constitute a default or a violation, or an event that, with or without notice or lapse of time or both, would constitute a default or a violation, under or of, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which Parent or any of its Subsidiaries is entitled under any provision of any agreement or other instrument binding upon Parent or any of its Subsidiaries or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of Parent and any of its Subsidiaries, in the case of each of clauses (ii) and (iii), which have not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect.

Section 5.05 Merger Sub . Since its date of incorporation, Merger Sub has not carried on any business or conducted any operations other than the execution of this Agreement, the performance of its obligations hereunder and matters ancillary thereto.

Section 5.06 Disclosure Documents . None of the information supplied or to be supplied by or on behalf of Parent or Merger Sub for inclusion or incorporation by reference in the Proxy Statement will, at the date it is first mailed to the Company stockholders or at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing provisions of this Section 5.06 , no representation or warranty is made by the Company with respect to information or statements made or incorporated by reference in the Proxy Statement which were not supplied by or on behalf of Parent or Merger Sub.

Section 5.07 Sufficient Funds . As of the date hereof, Parent has, and through Closing, Parent will have, immediately available to it unrestricted funds, including cash and other liquid assets, sufficient to consummate the Merger and the other transactions contemplated hereby and required for the satisfaction of all of Parent’s and Merger Sub’s obligations under this Agreement, including the payment of the full Merger Consideration and the consideration in respect of the Company Equity Awards under Article 2 , to fund any required refinancings or repayments of any existing indebtedness and to pay all related fees and expenses.

Section 5.08 Financial Statements . The audited consolidated financial statements (including all related notes thereto) delivered by Parent to the Company’s Representative by e-mail on May 9, 2016 (the “ Parent Financial Statement ”) fairly present in all material respects, in conformity with applicable accounting practices applied on a consistent basis (except as may be indicated therein or in the notes thereto), the consolidated financial position of Parent and its consolidated Subsidiaries as of the date thereof and their consolidated results of operations and cash flows for the period then ended.

Section 5.09 Solvency . Immediately after giving effect to the consummation of the transactions contemplated by this Agreement: (a) the fair saleable value (determined on a going-concern basis) of the assets of Parent and its Subsidiaries, taken as a whole, will be greater than the total amount of their liabilities, taken as a whole (including all liabilities, whether or not reflected in a balance sheet prepared in accordance with GAAP, and whether direct or indirect, fixed or contingent, secured or unsecured, disputed or undisputed); (b) Parent and its Subsidiaries will be able to pay their debts and obligations in the ordinary course of business as they become due; and (c) Parent and its Subsidiaries will have adequate capital to carry on their businesses and all businesses in which they are about to engage.

Section 5.10 Litigation . Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, there is no Proceeding pending against, or, to the knowledge of Parent, threatened against Parent or any of its Subsidiaries.

Section 5.11 No Member Vote Required . No vote of the members of Parent or the holders of any other securities of Parent (equity or otherwise) is required by Law, the certificate of formation or limited liability company agreement of Parent in order for Parent to consummate the Merger.

Section 5.12 Finders’ Fees, etc. Except as set forth on Section 5.12 of the Parent Disclosure Letter, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Parent or any of its Subsidiaries who might be entitled to any fee or commission from Parent or any of its Affiliates in connection with the transactions contemplated by this Agreement.

Section 5.13 No Additional Representations . Except for the representations and warranties expressly made by the Company in Article 4 , each of Parent and Merger Sub acknowledges that neither the Company nor any other Person makes any express or implied representation or warranty whatsoever and specifically (but without limiting the foregoing), that neither the Company nor any other Person makes any representation or warranty with respect to (a) the Company or its Subsidiaries or any of their respective businesses, affairs operations, assets, liabilities, conditions (financial or otherwise), prospects or any other matter relating to the Company or its Subsidiaries or (b) any documentation, forecasts, budgets, projections, estimates or other information (including the accuracy or completeness of, or the reasonableness of the assumptions underlying, such documentation, forecasts, budgets, projections, estimates or other information) provided by the Company or any other Person, including in any “data rooms” or management presentations. Neither Parent nor Merger Sub has relied on any such information or any representation or warranty not set forth in Article 4 .

ARTICLE 6

COVENANTS OF THE COMPANY

Section 6.01 Conduct of the Company . (a) From the date of this Agreement until the Effective Time, except as expressly required or expressly permitted pursuant to this Agreement, as set forth in Section 6.01 of the Company Disclosure Letter, as consented to in writing by Parent (such consent not to be unreasonably withheld, conditioned or delayed), or as required by applicable Law or Order, the Company shall, and shall cause each of its Subsidiaries to, use reasonable best efforts (i) to conduct its business in the ordinary course consistent with past practice, (ii) to the extent consistent with the foregoing, to preserve intact its business operations, organization and ongoing businesses and relationships with Third Parties, (iii) to obtain the renewal and prevent the termination or non-renewal of any Advisory Contract, if applicable (except for an automatic termination of an Advisory Contract with a Public Fund that occurs under the Investment Company Act as a result of the Closing, if applicable) and (iv) not to take any action, or fail to take any action, that would reasonably be expected to cause any Managed REIT to fail to qualify as a REIT; provided , that (A) no action by the Company or its Subsidiaries with respect to matters expressly permitted in the subclauses of the next sentence shall be deemed a breach of this sentence unless such action would constitute a breach of such subclauses and (B) the failure to obtain the renewal of an Advisory Contract shall not in and of itself be deemed to be a violation of this Section 6.01 . Without limiting the generality of the foregoing, from the date of this Agreement until the Effective Time, except as expressly required or expressly permitted pursuant to this Agreement, as set forth in Section 6.01 of the Company Disclosure Letter, as consented to in writing by Parent (such consent not to be unreasonably withheld, conditioned or delayed) or as required by applicable Law or Order, the Company shall not, nor shall it permit any of its Subsidiaries to:

(b) amend (or, in the case of any material Subsidiary of the Company, materially amend) the certificate of incorporation, bylaws or other similar organizational documents (whether by merger, consolidation or otherwise) of the Company or any of its material Subsidiaries;

(c) split, combine or reclassify any shares of capital stock or other equity interests of the Company or any of its Subsidiaries or declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of the capital stock or other equity interests of the Company or its Subsidiaries, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire, directly or indirectly, any Company Securities or any Company Subsidiary Securities, except for (i) the declaration, setting aside or payment of any dividends or other distributions by any of its Subsidiaries payable solely to the Company or any of its wholly owned Subsidiaries, (ii) repurchases of shares of Company Stock in the ordinary course of business consistent with past practices (including as to volume) at then prevailing market prices pursuant to any existing share repurchase program disclosed in the Company SEC Documents; provided , that the price paid per share of Company Stock shall not exceed the Merger Consideration, (iii) regular quarterly cash dividends on the Company Stock and Company Equity Awards of not more than $0.06 per share per quarter, consistent with past practice as to timing of declaration, record date and payment date, and (iv) acquisitions, or deemed acquisitions, of Company Stock in connection with (A) the

forfeiture of Company Equity Awards pursuant to the terms thereof, (B) the payment of the exercise price of Company Stock Options and (C) Tax withholding obligations in connection with the exercise, vesting or settlement of Company Equity Awards;

(d) (i) issue, deliver or sell, or authorize the issuance, delivery or sale of, any shares of any Company Securities or Company Subsidiary Securities, other than (A) the issuance of any shares of the Company Stock upon the exercise of Company Stock Options or the settlement of Company Equity Awards that are outstanding at the date of this Agreement and (B) the issuance, delivery or sale of any shares of Company Subsidiary Securities to the Company or any of its Subsidiaries, or (ii) amend any term of any Company Security (in each case, whether by merger, consolidation or otherwise);

(e) acquire (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any assets, securities, properties, interests or businesses, in excess of $1,000,000 in the aggregate, other than (i) supplies and materials in the ordinary course of business of the Company and its Subsidiaries in a manner that is consistent with past practice and (ii) pursuant to Contracts in effect on the date of this Agreement that are set forth in Section 6.01(e) of the Company Disclosure Letter;

(f) sell, license, lease or otherwise transfer, or abandon or create or incur any Lien on, directly or indirectly, any of the Company’s or its Subsidiaries’ assets, securities, properties, interests or businesses in excess of $1,000,000 in the aggregate, other than (i) sales of inventory or obsolete equipment in the ordinary course of business consistent with past practice, (ii) sales, leases or transfers that are pursuant to Contracts in effect as of the date of this Agreement that are set forth in Section 6.01(f) of the Company Disclosure Letter, (iii) Permitted Liens, or (iv) sales, licenses, leases or other transfers to the Company or any of its wholly owned Subsidiaries; provided , that, nothing in this Section 6.01(f) , including the exclusions contained in subclauses (i) through (iv) of this Section 6.01(f) , shall be deemed to permit any action prohibited by Section 6.01(s) ;

(g) make any loans, advances or capital contributions to, or investments in, any other Person, other than loans, advances or capital contributions to, or investments in, the Company or any of its wholly owned Subsidiaries;

(h) create, incur or assume any indebtedness for borrowed money or guarantees thereof or issue or sell any debt securities in an amount in excess of $1,000,000 in the aggregate, except for (i) indebtedness under the Company’s and its Subsidiaries’ revolving working capital credit facilities that are in effect at the date of this Agreement, (ii) guarantees of indebtedness of the Company or any of its wholly owned Subsidiaries (which indebtedness is in effect as of the date of this Agreement or is entered into in compliance with this Section 6.01 ) and (iii) indebtedness or guarantees between or among the Company and any of its wholly owned Subsidiaries or between or among any of the Company’s wholly owned Subsidiaries;

(i) except as otherwise permitted by the other subclauses of this Section 6.01 , assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person except wholly owned Subsidiaries of the Company;

(j) except as otherwise permitted by the other subclauses of this Section 6.01 or the capital expenditure budget attached as Section 6.01(j) of the Company Disclosure Letter, incur or commit to any capital expenditures in an amount in excess of $1,000,000 in the aggregate;

(k) settle or compromise any suit, action, claim, proceeding or investigation, in each case made or pending against the Company or any of its Subsidiaries, other than, in each case, a settlement solely for monetary damages (without any admission of liability) not in excess of $500,000 individually or $1,000,000 in the aggregate;

(l) enter into any new line of business that is materially different from the Company’s and its Subsidiaries’ businesses;

(m) form any Subsidiary (other than a wholly owned Subsidiary) or new fund;

(n) other than as may be reasonably necessary to comply with the terms of this Agreement or in connection with any matter to the extent specifically permitted by another subsection of this Section 6.01(n) , (i) terminate any Company Material Contract or Contract that would be a Company Material Contract if entered into after the date hereof (except an automatic termination of any such Contract in accordance with its terms, other than an Advisory Contract that automatically terminates, which shall be subject to Section 6.01(iii) ) or (ii) other than in the ordinary course of business consistent with past practice in the case of Company Material Contracts or Contracts that would be a Company Material Contract if entered into after the date hereof of the type described in clauses (vii) and (xvi) of Section 4.20(a) , (A) amend or modify (other than immaterial amendments or modifications) any Company Material Contract or waive, release or assign any material rights, claims or benefits under any Company Material Contract or (B) enter into (other than renewals consistent with the terms thereof) any Contract that would have been a Company Material Contract had it been entered into prior to the date of this Agreement;

