UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20182019

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    EXCHANGE ACT OF 1934
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________


Commission File Number: 1-32733

exantas.jpg

EXANTAS CAPITAL CORP.

(Exact name of registrant as specified in its charter)

Maryland

20-2287134

Maryland20-2287134

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

717 Fifth Avenue, New York, New York 10022

(Address of principal executive offices) (Zip Code)

(212) 621-3210

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value

XAN

New York Stock Exchange

717 Fifth Avenue,

8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock

XANPrC

New York New York 10022

(Address of principal executive offices) (Zip Code)
(212) 621-3210
(Registrant's telephone number, including area code)
Resource Capital Corp.
(Former name, former address and former fiscal year, if changed since last report)Stock Exchange

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, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" andfiler," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

☐

Accelerated filer

þ

☑

Non-accelerated filer

¨

☐

(Do not check if a smaller reporting company)

Smaller reporting company

¨

☐

Emerging growth company

¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ☐¨ Yes ☑þ No

The number of outstanding shares of the registrant's common stock on August 3, 20182, 2019 was 31,657,42031,867,824 shares.


(Back to Index)


EXANTAS CAPITAL CORP. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT

ON FORM 10-Q


PAGE

PART I

3

PAGE
PART I

Item 1:

Financial Statements

3

Consolidated Balance Sheets - June 30, 20182019 (unaudited) and December 31, 20172018

3

Consolidated Statements of Operations (unaudited) Three and Six Months Ended June 30, 20182019 and 20172018

5

Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three and Six Months Ended June 30, 20182019 and 20172018

7

Consolidated StatementStatements of Changes in Stockholders' Equity (unaudited) Six Months Ended June 30, 2019 and 2018

8

Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, 20182019 and 20172018

9

Notes to Consolidated Financial Statements - June 30, 20182019 (unaudited)

11

Item 2:

Management's Discussion and Analysis of Financial Condition and Results of Operations

51

42

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

91

72

Item 4:

Controls and Procedures

92

73

PART II

74

PART II

Item 1:

Legal Proceedings

93

74

Item 1A:

Risk Factors

95

75

Item 6:

Exhibits

75

Item 6:
Exhibits
95

SIGNATURES

98

78





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PART I

ITEM 1.    FINANCIAL STATEMENTS
PART I

ITEM 1.

FINANCIAL STATEMENTS

EXANTAS CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS (1)

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

47,154

 

 

$

82,816

 

Restricted cash

 

 

14,062

 

 

 

12,658

 

Accrued interest receivable

 

 

9,155

 

 

 

8,198

 

CRE loans, net of allowances of $2,597 and $1,401

 

 

1,948,492

 

 

 

1,551,967

 

Investment securities available-for-sale

 

 

445,664

 

 

 

418,998

 

Principal paydowns receivable

 

 

33,150

 

 

 

32,083

 

Investments in unconsolidated entities

 

 

1,548

 

 

 

1,548

 

Derivatives, at fair value

 

 

—

 

 

 

985

 

Other assets

 

 

4,064

 

 

 

4,015

 

Assets held for sale (amounts include $16,082 and $17,000 of legacy CRE loans held for sale in continuing operations, see Note 20)

 

 

16,448

 

 

 

17,645

 

Total assets

 

$

2,519,737

 

 

$

2,130,913

 

LIABILITIES (2)

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

5,278

 

 

$

7,550

 

Management fee payable

 

 

864

 

 

 

938

 

Accrued interest payable

 

 

5,209

 

 

 

4,224

 

Borrowings

 

 

1,935,265

 

 

 

1,554,223

 

Distributions payable

 

 

8,896

 

 

 

7,265

 

Derivatives, at fair value

 

 

4,470

 

 

 

1,043

 

Accrued tax liability

 

 

33

 

 

 

31

 

Liabilities held for sale (see Note 20)

 

 

1,770

 

 

 

1,820

 

Total liabilities

 

 

1,961,785

 

 

 

1,577,094

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock, 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; 31,869,894 and 31,657,499 shares issued and outstanding (including 426,771 and 422,671 of unvested restricted shares)

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

1,083,772

 

 

 

1,082,677

 

Accumulated other comprehensive income (loss)

 

 

1,677

 

 

 

(3,057

)

Distributions in excess of earnings

 

 

(527,534

)

 

 

(525,838

)

Total stockholders' equity

 

 

557,952

 

 

 

553,819

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

2,519,737

 

 

$

2,130,913

 

 June 30,
2018		 December 31,
2017
 (unaudited)  
ASSETS (1)
   
Cash and cash equivalents$80,191
 $181,490
Restricted cash10,070
 22,874
Accrued interest receivable7,157
 6,859
CRE loans, net of allowances of $4,529 and $5,3281,446,018
 1,284,822
Investment securities available-for-sale318,424
 211,737
Investment securities, trading—
 178
Loans held for sale—
 13
Principal paydowns receivable—
 76,129
Investments in unconsolidated entities1,782
 12,051
Derivatives, at fair value2,273
 602
Direct financing leases, net of allowances of $73566
 151
Other assets5,225
 7,451
Assets held for sale (amounts include $18,000 and $61,841 of legacy CRE loans held for sale in continuing operations, see Note 21)20,956
 107,718
Total assets$1,892,162
 $1,912,075
LIABILITIES (2)
 
  
Accounts payable and other liabilities$3,335
 $5,153
Management fee payable938
 1,035
Accrued interest payable4,736
 4,387
Borrowings1,319,646
 1,163,485
Distributions payable4,891
 5,581
Preferred stock redemption liability—
 50,000
Derivatives, at fair value67
 76
Accrued tax liability241
 540
Liabilities held for sale (see Note 21)2,421
 10,342
Total liabilities1,336,275
 1,240,599
STOCKHOLDERS' EQUITY 
  
Preferred stock, par value $0.001:  10,000,000 shares authorized 8.25% Series B Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share; 0 and 4,613,596 shares issued and outstanding—
 5
Preferred stock, par value $0.001:  10,000,000 shares authorized 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share; 4,800,000 and 4,800,000 shares issued and outstanding5
 5
Common stock, par value $0.001:  125,000,000 shares authorized; 31,657,420 and 31,429,892 shares issued and outstanding (including 427,591 and 483,073 unvested restricted shares)32
 31
Additional paid-in capital1,081,586
 1,187,911
Accumulated other comprehensive income3,216
 1,297
Distributions in excess of earnings(528,952) (517,773)
Total stockholders' equity555,887
 671,476
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,892,162
 $1,912,075

The accompanying notes are an integral part of these statements

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3

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - (Continued)

(in thousands, except share and per share data)

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

(1) Assets of consolidated variable interest entities ("VIEs") included in total assets above:

 

 

 

 

 

 

 

 

Restricted cash

 

$

6,132

 

 

$

6,189

 

Accrued interest receivable

 

 

5,528

 

 

 

3,548

 

CRE loans, pledged as collateral and net of allowances of $1,718 and $763

 

 

1,266,549

 

 

 

700,223

 

Principal paydowns receivable

 

 

33,150

 

 

 

31,914

 

Other assets

 

 

106

 

 

 

157

 

Total assets of consolidated VIEs

 

$

1,311,465

 

 

$

742,031

 

(2) Liabilities of consolidated VIEs included in total liabilities above:

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

147

 

 

$

75

 

Accrued interest payable

 

 

1,268

 

 

 

709

 

Borrowings

 

 

963,383

 

 

 

501,045

 

Total liabilities of consolidated VIEs

 

$

964,798

 

 

$

501,829

 

 June 30,
2018		 December 31,
2017
 (unaudited)  
(1) Assets of consolidated variable interest entities ("VIEs") included in total assets above:   
Restricted cash$9,245
 $20,846
Accrued interest receivable2,738
 3,347
CRE loans, pledged as collateral and net of allowances of $1,480 and $1,3301,012,900
 603,110
Loans held for sale—
 13
Principal paydowns receivable—
 72,207
Other assets276
 73
Total assets of consolidated VIEs$1,025,159
 $699,596
    
(2) Liabilities of consolidated VIEs included in total liabilities above:   
Accounts payable and other liabilities$119
 $96
Accrued interest payable485
 592
Borrowings632,004
 416,655
Total liabilities of consolidated VIEs$632,608
 $417,343

The accompanying notes are an integral part of these statements

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4

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EXANTAS 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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE loans

 

$

30,388

 

 

$

25,435

 

 

$

57,731

 

 

$

47,818

 

Securities

 

 

6,591

 

 

 

4,205

 

 

 

12,966

 

 

 

7,661

 

Other

 

 

159

 

 

 

20

 

 

 

373

 

 

 

138

 

Total interest income

 

 

37,138

 

 

 

29,660

 

 

 

71,070

 

 

 

55,617

 

Interest expense

 

 

21,581

 

 

 

16,159

 

 

 

40,976

 

 

 

30,543

 

Net interest income

 

 

15,557

 

 

 

13,501

 

 

 

30,094

 

 

 

25,074

 

Other revenue

 

 

26

 

 

 

152

 

 

 

52

 

 

 

57

 

Total revenues

 

 

15,583

 

 

 

13,653

 

 

 

30,146

 

 

 

25,131

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

 

2,251

 

 

 

2,812

 

 

 

4,334

 

 

 

5,625

 

Equity compensation

 

 

412

 

 

 

659

 

 

 

1,095

 

 

 

1,626

 

General and administrative

 

 

2,495

 

 

 

2,547

 

 

 

5,072

 

 

 

5,607

 

Depreciation and amortization

 

 

7

 

 

 

19

 

 

 

31

 

 

 

32

 

Provision for (recovery of) loan losses, net

 

 

170

 

 

 

—

 

 

 

1,195

 

 

 

(799

)

Total operating expenses

 

 

5,335

 

 

 

6,037

 

 

 

11,727

 

 

 

12,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,248

 

 

 

7,616

 

 

 

18,419

 

 

 

13,040

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings (losses) of unconsolidated entities

 

 

—

 

 

 

69

 

 

 

—

 

 

 

(223

)

Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives

 

 

4

 

 

 

932

 

 

 

4

 

 

 

290

 

Net realized and unrealized gain on investment securities, trading

 

 

—

 

 

 

58

 

 

 

—

 

 

 

53

 

Fair value adjustments on financial assets held for sale

 

 

(1,300

)

 

 

9

 

 

 

(1,402

)

 

 

(4,656

)

Other income

 

 

51

 

 

 

506

 

 

 

152

 

 

 

517

 

Total other (expense) income

 

 

(1,245

)

 

 

1,574

 

 

 

(1,246

)

 

 

(4,019

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE TAXES

 

 

9,003

 

 

 

9,190

 

 

 

17,173

 

 

 

9,021

 

Income tax (expense) benefit

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

31

 

NET INCOME FROM CONTINUING OPERATIONS

 

 

9,003

 

 

 

9,189

 

 

 

17,173

 

 

 

9,052

 

NET LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX

 

 

(112

)

 

 

(450

)

 

 

(149

)

 

 

(203

)

NET INCOME

 

 

8,891

 

 

 

8,739

 

 

 

17,024

 

 

 

8,849

 

Net income allocated to preferred shares

 

 

(2,587

)

 

 

(2,587

)

 

 

(5,175

)

 

 

(7,797

)

Consideration paid in excess of carrying value of preferred shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,482

)

NET INCOME (LOSS) ALLOCABLE TO COMMON SHARES

 

$

6,304

 

 

$

6,152

 

 

$

11,849

 

 

$

(6,430

)

(unaudited)

 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
REVENUES       
Interest income:       
CRE loans$25,435
 $21,841
 $47,818
 $43,374
Securities4,205
 1,329
 7,661
 3,637
Other20
 465
 138
 2,095
Total interest income29,660
 23,635
 55,617
 49,106
Interest expense16,159
 14,347
 30,543
 28,601
Net interest income13,501
 9,288
 25,074
 20,505
Other revenue152
 964
 57
 1,892
Total revenues13,653
 10,252
 25,131
 22,397
OPERATING EXPENSES 
  
  
  
Management fees2,812
 2,638
 5,625
 5,318
Equity compensation659
 734
 1,626
 1,522
General and administrative2,547
 3,580
 5,607
 7,443
Depreciation and amortization19
 32
 32
 100
Impairment losses—
 —
 —
 177
Provision for (recovery of) loan and lease losses, net—
 131
 (799) 1,130
Total operating expenses6,037
 7,115
 12,091
 15,690
        
 7,616
 3,137
 13,040
 6,707
OTHER INCOME (EXPENSE) 
  
  
  
Equity in earnings (losses) of unconsolidated entities69
 (118) (223) 243
Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives932
 9,478
 290
 17,084
Net realized and unrealized gain (loss) on investment securities, trading58
 (50) 53
 (961)
Fair value adjustments on financial assets held for sale9
 79
 (4,656) 58
Other income506
 17
 517
 85
Total other income (expense)1,574
 9,406
 (4,019) 16,509
        