(o) except (x) as required pursuant to a Company Benefit Plan in effect on the date of this Agreement and made available to Parent, or (y) as otherwise required by applicable Law, (i) except as provided in the ordinary course of business consistent with past practice with respect to non-management level employees of the Company or its Subsidiaries, grant, pay or provide any severance or termination payments or benefits to any employee, individual independent contractor or director of the Company or any of its Subsidiaries, (ii) accelerate the time of payment or vesting of, or the lapsing of restrictions with respect to, or fund or otherwise secure the payment of, any compensation or benefits to any employee, individual independent contractor or director of the Company or any of its Subsidiaries, (iii) other than in the ordinary course of business consistent with past practice (including employee promotions) and other than the Company’s annual increases in base salaries or hourly base wage rates, as applicable, for non-management level employees having an annual base salary rate under $200,000, increase the compensation or benefits payable to any employee, individual independent contractor or director of the Company or any of its Subsidiaries, (iv) enter into, amend or terminate any employment agreement or enter into any severance or retention agreement (excluding offer letters that provide for at-will employment and no severance, termination or change in control payments or benefits) with any employee, individual independent contractor, officer or director of the Company or any of its Subsidiaries, (v) adopt, enter into, terminate or amend any Company Benefit Plan (or any

plan, agreement, program, policy or other arrangement that would be a Company Benefit Plan if it were in existence as of the date of this Agreement), (vi) hire any person to be an employee with a title of “Vice President” or above or having an annual base salary rate of $200,000 or more (other than any person to fill, in the ordinary course of business consistent with past practice, any position that is existing as of the date hereof that is currently, or subsequently becomes, vacant), or (vii) terminate the employment (other than for cause) of any employee of the Company or any of its Subsidiaries having an annual base salary rate of $200,000 or more;

(p) change the Company’s methods of financial accounting, except as required by concurrent changes in GAAP or in Regulation S-X of the 1934 Act (or any interpretation thereof), any Governmental Authority or applicable Law;

(q) (i) make, change or rescind any material election with respect to Taxes, (ii) change any material method of Tax accounting, other than as required by any Governmental Authority or applicable Law, (iii) amend any material Tax Return, or (iv) agree or settle any material claim or assessment in respect of Taxes for an amount materially in excess of the amount accrued or reserved with respect thereto on the Company Balance Sheet;

(r) adopt or publicly propose a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution, in each case, of the Company or any of its Subsidiaries;

(s) sell, transfer or otherwise dispose of all or any portion of the equity interests in any Subsidiary of the Company that is a party to a Material Advisory Contract or assign or transfer any Material Advisory Contract, in each case, by merger, consolidation, sale of equity interests, share exchange or otherwise;

(t) amend or modify the compensation payable by the Company or any other material obligations of the Company contained in the engagement letter with Evercore Group, L.L.C., or engage other financial advisers in connection with the transactions contemplated by this Agreement, in any such case, other than in connection with a Company Acquisition Proposal that is made to the Company or otherwise publicly disclosed after the date of this Agreement; or

(u) agree, resolve or commit to do any of the foregoing.

Section 6.02 Company Stockholder Meeting . As promptly as practicable (and in any event, within five (5) Business Days) after the date the Proxy Statement is cleared by the SEC, the Company shall (i) acting through the Company Board, in accordance with applicable Law and its certificate of incorporation and bylaws, give notice of a meeting of its stockholders for the purpose of voting on the approval and adoption of this Agreement in accordance with DGCL (the “ Company Stockholder Meeting ”), and (ii) in accordance with applicable Law, cause the Proxy Statement to be disseminated to the Company Shareholders as of the record date established by the Company Board for the Company Stockholder Meeting (the date of such dissemination, the “ Proxy Date ”). In connection with the Company Stockholder Meeting, the Company shall subject to Section 8.03(b) and Section 8.03(c) , recommend approval and adoption of this Agreement and the other transactions contemplated hereby by the Company’s stockholders in the Proxy Statement. Subject to Section 8.03(b) and Section 8.03(c) , the

Company shall duly call, convene and hold the Company Shareholders’ Meeting as promptly as reasonably practicable following the Proxy Date and use its reasonable best efforts to solicit from its stockholders proxies in favor of the adoption of this Agreement and take all other actions reasonably necessary or advisable to secure the adoption of this agreement by the Company’s stockholders. The Company shall not, without the prior written consent of Parent, adjourn or postpone the Company Stockholder Meeting; provided , however , that the Company shall have the right to make one or more successive postponements or adjournments of the Company Stockholder Meeting (i) if on a date on which the Company Stockholder Meeting is scheduled, the Company has not received proxies representing a sufficient number of shares of Company Stock to obtain the Company Stockholder Approval, whether or not a quorum is present or (ii) to the extent necessary to ensure that any amendment or supplement to the Proxy Statement is timely provided to the holders of Company Stock. Regardless of whether there is a Company Adverse Recommendation Change, the Company Stockholder Meeting shall be held in accordance with the terms hereof unless this Agreement is terminated in accordance with Article 10 .

Section 6.03 Cooperation . (a) In the event Parent and Merger Sub seek to obtain any debt or equity financing in connection with the transactions contemplated by this Agreement, the Company shall, and shall cause its Subsidiaries to, provide all reasonable cooperation necessary for the arrangement of such financing as may be reasonably requested by Parent and Merger Sub. Each of Parent and Merger Sub expressly acknowledges and agrees that its obligation to consummate the transactions contemplated by this Agreement is not subject to any condition or contingency with respect to any financing or funding.

(b) At Parent’s request, the Company shall reasonably cooperate with Parent in coordinating introductions to and meetings with Third Party Broker-Dealers with which the Company and its Subsidiaries have ongoing business relationships.

(c) Notwithstanding anything in this Section 6.03 to the contrary, neither the Company nor any of its Subsidiaries shall be required to take or permit the taking of any action pursuant to this Section 6.03 that would: (i) require the Company, its Subsidiaries or any Persons who are directors of the Company or its Subsidiaries to pass resolutions or consents to approve or authorize the execution of the financing or execute or deliver any certificate, document, instrument or agreement or agree to any change or modification of any existing certificate, document, instrument or agreement, (ii) cause any representation or warranty in this Agreement to be breached by the Company or any of its Subsidiaries, (iii) require the Company, any of its Subsidiaries, or any of its or their stockholders, agents or other Representatives to pay any commitment or other similar fee or incur any other expense, liability or obligation in connection with the financing prior to the Closing or have any obligation under any agreement, certificate, document or instrument be effective until the Closing, (iv) cause any director, officer or employee, stockholder, agent or other Representative of the Company or any of its Subsidiaries to incur any personal liability, (v) conflict with, result in a violation or breach of, or a default (with or without notice, lapse of time, or both) under, the organizational documents of the Company or its Subsidiaries or any Laws, (vi) reasonably be expected to materially conflict with, result in a material violation or breach of, or a default (with or without notice, lapse of time, or both) under, any Contract to which the Company or any of its Subsidiaries is a party, (vii) provide access to or disclose information that the Company or any of its Subsidiaries

determines would jeopardize any attorney-client privilege of the Company or any of its Subsidiaries; (viii) prepare any financial statements or information that are not available to it and prepared in the ordinary course of its financial reporting practice, (ix) require the Company or any of its Subsidiaries to enter into any instrument or agreement, or require the Company, any of its Subsidiaries or any of its or their respective officers, directors, employees, stockholders, attorneys, accountants or other Representatives to deliver any certificate, document or instrument, that is effective prior to the occurrence of the Closing or that would be effective if the Closing does not occur or (x) unreasonably interfere with the ongoing operation of the Company and its Subsidiaries. Nothing contained in this Section 6.03 or otherwise shall require the Company or any of its Subsidiaries, prior to the Closing, to be an issuer or other obligor with respect to the financing. Each of the Company and its Subsidiaries hereby consents to the reasonable use of its logos in connection with the financing, provided that such use is disclosed to the Company or its Subsidiaries, as applicable, in writing prior to the time that it is so used, such logos are used in a manner that could not reasonably be expected to harm or disparage the Company, its Subsidiaries or their marks and on such other customary terms and conditions as the Company or applicable Subsidiary shall reasonably impose. Parent shall, promptly upon request by the Company, reimburse the Company for all reasonable out-of-pocket costs incurred by the Company or its Subsidiaries or their respective Representatives in connection with such cooperation and shall indemnify and hold harmless the Company and its Subsidiaries and their respective Representatives from and against any and all losses suffered or incurred by them in connection with the arrangement of the financing, any action taken by them at the request of Parent pursuant to this Section 6.03 and any information used in connection therewith (other than information provided in writing by the Company or its Subsidiaries specifically in connection with its obligations pursuant to this Section 6.03 ); provided , that Parent shall not be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned).

Section 6.04 Public Fund Advisory Contract Consents; Public Fund Proxy Statements . (a) With respect to each Public Fund, the Company shall, and shall cause its Subsidiaries to, in accordance with applicable Law, use reasonable best efforts to: (i) as promptly as practicable after the date of this Agreement, and to the extent required by applicable Law or the terms of any Contract or any organizational document of such Public Fund, (x) obtain the approval of a majority of the trustees of such Public Fund and a majority of the trustees of such Public Fund who are not “interested persons” (as such term is defined in Section 2(a)(19) of the Investment Company Act) of such Public Fund (“ Public Fund Board Approval ”) of a new investment advisory agreement between such Public Fund and the applicable Subsidiary of the Company (a “ New IAA ”) that (A) becomes effective as of the later of the Closing Date or approval of such New IAA by the vote of a “majority of the outstanding voting securities” (as defined in the Investment Company Act) of such Public Fund (“ Public Fund Shareholder Approval ”) and (B) contains terms substantially the same as (but with identical advisory fees as set forth in the applicable Advisory Contract) the Advisory Contract between such Subsidiary and such Public Fund as in effect on the date of this Agreement (or, if amended after the date hereof as permitted by this Agreement, as in effect on the date of such amendment), and (y) cause such Public Fund’s board of trustees to recommend approval of such New IAA to the shareholders of such Public Fund; (ii) cause the board of trustees of such Public Fund to call a meeting of the shareholders of such Public Fund to approve the New IAA for such Public Fund, such meeting to occur as soon as practicable, subject to the requirements of applicable Law, following the date of

this Agreement; (iii) as promptly as practicable after the date of this Agreement, and to the extent required by applicable Law or the terms of any Contract or any organizational document of a Public Fund, obtain Public Fund Board Approval of an “interim contract” (within the meaning of Rule 15a-4 under the Investment Company Act) between such Public Fund and the applicable Subsidiary of the Company that (x) becomes effective upon the Closing in the event the Closing occurs prior to Public Fund Shareholder Approval of such New IAA and (y) contains terms substantially the same as (but with identical advisory fees as set forth in the applicable Advisory Contract) the Advisory Contract between such Subsidiary and such Public Fund as in effect on the date of this Agreement (or, if amended after the date hereof as permitted by this Agreement, as in effect on the date of such amendment thereof) (an “ Acceptable Interim IAA ”); and (iv) cooperate with Parent in connection with taking the actions and obtaining the approvals described in clauses (i) through (iii) above and in Section 8.10(a) , including making the directors, officers and employees of the Company and its Subsidiaries reasonably available for presentations to such Public Fund’s board of trustees and for assisting in the preparation of the proxy statements, any presentations or other materials, or any communications to be made to such Public Fund’s board of trustees in furtherance of taking the actions and obtaining the approvals described in clauses (i) through (iii) above and Section 8.10(a) .

(b) As promptly as reasonably practicable following the receipt of each Public Fund Board Approval, the Company or one of its Subsidiaries shall (in coordination with each Public Fund) use reasonable best efforts to: (i) prepare and file proxy materials for a shareholder meeting of such Public Fund (A) for the purpose of voting on the approval of the New IAA for such Public Fund and (B) with respect to Diversified Income Fund, to elect each of the trustees thereof appointed by the board of trustees of Diversified Income Fund (other than any individual resigning as a trustee effective as of immediately prior to the Effective Time, as set forth on Section 8.10(a) of the Parent Disclosure Letter) (such proxy materials, a “ Public Fund Proxy Statement ” and such shareholder meeting, a “ Public Fund Shareholder Meeting ”); (ii) in accordance with applicable Law, cause a Public Fund Proxy Statement to be mailed to the shareholders of such Public Funds as of the record date established by the Public Fund’s board of trustees for such Public Fund Shareholder Meeting; and (iii) duly call, convene and hold such Public Fund’s Public Fund Shareholder Meeting as promptly as reasonably practicable following the mailing of the Public Fund Proxy Statement. The Company shall use its reasonable best efforts to solicit from the shareholders of each Public Fund proxies in favor of the approval of its New IAA and, with respect to Diversified Income Fund, elect each of the existing trustees thereof appointed by the board of trustees of Diversified Income Fund (other than any individual resigning as a trustee effective as of immediately prior to the Effective Time, as set forth on Section 8.10(a) of the Parent Disclosure Letter), and take all other actions reasonably necessary or advisable to secure the Public Fund Shareholder Approval of such New IAA and the election of such trustees. The Company shall provide Parent with a reasonable opportunity to review and comment on the Public Fund Proxy Statements, or any amendment or supplement thereto, prior to their filing with the SEC. The Company shall use its reasonable best efforts to notify Parent reasonably promptly of the receipt of any comments, whether written or oral, from the SEC and of any request by the SEC for amendments or supplements to the Public Fund Proxy Statement and shall provide Parent with (i) copies of all correspondence between the Company, any of its Subsidiaries or the Public Funds, on the one hand, and the SEC, on the other hand, with respect to the Public Fund Proxy Statements, and (ii) a reasonable opportunity to review and comment on the response to those comments and requests. The Company (in coordination with the

applicable Public Fund) shall use its reasonable best efforts to resolve, and Parent agrees to consult and cooperate with the Company in resolving, all SEC comments with respect to the Public Fund Proxy Statements as promptly as reasonably practicable after receipt thereof.

(c) Parent shall cooperate with the Company and its Subsidiaries in taking the actions and obtaining the approvals described in Section 6.04(a) and in Section 8.10(a) and shall furnish to the Company, its Subsidiaries and respective Representatives such information and assistance as the Company, its Subsidiaries and their respective Representatives may reasonably request in connection with seeking the Public Fund Board Approval and the Public Fund Shareholder Approval for each Public Fund, including making the directors, officers and employees of Parent and its Subsidiaries reasonably available for presentations to such Public Fund’s board of trustees and for assisting, at the Company’s, its Subsidiaries’ or their respective Representatives’ request, in the preparation of the proxy statements, any presentations or other materials, or any communications to be made to such Public Fund’s board of trustees in furtherance of taking the actions and obtaining the approvals described in Section 6.04(a) and in Section 8.10(a) . Each Party agrees that none of the information supplied by or on behalf of it in writing expressly for use in the proxy statement to be filed with the SEC in connection with obtaining the Public Fund Shareholder Approvals, as amended or supplemented by any amendment or supplement filed with the SEC, will, at the date it is first mailed to the shareholders of the Public Funds or at the time of the shareholder meeting of the Public Funds held to obtain the Public Fund Shareholder Approvals, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

ARTICLE 7

COVENANTS OF PARENT AND MERGER SUB

Section 7.01 Conduct of Parent . From the date of this Agreement until the Effective Time or the earlier termination of this Agreement pursuant to Article 10 , neither Parent nor Merger Sub shall take or agree to take any action (including entering into any agreements with respect to any acquisitions, mergers, consolidations or business combinations) which would reasonably be expected to result, individually or in the aggregate, in (a) a Parent Material Adverse Effect or (b) the imposition of a material condition or conditions on any Consents and Approvals.

Section 7.02 Obligations of Merger Sub . Parent shall cause Merger Sub to perform when due its obligations under this Agreement and to consummate the Merger pursuant to the terms and subject to the conditions set forth in this Agreement.

Section 7.03 Director and Officer Indemnification . (a) From and after the Effective Time, Parent and Merger Sub agree that all rights to indemnification, advancement of expenses and exculpation of each former and present director or officer of the Company or any of its Subsidiaries and each person who served as a director, officer, member, trustee, fiduciary or employee of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise if such service was at the request or for the benefit of the Company or any of its Subsidiaries (each, together with such person’s heirs, executors or administrators, a

“ Company Indemnified Party ”), against all claims, losses, liabilities, damages, judgments, inquiries, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any Proceeding or investigation with respect to matters existing or occurring at or prior to the Effective Time (including this Agreement and the transactions and actions contemplated hereby), arising out of or pertaining to the fact that the Company Indemnified Party is or was an officer or director of the Company or any of its Subsidiaries or is or was serving at the request of the Company or any of its Subsidiaries as a director or officer of another Person, whether asserted or claimed prior to, at or after the Effective Time as provided in their respective certificates of incorporation or by-laws (or comparable organizational documents) as in effect on the date of this Agreement or in any agreement, a true and complete copy of which agreement has been provided by the Company to Parent prior to the date of this Agreement, to which the Company or any of its Subsidiaries is a party, shall survive the Merger and continue in full force and effect in accordance with their terms. For a period of no less than six (6) years after the Effective Time, Parent and the Company shall cause to be maintained in effect the provisions in the certificates of incorporation and bylaws and comparable organizational documents of the Surviving Corporation and each Subsidiary of the Company (or in such documents of any successor to the business of the Surviving Corporation) regarding exculpation, indemnification and advancement of expenses in effect as of immediately prior to the Effective Time or in any agreement to which the Company or any of its Subsidiaries is a party, in each case in effect immediately prior to the Effective Time, and shall not amend, repeal or otherwise modify any such provisions or the exculpation, indemnification or advancement of expenses provisions of the Surviving Corporation’s certificate of incorporation and bylaws set forth in Exhibit B in any manner that would adversely affect the rights thereunder of any individual who immediately before the Effective Time was a Company Indemnified Party; provided , however , that all rights to indemnification in respect of any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (each, an “ Action ”) pending or asserted or any claim made within such period shall continue until the disposition of such Action or resolution of such claim.

(b) For a period of no less than six (6) years after the Effective Time, Parent and the Surviving Corporation shall indemnify and hold harmless (and advance funds in respect of the foregoing) each Company Indemnified Party to the fullest extent permitted under applicable Law against any costs or expenses (including advancing attorneys’ fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Company Indemnified Party), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened Action arising out of or pertaining to the fact that the Company Indemnified Party is or was an officer or director of the Company or any of its Subsidiaries or is or was serving at the request of the Company or any of its Subsidiaries as a director or officer of another Person, whether asserted or claimed prior to, at or after the Effective Time, but subject to Parent’s and the Surviving Corporation’s receipt of an undertaking by or on behalf of such Company Indemnified Party to repay such amount if it shall ultimately be determined that such Company Indemnified Party is not entitled to be indemnified. Parent and the Surviving Corporation shall reasonably cooperate with the Company Indemnified Party in the defense of any such Action. Notwithstanding anything to the contrary set forth in this Agreement, neither Parent nor the Surviving Corporation shall be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned).

(c) Parent shall cause the Surviving Corporation, and the Surviving Corporation hereby agrees, to either (i) continue to maintain in effect for a period of no less than six (6) years after the Effective Time the Company’s directors’ and officers’ insurance policies (the “ D&O Insurance ”) in place as of the date of this Agreement or (ii) purchase comparable D&O Insurance for such six (6)-year period from a carrier with comparable or better credit ratings to the Company’s existing directors’ and officers’ insurance policies, in each case, with coverage for the persons who are covered by the Company’s existing D&O Insurance, with terms, conditions, retentions and levels of coverage at least as favorable to the insured individuals as the Company’s existing D&O Insurance with respect to matters existing or occurring at or prior to the Effective Time; provided , that in no event shall Parent or the Surviving Corporation be required to expend for such policies pursuant to this sentence an aggregate premium amount in excess of 300% of the amount per annum the Company paid in its last full fiscal year, which amount is set forth in Section 7.03(c) of the Company Disclosure Letter (the “ Premium Cap ”); and provided , further , that if the aggregate premiums of such insurance coverage exceed such amount, the Surviving Corporation shall be obligated to obtain a policy with the greatest coverage available, with respect to matters occurring prior to the Effective Time, for a cost not exceeding the Premium Cap. At the Company’s option, the Company may purchase, prior to the Effective Time, a prepaid “tail policy” for a period of no more than six (6) years after the Effective Time with coverage for the persons who are covered by the Company’s existing D&O Insurance, with terms, conditions, retentions and levels of coverage at least as favorable to the insured individuals as the Company’s existing D&O Insurance with respect to matters existing or occurring at or prior to the Effective Time, in which event Parent shall cease to have any obligations under the first sentence of this Section 7.03(c) ; provided , that the aggregate premium for such policies shall not exceed the Premium Cap. In the event the Company elects to purchase such a “tail policy,” the Surviving Corporation shall (and Parent shall cause the Surviving Corporation to use commercially reasonable efforts to) maintain such “tail policy” in full force and effect and continue to honor its obligations thereunder.

(d) In the event that either Parent or the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties, rights and other assets to any Person, then, and in each such case, Parent or the Surviving Corporation shall cause proper provision to be made so the successors and assigns of Parent or the Surviving Corporation, as the case may be, succeed to or assume the applicable obligations of such Party set forth in this Section 7.03 .

(e) The provisions of this Section 7.03 shall survive consummation of the Merger, are intended to be for the benefit of, and will be enforceable by, each indemnified or insured person hereunder (including the Company Indemnified Parties), his or her heirs and his or her representatives and are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract, at Law or otherwise.

Section 7.04 Employee Matters . (a) From and after the Effective Time, the Surviving Corporation shall, and Parent shall cause the Surviving Corporation to, honor all Company Benefit Plans in accordance with their terms as in effect immediately prior to the Effective Time. During the one-year period following the Effective Time (the “ Continuation Period ”), Parent shall provide, or shall cause to be provided, to each employee of the Company and its

Subsidiaries who continues to be employed by Parent or its Subsidiaries (including the Surviving Corporation and its Subsidiaries) immediately following the Effective Time (each, a “ Continuing Employee ”), with (i) a base salary or hourly rate that is at least equal to the base salary or hourly rate provided to each such Continuing Employee immediately prior to the Closing Date, (ii) commission, cash bonus and long-term incentive opportunities, as applicable, that are no less favorable than the commission, cash bonus and long-term incentive opportunities provided to each such Continuing Employee immediately prior to the Closing Date (except that no equity-based compensation shall be considered or taken into account for purposes of determining whether opportunities are no less favorable), and (iii) employee benefits that are no less favorable in the aggregate than the employee benefits provided to each such Continuing Employee immediately prior to the Closing Date. In addition and notwithstanding anything to the contrary in the foregoing two sentences, during the Continuation Period (or such longer period as may be required by applicable Law), Parent shall provide, or shall cause to be provided, to each Continuing Employee identified on Section 7.04(a) of the Company Disclosure Letter whose employment is terminated without Cause (as defined in Section 7.04(a) of the Company Disclosure Letter) during such period with the severance benefits set forth in Section 7.04(a) of the Company Disclosure Letter; provided that the receipt of any such severance shall be conditioned upon and subject to the execution (and non-revocation) by such employee of a customary release of claims in favor of Parent and its Affiliates (in substantially the form used by the Company as of the date hereof with respect to terminations of employment, a copy of which has been made available to Parent prior to the date hereof) (a “ Release of Claims ”).

(b) If any Continuing Employee becomes eligible to participate in any “employee benefit plan,” as defined in Section 3(3) of ERISA maintained by Parent or any of its Subsidiaries (collectively, the “ Parent Plans ”), then, for purposes of determining eligibility to participate, vesting and benefit accrual, service with the Company or any of its Subsidiaries (as well as service with any predecessor employer of the Company or any such Subsidiary) prior to the Effective Time shall be treated as service with Parent or any of its Subsidiaries solely to the extent recognized by the Company and its Subsidiaries prior to the Effective Time under the comparable Company Benefit Plan; provided , however , that (A) such service shall not be recognized to the extent that such recognition would result in any duplication of benefits, (B) no recognition of service shall be required under any newly established plan for which prior service of similarly situated employees of Parent is not taken into account, and (C) Parent shall not be required to provide service credit for any equity or equity-based compensation under any Parent Plan or any benefit accrual purposes under any Parent Plan that is a defined benefit pension plan. In addition, subject to the terms of the applicable Parent Plan and applicable Law, Parent shall use commercially reasonable efforts to (i) waive, or caused to be waived, all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to Continuing Employees under any Parent Plan that is a welfare benefit plan in which such Continuing Employees may be eligible to participate after the Effective Time solely to the extent such conditions and exclusions and waiting periods were satisfied or did not apply to such employees under the corresponding welfare plan maintained by the Company prior to the Effective Time, and (ii) provide each Continuing Employee with credit for any co-payments and deductibles paid prior to the Closing Date during the plan year in which the Effective Time occurs in satisfying any applicable deductible or out-of-pocket requirements under any Parent Plans that are welfare plans in which such Continuing Employee is eligible to participate after the Effective Time solely to the extent credited under the corresponding welfare plan maintained by the Company prior to the Effective Time.