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES9,190
 12,543
 9,021
 23,216
Income tax (expense) benefit(1) 25
 31
 (1,474)
NET INCOME FROM CONTINUING OPERATIONS9,189
 12,568
 9,052
 21,742
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX(450) (4,184) (203) (4,745)
NET INCOME8,739
 8,384
 8,849
 16,997
Net income allocated to preferred shares(2,587) (6,015) (7,797) (12,029)
Consideration paid in excess of carrying value of preferred shares—
 —
 (7,482) —
Net loss allocable to non-controlling interest, net of taxes—
 95
 —
 196
NET INCOME (LOSS) ALLOCABLE TO COMMON SHARES$6,152
 $2,464
 $(6,430) $5,164
        

The accompanying notes are an integral part of these statements

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5

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EXANTAS 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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

NET INCOME (LOSS) PER COMMON SHARE - BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

$

0.20

 

 

$

0.21

 

 

$

0.38

 

 

$

(0.20

)

DISCONTINUED OPERATIONS

 

 

—

 

 

 

(0.01

)

 

 

—

 

 

 

(0.01

)

TOTAL NET INCOME (LOSS) PER COMMON SHARE - BASIC

 

$

0.20

 

 

$

0.20

 

 

$

0.38

 

 

$

(0.21

)

NET INCOME (LOSS) PER COMMON SHARE - DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS

 

$

0.20

 

 

$

0.21

 

 

$

0.38

 

 

$

(0.20

)

DISCONTINUED OPERATIONS

 

 

—

 

 

 

(0.01

)

 

 

—

 

 

 

(0.01

)

TOTAL NET INCOME (LOSS) PER COMMON SHARE - DILUTED

 

$

0.20

 

 

$

0.20

 

 

$

0.38

 

 

$

(0.21

)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC

 

 

31,438,247

 

 

 

31,215,598

 

 

 

31,409,063

 

 

 

31,163,859

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED

 

 

31,656,180

 

 

 

31,402,010

 

 

 

31,594,046

 

 

 

31,163,859

 

(unaudited)


 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
NET INCOME (LOSS) PER COMMON SHARE - BASIC:       
CONTINUING OPERATIONS$0.21
 $0.22
 $(0.20) $0.32
DISCONTINUED OPERATIONS$(0.01) $(0.14) $(0.01) $(0.15)
TOTAL NET INCOME (LOSS) PER COMMON SHARE - BASIC$0.20
 $0.08
 $(0.21) $0.17
NET INCOME (LOSS) PER COMMON SHARE - DILUTED:       
CONTINUING OPERATIONS$0.21
 $0.22
 $(0.20) $0.32
DISCONTINUED OPERATIONS$(0.01) $(0.14) $(0.01) $(0.15)
TOTAL NET INCOME (LOSS) PER COMMON SHARE - DILUTED$0.20
 $0.08
 $(0.21) $0.17
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC31,215,598
 30,820,442
 31,163,859
 30,786,527
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED31,402,010
 31,020,926
 31,163,859
 30,967,840

The accompanying notes are an integral part of these statements

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6

(Back to Index)

EXANTAS 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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

8,891

 

 

$

8,739

 

 

$

17,024

 

 

$

8,849

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(4

)

 

 

—

 

 

 

(4

)

 

 

217

 

Unrealized gains on investment securities available-for-sale, net

 

 

3,331

 

 

 

1,607

 

 

 

9,196

 

 

 

98

 

Reclassification adjustments associated with unrealized gains from interest rate hedges included in net income

 

 

(45

)

 

 

—

 

 

 

(68

)

 

 

—

 

Unrealized (losses) gains on derivatives, net

 

 

(2,697

)

 

 

455

 

 

 

(4,390

)

 

 

1,604

 

Total other comprehensive income

 

 

585

 

 

 

2,062

 

 

 

4,734

 

 

 

1,919

 

Comprehensive income before allocation to preferred shares

 

 

9,476

 

 

 

10,801

 

 

 

21,758

 

 

 

10,768

 

Net income allocated to preferred shares

 

 

(2,587

)

 

 

(2,587

)

 

 

(5,175

)

 

 

(7,797

)

Consideration paid in excess of carrying value of preferred shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,482

)

Comprehensive income (loss) allocable to common shares

 

$

6,889

 

 

$

8,214

 

 

$

16,583

 

 

$

(4,511

)

(unaudited)

 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
Net income$8,739
 $8,384
 $8,849
 $16,997
Other comprehensive income (loss): 
  
  
  
Reclassification adjustments for realized (income) losses on investment securities available-for-sale included in net income—
 (1,179) 217
 (1,179)
Unrealized gains (losses) on investment securities available-for-sale, net1,607
 (1,628) 98
 (1,494)
Reclassification adjustments associated with unrealized losses from interest rate hedges included in net income—
 75
 —
 93
Unrealized gains on derivatives, net455
 —
 1,604
 —
Total other comprehensive (loss) income2,062
 (2,732) 1,919
 (2,580)
Comprehensive income (loss) before allocation to non-controlling interests and preferred shares10,801
 5,652
 10,768
 14,417
Net income allocated to preferred shares(2,587) (6,015) (7,797) (12,029)
Consideration paid in excess of carrying value of preferred shares—
 —
 (7,482) —
Net loss allocable to non-controlling interest—
 95
 —
 196
Comprehensive income (loss) allocable to common shares$8,214
 $(268) $(4,511) $2,584


The accompanying notes are an integral part of these statements

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7

(Back to Index)

EXANTAS CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(in thousands, except share data)

(unaudited)

 

 

Common Stock

 

 

Series B Preferred

 

 

Series C Preferred

 

 

Additional Paid-In

 

 

Accumulated Other Comprehensive

 

 

Retained

 

 

Distributions in Excess of

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Earnings

 

 

Equity

 

Balance, January 1, 2018

 

 

31,429,892

 

 

$

31

 

 

$

5

 

 

$

5

 

 

$

1,187,911

 

 

$

1,297

 

 

$

—

 

 

$

(517,773

)

 

$

671,476

 

Stock-based compensation

 

 

236,387

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Amortization of stock-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,626

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,626

 

Retirement of common stock

 

 

(7,134

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(70

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(70

)

Forfeiture of unvested stock

 

 

(1,725

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8,849

 

 

 

—

 

 

 

8,849

��

Distributions on preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,797

)

 

 

—

 

 

 

(7,797

)

Preferred stock redemption

 

 

—

 

 

 

—

 

 

 

(5

)

 

 

—

 

 

 

(107,881

)

 

 

—

 

 

 

(7,482

)

 

 

—

 

 

 

(115,368

)

Securities available-for-sale, fair value adjustment, net

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

315

 

 

 

—

 

 

 

—

 

 

 

315

 

Designated derivatives, fair value adjustment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,604

 

 

 

—

 

 

 

—

 

 

 

1,604

 

Distributions on common stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,430

 

 

 

(11,179

)

 

 

(4,749

)

Balance, June 30, 2018

 

 

31,657,420

 

 

$

32

 

 

$

—

 

 

$

5

 

 

$

1,081,586

 

 

$

3,216

 

 

$

—

 

 

$

(528,952

)

 

$

555,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

 

 

31,657,499

 

 

$

32

 

 

$

—

 

 

$

5

 

 

$

1,082,677

 

 

$

(3,057

)

 

$

—

 

 

$

(525,838

)

 

$

553,819

 

Stock-based compensation

 

 

220,848

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Amortization of stock-based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,095

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,095

 

Forfeiture of unvested stock

 

 

(8,453

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

17,024

 

 

 

—

 

 

 

17,024

 

Distributions on preferred stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(5,175

)

 

 

—

 

 

 

(5,175

)

Securities available-for-sale, fair value adjustment, net

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

9,192

 

 

 

—

 

 

 

—

 

 

 

9,192

 

Designated derivatives, fair value adjustment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4,458

)

 

 

—

 

 

 

—

 

 

 

(4,458

)

Distributions on common stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(11,849

)

 

 

(1,696

)

 

 

(13,545

)

Balance, June 30, 2019

 

 

31,869,894

 

 

$

32

 

 

$

—

 

 

$

5

 

 

$

1,083,772

 

 

$

1,677

 

 

$

—

 

 

$

(527,534

)

 

$

557,952

 

(unaudited)

 Common Stock Series B Preferred Stock Series C Preferred Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Distributions in Excess of Earnings Total Stockholders' Equity
 Shares Amount       
Balance, January 1, 201831,429,892
 $31
 $5
 $5
 $1,187,911
 $1,297
 $—
 $(517,773) $671,476
Stock-based compensation236,387
 1
 —
 —
 —
 —
 —
 —
 1
Amortization of stock-based compensation—
 —
 —
 —
 1,626
 —
 —
 —
 1,626
Retirement of common stock(7,134) —
 —
 —
 (70) —
 —
 —
 (70)
Forfeiture of unvested stock(1,725) —
 —
 —
 —
 —
 —
 —
 —
Net income—
 —
 —
 —
 —
 —
 8,849
 —
 8,849
Distributions on preferred stock—
 —
 —
 —
 —
 —
 (7,797) —
 (7,797)
Preferred stock redemption—
 —
 (5) —
 (107,881) —
 (7,482) —
 (115,368)
Securities available-for-sale, fair value adjustment, net—
 —
 —
 —
 —
 315
 —
 —
 315
Designated derivatives, fair value adjustment—
 —
 —
 —
 —
 1,604
 —
 —
 1,604
Distributions on common stock—
 —
 —
 —
 —
 —
 6,430
 (11,179) (4,749)
Balance, June 30, 201831,657,420
 $32
 $—
 $5
 $1,081,586
 $3,216
 $—
 $(528,952) $555,887


The accompanying notes are an integral part of these statements

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8

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

17,024

 

 

$

8,849

 

Net loss from discontinued operations, net of tax

 

 

149

 

 

 

203

 

Net income from continuing operations

 

 

17,173

 

 

 

9,052

 

Adjustments to reconcile net income from continuing operations to net cash provided by continuing operating activities:

 

 

 

 

 

 

 

 

Provision for (recovery of) loan losses, net

 

 

1,195

 

 

 

(799

)

Depreciation, amortization and accretion

 

 

1,293

 

 

 

980

 

Amortization of stock-based compensation

 

 

1,095

 

 

 

1,626

 

Principal payments on syndicated corporate loans held for sale

 

 

—

 

 

 

60

 

Principal payments on investment securities, trading

 

 

—

 

 

 

241

 

Net realized and unrealized gain on investment securities, trading

 

 

—

 

 

 

(53

)

Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives

 

 

(4

)

 

 

(290

)

Fair value adjustments on financial assets held for sale

 

 

1,402

 

 

 

4,656

 

Equity in losses of unconsolidated entities

 

 

—

 

 

 

223

 

Changes in operating assets and liabilities

 

 

(4,462

)

 

 

6,035

 

Net cash provided by continuing operating activities

 

 

17,692

 

 

 

21,731

 

Net cash (used in) provided by discontinued operating activities

 

 

(35

)

 

 

621

 

Net cash provided by operating activities

 

 

17,657

 

 

 

22,352

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Origination and purchase of loans

 

 

(616,447

)

 

 

(331,473

)

Principal payments received on loans

 

 

220,024

 

 

 

277,275

 

Proceeds from sale of loans

 

 

—

 

 

 

12,000

 

Purchase of investment securities available-for-sale

 

 

(38,723

)

 

 

(113,855

)

Principal payments on investment securities available-for-sale

 

 

24,003

 

 

 

8,715

 

Proceeds from sale of investment securities available-for-sale

 

 

638

 

 

 

48

 

Return of capital from investments in unconsolidated entities

 

 

—

 

 

 

10,172

 

Settlement of derivative instruments

 

 

—

 

 

 

(46

)

Net cash used in continuing investing activities

 

 

(410,505

)

 

 

(137,164

)

Net cash provided by discontinued investing activities

 

 

135

 

 

 

27,557

 

Net cash used in investing activities

 

 

(410,370

)

 

 

(109,607

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Retirement of common stock

 

 

—

 

 

 

(69

)

Repurchase of preferred stock

 

 

—

 

 

 

(165,340

)

Proceeds from borrowings:

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

517,142

 

 

 

375,395

 

Securitizations

 

 

575,811

 

 

 

397,452

 

Payments on borrowings:

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

(601,483

)

 

 

(435,917

)

Securitizations

 

 

(109,423

)

 

 

(177,762

)

Payment of debt issuance costs

 

 

(6,504

)

 

 

(7,371

)

Distributions paid on preferred stock

 

 

(5,175

)

 

 

(10,082

)

Distributions paid on common stock

 

 

(11,913

)

 

 

(3,154

)

Net cash provided by (used in) continuing financing activities

 

 

358,455

 

 

 

(26,848

)

Net cash provided by discontinued financing activities

 

 

—

 

 

 

—

 

Net cash provided by (used in) financing activities

 

$

358,455

 

 

$

(26,848

)

(unaudited)