(c) The Company shall pay, or Parent shall cause the Surviving Corporation or an Affiliate thereof to pay, as applicable, annual bonuses in respect of the 2016 fiscal year as follows:

(i) Prior to the Effective Time, the Company shall establish a bonus amount pursuant to the Company’s annual bonus or revenue-sharing plans or arrangements for each participant therein (each, a “ Bonus Plan Participant ”) for the portion of the 2016 fiscal year that ends on the earlier of December 31, 2016 and the Closing Date (the “ 2016 Bonus Amount ”) in an amount no greater than the product of (i) the annual cash bonus received by such Bonus Plan Participant in respect of the 2015 fiscal year multiplied by (ii) either (A) one (1) (if the Closing Date occurs on or after December 31, 2016) or (B) a fraction, the numerator of which is the number of days during the 2016 fiscal year through and including the Closing Date and the denominator of which is 366 (if the Closing Date occurs prior to December 31, 2016).

(ii) If the Effective Time occurs prior to the time the Company would pay annual bonuses in respect of the 2016 fiscal year in the ordinary course of business, then no later than March 15, 2017, Parent shall cause the Surviving Corporation or an Affiliate thereof to pay to each Bonus Plan Participant who is continuously employed through the payment date, an annual bonus in respect of the entire 2016 fiscal year, which amount shall be no less than such person’s 2016 Bonus Amount; provided , however , that if, prior to the payment of annual bonuses in respect of the 2016 fiscal year, a Bonus Plan Participant’s employment is terminated without Cause or such Bonus Plan Participant’s employment terminates in a manner entitling such Bonus Plan Participant to severance or termination payments under an employment or other agreement with the Company or any of its Affiliates, then Parent shall cause the Surviving Corporation or an Affiliate thereof to pay to such Bonus Plan Participant a prorated bonus in respect of the 2016 fiscal year in an amount equal to the product of (A) the annual cash bonus earned by such Bonus Plan Participant in respect of the 2015 fiscal year multiplied by (B) a fraction, the numerator of which is the number of days the Participant was employed by the Company, the Surviving Corporation or an Affiliate thereof during the 2016 fiscal year and the denominator of which is 366. Any such prorated bonus shall be paid to the Bonus Plan Participant within sixty (60) days following such Bonus Plan Participant’s termination of employment, subject to such Bonus Plan Participant’s execution of a Release of Claims that becomes effective and non-revocable under applicable law within the sixty (60)-day period following such termination of employment.

(iii) If the Effective Time has not occurred by the time the Company would pay annual bonuses in respect of the 2016 fiscal year in the ordinary course of business, then the Company shall pay each Bonus Plan Participant an annual bonus in respect of the 2016 fiscal year in an amount equal to his or her 2016 Bonus Amount in the ordinary course of business.

(d) Nothing contained in this Section 7.04 , expressed or implied, shall (i) be treated as the establishment, amendment or modification of any Company Benefit Plan or Parent Plan or constitute a limitation on rights to amend, modify, merge or terminate after the Effective Time any Company Benefit Plan or Parent Plan, (ii) give any current or former employee, officer, director or other independent contractor of the Company and its Subsidiaries (including any beneficiary or dependent thereof) any third-party beneficiary or other rights, or (iii) obligate Parent or any of its Affiliates to (A) maintain any particular Company Benefit Plan or Parent Plan or (B) retain the employment or services of any current or former employee, officer, director or other independent contractor.

Section 7.05 Section 15(f) of the Investment Company Act . From and after the Effective Time, Parent and Merger Sub shall use reasonable best efforts to assure that (a) for a period of not less than three (3) years following the Effective Time, at least seventy five percent (75%) of the members of the board of trustees of each Public Fund are not “interested persons” (as such term is defined in Section 2(a)(19) of the Investment Company Act) of the investment adviser of the Public Fund, (b) for a period of not less than two (2) years following the Effective Time, there is not imposed on any Public Fund an “unfair burden” (within the meaning of Section 15(f) of the Investment Company Act) as a result of the transaction contemplated by the Merger Agreement, including the Merger, or any express or implied terms, conditions or understandings applicable thereto; provided , however , that if Parent or any of its Affiliates obtains an order from the SEC as contemplated by Section 15(f)(3) of the Investment Company Act, then this covenant shall be deemed to be modified to the extent necessary to permit Parent, Merger Sub and their Affiliates to act in accordance with the representations and conditions contained in the application upon which such order was granted. Notwithstanding anything to the contrary contained herein, the covenants of the Parties contained in this Section 7.05 are intended only for the benefit of Persons who are “affiliated persons” (as such term is defined in Section 2(a)(3) of the Investment Company Act) of the Company or its Subsidiaries as of immediately prior to the Effective Time and for no other Person.

ARTICLE 8

COVENANTS OF PARENT AND THE COMPANY

Section 8.01 Efforts . (a) Subject to Section 8.01(b) and Section 8.01(c) and the terms and conditions set forth in this Agreement, each of the Company and Parent shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and assist and cooperate with the other in doing, all things necessary, proper or advisable under applicable Law or Order to consummate and make effective the Merger and the other transactions contemplated by this Agreement as promptly as practicable (and in any event no later than the End Date). Without limiting the generality of the foregoing, subject to Section 8.01(b) and Section 8.01(c) and the terms and conditions set forth in this Agreement, each of Parent, Merger Sub and the Company shall cooperate with the other and use, and shall cause each of its respective Subsidiaries to use, their respective reasonable best efforts to (i) prepare and file as promptly as practicable, and in any event within the time prescribed by any applicable Law or Competition Law, all documentation to effect all necessary notices, reports and other filings and to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from, or renewed with, any Governmental

Authority (including the Consents and Approvals), in each case in order to consummate as promptly as practicable the transactions contemplated by this Agreement, (ii) furnish as promptly as practicable all information to any Governmental Authority as may be required by such Governmental Authority in connection with the foregoing, (iii) obtain all consents, registrations, approvals, permits and authorizations necessary, proper or advisable to be obtained from, or renewed with, any other Person (including the Consents and Approvals), in each case in order to consummate as promptly as practicable the transactions contemplated by this Agreement; provided , that under no circumstances shall the Company or any of its Subsidiaries be required to make any payment to any Person to secure such Person’s consent and (iv) obtain all consents, approvals and authorizations that are necessary or advisable as a result of the transactions contemplated hereby under (A) any Contract to which the Persons listed on Section 8.01(a)(iv)(A) of the Company Disclosure Letter is a party and (B) if requested by Parent, any Contract to which the Persons listed on Section 8.01(a)(iv)(B) of the Company Disclosure Letter is a party; provided , further , that, the failure to obtain any of the consents, registrations, approvals, permits or authorizations referenced in clauses (iii) or (iv) above (other than any consents, approvals or events required pursuant to Section 9.01(c) and Section 9.01(d) ) shall not constitute the failure to satisfy a condition to the obligation of either Party to consummate the transactions contemplated by this Agreement. Notwithstanding the foregoing and without limiting the generality thereof: (x) the Parties shall (A) prepare and file a notification with respect to the transactions contemplated by this Agreement pursuant to the HSR Act with the Federal Trade Commission and the Antitrust Division of the Department of Justice within ten (10) Business Days from the date hereof, (B) seek early termination of any waiting periods under the HSR Act and (C) to the extent required by applicable Law or pursuant to an Advisory Contract, inform each Advisory Client (and other required Persons) in writing of the transactions contemplated by this Agreement by sending such Advisory Client a notice thereof, in form and substance reasonably satisfactory to Parent, and use reasonable best efforts to seek such Advisory Client’s (and other required Persons’) consent to the continuation of its applicable Advisory Contract (except for any approvals of the board of trustees or shareholders of the Public Funds, which are addressed in Section 6.04 ); provided , however , that, to the extent consistent with applicable Law or SEC pronouncements or unless affirmative consent is required by the applicable Advisory Contract, such consent may take the form of a so-called implied or negative consent; (x) the Parties shall, and shall cause their respective Subsidiaries and Representatives to, and the Company shall use reasonable best efforts to cause its applicable Joint Ventures to, prepare and, as promptly as practicable following the date of this Agreement, submit or cause to be submitted to the FCA each required FSMA Section 178 Notification with respect to the transactions contemplated by this Agreement ( provided , that the Company shall not be required to cause any such Joint Venture to take any action to the extent the Company does not have the right to cause such Joint Venture to take such action pursuant to the terms of the applicable Joint Venture Agreement); (y) the Parties shall, and shall cause their respective Subsidiaries and Representatives to, and the Company shall use reasonable best efforts to cause its applicable Joint Ventures to, prepare and, as promptly as practicable following the date of this Agreement, submit or cause to be submitted any and all filings with the JFSC to obtain the JFSC Approval with respect to the transactions contemplated by this Agreement ( provided , that the Company shall not be required to cause any such Joint Venture to take any action to the extent the Company does not have the right to cause such Joint Venture to take such action pursuant to the terms of the applicable Joint Venture Agreement); and (z) the Company shall

prepare and, as promptly as practicable following the date of this Agreement, submit or cause to be submitted to FINRA for each Subsidiary of the Company that is a Broker-Dealer, a substantially complete Continuing Membership Application (“ CMA ”) for approval of a change in control or ownership pursuant to FINRA (NASD) Rule 1017(a)(4) satisfying the standards of FINRA (NASD) Rule 1014. The Parties acknowledge and agree that nothing contained in this Agreement shall obligate the Company prior to the Closing to make or cause to be made for any Subsidiary of the Company that is a Broker-Dealer an application to FINRA for approval of a material change in business pursuant to FINRA (NASD) Rule 1017(a)(5), except to the extent required by FINRA.

(b) Each Party shall furnish to the other such necessary information and assistance as the other Party may reasonably request in connection with the preparation of any necessary filings or submissions for any Governmental Authority. Except as required by law or regulation and subject to Section 8.01(c) , each Party or its attorneys shall provide the other Party or its attorneys the opportunity to review and make copies of all correspondence, filings, communications or memoranda setting forth the substance thereof between such Party or its representatives, on the one hand, and any Governmental Authority, on the other hand, with respect to this Agreement or the transactions contemplated in this Agreement (omitting any information that constitutes a competitively sensitive or transaction related business secret of either Party). Parent will pay all filing fees in connection with any filings in connection with approvals of Governmental Entities to the transactions contemplated hereby; provided , that Parent shall pay only 50% of the costs and expenses associated with any Continuing Membership Application pursuant to FINRA (NASD) Rule 1017 in connection with the consummation of the transactions contemplated hereby.