 For the Six Months Ended
 June 30,
 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$8,849
 $16,997
Net loss from discontinued operations, net of tax203
 4,745
Net income from continuing operations9,052
 21,742
Adjustments to reconcile net income from continuing operations to net cash provided by continuing operating activities:   
(Recovery of) provision for loan and lease losses, net(799) 1,130
Depreciation, amortization and accretion980
 671
Amortization of stock-based compensation1,626
 1,522
Sale of and principal payments on syndicated corporate loans held for sale60
 1,076
Sale of and principal payments on investment securities, trading, net241
 4,493
Net realized and unrealized (gain) loss on investment securities, trading(53) 961
Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives(290) (17,084)
Fair value adjustments on financial assets held for sale4,656
 (58)
Impairment losses—
 177
Equity in losses (earnings) of unconsolidated entities223
 (243)
Return on investment from investments in unconsolidated entities—
 6,292
Changes in operating assets and liabilities6,035
 (590)
Net cash provided by continuing operating activities21,731
 20,089
Net cash provided by discontinued operating activities621
 20,531
Net cash provided by operating activities22,352
 40,620
    
CASH FLOWS FROM INVESTING ACTIVITIES: 
  
Origination and purchase of loans(331,473) (207,672)
Principal payments received on loans and leases277,275
 267,714
Proceeds from sale of loans12,000
 —
Purchase of investment securities available-for-sale(113,855) (14,598)
Principal payments on investment securities available-for-sale8,715
 17,659
Proceeds from sale of investment securities available-for-sale48
 13,588
Return of capital from investments in unconsolidated entities10,172
 7,911
Proceeds from the sale of an investment in an unconsolidated entity—
 16,159
Settlement of derivative instruments(46) (696)
Net cash (used in) provided by continuing investing activities(137,164) 100,065
Net cash provided by discontinued investing activities27,557
 2,621
Net cash (used in) provided by investing activities(109,607) 102,686
    
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 $31)—
 (31)
Repurchase of common stock—
 (82)
Retirement of common stock(69) —
Repurchase of preferred stock(165,340) —
Net (repayments of) proceeds from repurchase agreements(60,522) 50,449
Proceeds from borrowings:   
Securitizations397,452
 —
Payments on borrowings:   
Securitizations(177,762) (177,817)
Payment of debt issuance costs(7,371) (3)
Distributions paid on preferred stock(10,082) (12,029)
Distributions paid on common stock(3,154) (3,118)

The accompanying notes are an integral part of these statements

(Back to Index)

9

(Back to Index)


EXANTAS CAPITAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS −- (Continued)

(in thousands)

(unaudited)

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

$

(34,258

)

 

$

(114,103

)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

 

95,474

 

 

 

204,364

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

 

$

61,216

 

 

$

90,261

 

SUPPLEMENTAL DISCLOSURE:

 

 

 

 

 

 

 

 

Interest expense paid in cash

 

$

36,338

 

 

$

25,867

 

(unaudited)

 For the Six Months Ended
 June 30,
 2018 2017
Net cash used in continuing financing activities(26,848) (142,631)
Net cash used in discontinued financing activities—
 (16,081)
Net cash used in financing activities(26,848) (158,712)
    
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH(114,103) (15,406)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD204,364
 119,425
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD$90,261
 $104,019
SUPPLEMENTAL DISCLOSURE: 
  
Interest expense paid in cash$25,867
 $25,139
Income taxes paid in cash$—
 $515

The accompanying notes are an integral part of these statements

(Back to Index)

10

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

2019

(unaudited)




NOTE 1 - ORGANIZATION

Exantas Capital Corp., a Maryland corporation, and its subsidiaries (collectively, the "Company") (formerly known as Resource Capital Corp.) is a real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate mortgage loans and other commercial real estate-related debt investments. The Company is externally managed by Exantas Capital Manager Inc. (the "Manager") (formerly known as Resource Capital Manager, Inc.), which is an indirect wholly-owned subsidiary of C-III Capital Partners LLC ("C-III"), a leading commercial real estate ("CRE") investment management and services company engaged in a broad range of activities. C-III is the beneficial owner of approximately 2.4% of the Company's outstanding common shares at June 30, 2018.

2019.

The Company has qualified, and expects to qualify in the current fiscal year, as a REIT.

In November 2016, the Company received approval from itsCompany's board of directors (the "Board") to execute aapproved the strategic plan (the "Plan") to focus its strategy on CRE debt investments. The Plan contemplatescontemplated disposing of certain loans underwritten prior to 2010 ("legacy CRE loans"), exiting underperforming non-core asset classes (residential real estate-related assets and commercial finance assets)businesses and establishingmaintaining a dividend policy based on sustainable earnings. As a result, the Company evaluated itsThe Company's residential mortgage and middle market lending segments' assets and liabilities and determined both met all of the criteria to bewere classified as held for sale in the fourth quarter of 2016. As a result of the reclassification, these segments areand its operations were reported as discontinued operations and have been excluded from continuing operations. The Company has substantially completed the execution of the Plan. See Note 2120 for further discussion.

The followingCompany conducts its operations through the use of subsidiaries that it consolidates into its financial statements. The Company's core assets are consolidated through its investment in the Company's financial statements:

RCC Real Estate, Inc. ("RCC Real Estate"RE"), a wholly-owned subsidiary that holds CRE loans, CRE-related securities and historically has held direct investments in real estate.  RCC Real Estate owns 100.0% of the equity of the following VIEs:
◦Resource Capital Corp. 2014-CRE2, Ltd. ("RCC 2014-CRE2") and Resource Capital Corp. 2015-CRE4, Ltd. ("RCC 2015-CRE4") were established to complete CRE securitization issuances secured by a portfolio of CRE loans. In August 2017 and July 2018, RCC 2014-CRE2 and RCC 2015-CRE4, respectively, were liquidated and, as a result, the remaining assets were returned to the Company in exchange for the Company's preference shares and equity notes in the securitizations.
◦Resource Capital Corp. 2015-CRE3, Ltd. ("RCC 2015-CRE3"), Resource Capital Corp. 2017-CRE5, Ltd. ("RCC 2017-CRE5") and Exantas Capital Corp. 2018-RSO6, Ltd. ("XAN 2018-RSO6") were each established to complete CRE securitization issuances secured by a separate portfolio of loans.
RCC Commercial, Inc. ("RCC Commercial"), a wholly-owned subsidiary, holds a 29.6% investmentCRE securitizations, which are consolidated as VIEs, as discussed in NEW NP, LLC ("New NP, LLC"), which held one directly originated middle market loan at June 30, 2018 and historically held syndicated corporate loan investments. In July 2018 substantially all of the assets of the borrower for New NP, LLC's remaining loan were sold, resulting in repayment of the loan. New NP, LLC is reported in discontinued operations, see Note 21 for further discussion. RCC Commercial also owns 100.0% of Apidos CDO III, Ltd. ("Apidos CDO III"). Apidos CDO III, a taxable REIT subsidiary ("TRS"), was established to complete a collateralized debt obligation ("CDO") issuance secured by a portfolio of syndicated corporate loans and asset-backed securities ("ABS"). In June 2015, the Company liquidated Apidos CDO III and, as a result, substantially all of the assets were sold.
RCC Commercial II, Inc. ("Commercial II"), a wholly-owned subsidiary, historically invested in structured notes and subordinated notes of foreign, syndicated corporate loan collateralized loan obligation ("CLO") vehicles. Commercial II also owns equity in the following VIEs:
◦
Commercial II owns 100.0% of the equity of Apidos Cinco CDO ("Apidos Cinco"),a TRS that was established to complete a CDO issuance secured by a portfolio of syndicated corporate loans, ABS and corporate bonds. In November 2016, the Company liquidated and sold substantially all of Apidos Cinco's assets. The remaining assets were consolidated by the Company upon liquidation and are marked at fair value.

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

◦Commercial II owns 68.3% of the equity of Whitney CLO I, Ltd., a TRS that holds residual assets following a September 2013 liquidation.
RCC Commercial III, Inc. ("Commercial III"), a wholly-owned subsidiary, historically held investments in syndicated corporate loan investments.  Commercial III owns 90.0% of the equity of Apidos CDO I, LTD. ("Apidos CDO I"). Apidos CDO I, a TRS, was established to complete a CDO issuance secured by a portfolio of syndicated corporate loans and ABS. In October 2014, the Company liquidated Apidos CDO I and as a result substantially all of the assets were sold.
RSO EquityCo, LLC, a wholly-owned subsidiary, owns 10.0% of the equity of Apidos CDO I.
RCC Residential Portfolio, Inc. ("RCC Resi Portfolio"), a wholly-owned subsidiary, historically invested in residential mortgage-backed securities ("RMBS").
RCC Residential Portfolio TRS, Inc. ("RCC Resi TRS"), a wholly-owned TRS, was formed to hold strategic residential mortgage positions that could not be held by RCC Resi Portfolio. RCC Resi TRS also owns 100.0% of the equity, unless otherwise stated, in the following:
◦Primary Capital Mortgage, LLC ("PCM") (formerly known as Primary Capital Advisors, LLC), originated and serviced residential mortgage loans. In November 2016, PCM's operations were reclassified to discontinued operations. PCM sold its residential mortgage loan pipeline, its mortgage servicing rights and its remaining loans held for sale. See Note 21 for further discussion.
◦RCM Global Manager, LLC ("RCM Global Manager") owns 63.8% of RCM Global LLC ("RCM Global"). RCM Global, accounted for as an equity method investment, held a portfolio of investment securities available-for-sale.
◦Long Term Care Conversion Funding, LLC ("LTCC Funding") provided a financing facility to fund the acquisition of life settlement contracts.
◦Life Care Funding, LLC ("LCF") was established for the purpose of acquiring life settlement contracts. In July 2017, the Company purchased the balance of the outstanding membership interests of LCF, thereby becoming a single member LLC. In 2018, the remaining life settlement contracts matured or were sold.
◦RCC TRS, LLC ("RCC TRS") holds investments in direct financing leases and investment securities, trading. RCC TRS also owns equity in the following:
▪RCC TRS owns 100.0% of the equity of Resource TRS, LLC, which in turn holds a 25.8% investment in New NP, LLC, which is reported in discontinued operations.
▪RCC TRS owns 44.6% of the equity in New NP, LLC, which is reported in discontinued operations.
▪RCC TRS owns 80.2% of the equity in Pelium Capital Partners, L.P. ("Pelium Capital"). Pelium Capital, accounted for as an equity method investment, held investment securities, trading.
◦Resource Capital Asset Management, LLC ("RCAM") was entitled to collect senior, subordinated and incentive fees related to CLO issuers to which it provided management services through CVC Credit Partners, LLC ("CVC Credit Partners"), formerly Apidos Capital Management ("ACM"), a subsidiary of CVC Capital Partners SICAV-FIS, S.A.  C-III sold its 24.0% interest in CVC Credit Partners in August 2017.

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

3.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the accounting policies set forth in Note 2 included in the Company's annual reportAnnual Report on Form 10-K for the year ended December 31, 2017.2018. The consolidated financial statements include the accounts of the Company, majority-owned or controlled subsidiaries and VIEs for which the Company is considered the primary beneficiary. All inter-company transactions and balances have been eliminated in consolidation.

Basis of Presentation

All adjustments necessary to present fairly the Company's financial position, results of operations and cash flows have been made.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and all highly liquid investments with original maturities of three months or less at the time of purchase. At June 30, 20182019 and December 31, 2017,2018, approximately $77.4$44.4 million and $177.5$80.4 million, respectively, of the reported cash balances exceeded the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation deposit insurance limits of $250,000 per respective depository or brokerage institution. However, all of the Company's cash deposits are held at multiple, established financial institutions, in multiple accounts associated with its parent and respective consolidated subsidiaries, to minimize credit risk exposure.

Restricted cash includes required account balance minimums primarily for the Company's CRE CDOcollateralized debt obligation ("CDO") securitizations and derivative instruments as well as cash held in the syndicated corporate loan CDOs.

The following table provides a reconciliation of cash, cash equivalents and restricted cash on the consolidated balance sheets to the total amount shown on the consolidated statements of cash flows (dollars in(in thousands):

 

 

June 30,

 

 

 

2019

 

 

2018

 

Cash and cash equivalents

 

$

47,154

 

 

$

80,191

 

Restricted cash

 

 

14,062

 

 

 

10,070

 

Total cash, cash equivalents and restricted cash shown on the Company's consolidated statements of cash flows

 

$

61,216

 

 

$

90,261

 

 June 30,
 2018 2017
Cash and cash equivalents$80,191
 $102,733
Restricted cash10,070
 1,286
Total cash, cash equivalents and restricted cash shown on the Company's consolidated statements of cash flows$90,261
 $104,019
Preferred Equity Investment
Preferred equity investments, which are subordinate

(Back to any loans but seniorIndex)

11

(Back to common equity, depending on the investment's characteristics, may be accounted for as real estate, joint ventures or as mortgage loans. The Company's preferred equity investment is accounted for as a CRE loan held for investment, is carried at cost, net of unamortized loan fees and origination costs, and is included within CRE loans on the Company's consolidated balance sheets.  The Company accretes or amortizes any discounts or premiums over the life of the related loan utilizing the effective interest method. Interest and fees are recognized as income subject to recoverability, which is substantiated by obtaining annual appraisals on the underlying property.

Index)

EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

Discontinued Operations

The results of operations of a component or a group of components of the Company that either has been disposed of or is classified as held for sale is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company's operations and financial results.

Income Taxes

The Company establishedrecorded a full valuation allowance against its net deferred tax assets of approximately $10.4$54.6 million and $58.4 million (tax effected expense of $16.0 million and $15.3 million) at June 30, 2019 and December 31, 2018, respectively, as the Company believes it is more likely than not that the deferred tax assets will not be realized. This assessment was based on the Company's cumulative historical losses and uncertainties as to the amount of taxable income that would be generated in future years by the Company's TRSs.


(Backtaxable REIT subsidiaries.

Share-Based Compensation

Issuances of restricted stock and options are initially measured at fair value on the grant date and expensed monthly on a straight-line basis over the service period to Index)

13
(Backequity compensation expense on the consolidated statements of operations, with a corresponding entry to Index)

EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

additional paid-in capital on the consolidated balance sheets. Effective January 1, 2019, in accordance with updated guidance under GAAP, the fair value of all unvested issuances of restricted stock and options is not remeasured after the initial grant date. Previously, the Company adjusted unvested issuances of restricted stock and options to the Manager and to non-employees quarterly to reflect changes in fair value.

Recent Accounting Standards

Accounting Standards Adopted in 2018

2019

In May 2017,June 2018, the Financial Accounting Standards Board ("FASB"(the "FASB") issued guidance to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Modification accounting should be applied unless all of the following three criteria are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. Adoption did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance provides a screen to determine when an integrated set of assets and activities (a "set") is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the guidance requires that: (i) to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output and (ii) remove the evaluation of whether a market participant could replace missing elements. The guidance also narrows the definition of an output to: the result of inputs and processes applied to those inputs that provide goods or services to customers, investment income (such as dividends or interest), or other revenues. Adoption did not have a material impact on the Company's consolidated financial statements.
In November 2016, the FASB issued guidance to reduce the diversity in practice of the classification and presentation of changes in restricted cash on the statement of cash flows. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Adoption did not have a material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued guidance to reduce the diversity in practice around the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The guidance addresses the following eight specific cash flow issues: (i) debt prepayments or extinguishment costs; (ii) contingent consideration payments made after a business combination; (iii) proceeds from the settlement of insurance claims; (iv) proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); (v) settlement of zero-coupon debt instruments or other debt instruments with insignificant coupon rates; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle. Adoption did not have a material impact on the Company's consolidated financial statements.
In January 2016, the FASB issued guidance to address certain aspects of the 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.  Adoption did not have a material impact on the Company's consolidated financial statements.

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

In May 2014, the FASB issued guidance that establishes key principles by which an entity determines the amount and timing of revenue recognized from customer contracts. At issuance, the guidance was effective for the first interim or annual period beginning after December 15, 2016. In August 2015, the FASB issued additional guidance that delayed the previous effective date by one year, resulting in the original guidance becoming effective for the first interim or annual period beginning after December 15, 2017. In 2016, the FASB issued multiple amendments to the accounting standard to provide further clarification. Exclusions from the scope of this guidance include revenues resulting from loans, investment securities available-for-sale, investment securities, trading, investments in unconsolidated entities and leases. The Company evaluated the applicability of this guidance, considering the scope exceptions, and determined that adoption did not have a material impact on its consolidated financial statements.
Accounting Standards to be Adopted in Future Periods
In June 2018, the FASB issued guidance to simplify the accounting for share-based payment transactions for acquiring goods and services from nonemployees by including these payments in the scope of the guidance for share-based payments to employees. TheIn accordance with the guidance, is effective for annual reporting periods beginning after December 15, 2018,the Company's unvested issuances to the Manager and interim periods within that reportingto non-employees granted prior to the January 1, 2019 adoption date were remeasured at fair value as of the adoption date with no subsequent remeasurement. Unvested issuances will continue to be amortized on a straight-line basis over the service period. Early adoption is permitted. The Company is inAdoption did not have a material impact on the process of evaluating the impact of this new guidance.
Company's consolidated financial statements.

In February 2018, the FASB issued guidance to allow a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within that reporting period. Early adoption is permitted. The Company is inAdoption did not have a material impact on the process of evaluating the impact of this new guidance.

Company's consolidated financial statements.

In August 2017, the FASB issued guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities. Additionally, the guidance simplifies the application of the hedge accounting guidance via certain targeted improvements. In October 2018, the FASB updated the guidance to add a benchmark interest rate permitted for hedge accounting purposes. Adoption did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting remains largely unchanged. The guidance also requires new qualitative and quantitative disclosures to help financial statement users better understand the timing, amount and uncertainty of cash flows arising from leases. Adoption did not have a material impact on the Company's consolidated financial statements.

Accounting Standards to be Adopted in Future Periods

In August 2018, the FASB issued guidance to modify the fair value measurement disclosure requirements, including: disclosures on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, the policy for timing of transfers between levels and the narrative description of measurement uncertainty. The guidance is effective for annual reporting periods beginning after December 15, 2018,2019, and interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance.

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12

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

In January 2017, the FASB issued guidance to add the Securities and Exchange Commission ("SEC") Staff Announcement "Disclosure of the Impact that Recently Issued Accounting Standards will have on the Financial Statements of a Registrant when such Standards are Adopted in a Future Period (in accordance with Staff Accounting Bulletin Topic 11.M)." The announcement applies to the May 2014 guidance on revenue recognition from contracts with customers, the February 2016 guidance on leases and the June 2016 guidance on how credit losses for most financial assets at amortized cost and certain other instruments that are measured at fair value through net income are determined. The announcement provides the SEC staff view that a registrant should evaluate certain recent accounting standards that have not yet been adopted to determine appropriate financial statement disclosures about the potential material effects of those recent accounting standards. If a registrant does not know or cannot reasonably estimate the impact that adoption of the recent accounting standards referenced in this announcement is expected to have on the financial statements, then the registrant should make a statement to that effect and consider the additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the recent accounting standards will have on the financial statements of the registrant when adopted. The Company completed its assessment under the new guidance on revenue recognition from contracts with customers in 2018 and on leases, see "Account"Accounting Standards Adopted in 2018.2019."The While the Company is currently evaluating the impact of thisthe guidance on leases and the measurement of credit losses on financial instruments, and itsthe Company expects this standard will impact on itsthe consolidated financial statements.statements, as described below.

In June 2016, the FASB issued guidance whichthat 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. TheWhile the Company is in the process ofcurrently evaluating the impact of this new guidance.


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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

In February 2016,guidance, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use assetCompany expects this standard will impact the consolidated financial statements, in particular the level of the provision for all leases. Lessor accounting will remain largely unchanged. The guidance will also require new qualitative and quantitative disclosures to help financial statement users better understand the timing, amount and uncertainty of cash flows arising from leases. This guidance will be effective for reporting periods beginning on or after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.
loan losses.

Reclassifications

Certain reclassifications have been made to the 20172018 consolidated financial statements to conform to the 20182019 presentation.

These reclassifications had no effect on the reported consolidated statements of operations.

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.

Consolidated VIEs (the Company is the primary beneficiary)

Based on management's analysis, the Company iswas the primary beneficiary of eightsix and sevenfive VIEs at June 30, 20182019 and December 31, 2017,2018, respectively (collectively, the "Consolidated VIEs").

The Consolidated VIEs are CRE securitizations, CDOs and collateralized loan obligations that were formed on behalf of the Company to invest in real estate-related securities, commercial mortgage-backed securities ("CMBS"), syndicated corporate loans, corporate bonds and ABSasset-backed securities ("ABS") and were financed by the issuance of debt securities. The Manager, andwith the help of C-III Asset Management LLC ("C3AM"), a subsidiary of C-III, managemanages the CRE-related entities, and CVC Credit Partners manages the commercial finance-related entities on behalf of the Company.entities. By financing these assets with long-term borrowings through the issuance of debt securities, 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.

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 10.

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

The Company has exposure to losses on its securitizations to the extent of its investments in the subordinated debt and preferred equity of each securitization. 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, the debt and equity interests the Company holds in these securitizations have been eliminated, and the Company's consolidated balance sheets reflect the assets held, debt issued by the securitizations to third parties and any accrued payables 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.

For a discussion of the debt issued through the securitizations see Note 9.

Creditors of the Company's Consolidated VIEs have no recourse to the general credit of the Company, nor to each other. During the three and six months ended June 30, 2019 and 2018, the Company did not provide any 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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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

The following table shows the classification and carrying values of assets and liabilities of the Company's Consolidated VIEs at June 30, 20182019 (in thousands):

 

 

CRE

Securitizations

 

 

Other

 

 

Total

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

$

5,700

 

 

$

432

 

 

$

6,132

 

Accrued interest receivable

 

 

5,528

 

 

 

—

 

 

 

5,528

 

CRE loans, pledged as collateral

 

 

1,266,549

 

 

 

—

 

 

 

1,266,549

 

Principal paydowns receivable

 

 

33,150

 

 

 

—

 

 

 

33,150

 

Other assets

 

 

106

 

 

 

—

 

 

 

106

 

Total assets (1)

 

$

1,311,033

 

 

$

432

 

 

$

1,311,465

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

147

 

 

$

—

 

 

$

147

 

Accrued interest payable

 

 

1,268

 

 

 

—

 

 

 

1,268

 

Borrowings

 

 

963,383

 

 

 

—

 

 

 

963,383

 

Total liabilities

 

$

964,798

 

 

$

—

 

 

$

964,798

 

  CRE Securitizations Other Total
ASSETS      
Restricted cash $8,734
 $511
 $9,245
Accrued interest receivable 2,738
 —
 2,738
CRE loans, pledged as collateral 1,012,900
 —
 1,012,900
Other assets 267
 9
 276
Total assets (1)
 $1,024,639
 $520
 $1,025,159
       
LIABILITIES      
Accounts payable and other liabilities $119
 $—
 $119
Accrued interest payable 485
 —
 485
Borrowings 632,004
 —
 632,004
Total liabilities $632,608
 $—
 $632,608

(1)

(1)

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 at June 30, 2018.2019. 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.

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"), respectively, with a value of $1.5 million in the aggregate, or 3%3.0% of each trust, at June 30, 2018.2019. RCT I and RCT II were formed for the purposes of providing debt financing to the Company. 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.

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14

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

The Company records its investments in RCT I and RCT II's common shares of $774,000 each as investments in unconsolidated entities using the cost method, recording dividend income when declared by RCT I and RCT II. The trusts each hold subordinated debentures for which the Company is the obligor in the amount of $25.8 million for each of RCT I and RCT II. The debentures were funded by the issuance of trust preferred securities of RCT I and RCT II. The Company will continuously reassess whether it is deemed to be the primary beneficiary of the trusts.

RCM Global
The Company, together with certain of Resource America, Inc.'s ("Resource America"), a wholly-owned subsidiary of C-III, subsidiaries, former employees and former employees' spouses, holds a membership interest in RCM Global, which formerly held a portfolio of available-for-sale securities. RCM Global was determined to be a VIE based on the majority equity interest holders' inability to direct the activities that are most significant to the entity. In January 2016, following adoption of the amendments to the consolidation guidance under which the Company concluded that it was not the primary beneficiary of RCM Global, the Company deconsolidated and began accounting for its investment as an equity method investment in investments in unconsolidated entities on its consolidated financial statements. At June 30, 2018, the Company held a 63.8% interest in RCM Global, and the remainder was owned by subsidiaries and current and former employees of Resource America. The Company held an $80,000 investment at June 30, 2018.

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

Pelium Capital
The Company, together with a subsidiary of Resource America, holds a partnership interest in Pelium Capital, a specialized credit opportunity fund that formerly held a portfolio of investment securities. In January 2016, upon adoption of the amendments to the consolidation guidance under which the Company concluded that it had a variable interest and was not the primary beneficiary in Pelium Capital, the Company deconsolidated and accounted for its investment as an equity method investment in investments in unconsolidated entities on its consolidated financial statements. At June 30, 2018, the Company held an 80.2% interest in Pelium Capital, with a carrying value of $154,000.

Wells Fargo Commercial Mortgage Trust 2017-C40

In October 2017, the Company purchased 95% of the Class E, F, G, H and J certificates of Wells Fargo Commercial Mortgage Trust 2017-C40 ("C40"), a B-piece investment in a Wells Fargo Commercial Mortgage Securities, Inc., private-label, $705.4 million securitization. C3AM, a related party that is not under common control, is the special servicer of C40. The Company determined that although its investment in C40 represented a variable interest, its investment did not provide the Company with a controlling financial interest. The Company accounts for its various investments in C40 as investment securities available-for-sale on its consolidated financial statements.

Prospect Hackensack JV LLC

In March 2018, the Company invested $19.2 million in the preferred equity of Prospect Hackensack JV LLC ("Prospect Hackensack"), a joint venture between the Company and an unrelated third party ("Managing Member"). Prospect Hackensack was formed for the purpose of acquiring and operating a multifamily CRE property. The Managing Member manages the daily operations of the property. The Company determined that although its investment in Prospect Hackensack represented a variable interest, its investment did not provide the Company with a controlling financial interest. The Company accounts for its investment in Prospect Hackensack's preferred equity as a CRE loan on its consolidated financial statements.