(c) Notwithstanding anything to the contrary set forth herein and subject to the terms and conditions set forth in this Agreement, without in any way limiting the generality of the undertakings under this Section 8.01 , each of the Company, Parent and Merger Sub shall each use their respective reasonable best efforts to: (i) promptly provide to each and every Governmental Authority such information and documents as may be requested by such Governmental Authority in connection with obtaining the consents and approvals set forth in this Section 8.01 or that are necessary, proper or advisable to permit consummation of the transactions contemplated by this Agreement; (ii) promptly take any and all actions necessary to avoid or eliminate each and every impediment under any applicable Law so as to enable the consummation of the transactions contemplated hereby, including the Merger, to occur as soon as reasonably possible (and in any event no later than the End Date); and (iii) promptly take any and all actions necessary to avoid or overcome the entry of any action, including any administrative or judicial action, Order, decision or determination (in each case, whether temporary, preliminary or permanent) that would materially delay, restrain, restrict, prevent, enjoin or otherwise prohibit the consummation of the transactions contemplated hereby on or prior to the End Date; provided , that, notwithstanding anything to the contrary contained herein, the Company and its Subsidiaries shall not be obligated to make any changes to their respective business or operations pursuant to clauses (ii) and (iii) of this Section 8.01(c) unless such actions are conditional or contingent on the Closing occurring in accordance with the terms of this Agreement.

(d) In the event that any Governmental Authority requires any acts, omissions or restrictions in connection with obtaining the consents and approvals contemplated by Section 8.01 , no adjustment shall be made to the aggregate Merger Consideration.

(e) Subject to applicable Law, Competition Law, applicable Orders and all privileges, including attorney-client privileges, each Party shall keep the other apprised of the status of matters relating to the completion of the transactions contemplated by this Agreement, including: (i) prior to submitting any document or information (whether formally or informally, in draft form or final form) to any Governmental Authority with respect to the Competition Law of such Governmental Authority applicable to this Agreement, the FINRA Approval, any FCA Approval or the JFSC Approval sending reasonably in advance to the other Party a copy of such document or information (omitting any information that constitutes a competitively sensitive or transaction related business secret of the other Party); (ii) promptly sending to the other Party a copy of all documents, information, correspondence or other communications relating to this Agreement sent to, or received by the Party (or its Representatives) from, any third-party or Governmental Authority relating to the Competition Law of such Governmental Authority, the FINRA Approval, any FCA Approval, the JFSC Approval or the transactions contemplated by this Agreement; (iii) promptly informing the other Party of any communications, conversations or telephonic calls received from any Governmental Authority with respect to the Competition Law of such Governmental Authority applicable to this Agreement, the FINRA Approval, any FCA Approval or the JFSC Approval, and not initiating any of the foregoing without giving reasonable prior notice to the other Party and reasonable opportunity to participate in any such communication, conversation or telephonic call; (iv) sending reasonably in advance to the other Party any undertaking or agreement (whether oral or written) that it or any of its Subsidiaries proposes to make or enter into with any Governmental Authority with respect to the transactions contemplated by this Agreement; (v) allowing the other Party and its Representatives to attend and participate at any meeting with, or hearing organized by, any Governmental Authority relating to the transactions contemplated by this Agreement, to the extent permitted by such Governmental Authority and to the extent reasonably practicable; and (vi) in connection with the FINRA Approval, any FCA Approval and the JFSC Approval, provide the other Party with a reasonable opportunity to review and comment on each CMA or other applicable filing and any response to any additional information in connection with any CMA or other applicable filing, in each case prior to the submission thereof (including the proposed final version thereof).

Section 8.02 Proxy Statement . (a) As promptly as reasonably practicable after the execution of this Agreement, the Company shall prepare (with Parent’s cooperation) and file with the SEC the Proxy Statement to be sent to the stockholders of the Company relating to the Company Stockholder Meeting. The Company shall use its reasonable best efforts to ensure that the Proxy Statement complies as to form with the rules and regulations promulgated by the SEC under the 1934 Act. Subject to Section 8.03 , the Proxy Statement shall include (i) a statement to the effect that the Company Board has determined that this Agreement and the Merger are advisable and (ii) the recommendation of the Company Board in favor of adoption of this Agreement by the Company’s stockholders. As promptly as reasonably practicable after the Proxy Statement shall have been cleared by the SEC, the Company shall cause the Proxy Statement to be mailed to its stockholders entitled to vote at the Company Stockholder Meeting.

(b) Each of the Company and Parent shall furnish all information concerning such Person and its Subsidiaries to the other, and provide such other assistance, as may be reasonably requested by such other Party to be included therein and shall otherwise reasonably assist and cooperate with the other in the preparation, filing and distribution of the Proxy Statement and the resolution of any comments received from the SEC. The Company shall provide Parent, Merger Sub and their counsel reasonable opportunity to review and comment on the Proxy Statement and any amendment or supplement thereto, in each case prior to the filing thereof with the SEC. If at any time prior to the receipt of the Company Stockholder Approval, any information relating to the Company or Parent, or any of their respective Subsidiaries, directors or officers, should be discovered by the Company or Parent which is required to be set forth in an amendment or supplement to the Proxy Statement, so that such document would not include any misstatement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Party which discovers such information shall promptly notify the other Party and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by applicable Law, disseminated to the stockholders of the Company.

(c) The Company shall notify Parent promptly of the receipt of any comments, whether written or oral, from the SEC or the staff of the SEC and of any request by the SEC or the staff of the SEC for amendments or supplements to the Proxy Statement or for additional information and shall provide Parent with (A) copies of all correspondence between the Company or any of its Affiliates, on the one hand, and the SEC or the staff of the SEC, on the other hand, with respect to the Proxy Statement and (B) a reasonable opportunity to participate in the response to those comments and requests. The Company agrees to consult with Parent prior to responding to SEC comments with respect to the Proxy Statement. The Company shall use its reasonable best efforts to resolve, and Parent agrees to consult and cooperate with the Company in resolving, all SEC comments with respect to the Proxy Statement as promptly as reasonably practicable after receipt thereof and to cause the Proxy Statement in definitive form to be cleared by the SEC and mailed to the Company Shareholders as promptly as reasonably practicable following filing with the SEC.

Section 8.03 No Solicitation . (a) The Company and its controlled Affiliates shall, and the Company shall instruct its Representatives to, immediately cease any discussions or negotiations with any Person that may be ongoing with respect to a Company Acquisition Proposal. From and after the date of this Agreement until the earlier to occur of the Effective Time or the termination of this Agreement in accordance with Article 10 , neither the Company nor any of its Subsidiaries nor any of their respective officers or directors shall, and the Company shall instruct its and its Subsidiaries’ Affiliates and other Representatives not to, directly or indirectly, (i) solicit, initiate or knowingly encourage (including by way of furnishing any non-public information), or knowingly take any other action designed to facilitate, any inquiry or the making or submission of any inquiry, proposal, indication of interest or offer which constitutes, or would reasonably be expected to lead to, a Company Acquisition Proposal, (ii) subject to Section 8.03(b) , approve or recommend, or propose to approve or recommend, a Company Acquisition Proposal, (iii) subject to Section 8.03(b) , approve or recommend, or propose to approve or recommend, or execute or enter into any letter of intent, memorandum of understanding, merger agreement or other agreement, arrangement or understanding relating to a

Company Acquisition Proposal (other than an Acceptable Confidentiality Agreement) or a Superior Proposal (each an “ Alternative Acquisition Agreement ”), (iv) enter into, continue or otherwise participate in any discussions or negotiations regarding any Company Acquisition Proposal, or (v) publicly announce an intention to do any of the foregoing; provided , however , that if, prior to obtaining the Company Stockholder Approval, following the receipt of a bona fide written Company Acquisition Proposal that the Company Board determines in good faith, after consultation with the Company’s outside financial advisors and outside legal counsel, is or could reasonably be expected to lead to a Superior Proposal and that was unsolicited and made after the date of this Agreement in circumstances not otherwise involving a breach of this Agreement, the Company may, in response to such Company Acquisition Proposal and subject to compliance with Section 8.03(b) , furnish information with respect to the Company to the Person making such Company Acquisition Proposal and engage in discussions or negotiations with such Person regarding such Company Acquisition Proposal; provided , that (A) prior to furnishing, or causing to be furnished, any such nonpublic information relating to the Company to such Person, the Company enters into a confidentiality agreement with the Person making such Company Acquisition Proposal (an “ Acceptable Confidentiality Agreement ”) that (x) does not contain any provision that would prevent the Company from complying with its obligation to provide any disclosure to Parent required pursuant to this Section 8.03 and (y) contains confidentiality provisions that in the aggregate are no less restrictive on such Person than those contained in the Confidentiality Agreement as in effect immediately prior to the execution of this Agreement (it being understood that an Acceptable Confidentiality Agreement need not contain any standstill or non-solicitation provision), and (B) promptly (but in any event within twenty-four (24) hours) following furnishing any such nonpublic information to such Person, the Company furnishes such nonpublic information to Parent (to the extent such nonpublic information has not been previously so furnished to Parent or its Representatives).

(b) Except as permitted pursuant to this Section 8.03(b) or Section 8.03(c) , the Company Board shall not (i) effect a Company Adverse Recommendation Change or (ii) cause or permit the Company or any of its Subsidiaries to enter into any Alternative Acquisition Agreement. Notwithstanding anything to the contrary in this Agreement, if (A) a written Company Acquisition Proposal that was not solicited in violation of this Agreement is made to the Company by a Third Party and such Company Acquisition Proposal is not withdrawn and (B) the Company Board concludes in good faith, after consultation with the Company’s outside financial advisors and outside legal counsel, that such Company Acquisition Proposal constitutes a Superior Proposal, then prior to receipt of the Company Stockholder Approval, and subject to compliance with this Section 8.03(b) , the Company Board may (x) effect a Company Adverse Recommendation Change or (y) cause the Company to terminate this Agreement in accordance with the procedures set forth in Section 10.01(d)(ii) if the Company Board concludes in good faith, after consultation with the Company’s outside legal counsel, that the failure to make a Company Adverse Recommendation Change or cause the Company to terminate this Agreement in accordance with the procedures set forth in Section 10.1(d)(ii) would be reasonably likely to be inconsistent with its fiduciary duties under applicable Laws; provided , however , that, prior to making any Company Adverse Recommendation Change or terminating this Agreement:

(i) the Company Board shall provide Parent at least four (4) Business Days’ prior written notice of its intention to take such action, which notice shall include the information with respect to the Superior Proposal that is specified in this

Section 8.03(b) and the material terms and conditions thereof (including the identity of the Third Party making the Superior Proposal, as well as a complete copy of the Superior Proposal that is the basis of such action);

(ii) during the four (4) Business Days following such written notice (or such shorter period as is specified below), the Company Board and its Representatives shall negotiate in good faith with Parent (to the extent Parent desires to negotiate) regarding any revisions to the terms of the transactions contemplated hereby proposed by Parent in response to such Superior Proposal; and

(iii) at the end of such four (4) Business Days, the Company Board concludes in good faith, after consultation with the Company’s outside legal counsel and financial advisors (and taking into account any adjustment or modification of the terms of this Agreement proposed in writing by Parent), that the Company Acquisition Proposal continues to be a Superior Proposal and that the failure to make such Company Adverse Recommendation Change or cause the Company to terminate this Agreement in accordance with the procedures set forth in Section 10.1(d)(ii) would still be reasonably likely to be inconsistent with its fiduciary duties under applicable Laws.

Any material amendment or modification to any Superior Proposal (including any change to the financial terms thereof) will be deemed to be a new Company Acquisition Proposal for purposes of this Section 8.03 , and the Company shall promptly (and in any event within 24 hours of occurrence) notify Parent of any such new Company Acquisition Proposal and the Parties shall comply with the provisions of this Section 8.03(b) with respect thereto, but with references therein to “4 Business Days” deemed to be references to “3 Business Days”; provided , that in the event there is a Company Adverse Recommendation Change made in compliance with this Section 8.03(b) with respect to a Superior Proposal, the Company shall only enter into an Alternative Acquisition Agreement with respect thereto by terminating this Agreement in accordance with Section 10.01(d)(ii) .

(c) Notwithstanding anything to the contrary in this Agreement, following the occurrence of an Intervening Event, if the Company Board concludes in good faith, after consultation with the Company’s outside legal counsel, that the failure to make a Company Adverse Recommendation Change in response to such Intervening Event would reasonably be expected to be inconsistent with the Company Board’s fiduciary duties under applicable Laws, then prior to receipt of the Company Stockholder Approval, and subject to compliance with this Section 8.03(c) , the Company Board may effect a Company Adverse Recommendation Change; provided , however , that, prior to making any Company Adverse Recommendation Change:

(i) the Company Board shall provide Parent at least four (4) Business Days’ prior written notice of its intention to take such action, which notice shall include the reasons underlying the Board’s decision to make a Company Adverse Recommendation Change, including a description of the Intervening Event that is the basis of such action;

(ii) during the four (4) Business Days following such written notice, the Company Board and its Representatives shall negotiate in good faith with Parent (to the extent Parent desires to negotiate) regarding any revisions to the terms of the transactions contemplated hereby proposed by Parent in response to such Intervening Event; and

(iii) at the end of such four (4) Business Days, the Company Board concludes in good faith, after consultation with the Company’s outside legal counsel, that the Intervening Event continues to warrant an Adverse Recommendation Change and that the failure to make a Company Adverse Recommendation Change would still reasonably be expected to be inconsistent with its fiduciary duties under applicable Laws (after taking into account any revisions to this Agreement made or irrevocably committed to in writing by Parent during such four (4) Business Days if such revisions were to be given effect).

(d) In addition to the obligations of the Company and Parent set forth in Section 8.03(a) , Section 8.03(b) and Section 8.03(c) , the Company shall (i) promptly (and in any event within 48 hours) notify Parent orally and in writing of any proposal, indication of interest or offer which constitutes a Company Acquisition Proposal that are received by, or any discussions or negotiations are sought to be initiated regarding a Company Acquisition Proposal with, the Company (or any of its Representatives), indicating, in connection with such notice, the identity of the Person or group of Persons making the proposal, indication of interest or offer and the material terms and conditions of any such proposal, indication of interest or offer (including, if applicable, copies of any written proposals or offers, including proposed agreements), (ii) keep Parent reasonably informed, on a reasonably prompt basis (and in any event within 48 hours) of the status of any discussions or negotiations with respect to any such proposals or offers and the details of any material changes to the status or material terms of any such proposal, indication of interest or offer (including any material amendments thereto or any change to the scope or material terms or conditions thereof, and including copies of definitive agreements) and (iii) indicate to Parent promptly (and in any event within 48 hours) whether the Company has furnished nonpublic information to such Person or group of Persons.

(e) Nothing contained in this Section 8.03 or Section 8.04 shall prohibit the Company Board from (i) disclosing to their stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the 1934 Act or from making a “stop, look and listen” statement pending disclosure of its position thereunder or (ii) making any disclosure to its stockholders if the Company Board determines in good faith, after consultation with the Company’s outside counsel, that the failure to make such disclosure would reasonably be likely to be inconsistent with the directors’ exercise of theirs fiduciary obligations to the Company’s stockholders under applicable Laws; provided , however , that in no event shall the Company Board effect a Company Adverse Recommendation Change except in accordance with the provisions of this Section 8.03 .

(f) Without limiting the foregoing, it is agreed that any violation of the restrictions set forth in this Section 8.03 by any Representative or controlled Affiliate of the Company acting on behalf of the Company or its Affiliates shall be deemed to be a breach of this Section 8.03 by the Company.

Section 8.04 Public Announcements . The initial press release with respect to the execution of this Agreement and the transactions contemplated hereby shall be in a form reasonably acceptable to Parent and the Company. Thereafter, Parent and the Company (unless the Company Board has made a Company Adverse Recommendation Change) shall consult with the other Party before (a) participating in any media interviews, (b) engaging in meetings or calls with analysts, institutional investors or other similar Persons and (c) providing any statements (including press releases) which are public or are reasonably likely to become public, in any such case to the extent relating to the transactions contemplated hereby. None of the limitations set forth in this Section 8.04 shall apply to any disclosure of any information concerning this Agreement or the transactions contemplated by this Agreement (i) which the Company deems appropriate in its reasonable judgment, in light of its status as a publicly owned company, including to securities analysts and institutional investors and in press interviews; and (ii) in connection with any dispute between the Parties regarding this Agreement or the transactions contemplated by this Agreement.

Section 8.05 Notices of Certain Events . Each of the Company and Parent shall promptly notify and provide copies to the other of (i) any written notice from any Person alleging that the approval or consent of such Person is or may be required in connection with the Merger or the other transactions contemplated by this Agreement, (ii) any written notice or other communication from any Governmental Authority or securities exchange in connection with the Merger or the other transactions contemplated by this Agreement, and (iii) the occurrence of any event which would or would be reasonably likely to (A) prevent or materially delay the consummation of the Merger or the other transactions contemplated hereby or (B) result in the failure of any condition to the Merger set forth in Article 9 to be satisfied; provided , that the delivery of any notice pursuant to this Section 8.05 shall not (i) affect or be deemed to modify any representation, warranty, covenant, right, remedy, or condition to any obligation of any Party hereunder or (ii) update any section of the Company Disclosure Letter or the Parent Disclosure Letter, and provided, further, that the failure to comply with this Section 8.05 shall not constitute a breach or noncompliance of a covenant by such Party for determining the satisfaction of the conditions set forth in Section 9.02 or Section 9.03 .

Section 8.06 Access to Information . (a) Upon reasonable notice, and subject to applicable Law, the Company shall (and shall cause its Subsidiaries to) afford to Parent, its Subsidiaries and its and their respective officers, agents, employees, financing sources, consultants, professional advisers (including attorneys, accountants and financial advisors) (“ Representatives ”) reasonable access during normal business hours, under direct supervision of a designated employee of the Company, and upon reasonable prior notice to the Company during the period prior to the Effective Time, to all its and its Subsidiaries’ properties, books, contracts, commitments, records, officers and employees and, during such period as Parent may from time to time reasonably request, and during such period the Company shall (and shall cause its Subsidiaries to) furnish promptly to Parent all other information concerning it, its Subsidiaries and each of their respective businesses, properties and personnel as Parent may reasonably request; provided , however , that the Company may restrict the foregoing access and the disclosure of information to the extent that, in the reasonable good faith judgment of the Company, (i) any Law applicable to the Company or its Subsidiaries requires the Company or its Subsidiaries to restrict or prohibit access to any such properties or information, (ii) the information is subject to confidentiality obligations to a Third Party, (iii) such disclosure would result in disclosure of any trade secrets of Third Parties, (iv) disclosure of any such information or document would reasonably be expected to result in the loss of attorney-client privilege

( provided , that, with respect to the matters set forth in subclauses (i) to (iv) herein, the Company and/or its counsel shall use their reasonable best efforts to enter into such joint defense agreements or other arrangements, as appropriate, so as to allow for such disclosure in a manner that does not violate any Law or obligations to a Third Party or result in the loss of attorney client privilege (as applicable)) or (v) such access would unreasonably disrupt the operations of the Company or any of its Subsidiaries.

(b) With respect to the information disclosed pursuant to Section 8.06(a) , each of Parent and the Company shall comply with, and shall cause such party’s Representatives to comply with, all of its obligations under the Confidentiality Agreement, which agreement shall remain in full force and effect in accordance with its terms.

Section 8.07 Section 16 Matters . Prior to the Effective Time, the Company shall take all such steps as may be required to cause any dispositions of Company Stock (including derivative securities with respect to Company Stock) resulting from the transactions contemplated by this Agreement by each individual who is subject to the reporting requirements of Section 16(a) of the 1934 Act with respect to the Company to be exempt under Rule 16b-3 promulgated under the 1934 Act, to the extent permitted by applicable Law.

Section 8.08 Stock Exchange De-listing; 1934 Act Deregistration . Prior to the Effective Time, the Company shall cooperate with Parent and shall take, or cause to be taken, all actions, and do or cause to be done all things, necessary, proper or advisable on its part under applicable Laws and rules and policies of the NASDAQ Global Select Market to enable the de-listing by the Surviving Corporation of the Company Stock from the NASDAQ Global Select Market and the deregistration of the Company Stock and other securities of the Company under the 1934 Act as promptly as practicable after the Effective Time.

Section 8.09 Stockholder Litigation . Each Party hereto shall promptly notify the other Parties hereto in writing of any litigation related to this Agreement, the Merger or the other transactions contemplated by this Agreement that is brought, or, to the knowledge of such Party, threatened in writing, against such Party and/or its directors (any such litigation, a “ Transaction Litigation ”) and shall keep such other Party reasonably informed on a current basis with respect to the status thereof. Subject to the fiduciary duties of each Party’s board of directors and except in any litigation or proceeding where the Parties may be adverse to each other, each Party shall give the other Party the opportunity to participate, subject to a customary joint defense agreement, in (but not control) the defense or settlement of any Transaction Litigation, and no Party shall settle, agree to any undertakings or approve or otherwise agree to any waiver that may be sought in connection with such Transaction Litigation, without the prior written consent of the other Party (which shall not be unreasonably withheld, delayed or conditioned).

Section 8.10 Managed Entities .

(a) With respect to each Managed REIT and each of the entities set forth on Section 8.10 of the Company Disclosure Letter (collectively, the “Managed Entities ”), the Company shall, and shall cause its controlled Affiliates to: (i) obtain resignations from each of the individuals set forth on Section 8.10(a) of the Parent Disclosure Letter as a director, trustee and/or officer of each of the Managed Entities, which shall become effective immediately prior

to the Effective Time (collectively, the “Resignations ”) and (ii) use reasonable best efforts to cause the appointment of those individuals set forth on Section 8.10(b) of the Parent Disclosure Letter selected by Parent to fill the vacancies thereby created, to be effective immediately prior to the Effective Time.

(b) The Company shall notify Parent in writing promptly if, to the knowledge of the Company, the Company or any of its Affiliates receives a bona fide proposal or offer made by any Person relating to a merger, consolidation, asset acquisition, share exchange, business combination or similar transaction or the acquisition of fifty percent (50%) or more of the equity interests in any of the Managed Entities, whether in one transaction or a series of related transactions, and to keep Parent reasonably informed of the status and material terms of any such bona fide proposals or offers on a current basis.

(c) The Company shall use reasonable best efforts to permit the attendance of a representative of Parent, solely in an observer status, at each meeting of the investment committee for any Advisory Client and provide such representative with the same information that is provided to the members of such investment committee in connection with any such meeting, subject to clauses (i) through (v) of the proviso set forth in Section 8.06(a) .

Section 8.11 Closing Payment by Parent . At the Closing, Parent shall, or shall cause one of its Subsidiaries to, pay to the Company, by wire transfer of immediately available funds to the account designated by the Company at least three (3) Business Days prior to the Closing Date, the amount set forth on Section 8.11 of the Company Disclosure Letter, which amount shall be used to make the payments required or permitted to be made by the Company at the Closing in connection with the consummation of the transactions contemplated by this Agreement, as agreed by the Parties (it being understood that if such payment is made to the Company prior to the Effective Time and the Closing does not occur for any reason, then the entire amount of such payment shall be promptly returned to Parent).

ARTICLE 9

CONDITIONS TO THE MERGER

Section 9.01 Conditions to Obligations of Each Party . The obligations of Parent, Merger Sub and the Company to consummate the Merger are subject to the satisfaction, at or prior to the Closing, of the following conditions (which may be waived, in whole or in part, to the extent permitted by Law, by the mutual consent of Parent and the Company):

(a) Stockholder Approval . The Company shall have obtained the Company Stockholder Approval.

(b) Statutes and Injunctions . No Law, Order (whether temporary, preliminary or permanent) or other legal restraint or prohibition entered, enacted, promulgated, enforced or issued by any Governmental Authority of competent jurisdiction shall be in effect which prohibits, makes illegal, enjoins, prevents or prohibits the consummation of the Merger.

(c) HSR Act . The waiting period under the HSR Act relating to the transactions contemplated by this Agreement shall have expired or been terminated.