WC Newhall MM, LLC

In June 2019, the Company invested $5.5 million in the preferred equity of WC Newhall MM, LLC ("Santa Clarita"), a joint venture between the Company and two unrelated third parties ("Sponsor Members"). Santa Clarita was formed for the purpose of refinancing a self-storage CRE property. The Sponsor Members manage the daily operations of the property. The Company determined that although its investment in Santa Clarita represented a variable interest, its investment did not provide the Company with a controlling financial interest. The Company accounts for its investment in Santa Clarita's preferred equity as a CRE loan on its consolidated financial statements.

The following table shows the classification, carrying value and maximum exposure to loss with respect to the Company's unconsolidated VIEs at June 30, 20182019 (in thousands):

 

 

Unsecured Junior Subordinated Debentures

 

 

C40

 

 

Prospect Hackensack

 

 

Santa Clarita

 

 

Total

 

 

Maximum Exposure to Loss

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued interest receivable

 

$

110

 

 

$

167

 

 

$

—

 

 

$

—

 

 

$

277

 

 

$

—

 

CRE loans

 

 

—

 

 

 

—

 

 

 

19,994

 

 

 

5,416

 

 

 

25,410

 

 

$

25,410

 

Investment securities available-for-sale (1)

 

 

—

 

 

 

21,952

 

 

 

—

 

 

 

—

 

 

 

21,952

 

 

$

21,709

 

Investments in unconsolidated entities

 

 

1,548

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,548

 

 

$

1,548

 

Total assets

 

 

1,658

 

 

 

22,119

 

 

 

19,994

 

 

 

5,416

 

 

 

49,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued interest payable

 

 

716

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

716

 

 

N/A

 

Borrowings

 

 

51,548

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

51,548

 

 

N/A

 

Total liabilities

 

 

52,264

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

52,264

 

 

N/A

 

Net (liability) asset

 

$

(50,606

)

 

$

22,119

 

 

$

19,994

 

 

$

5,416

 

 

$

(3,077

)

 

N/A

 

  Unsecured Junior Subordinated Debentures RCM Global Pelium Capital C40 Prospect Hackensack Total Maximum Exposure to Loss
ASSETS              
Accrued interest receivable $21
 $—
 $—
 $167
 $—
 $188
 $—
CRE loans —
 —
 —
 —
 19,374
 19,374
 $19,374
Investment securities available-for-sale (1)
 —
 —
 —
 21,113
 —
 21,113
 $20,938
Investments in unconsolidated entities 1,548
 80
 154
 —
 —
 1,782
 $1,782
Total assets 1,569
 80
 154
 21,280
 19,374
 42,457
  
               
LIABILITIES              
Accrued interest payable 688
 —
 —
 —
 —
 688
 N/A
Borrowings 51,548
 —
 —
 —
 —
 51,548
 N/A
Total liabilities 52,236
 —
 —
 —
 —
 52,236
 N/A
Net asset (liability) $(50,667) $80
 $154
 $21,280
 $19,374
 $(9,779) N/A

(1)

(1)

The Company's investment in C40 is carried at fair value and its maximum exposure to loss is the amortized cost of the investment.

At June 30, 2018,2019, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.


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15

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes the Company's supplemental disclosure of cash flow information (in thousands):

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Non-cash continuing financing activities include the following:

 

 

 

 

 

 

 

 

Distributions on common stock accrued but not paid

 

$

7,172

 

 

$

3,166

 

Distributions on preferred stock accrued but not paid

 

$

1,725

 

 

$

1,725

 

  For the Six Months Ended
  June 30,
  2018 2017
Non-cash continuing financing activities include the following:  
  
Distributions on common stock accrued but not paid $3,166
 $1,567
Distribution on preferred stock accrued but not paid $1,725
 $4,010

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16

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

NOTE 5 - LOANS

The following is a summary of the Company's loans (dollars in thousands, except amounts in footnotes):

Description

 

Quantity

 

 

Principal

 

 

Unamortized (Discount) Premium, net (1)

 

 

Amortized Cost

 

 

Allowance for Loan Losses

 

 

Carrying Value (2)

 

 

Contractual Interest

Rates (3)

 

 

Maturity Dates (4)(5)

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans (6)

 

 

117

 

 

$

1,928,828

 

 

$

(7,849

)

 

$

1,920,979

 

 

$

(2,597

)

 

$

1,918,382

 

 

1M LIBOR

plus 2.70% to 1M LIBOR

plus 6.25%

 

 

July 2019 to July 2022

Mezzanine loan

 

 

1

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

10.00%

 

 

June 2028

Preferred equity investments (see Note

3) (6)(7)(8)

 

 

2

 

 

 

25,565

 

 

 

(155

)

 

 

25,410

 

 

 

—

 

 

 

25,410

 

 

11.00% to 11.50%

 

 

June 2022 to April 2025

Total CRE loans held for investment

 

 

 

 

 

$

1,959,093

 

 

$

(8,004

)

 

$

1,951,089

 

 

$

(2,597

)

 

$

1,948,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans (6)

 

 

79

 

 

$

1,538,759

 

 

$

(9,646

)

 

$

1,529,113

 

 

$

(1,401

)

 

$

1,527,712

 

 

1M LIBOR

plus 2.70% to 1M LIBOR

plus 6.25%

 

 

January 2019 to January 2022

Mezzanine loan

 

 

1

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

10.00%

 

 

June 2028

Preferred equity investment (see Note

3) (6)(7)(8)

 

 

1

 

 

 

19,718

 

 

 

(163

)

 

 

19,555

 

 

 

—

 

 

 

19,555

 

 

11.50%

 

 

April 2025

Total CRE loans held for investment

 

 

 

 

 

$

1,563,177

 

 

$

(9,809

)

 

$

1,553,368

 

 

$

(1,401

)

 

$

1,551,967

 

 

 

 

 

 

 

Description Quantity Principal 
Unamortized (Discount)
Premium, net (1)
 Amortized Cost Allowance for Loan Losses 
Carrying
Value (2)
 
Contractual Interest Rates (3)
 
Maturity Dates (4)(5)(6)
At June 30, 2018:                
CRE loans held for investment:                
Whole loans (7)(8)
 78 $1,434,572
 $(7,916) $1,426,656
 $(4,529) $1,422,127
 1M LIBOR plus 2.50% to 1M LIBOR plus 6.25% July 2018 to July 2021
Mezzanine loan 1 4,700
 —
 4,700
 —
 4,700
 10.00% June 2028
Preferred equity investment (see Note 3) (9)(10)
 1 19,374
 (183) 19,191
 —
 19,191
 11.50% April 2025
Total CRE loans held for investment   1,458,646
 (8,099) 1,450,547
 (4,529) 1,446,018
    
Total loans   $1,458,646
 $(8,099) $1,450,547
 $(4,529) $1,446,018
    
                 
At December 31, 2017:                
CRE loans held for investment:                
Whole loans (7)
 70 $1,297,164
 $(7,014) $1,290,150
 $(5,328) $1,284,822
 1M LIBOR plus 3.60% to 1M LIBOR plus 6.25% February 2018 to January 2021
Total CRE loans held for investment   1,297,164
 (7,014) 1,290,150
 (5,328) 1,284,822
    
Syndicated corporate loans (11)
 2 13
 —
 13
 —
 13
 N/A N/A
Total loans held for sale   13
 —
 13
 —
 13
    
Total loans   $1,297,177
 $(7,014) $1,290,163
 $(5,328) $1,284,835
    

(1)

(1)

Amounts include unamortized loan origination fees of $7.6$10.0 million and $6.7$9.6 million and deferred amendment fees of $482,000$245,000 and $268,000 being amortized over the life of the loans$171,000 at June 30, 20182019 and December 31, 2017,2018, respectively. Additionally, the amounts include unamortized loan acquisition costs of $2.3 million at June 30, 2019. There were no unamortized loan acquisition costs at December 31, 2018.

(2)

(2)

Substantially all loans are pledged as collateral under various borrowings at June 30, 20182019 and December 31, 2017.2018.

(3)

(3)

LIBOR refers to the London Interbank Offered Rate.

(4)

(4)

Maturity dates exclude contractual extension options, subject to the satisfaction of certain terms that may be available to the borrowers.

(5)

(5)Maturity dates exclude one whole loan, with an amortized cost of $7.0 million, in default at June 30, 2018 and December 31, 2017.
(6)

Maturity dates exclude one whole loan, with an amortized cost of $11.5 million, in maturity default and performing with respect to debt service due in accordance with a forbearance agreement at June 30, 2018. The loan was classified as an asset held for sale2019 and in maturity default at December 31, 2017.2018.

(6)

(7)

Whole loans had $88.7$119.7 million and $84.1$108.1 million in unfunded loan commitments at June 30, 20182019 and December 31, 2017,2018, respectively. Preferred equity investments had $3.2 million in unfunded commitments at June 30, 2019. There were no preferred equity investment unfunded commitments at December 31, 2018. These unfunded loan commitments are advanced as the borrowers formally request additional funding and meet certain benchmarks, as permitted under the loan agreement, and any necessary approvals have been obtained.

(7)

(8)At June 30, 2018, two legacy CRE loans with amortized costs of $28.3 million were reclassified to whole loans from assets held for sale as it is now the Company's intent to hold these loans to maturity.
(9)

The interest rate on the Company's preferred equity investment paysinvestments each pay currently at 8.00%. The remaining interest is deferred until maturity.

(8)

(10)

Beginning in April 2023, the Company has the right to unilaterally force the sale of theProspect Hackensack's underlying property.

(11)All syndicated corporate loans are second lien loans and are accounted for under the fair value option.

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17

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


The following is a summary of the contractual maturities, assuming full exercise of the extension options available to the borrowers, of the Company's CRE loans held for investment, at amortized cost (in thousands, except amountsamount in footnotes)the footnote):

Description

 

2019

 

 

2020

 

 

2021 and

Thereafter

 

 

Total

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans (1)

 

$

10,399

 

 

$

167,483

 

 

$

1,731,581

 

 

$

1,909,463

 

Mezzanine loan

 

 

—

 

 

 

—

 

 

 

4,700

 

 

 

4,700

 

Preferred equity investments

 

 

—

 

 

 

—

 

 

 

25,410

 

 

 

25,410

 

Total CRE loans (1)

 

$

10,399

 

 

$

167,483

 

 

$

1,761,691

 

 

$

1,939,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

2019

 

 

2020

 

 

2021 and

Thereafter

 

 

Total

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans (1)

 

$

10,379

 

 

$

182,422

 

 

$

1,324,797

 

 

$

1,517,598

 

Mezzanine loan

 

 

—

 

 

 

—

 

 

 

4,700

 

 

 

4,700

 

Preferred equity investment

 

 

—

 

 

 

—

 

 

 

19,555

 

 

 

19,555

 

Total CRE loans (1)

 

$

10,379

 

 

$

182,422

 

 

$

1,349,052

 

 

$

1,541,853

 

Description 2018 2019 2020 and Thereafter Total
At June 30, 2018:        
Whole loans (1)(2)
 $—
 $112,694
 $1,295,446
 $1,408,140
Mezzanine loan —
 —
 4,700
 4,700
Preferred equity investment —
 —
 19,191
 19,191
Total CRE loans(1)(2)
 $—
 $112,694
 $1,319,337
 $1,432,031
         
Description 2018 2019 2020 and Thereafter Total
At December 31, 2017:        
Whole loans (1)
 $—
 $148,622
 $1,134,528
 $1,283,150

(1)

(1)Excludes one whole loan, with an amortized cost of $7.0 million, in default at June 30, 2018 and December 31, 2017.
(2)

Excludes one whole loan, with an amortized cost of $11.5 million, in maturity default and performing with respect to debt service due in accordance with a forbearance agreement at June 30, 2018. The loan was classified as an asset held for sale2019 and in maturity default at December 31, 2017.2018.

At June 30, 2018,2019, approximately 31.2%23.8%, 24.0%21.6% and 13.1%13.5% of the Company's CRE loan portfolio was concentrated in the Southwest, PacificMountain and MountainPacific regions, respectively, based on carrying value, as defined by the National Council of Real Estate Investment Fiduciaries ("NCREIF").Fiduciaries. At December 31, 2017,2018, approximately 28.0%32.3%, 24.3%20.9%, and 12.5%17.1% of the Company's CRE loan portfolio was concentrated in the Southwest, PacificMountain and MountainPacific regions, respectively, based on carrying value.

Principal Paydowns Receivable

Principal paydowns receivable represents loan principal payments that have been received by the Company's servicers and trustees but have not been remitted to the Company. At June 30, 2019, the Company had $33.2 million of loan principal paydowns receivable, all of which was received in cash by the Company in July 2019. At December 31, 2018, the Company had no loan principal paydowns receivable. At December 31, 2017, the Company had $75.9$32.1 million of loan principal paydowns receivable, all of which was received in cash by the Company in January 2018.