(d) FINRA Approval . The FINRA Approval shall have been obtained and be in full force and effect. Notwithstanding the foregoing, this condition will, subject to the following proviso, be deemed satisfied and the Closing may occur prior to obtaining the FINRA Approval; provided , that (i) the Closing does not occur prior to the 31st day following the date on which FINRA has deemed the CMA to be substantially complete, as indicated in a written notice (which may be by electronic mail) delivered by FINRA to the Company; and (ii) this condition will not be satisfied if at any time prior to the Closing FINRA has advised the Company or Parent that it has imposed or will impose substantial operating restrictions on any Subsidiary of Parent or the Company that is a Broker-Dealer prior to or following the Closing.

(e) FCA Approvals . The FCA Approvals shall have been obtained and be in full force and effect.

(f) JFSC Approval . The JFSC Approval shall have been obtained and be in full force and effect.

Section 9.02 Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction on or prior to the Closing Date of the following conditions (which may be waived in whole or in part by Parent):

(a) (i) the representations and warranties of the Company contained in Section 4.04(b) (Change of Control Consents) and Section 4.10(b) (Absence of Certain Changes), shall be true and correct in all respects, in each case at and as of the date of this Agreement and as of the Closing as if made at and as of the Closing, (ii) the representations and warranties of the Company contained in Section 4.05(a) (Capitalization) shall be true and correct in all but de minimis respects, in each case at and as of the date of this Agreement and as of the Closing as if made at and as of the Closing (other than any such representations and warranties that by their terms address matters only at and as of another specified time, which shall be true and correct in all but de minimis respects only at and as of such time), (iii) the representations and warranties of the Company contained (A) in the first sentence of Section 4.01 (Corporate Existence and Power), (B) in Section 4.02 (Corporate Authorization), Section 4.17(e) (Employee Benefits), Section 4.21 (Finders’ Fees), Section 4.22 (Opinion of Financial Advisor), Section 4.24 (Antitakeover Statutes), and Section 4.31(a) (Material Broker-Dealer) and (C) Section 4.32(a) (REIT Status for RCC) shall be true and correct in all material respects, in each case at and as of the date of this Agreement and as of the Closing as if made at and as of the Closing (other than any such representations and warranties that by their terms address matters only at and as of another specified time, which shall be true and correct in all material respects only at and as of such time), and (iv) all other representations and warranties of the Company contained in this Agreement shall be true and correct (without giving effect to any “materiality,” Company Material Adverse Effect or “all material respects” qualifications set forth therein), in each case at and as of the date of this Agreement and as of the Closing as if made at and as of the Closing (other than any such representations and warranties that by their terms address matters only as of another specified time, which shall be true and correct only at and as of such time), except, in the case of this clause (iv), where the failure of such representations and warranties to be so true and correct has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect;

(b) the Company shall have performed in all material respects all of its covenants and obligations hereunder required to be performed by it at or prior to the Closing;

(c) Parent and Merger Sub shall have received a certificate signed by an executive officer of the Company certifying that the conditions set forth in Section 9.02(a) and Section 9.02(b) have been satisfied;

(d) the Company shall have received, and Parent shall have been furnished with copies of, the Resignations;

(e) No Material Advisory Contract shall have terminated (except for the automatic termination of the Material Advisory Contract with Diversified Income Fund that will occur under the Investment Company Act as a result of the Closing) or, if applicable, not renewed, and each such Material Advisory Contract shall be in full force and effect in accordance with its terms; and

(f) Diversified Income Fund shall have entered into an Acceptable Interim IAA and such Acceptable Interim IAA shall be in full force and effect; provided , that this condition will be deemed to be satisfied in the event that Public Fund Shareholder Approval of a New IAA with Diversified Income Fund has been obtained and such New IAA is in full force and effect.

Section 9.03 Conditions to the Obligations of the Company . The obligation of the Company to consummate the Merger is subject to the satisfaction on or prior to the Closing Date of the following conditions (which may be waived in whole or in part by the Company):

(a)(i) the representations and warranties of Parent and Merger Sub contained in the first two sentences of Section 5.01 (Corporate Existence and Power) and in Section 5.02 (Corporate Authorization) and Section 5.12 (Finders’ Fees) shall be true and correct in all material respects, in each case at and as of the date of this Agreement and as of the Closing as if made at and as of the Closing (other than any such representations and warranties that by their terms address matters only at and as of another specified time, which shall be true and correct in all material respects only at and as of such time), and (ii) all other representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct (without giving effect to any “materiality,” Parent Material Adverse Effect or “all material respects” qualifications set forth therein), in each case at and as of the date of this Agreement and as of the Closing as if made at and as of the Closing (other than any such representations and warranties that by their terms address matters only as of another specified time, which shall be true and correct in all respects only at and as of such time), except, in the case of this clause (ii), where the failure of such representations and warranties to be so true and correct has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect;

(b) each of Parent and Merger Sub shall have performed in all material respects all of its covenants and obligations hereunder required to be performed by it at or prior to the Closing; and

(c) the Company shall have received a certificate signed by an executive officer of Parent certifying that the conditions set forth in Section 9.03(a) and Section 9.03(b) have been satisfied.

ARTICLE 10

TERMINATION

Section 10.01 Termination . This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Company Stockholder Approval has been obtained (except as otherwise stated below):

(a) by mutual written consent of the Company and Parent;

(b) by either the Company or Parent:

(i) if the Merger is not consummated on or before February 22, 2017 (the “ End Date ”); provided , however , that the right to terminate this Agreement under this Section 10.01(b)(i) shall not be available to a Party if the failure of the Merger to be consummated on or before such date was primarily due to the failure of such Party to perform any of its obligations under this Agreement;

(ii) if any Governmental Authority of competent jurisdiction shall have issued an Order permanently restraining, enjoining or otherwise prohibiting the Merger and such Order shall have become final and non-appealable; provided , however , that the right to terminate this Agreement under this Section 10.01(b)(ii) shall not be available to a Party if such Order was primarily due to the failure of such Party to perform any of its obligations under this Agreement;

(iii) if any Law shall have been promulgated, entered enacted or issued or be applicable to the Merger by any Governmental Authority that prohibits, prevents, or makes illegal the consummation of the Merger; or

(iv) if the Company Stockholder Approval shall not have been obtained upon a vote taken thereon at the Company Stockholder Meeting duly convened therefor or at any adjournment or postponement thereof;

(i) if, prior to the receipt of the Company Stockholder Approval, a Company Adverse Recommendation Change shall have occurred; or

(ii) if the Company shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 9.02(a) or Section 9.02(b) if such conditions were tested as of the date of such breach or failure to perform and (ii) is incapable of being cured by the Company by the End Date, or, if capable of being cured, is not cured within forty-five (45) days of receipt

of written notice from Parent; provided , that Parent shall not have the right to terminate this Agreement pursuant to this Section 10.01(c)(ii) if Parent is then in breach of any of its representations, warranties, covenants or agreements under this Agreement such that the conditions set forth in either Section 9.03(a) or Section 9.03(b) would not be satisfied;

(d) by the Company:

(i) if Parent shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 9.03(a) or Section 9.03(b) if such conditions were tested as of the date of such breach or failure to perform and (ii) is incapable of being cured by Parent by the End Date, or, if capable of being cured, is not cured within forty-five (45) days of receipt of written notice from the Company; provided , that the Company shall not have the right to terminate this Agreement pursuant to this Section 10.01(d)(i) if the Company is then in breach of any of its representations, warranties, covenants or agreements under this Agreement such that the conditions set forth in either Section 9.02(a) or Section 9.02(b) would not be satisfied; or

(ii) prior to the Company Stockholder Approval, in order to enter into an Alternative Acquisition Agreement with respect to a Superior Proposal in accordance with the terms of Section 8.03 ; provided that (A) substantially concurrent with the termination of this Agreement, the Company enters into an Alternative Acquisition Agreement providing for a Superior Proposal that did not result from a breach of this Agreement and (B) prior to or concurrently with such termination, the Company pays to Parent in immediately available funds the Company Termination Fee.

Section 10.02 Effect of Termination . In the event of the termination of this Agreement by either Parent or the Company as provided in Section 10.01 , written notice thereof shall forthwith be given by the terminating Party to the other Party specifying the provision hereof pursuant to which such termination is made. In the event of the termination of this Agreement in compliance with Section 10.01 , this Agreement shall be terminated and this Agreement shall forthwith become void and have no effect, without any Liability or obligation on the part of any Party (or any stockholder, director, officer, employee, agent, consultant or representative of such Party), other than Section 8.04 , this Section 10.02 , Section 10.03 , and Article 11 , which provisions shall survive such termination; provided , however , that nothing in this Section 10.02 shall relieve any Party from Liability for any fraud or willful or intentional breach of this Agreement, in which case the aggrieved Party shall be entitled to all rights and remedies available at law or in equity. No termination of this Agreement shall affect the obligations of the Parties contained in the Confidentiality Agreement.

Section 10.03 Termination Fees . (a) In the event that this Agreement is terminated (x) by Parent pursuant to Section 10.01(c)(i) (or by the Company pursuant to Section 10.01(b)(iv) and at the time of such termination Parent would have been permitted to terminate this Agreement pursuant to Section 10.01(c)(i) ) or (y) by the Company pursuant to Section 10.01(d)(ii) , then the Company shall pay, by wire transfer of immediately available funds, to Parent a fee in the amount of $6,725,000 (the “ Company Termination Fee ”) at or prior to the

termination of this Agreement in the case of a termination pursuant to Section 10.01(d)(ii) or as promptly as practicable (and, in any event, within two Business Days following such termination) in the case of a termination pursuant to Section 10.01(c)(i) .

(b) In the event that this Agreement is terminated (i) by the Company or Parent pursuant to Section 10.01(b)(iv) or (ii) by Parent pursuant to Section 10.01(c)(ii) as a result of (A) a breach of or failure to perform any covenant or agreement contained in this Agreement or (B) a willful breach of any representation or warranty contained in this Agreement and, in any such case, (I) at any time after the date of this Agreement and prior to the taking of a vote to adopt this Agreement at the Company Stockholder Meeting or at any adjournment or postponement thereof, a Company Acquisition Proposal shall have been publicly announced or publicly made known and (II) within nine (9) months after such termination, the Company shall have entered into an agreement with respect to any Company Acquisition Proposal, or any Company Acquisition Proposal shall have been consummated, then the Company shall pay, by wire transfer of immediately available funds, to Parent the Company Termination Fee on the earlier to occur of the Company entering into an agreement with respect to such Company Acquisition Proposal or the consummation of such Company Acquisition Proposal; provided , however , that for purposes of the definition of “ Company Acquisition Proposal ” in this Section 10.03(b) , references to “25%” shall be replaced by “50%.”

(c) In the event that this Agreement is terminated (x) by the Company or Parent pursuant to Section 10.01(b)(iv) or Section 10.01(c)(ii) as a result of a breach of or failure to perform any covenant or agreement contained in this Agreement and, (y) prior to such termination, the Company shall have materially breached any of its obligations under Section 8.03 , which material breach, if curable by the Company, shall not have been cured within five (5) Business Days following the Company’s receipt of written notice of such material breach and (z) which material breach shall have resulted in a Company Acquisition Proposal being publicly made, then the Company shall pay, by wire transfer of immediately available funds, to Parent the Company Termination Fee as promptly as practicable (and, in any event, within two Business Days following such termination).

(d) The Parties acknowledge that the agreements contained in this Section 10.03 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, the Parties would not enter into this Agreement; accordingly, if the Company fails promptly to pay any amount due pursuant to this Section 10.03 , and, in order to obtain such payment, Parent commences a suit that results in a judgment against the Company for any amount due pursuant to this Section 10.03 , the Company shall pay Parent its costs and expenses (including reasonable attorneys’ fees and expenses) in connection with such suit, together with interest on the amount due pursuant to this Section 10.03 from the date such payment was required to be made until the date of payment at the prime lending rate as published in The Wall Street Journal in effect on the date such payment was required to be made. All payments under this Section 10.03 shall be made by wire transfer of immediately available funds to an account designated in writing by Parent. In no event shall a Company Termination Fee be payable more than once.