2019.

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20

18

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


NOTE 6 - FINANCING RECEIVABLES

The following tables show the activity in the allowance for loan and lease losses for the six months ended June 30, 20182019 and year ended December 31, 20172018 and the allowance for loan and lease losses and recorded investments in loans and leases at June 30, 20182019 and December 31, 20172018 (in thousands)thousands, except amount in the footnote):

 

 

Six Months Ended June 30, 2019

 

 

Year Ended December 31, 2018

 

 

 

Commercial Real

Estate Loans

 

 

Commercial Real

Estate Loans

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

Allowance for loan losses at beginning of period

 

$

1,401

 

 

$

5,328

 

Provision for (recovery of) loan losses, net (1)

 

 

1,196

 

 

 

(1,595

)

Loans charged-off

 

 

—

 

 

 

(2,332

)

Allowance for loan losses at end of period

 

$

2,597

 

 

$

1,401

 

(1)

Excludes the recovery of loan losses on one bank loan with no amortized cost or carrying value at June 30, 2019 and December 31, 2018 that received a payment of approximately $1,000 during the six months ended June 30, 2019.

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Commercial Real

Estate Loans

 

 

Commercial Real

Estate Loans

 

Allowance for loan losses ending balance:

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

—

 

 

$

—

 

Collectively evaluated for impairment

 

$

2,597

 

 

$

1,401

 

Loans:

 

 

 

 

 

 

 

 

Amortized cost ending balance:

 

 

 

 

 

 

 

 

Individually evaluated for impairment (1)

 

$

30,110

 

 

$

24,255

 

Collectively evaluated for impairment

 

$

1,920,979

 

 

$

1,529,113

 

(1)

The Company's mezzanine loan and preferred equity investments are evaluated individually for impairment.

  Six Months Ended June 30, 2018 Year Ended December 31, 2017
  Commercial Real Estate Loans Direct Financing Leases Total Commercial Real Estate Loans Syndicated Corporate Loans Direct Financing Leases Total
Allowance for loan and lease losses:              
Allowance for loan and lease losses at beginning of period $5,328
 $735
 $6,063
 $3,829
 $—
 $465
 $4,294
Provision for (recovery of) loan and lease losses, net (799) —
 (799) 1,499
 3
 270
 1,772
Loans charged-off —
 —
 —
 —
 (3) —
 (3)
Allowance for loan and lease losses at end of period $4,529
 $735
 $5,264
 $5,328
 $—
 $735
 $6,063
               
  June 30, 2018 December 31, 2017
  Commercial Real Estate Loans Direct Financing Leases Total Commercial Real Estate Loans Syndicated Corporate Loans Direct Financing Leases Total
Allowance for loan and lease losses ending balance:  
    
        
Individually evaluated for impairment $2,500
 $735
 $3,235
 $2,500
 $—
 $735
 $3,235
Collectively evaluated for impairment $2,029
 $—
 $2,029
 $2,828
 $—
 $—
 $2,828
Loans acquired with deteriorated credit quality $—
 $—
 $—
 $—
 $—
 $—
 $—
Loans and Leases:  
    
        
Amortized cost ending balance:      
        
Individually evaluated for impairment $30,891
 $801
 $31,692
 $7,000
 $—
 $886
 $7,886
Collectively evaluated for impairment $1,419,656
 $—
 $1,419,656
 $1,283,150
 $—
 $—
 $1,283,150
Loans acquired with deteriorated credit quality $—
 $—
 $—
 $—
 $—
 $—
 $—

Credit quality indicators

Commercial Real Estate Loans

CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or reunderwritten loan-to-collateral value ratios, loan structure and exit plan. Depending on the loan's performance against these various factors, loans are rated on a scale from 1 to 5, with loans rated 1 representing loans with the highest credit quality and loans rated 5 representing loans with the lowest credit quality. The factors evaluated provide general criteria to monitor credit migration in the Company's loan portfolio,portfolio; as such, a loan's rating may improve or worsen, depending on new information received.


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21

19

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


The criteria set forth below should be used as general guidelines and, therefore, not every loan will have all of the characteristics described in each category below. Loans that are performing according to their underwritten plans generally will not require an allowance for loan loss.

Risk Rating

Risk Characteristics

Risk Rating

Risk Characteristics

1

1

• Property performance has surpassed underwritten expectations.

• Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high quality tenant mix.

2

• Property performance is consistent with underwritten expectations and covenants and performance criteria are being met or exceeded.

• Occupancy is stabilized, near stabilized or is on track with underwriting.

3

• Property performance lags behind underwritten expectations.

• Occupancy is not stabilized and the property has some tenancy rollover.

4

• Property performance significantly lags behind underwritten expectations. Performance criteria and loan covenants have required occasional waivers.

• Occupancy is not stabilized and the property has a large amount of tenancy rollover.

5

• Property performance is significantly worse than underwritten expectations. The loan is not in compliance with loan covenants and performance criteria and ismay be in default. Expected sale proceeds would not be sufficient to pay off the loan at maturity.

• The property has a material vacancy rate and significant rollover of remaining tenants.

• An updated appraisal is required.required upon designation and updated on an as-needed basis.

All CRE loans are evaluated for any credit deterioration by debt asset management and certain finance personnel on at least a quarterly basis.

Whole loans are first individually evaluated for impairment; and to the extent not deemed impaired, a general reserve is established.

The allowance for loan loss is computed as (i) 1.5% of the aggregate face values of loans rated as a 3, plus (ii) 5.0% of the aggregate face values of loans rated as a 4, plus (iii) specific allowances measured and determined on loans individually evaluated, which are loans rated as a 5. While the overall risk rating is generally not the sole factor used in determining whether a loan is impaired, a loan with a higher overall risk rating would tend to have more adverse indicators of impairment, and therefore would be more likely to experience a credit loss.

The Company's mezzanine loan and preferred equity investmentinvestments are evaluated individually for impairment.


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22

20

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


Credit risk profiles of CRE loans at amortized cost and legacy CRE loans held for sale at the lower of cost or fair value were as follows (in thousands, except amounts in footnotes):

 

 

Rating 1

 

 

Rating 2

 

 

Rating 3 (1)

 

 

Rating 4

 

 

Rating 5

 

 

Held for Sale (2)

 

 

Total

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

1,758,536

 

 

$

158,095

 

 

$

4,348

 

 

$

—

 

 

$

—

 

 

$

1,920,979

 

Mezzanine loan (3)

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

Preferred equity investments (3)

 

 

—

 

 

 

25,410

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25,410

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16,082

 

 

 

16,082

 

Total

 

$

—

 

 

$

1,788,646

 

 

$

158,095

 

 

$

4,348

 

 

$

—

 

 

$

16,082

 

 

$

1,967,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

1,447,206

 

 

$

77,067

 

 

$

4,840

 

 

$

—

 

 

$

—

 

 

$

1,529,113

 

Mezzanine loan (3)

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

Preferred equity investment (3)

 

 

—

 

 

 

19,555

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,555

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

17,000

 

 

 

17,000

 

Total

 

$

—

 

 

$

1,471,461

 

 

$

77,067

 

 

$

4,840

 

 

$

—

 

 

$

17,000

 

 

$

1,570,368

 

 Rating 1 Rating 2 
Rating 3 (1)
 Rating 4 
Rating 5 (2)
 
Held for Sale (3)
 Total
At June 30, 2018:             
Whole loans$13,000
 $1,271,509
 $130,302
 $4,845
 $7,000
 $—
 $1,426,656
Mezzanine loan (4)
—
 4,700
 —
 —
 —
 —
 4,700
Preferred equity investment (4)
—
 19,191
 —
 —
 —
 —
 19,191
Legacy CRE loans held for sale—
 —
 —
 —
 —
 18,000
 18,000
 $13,000
 $1,295,400
 $130,302
 $4,845
 $7,000
 $18,000
 $1,468,547
              
At December 31, 2017: 
  
  
  
  
  
  
Whole loans$65,589
 $1,040,883
 $171,841
 $4,837
 $7,000
 $—
 $1,290,150
Legacy CRE loans held for sale—
 —
 —
 —
 —
 61,841
 61,841
 $65,589
 $1,040,883
 $171,841
 $4,837
 $7,000
 $61,841
 $1,351,991

(1)

(1)

Includes one whole loan, with an amortized cost of $11.5 million, thatwhich was in maturity default at June 30, 2019 and December 31, 2018. The loan is performing with respect to debt service due in accordance with a forbearance agreement at June 30, 2019 and December 31, 2018.

(2)

(2)

Includes one wholelegacy CRE loan with an amortized cost of $7.0 million, that was in default at June 30, 2018 and December 31, 2017.

(3)Includes one and two legacy CRE loans that were in default with a total carrying valuesvalue of $18.0$16.1 million and $22.5$17.0 million at June 30, 20182019 and December 31, 2017,2018, respectively.

(3)

(4)

The Company's mezzanine loan and preferred equity investmentinvestments are evaluated individually for impairment.

At June 30, 2018 and December 31, 2017, the Company had one CRE whole loan designated as an impaired loan with a risk rating of 5 due to short term vacancy/tenant concerns and a past due maturity of February 2017. The loan had an amortized cost of $7.0 million at June 30, 2018 and December 31, 2017. The Company obtained an appraisal of the collateral in 2016, indicating a fair value of $4.5 million, which it relied upon as a practical expedient for determining the value of the loan at June 30, 2018 and December 31, 2017. No additional provision was recorded on the loan for the three and six months ended June 30, 2018 and 2017. This loan was in default at June 30, 2018 and December 31, 2017.
At June 30, 2018, the Company had one legacy CRE loan and one mezzanine loan included in assets held for sale with total carrying values of $18.0 million, comprising total amortized cost bases of $24.6 million less a valuation allowance of $6.6 million. The mezzanine loan held for sale had no fair value at June 30, 2018.
At December 31, 2017, the Company had four legacy CRE loans and one mezzanine loan included in assets held for sale with total carrying values of $61.8 million, comprising total amortized cost bases of $63.8 million less a valuation allowance of $1.9 million. The mezzanine loan held for sale had no fair value at December 31, 2017.
In June 2018, the Company sold the note and deed of trust of one legacy CRE loan for $12.0 million, resulting in a realized gain of $1.0 million for the three and six months ended June 30, 2018.
At June 30, 2018, the Company reclassified two legacy CRE loans back into the CRE loan portfolio at the lesser of each loan's cost or market value, totaling $28.3 million, as the Company now intends to hold the loans to maturity. The loans are classified as CRE loans on the consolidated balance sheets. One reclassified loan with an amortized cost of $11.5 million was in maturity default at June 30, 2018 and December 31, 2017 and is performing with respect to debt service due in accordance with a forbearance agreement.
At June 30, 2018 and December 31, 2017, the one remaining legacy CRE loan had a carrying value of $18.0 million and $22.5 million, respectively. An additional fair value adjustment of $4.7 million, which included protective advances of $172,000, to reduce the carrying value was recognized during the six months ended June 30, 2018. This adjustment was recorded based on the receipt of updated appraisals in April 2018 and was recognized in fair value adjustments on financial assets held for sale on the Company's consolidated statements of operations. No valuation adjustments were recognized for the three months ended June 30, 2018, nor the three and six months ended June 30, 2017. The loan is currently in default.
At December 31, 2017, 45.8%, 36.4% and 17.8% of the Company's legacy CRE loans were concentrated in retail, hotel and office, respectively, based on carrying value. Of these loans, 82.2% and 17.8% were within the Pacific and Mountain regions, respectively.

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23
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

Except as previously discussed, all of the Company's CRE loans, its mezzanine loan and its preferred equity investment were current with respect to contractual principal and interest at June 30, 2018.
Direct Financing Leases
The Company recorded no provision for lease losses against the value of its direct financing leases during the three and six months ended June 30, 2018. The Company recorded a provision for lease losses of $131,000 and $270,000 during the three and six months ended June 30, 2017, respectively. The Company held $66,000 and $151,000 of direct financing leases, net of reserves, at June 30, 2018 and December 31, 2017, respectively.

Loan Portfolios Aging Analysis

The following table presents the CRE loan portfolio aging analysis as of the dates indicated for CRE loans at amortized cost and legacy CRE loans held for sale at the lower of cost or fair value (in thousands, except amounts in footnotes):

 

 

30-59 Days

 

 

60-89 Days

 

 

Greater than 90 Days (1)(2)

 

 

Total Past Due

 

 

Current

 

 

Total Loans Receivable

 

 

Total Loans > 90 Days and Accruing (1)

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

—

 

 

$

11,516

 

 

$

11,516

 

 

$

1,909,463

 

 

$

1,920,979

 

 

$

11,516

 

Mezzanine loan

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

 

 

4,700

 

 

 

—

 

Preferred equity investments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25,410

 

 

 

25,410

 

 

 

—

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

16,082

 

 

 

16,082

 

 

 

—

 

 

 

16,082

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

$

27,598

 

 

$

27,598

 

 

$

1,939,573

 

 

$

1,967,171

 

 

$

11,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

—

 

 

$

11,516

 

 

$

11,516

 

 

$

1,517,597

 

 

$

1,529,113

 

 

$

11,516

 

Mezzanine loan

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

 

 

4,700

 

 

 

—

 

Preferred equity investment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,555

 

 

 

19,555

 

 

 

—

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

17,000

 

 

 

17,000

 

 

 

—

 

 

 

17,000

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

$

28,516

 

 

$

28,516

 

 

$

1,541,852

 

 

$

1,570,368

 

 

$

11,516

 

 30-59 Days 60-89 Days 
Greater
than
90 Days (1)(2)
 
Total Past Due (3)
 Current 
Total
Loans
Receivable (4)
 
Total Loans > 90 Days and Accruing (2)
At June 30, 2018: 
  
          
Whole loans$—
 $—
 $18,516
 $18,516
 $1,408,140
 $1,426,656
 $11,516
Mezzanine loan—
 —
 —
 —
 4,700
 4,700
 —
Preferred equity investment—
 —
 —
 —
 19,191
 19,191
 —
Legacy CRE loans held for sale—
 —
 18,000
 18,000
 —
 18,000
 —
Total loans$—
 $—
 $36,516
 $36,516
 $1,432,031
 $1,468,547
 $11,516
              
At December 31, 2017: 
  
  
  
  
  
  
Whole loans$—
 $—
 $7,000
 $7,000
 $1,283,150
 $1,290,150
 $—
Legacy CRE loans held for sale11,516
 —
 11,000
 22,516
 39,325
 61,841
 —
Total loans$11,516
 $—
 $18,000
 $29,516
 $1,322,475
 $1,351,991
 $—

(1)Includes one whole loan, with an amortized cost of $7.0 million, that was in default at June 30, 2018 and December 31, 2017.

(1)

(2)

Includes one whole loan, with an amortized cost of $11.5 million, thatwhich was in maturity default at June 30, 2019 and December 31, 2018. The loan is performing with respect to debt service due in accordance with a forbearance agreement at June 30, 2019 and December 31, 2018. During the three and six months ended June 30, 2019, the Company recognized interest income of $165,000 and $330,000, respectively, on this whole loan. During the three and six months ended June 30, 2018, the Company recognized $152,000 and $302,000, respectively, on this whole loan.

(2)

(3)

Includes one and two legacy CRE loans held for saleloan that werewas in default with a total carrying valuesvalue of $18.0$16.1 million and $22.5$17.0 million at June 30, 20182019 and December 31, 2017,2018, respectively.

(4)Excludes direct financing leases of $66,000 and $151,000, net of reserves, at June 30, 2018 and December 31, 2017, respectively.

Impaired Loans

The Company did not have any impaired loans at June 30, 2019 and December 31, 2018.

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24

21

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


Impaired Loans
The following tables show impaired loans as of the dates indicated (in thousands):
 Recorded Balance Unpaid Principal Balance Specific Allowance Average Investment in Impaired Loans Interest Income Recognized
At June 30, 2018:         
Loans without a specific valuation allowance:         
Whole loans$—
 $—
 $—
 $—
 $—
Loans with a specific valuation allowance:         
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—
Total: 
  
  
  
  
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—
          
At December 31, 2017: 
  
  
  
  
Loans without a specific valuation allowance: 
  
  
  
  
Whole loans$—
 $—
 $—
 $—
 $—
Loans with a specific valuation allowance: 
  
  
  
  
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—
Total: 
  
  
  
  
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—

Troubled-Debt Restructurings ("TDR"TDRs")

There were no TDRs for the six months ended June 30, 20182019 and 2017.

2018.

NOTE 7 - INVESTMENT SECURITIES TRADING

Structured notes are CLO debt securities collateralized by syndicated corporate loans. The following table summarizes the Company's structured notes classified as investment securities, trading and carried at fair value (in thousands, except number of securities):
  Number of Securities Amortized Cost Unrealized Gains Unrealized Losses Fair Value
At June 30, 2018:          
Structured notes 1 $1,000
 $—
 $(1,000) $—
           
At December 31, 2017:    
  
  
  
Structured notes 4 $2,891
 $—
 $(2,713) $178
The Company did not sell any investment securities during the three months ended June 30, 2018 and two investment securities resulting in realized losses of $5,000 during the six months ended June 30, 2018. The Company did not sell any investment securities during the three months ended June 30, 2017 and one investment security resulting in a realized gain of $9,000 during the six months ended June 30, 2017.
The Company received payoff proceeds on one investment security resulting in a realized loss of $3,000 during the three and six months ended June 30, 2018.

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25
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

NOTE 8 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The following table summarizes the Company's investment securities available-for-sale, carried at fair value, including those pledged as collateral. As of December 31, 2017, ABS may include, but are not limited to, the Company's investments in securities backed by syndicated corporate loans and other loan obligations. Investment securities available-for-sale are carried at fair valuecollateral (in thousands, except amounts in the footnote):

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value (1)

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS, fixed rate

 

$

118,753

 

 

$

5,833

 

 

$

(738

)

 

$

123,848

 

CMBS, floating rate

 

 

321,341

 

 

 

1,324

 

 

 

(849

)

 

 

321,816

 

Total

 

$

440,094

 

 

$

7,157

 

 

$

(1,587

)

 

$

445,664

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS, fixed rate

 

$

121,487

 

 

$

559

 

 

$

(2,307

)

 

$

119,739

 

CMBS, floating rate

 

 

301,132

 

 

 

253

 

 

 

(2,126

)

 

 

299,259

 

Total

 

$

422,619

 

 

$

812

 

 

$

(4,433

)

 

$

418,998

 

 Amortized Cost Unrealized Gains Unrealized Losses 
Fair Value (1)
At June 30, 2018:       
CMBS$317,414
 $2,347
 $(1,337) $318,424
Total$317,414
 $2,347
 $(1,337) $318,424
        
At December 31, 2017: 
  
  
  
CMBS$210,806
 $1,947
 $(1,174) $211,579
ABS259
 —
 (101) 158
Total$211,065
 $1,947
 $(1,275) $211,737

(1)

(1)

At June 30, 20182019 and December 31, 2017, $255.22018, investment securities available-for-sale with fair values of $420.2 million and $169.6$388.4 million, respectively, of investment securities available-for-sale were pledged as collateral under related financings.

The following table summarizes the estimated payoff dates of the Company's investment securities available-for-sale according to their estimated weighted average life classifications (in(dollars in thousands, except percentages)amounts in footnotes):

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Amortized

Cost (1)

 

 

Fair

Value (1)

 

 

Weighted Average Coupon

 

 

Amortized

Cost (1)

 

 

Fair

Value (1)

 

 

Weighted Average Coupon

 

Less than one year (2)

 

$

91,948

 

 

$

91,924

 

 

5.55%

 

 

$

126,446

 

 

$

126,014

 

 

5.76%

 

Greater than one year and less than five years

 

 

133,745

 

 

 

134,728

 

 

5.53%

 

 

 

98,220

 

 

 

97,083

 

 

5.21%

 

Greater than five years and less than ten years

 

 

214,401

 

 

 

219,012

 

 

4.08%

 

 

 

197,953

 

 

 

195,901

 

 

4.06%

 

Total

 

$

440,094

 

 

$

445,664

 

 

4.76%

 

 

$

422,619

 

 

$

418,998

 

 

4.76%

 

 June 30, 2018 December 31, 2017
 
Amortized Cost
 Fair Value Weighted Average Coupon 
Amortized Cost
 Fair Value Weighted Average Coupon
Less than one year (1)
$22,563
 $22,237
 5.32% $25,475
 $25,275
 5.55%
Greater than one year and less than five years172,565
 173,646
 5.04% 126,273
 127,104
 4.65%
Greater than five years and less than ten years122,286
 122,541
 3.65% 59,317
 59,358
 3.53%
Total$317,414
 $318,424
 4.52% $211,065
 $211,737
 4.45%

(1)

Includes CMBS positions subject to other-than-temporary-impairment that have no stated coupon rates that are excluded from the calculation of the weighted average coupon rate. The positions with greater than one year and less than five years of projected life had amortized costs of $106,000 and $105,000 and no fair values at June 30, 2019 and December 31, 2018, respectively. There were no positions subject to other-than-temporary impairment with projected lives less than one year and greater than five years and less than ten years at June 30, 2019 and December 31, 2018.

(1)

(2)

The Company expects that the payoff dates of these CMBS and ABS will either be extended or that the securities will be paid off in full.

At June 30, 2018,2019, the contractual maturities, which may be different than the estimated weighted average lives reflected in the table above, of the CMBS investment securities available-for-sale range from June 2022December 2024 to November 2059.

August 2061.

The following table summarizes the fair value, gross unrealized losses and number of securities aggregated by investment category and the 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)(dollars in thousands):

 

 

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

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS

 

$

118,681

 

 

$

(1,505

)

 

 

21

 

 

$

1,624

 

 

$

(82

)

 

 

6

 

 

$

120,305

 

 

$

(1,587

)

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS

 

$

329,441

 

 

$

(4,001

)

 

 

49

 

 

$

6,757

 

 

$

(432

)

 

 

7

 

 

$

336,198

 

 

$

(4,433

)

 

 

56

 

 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
At June 30, 2018:                 
CMBS$39,979
 $(883) 13
 $4,072
 $(454) 5
 $44,051
 $(1,337) 18
Total temporarily impaired securities$39,979
 $(883) 13
 $4,072
 $(454) 5
 $44,051
 $(1,337) 18
                  
At December 31, 2017: 
  
    
  
    
  
  
CMBS$49,016
 $(888) 12
 $1,308
 $(286) 4
 $50,324
 $(1,174) 16
ABS158
 (101) 1
 —
 —
 —
 158
 (101) 1
Total temporarily impaired securities$49,174
 $(989) 13
 $1,308
 $(286) 4
 $50,482
 $(1,275) 17

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


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26

22

(Back to Index)


EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


The Company recognized no other-than-temporary impairments on its investment securities available-for-sale for the three and six months ended June 30, 20182019 and 2017.

2018.

The following table summarizes the Company's sales and redemptions of investment securities available-for-sale (in thousands, except positions soldfor the three and redeemed)six months ended June 30, 2019 and 2018 (dollars in thousands):

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

Positions Sold/Redeemed

 

 

Par Amount Sold/Redeemed

 

 

Amortized Cost

 

 

Realized Gain

 

 

Proceeds

 

 

Positions Sold/Redeemed

 

 

Par Amount Sold/Redeemed

 

 

Amortized Cost

 

 

Realized Gain (Loss)

 

 

Proceeds

 

June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS

 

 

1

 

 

$

634

 

 

$

634

 

 

$

4

 

 

$

638

 

 

 

1

 

 

$

634

 

 

$

634

 

 

$

4

 

 

$

638

 

June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABS

 

 

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

 

2

 

 

$

411

 

 

$

265

 

 

$

(217

)

 

$

48

 

 For the Three Months Ended For the Six Months Ended
 Positions Sold/Redeemed Par Amount Sold/Redeemed Amortized Cost 
Realized Gain (Loss) (1)
 
Proceeds (2)
 Positions Sold/Redeemed Par Amount Sold/Redeemed Amortized Cost 
Realized Gain (Loss) (1)
 
Proceeds (2)
June 30, 2018:                   
ABS0
 $—
 $—
 $—
 $—
 2
 $411
 $265
 $(217) $48
CMBS0
 —
 —
 —
 —
 0
 —
 —
 —
 —
Total—
 $—
 $—
 $—
 $—
 2
 $411
 $265
 $(217) $48
                    
June 30, 2017:                   
ABS2
 $9,605
 $7,475
 $1,792
 $7,235
 2
 $9,605
 $7,475
 $1,792
 $7,235
Total2
 $9,605
 $7,475
 $1,792
 $7,235
 2
 $9,605
 $7,475
 $1,792
 $7,235
(1)The realized gains for the three and six months ended June 30, 2017 exclude foreign currency exchange losses that were hedged with foreign currency forward contracts.
(2)
Includes unsettled proceeds of $3.1 million, received in July 2017, from the sale of one ABS during the three and six months ended June 30, 2017.