(e) Each Party agrees that notwithstanding anything in this Agreement to the contrary (other than with respect to claims for, or arising out of or in connection with fraud) (A) in the event that this Agreement is terminated under circumstances where the Company Termination Fee would be payable pursuant to this Section 10.03 , the payment of the Company Termination Fee shall be the sole and exclusive remedy of Parent, its Subsidiaries, stockholders, Affiliates, officers, directors, employees and Representatives against the Company or any of its Representatives or Affiliates for, (B) in no event will Parent seek to recover any other money damages or seek any other remedy (including any remedy for specific performance, except solely in compliance with Section 11.12 hereof) based on a claim in law or equity with respect to, (1) any loss suffered, directly or indirectly, as a result of the failure of the Merger to be consummated, (2) the termination of this Agreement, (3) any liabilities or obligations arising under this Agreement or (4) any claims or actions arising out of or relating to any breach, termination or failure of or under this Agreement, and (C) upon payment of any Company Termination Fee in accordance with this Section 10.03 , no Party nor any Affiliates or Representatives of any Party shall have any further Liability or obligation to another Party relating to or arising out of this Agreement or the transactions contemplated hereby.

ARTICLE 11

MISCELLANEOUS

Section 11.01 No Survival of Representations and Warranties . None of the representations and warranties in this Agreement or in any schedule, certificate, instrument or other document delivered pursuant to this Agreement shall survive the Effective Time. This Section 11.01 shall not limit Section 10.02 , Section 10.03 or any covenant or agreement of the Parties which by its terms contemplates performance after the Effective Time.

Section 11.02 Amendment and Modification . Subject to applicable Law, this Agreement may be amended, modified and supplemented in any and all respects, whether before or after any vote of the stockholders of the Company or Parent contemplated hereby, by written agreement of the Parties hereto at any time prior to the Closing Date with respect to any of the terms contained herein; provided , however , that after the Company Stockholder Approval has been obtained there shall be no amendment or waiver that would require the further approval of the stockholders of the Company under applicable Law without such approval having first been obtained. A termination of this Agreement pursuant to Section 10.01 or an amendment or waiver of this Agreement pursuant to Section 11.02 or Section 11.03 shall, in order to be effective, require, in the case of Parent, Merger Sub and the Company, action by their respective board of directors (or a committee thereof) or sole member, as applicable.

Section 11.03 Extension; Waiver . At any time prior to the Effective Time, the Parties may (a) extend the time for the performance of any of the obligations or other acts of the other Parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the first proviso of Section 11.02 , waive compliance with any of the agreements or conditions contained in this Agreement. Except as required by applicable Law, no waiver of this Agreement shall require the approval of the stockholders of either Parent or the Company. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. The failure of any Party to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights, nor shall any

single or partial exercise by any Party of any of its rights under this Agreement preclude any other or further exercise of such rights or any other rights under this Agreement.

Section 11.04 Expenses . Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement shall be paid by the Party incurring such cost or expense. All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any penalties and interest) incurred by the Company or any of its Subsidiaries in connection with the Merger (including any real property transfer tax and any similar Tax) shall be borne and paid by the Company (or the applicable Subsidiary) when due, and the Company (or the applicable Subsidiary) shall, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes and fees, and, if required by applicable Law, the Company (or the applicable Subsidiary) shall, and shall cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.

Section 11.05 Disclosure Letter References . Each item disclosed in a Party’s Disclosure Letter shall, for all purposes in this Agreement, constitute an exception to, or as applicable, disclosure for the purposes of, the representations and warranties (or covenants, as applicable) to which it makes express reference and shall also be deemed to be disclosed or set forth for the purposes of every other part in such Party’s Disclosure Letter relating to such Party’s representations and warranties set forth in this Agreement to the extent a cross-reference within such Disclosure Letter is expressly made to such other part in such Disclosure Letter or the relevance of such item as an exception to, or as applicable, disclosure for purposes of, such other section of this Agreement is reasonably apparent on the face of such disclosure.

Section 11.06 Notices . All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by e-mail transmission ( provided , that receipt of electronic e-mail transmission is requested and received) or sent by a nationally recognized overnight courier service, such as Federal Express, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice made pursuant to this Section 11.06 ):

if to Parent or Merger Sub, to:

C-III Capital Partners LLC

717 Fifth Avenue

New York, New York 10022

Attention: Jeffrey P. Cohen

Email: jcohen@islecap.com

with a copy (which shall not constitute notice) to:

Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

Attention: Daniel I. Ganitsky, Esq.

Michael E. Ellis, Esq.

Email: dganitsky@proksauer.com

mellis@proskauer.com

if to the Company, to:

Resource America, Inc.

One Crescent Drive, Suite 203, Navy Yard Corporate Center

Philadelphia, PA 19112

Attention: Jeffrey F. Brotman

Email: jbrotman@resourceamerica.com

with a copy (which shall not constitute notice) to:

Wachtell, Lipton, Rosen & Katz

51 West 52 ^nd Street

New York, New York 10019

Attention: David K. Lam, Esq.

Email: dklam @wlrk.com

Section 11.07 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, it being understood that each Party need not sign the same counterpart. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by all of the other Parties hereto. Signatures delivered electronically or by facsimile shall be deemed to be original signatures.

Section 11.08 Entire Agreement; Third Party Beneficiaries . This Agreement (including the Exhibits and Schedules hereto), the Confidentiality Agreement and the Voting Agreements (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof and thereof and (b) are not intended to confer any rights, benefits, remedies, obligations or liabilities upon any Person other than the Parties hereto and their respective successors and permitted assigns; provided , that notwithstanding the foregoing clause (b), following the Effective Time, (i) the provisions of Article 2 with respect to the holders of Company Stock to receive the Merger Consideration shall be enforceable by such holders, (ii) the provisions of Section 7.03 shall be enforceable by each Person entitled to indemnification hereunder and his or her heirs and his or her representatives and (iii) the provisions of Section 7.05 shall be enforceable by each Person who is an “affiliated person” (as such term is defined in Section 2(a)(3) of the Investment Company Act) of the Company or its Subsidiaries as of immediately prior to the Effective Time.

Section 11.09 Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against its regulatory policy, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated, so long as the economic and legal substance of the transactions contemplated hereby, taken as a whole, are not affected in a manner materially adverse to any Party hereto. Upon such a determination, the Parties shall negotiate in good faith to modify this

Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

Section 11.10 Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties hereto in whole or in part (whether by operation of Law or otherwise) without the prior written consent of the other Parties, and any such assignment without such consent shall be null and void; provided , that Parent may designate, prior to the Effective Time, by written notice to the Company, another wholly owned direct or indirect Subsidiary to be a party to the Merger in lieu of Merger Sub, in which event all references herein to Merger Sub shall be deemed references to such other Subsidiary (except with respect to representations and warranties made herein with respect to Merger Sub as of the date of this Agreement) and all representations and warranties made herein with respect to Merger Sub as of the date of this Agreement shall also be made with respect to such other Subsidiary as of the date of such designation; provided , that such assignment shall not relieve Parent of its obligations hereunder or otherwise enlarge, alter or change any obligation of any other party hereto or due to Parent or such other Subsidiary. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.

Section 11.11 Governing Law . This Agreement shall be governed and construed in accordance with the Laws of the State of Delaware without giving effect to the principles of conflicts of law thereof or of any other jurisdiction.

Section 11.12 Enforcement; Exclusive Jurisdiction . (a) The Parties agree that irreparable damage would occur and that the Parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Court of Chancery of the State of Delaware or, if under applicable Law exclusive jurisdiction over such matter is vested in the federal courts, any federal court located in the State of Delaware without proof of actual damages or otherwise (and each Party hereby waives any requirement for the securing or posting of any bond in connection with such remedy), this being in addition to any other remedy to which they are entitled at law or in equity. In the event a claim or action should be brought in equity to enforce any of the provisions of this Agreement, no Party will allege, and each Party waives the defense, that there is an adequate remedy under applicable Law or than an award of specific performance is not an appropriate remedy for any reason at law or equity.

(b) In addition, each of the Parties hereto (i) consents to submit itself, and hereby submits itself, to the personal jurisdiction of the Court of Chancery of the State of Delaware and any federal court located in the State of Delaware, or, if neither of such courts has subject matter jurisdiction, any state court of the State of Delaware having subject matter jurisdiction, in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and agrees not to plead or claim any objection to the laying of venue in any such court or that any judicial

psroceeding in any such court has been brought in an inconvenient forum, (iii) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the Court of Chancery of the State of Delaware and any federal court located in the State of Delaware, or, if neither of such courts has subject matter jurisdiction, any state court of the State of Delaware having subject matter jurisdiction, and (iv) consents to service of process being made through the notice procedures set forth in Section 11.06 .

Section 11.13 WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

[ The remainder of this page has been intentionally left blank; the next page is the signature page. ]

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date set forth on the cover page of this Agreement.




RESOURCE AMERICA, INC.

By:		/s/ Jonathan Z. Cohen
Name:		Jonathan Z. Cohen
Title:		Chief Executive Officer

C-III CAPITAL PARTNERS LLC

By: Island C-III Manager LLC, its manager

By:		/s/ Jeffrey P. Cohen
Name:		Jeffrey P. Cohen
Title:		President

REGENT ACQUISITION INC.

By:		/s/ Jeffrey P. Cohen
Name:		Jeffrey P. Cohen
Title:		President

[Signature page to Merger Agreement]

Exhibit 12.1




STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS



	Six Months Ended			Year Ended		Year Ended		Year Ended		Year Ended
	June 30,			December 31,		December 31,		December 31,		December 31,
	2016			2015		2014		2013		2012
	(unaudited)
Earnings:
Pretax income (loss) from continuing operations	$	15,673,518		$	12,300,467	$	58,990,678	$	45,411,712	$	79,045,303
Fixed charges	34,424,795			65,690,634		45,508,411		61,038,847		42,809,788
Total earnings before fixed charges and preferred shares	$	50,098,313		$	77,991,101	$	104,499,089	$	106,450,559	$	121,855,091


Fixed Charges:
Interest (expensed and capitalized)	$	27,348,005		$	56,308,779	$	38,430,444	$	52,518,198	$	38,027,275
Amortized premiums, discounts and capitalized expenses related to indebtedness	7,059,151			9,344,049		7,042,845		8,491,437		4,765,109
Estimate of interest within rental expenses	17,639			37,806		35,122		29,212		17,404
Total fixed charges	$	34,424,795		$	65,690,634	$	45,508,411	$	61,038,847	$	42,809,788

Preferred stock dividend	$	12,062,352		$	24,437,458	$	17,175,869	$	7,221,041	$	1,243,971

Carrying value in excess of consideration paid for preferred shares	$	(1,500,190	)	$	—	$	—	$	—	$	—

Ratio of earnings to combined fixed charges ⁽¹⁾	1.46			1.19		2.30		1.74		2.85
Ratio of earnings to combined fixed charges and preferred stock dividends ⁽¹⁾	1.11			0.87		1.67		1.56		2.77

(1) The Company did not have any shares of preferred stock outstanding until June 2012 and paid its first preferred stock dividend in July 2012.

EXHIBIT 31.1

CERTIFICATION

I, Jonathan Z. Cohen, certify that:


1.	I have reviewed this report on Form 10Q for the quarter ended June 30, 2016 of Resource Capital Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



August 9, 2016	/s/ Jonathan Z. Cohen
	Jonathan Z. Cohen
	Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, David J. Bryant, certify that:


1.	I have reviewed this report on Form 10-Q for the quarter ended June 30, 2016 of Resource Capital Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



August 9, 2016	/s/ David J. Bryant
	David J. Bryant
	Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Resource Capital Corp. (the "Company") on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jonathan Z. Cohen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



August 9, 2016	/s/ Jonathan Z. Cohen
	Jonathan Z. Cohen
	Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Resource Capital Corp. (the "Company") on Form 10-Q for the quarter ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David J. Bryant, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



August 9, 2016	/s/ David J. Bryant
	David J. Bryant
	Chief Financial Officer