NOTE 98 - INVESTMENTS IN UNCONSOLIDATED ENTITIES

The following table summarizes the Company's investments in unconsolidated entities at June 30, 20182019 and December 31, 20172018 and equity in earnings (losses) of unconsolidated entities for the three and six months ended June 30, 2019 and 2018 and 2017 (in(dollars in thousands, except percentages and amountsamount in the footnotes):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in Earnings (Losses) of Unconsolidated Entities

 

 

 

Ownership % at

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

2019

 

 

June 30,

2019

 

 

December 31,

2018

 

 

June 30,

2019

 

 

June 30,

2018

 

 

June 30,

2019

 

 

June 30,

2018

 

Pelium Capital (1)

 

 

—

%

 

$

—

 

 

$

—

 

 

$

—

 

 

$

75

 

 

$

—

 

 

$

(230

)

RCM Global

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6

)

 

 

—

 

 

 

7

 

Subtotal

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

69

 

 

 

—

 

 

 

(223

)

Investment in RCT I and II (2)

 

 

3.0

%

 

 

1,548

 

 

 

1,548

 

 

 

26

 

 

 

24

 

 

 

52

 

 

 

46

 

Total

 

 

 

 

 

$

1,548

 

 

$

1,548

 

 

$

26

 

 

$

93

 

 

$

52

 

 

$

(177

)

       Equity in Earnings (Losses) of Unconsolidated Entities
       For the Three Months Ended For the Six Months Ended
 Ownership % at June 30, 2018 June 30,
2018		 December 31,
2017		 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
       
Pelium Capital (1)
80.2% $154
 $10,503
 $75
 $82
 $(230) $(77)
RCM Global63.8% 80
 —
 (6) (166) 7
 (170)
RRE VIP Borrower, LLC (2)
—% —
 —
 —
 37
 —
 37
Pearlmark Mezzanine Realty Partners IV, L.P. (3)
—% —
 —
 —
 (193) —
 165
Investment in LCC Preferred Stock (4)
—% —
 —
 —
 122
 —
 288
Subtotal  234
 10,503
 69
 (118) (223) 243
Investment in RCT I and II (5)
3.0% 1,548
 1,548
 (806) (663) (1,530) (1,300)
Total  $1,782
 $12,051
 $(737) $(781) $(1,753) $(1,057)

(1)

(1)

During the six months ended June 30, 2018, and 2017, the Company received distributions of $10.2 million and $13.6 million, respectively, on its investment in Pelium Capital.Capital Partners, L.P. ("Pelium Capital").

(2)

(2)The Company sold its investment in RRE VIP Borrower in December 2014. Earnings for

During the three and six months ended June 30, 2017 are related to insurance premium refunds with respect to the underlying sold properties in the portfolio.

(3)The Company sold its investment in Pearlmark Mezzanine Reality Partners IV, L.P. ("Pearlmark Mezz") in May 2017.
(4)The Company's investment in LEAF Commercial Capital, Inc. ("LCC") liquidated in July 2017 as a result of the sale of LCC.
(5)During the six months ended June 30,2019 and 2018, and 2017, distributionsdividends from the trustsinvestments in RCT I and RCT II's common shares are recorded in interest expenseother revenue. See Note 9 for the disclosures on the Company's consolidated statements of operations as the investments are accounted for under the cost method.associated unsecured junior subordinated debentures.

During the six months ended June 30,

In 2018, investments held by Pelium Capital and RCM Global LLC were substantiallyfully liquidated.


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27

23

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


NOTE 109 - 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 and trust preferred securities issuances. Certain information with respect to the Company's borrowings is summarized in the following table (in(dollars in thousands, except percentages and amounts in footnotes):

 

 

Principal Outstanding

 

 

Unamortized Issuance Costs and Discounts

 

 

Outstanding Borrowings

 

 

Weighted Average Borrowing Rate

 

 

Weighted Average Remaining Maturity

 

Value of Collateral

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

XAN 2018-RSO6 Senior Notes

 

$

397,280

 

 

$

3,629

 

 

$

393,651

 

 

 

3.49

%

 

16.0 years

 

$

514,052

 

XAN 2019-RSO7 Senior Notes

 

 

575,811

 

 

 

6,079

 

 

 

569,732

 

 

 

3.69

%

 

16.8 years

 

 

687,168

 

Unsecured junior subordinated debentures

 

 

51,548

 

 

 

—

 

 

 

51,548

 

 

 

6.54

%

 

17.2 years

 

 

—

 

4.50% Convertible Senior Notes

 

 

143,750

 

 

 

11,866

 

 

 

131,884

 

 

 

4.50

%

 

3.1 years

 

 

—

 

8.00% Convertible Senior Notes

 

 

21,182

 

 

 

124

 

 

 

21,058

 

 

 

8.00

%

 

199 days

 

 

—

 

CRE - term repurchase facilities (1)

 

 

401,147

 

 

 

4,055

 

 

 

397,092

 

 

 

4.45

%

 

1.3 years

 

 

544,674

 

Trust certificates - term repurchase facility (2)

 

 

42,102

 

 

 

199

 

 

 

41,903

 

 

 

6.34

%

 

1.2 years

 

 

113,453

 

CMBS - short term repurchase agreements (3)

 

 

328,397

 

 

 

—

 

 

 

328,397

 

 

 

3.57

%

 

20 days

 

 

437,731

 

Total

 

$

1,961,217

 

 

$

25,952

 

 

$

1,935,265

 

 

 

4.02

%

 

9.2 years

 

$

2,297,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal Outstanding

 

 

Unamortized Issuance Costs and Discounts

 

 

Outstanding Borrowings

 

 

Weighted Average Borrowing Rate

 

 

Weighted Average Remaining Maturity

 

Value of Collateral

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RCC 2017-CRE5 Senior Notes

 

$

109,250

 

 

$

1,121

 

 

$

108,129

 

 

 

3.76

%

 

15.6 years

 

$

228,031

 

XAN 2018-RSO6 Senior Notes

 

 

397,452

 

 

 

4,536

 

 

 

392,916

 

 

 

3.55

%

 

16.5 years

 

 

514,225

 

Unsecured junior subordinated debentures

 

 

51,548

 

 

 

—

 

 

 

51,548

 

 

 

6.61

%

 

17.7 years

 

 

—

 

4.50% Convertible Senior Notes

 

 

143,750

 

 

 

13,504

 

 

 

130,246

 

 

 

4.50

%

 

3.6 years

 

 

—

 

8.00% Convertible Senior Notes

 

 

21,182

 

 

 

238

 

 

 

20,944

 

 

 

8.00

%

 

1.0 year

 

 

—

 

CRE - term repurchase facilities (1)

 

 

512,716

 

 

 

5,269

 

 

 

507,447

 

 

 

4.47

%

 

2.0 years

 

 

696,215

 

Trust certificates - term repurchase facilities (2)

 

 

47,451

 

 

 

279

 

 

 

47,172

 

 

 

6.41

%

 

1.7 years

 

 

118,780

 

CMBS - short term repurchase agreements (3)

 

 

295,821

 

 

 

—

 

 

 

295,821

 

 

 

3.63

%

 

19 days

 

 

395,868

 

Total

 

$

1,579,170

 

 

$

24,947

 

 

$

1,554,223

 

 

 

4.21

%

 

6.9 years

 

$

1,953,119

 

 Principal Outstanding Unamortized Issuance Costs and Discounts Outstanding Borrowings Weighted Average Borrowing Rate Weighted Average Remaining Maturity Value of Collateral
At June 30, 2018:           
RCC 2015-CRE3 Senior Notes$16,592
 $142
 $16,450
 6.07% 13.7 years $80,632
RCC 2015-CRE4 Senior Notes8,644
 132
 8,512
 5.07% 14.1 years 97,827
RCC 2017-CRE5 Senior Notes217,954
 2,918
 215,036
 3.12% 16.1 years 336,734
XAN 2018-RSO6 Senior Notes397,452
 5,446
 392,006
 3.19% 17.0 years 514,225
Unsecured junior subordinated debentures51,548
 —
 51,548
 6.28% 18.2 years —
4.50% Convertible Senior Notes143,750
 15,107
 128,643
 4.50% 4.1 years —
6.00% Convertible Senior Notes70,453
 425
 70,028
 6.00% 154 days —
8.00% Convertible Senior Notes21,182
 352
 20,830
 8.00% 1.5 years —
CRE - term repurchase facilities (1)
160,755
 1,968
 158,787
 4.34% 43 days 255,334
Trust certificates - term repurchase facilities (2)
74,134
 417
 73,717
 6.58% 1.6 years 207,901
CMBS - short term repurchase agreements (3)
184,089
 —
 184,089
 3.48% 48 days 262,654
Total$1,346,553
 $26,907
 $1,319,646
 4.07% 9.2 years $1,755,307
 Principal Outstanding Unamortized Issuance Costs and Discounts Outstanding Borrowings Weighted Average Borrowing Rate Weighted Average Remaining Maturity Value of Collateral
At December 31, 2017:   
        
RCC 2015-CRE3 Senior Notes$85,788
 $396
 $85,392
 4.50% 14.2 years $149,828
RCC 2015-CRE4 Senior Notes90,883
 407
 90,476
 3.65% 14.6 years 180,066
RCC 2017-CRE5 Senior Notes244,280
 3,493
 240,787
 2.51% 16.6 years 369,534
Unsecured junior subordinated debentures51,548
 —
 51,548
 5.49% 18.7 years —
4.50% Convertible Senior Notes143,750
 16,626
 127,124
 4.50% 4.6 years —
6.00% Convertible Senior Notes70,453
 928
 69,525
 6.00% 335 days —
8.00% Convertible Senior Notes21,182
 466
 20,716
 8.00% 2.0 years —
CRE - term repurchase facilities (1)
292,511
 1,013
 291,498
 3.82% 222 days 432,125
Trust certificates - term repurchase facilities (2)
76,714
 570
 76,144
 5.97% 2.1 years 214,375
CMBS - short term repurchase agreements (3)
82,647
 —
 82,647
 2.79% 14 days 131,522
CMBS - term repurchase facilities (4)
27,628
 —
 27,628
 3.05% 121 days 38,060
Total$1,187,384
 $23,899
 $1,163,485
 4.00% 7.3 years $1,515,510

(1)

(1)

Principal outstanding includes accrued interest payable of $276,000$605,000 and $534,000$911,000 at June 30, 20182019 and December 31, 2017,2018, respectively.

(2)

(2)

Principal outstanding includes accrued interest payable of $203,000$96,000 and $203,000$118,000 at June 30, 20182019 and December 31, 2017,2018, respectively.

(3)

(3)

Principal outstanding includes accrued interest payable of $672,000$398,000 and $279,000$773,000 at June 30, 20182019 and December 31, 2017,2018, respectively.

(4)Principal outstanding includes accrued interest payable of $46,000 at December 31, 2017.

(Back to Index)
28
(Back to Index)

EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

Securitizations

The following table sets forth certain information with respect to the Company's consolidated securitizations at June 30, 20182019 (in thousands):

 

 

Closing Date

 

Maturity Date

 

End of Designated Principal Reinvestment

Period (1)

 

Total Note Paydowns Received from Closing Date through June 30, 2019

 

RCC 2017-CRE5 (2)

 

July 2017

 

July 2034

 

July 2020

 

$

251,449

 

XAN 2018-RSO6

 

June 2018

 

June 2035

 

December 2020

 

$

172

 

XAN 2019-RSO7

 

April 2019

 

April 2036

 

April 2022

 

$

—

 

Securitization Closing Date Maturity Date 
End of Designated Principal Reinvestment Period (1)
 Total Note Paydowns Received from Closing Date through June 30, 2018
RCC 2015-CRE3 February 2015 March 2032 February 2017 $265,535
RCC 2015-CRE4 August 2015 August 2032 September 2017 $215,091
RCC 2017-CRE5 July 2017 July 2034 July 2020 $33,495
XAN 2018-RSO6 June 2018 June 2035 December 2020 $—

(1)

(1)

The designated principal reinvestment period is the period wherein which principal payments received by eachrepayments can be utilized to purchase loans held outside of the respective securitization may be designated bythat represent the Company to purchase funding participationsfunded commitments of existing collateral originally underwritten atin the close of eachrespective securitization whichthat were or would benot funded outsideas of the deal structure.date the respective securitization was closed.

(2)

The remaining outstanding balance of third-party owned notes of Resource Capital Corp. 2017-CRE5, Ltd. ("RCC 2017-CRE5") were paid off in May 2019.

(Back to Index)

24

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

The investments held by the Company's securitizations collateralize the securitizations' borrowings and, as a result, are not available to the Company, its creditors, or stockholders. All senior notes of the securitizations held by the Company at June 30, 20182019 and December 31, 2017 are2018 were eliminated in consolidation.

RCC 2015-CRE3

In August 2018, a subsidiary of the Company initiated the optional redemption feature of RCC 2015-CRE3.
RCC 2015-CRE4
2017-CRE5

In July 2018, a subsidiary of the Company exercised the optional redemption feature of RCC 2015-CRE4, and all of the outstanding senior notes were paid off from the payoff proceeds of certain of the securitizations's assets.

XAN 2018-RSO6
In June 2018,2017, the Company closed XAN 2018-RSO6,RCC 2017-CRE5, a $514.2$376.7 million CRE securitization transaction that provided financing for transitional CRE loans. In May 2019, the Company paid off all of the outstanding, third-party owned senior notes from the payoff proceeds of certain of the securitization's assets. In July 2019, the Company exercised the optional redemption feature of the securitization.

XAN 2018-RSO6 offered approximately $405.02019-RSO7

In April 2019, the Company closed Exantas Capital Corp. 2019-RSO7, Ltd. ("XAN 2019-RSO7"), a $687.2 million CRE debt securitization transaction that provided financing for CRE loans. XAN 2019-RSO7 issued a total of $585.8 million of seniornon-recourse, floating-rate notes at par, to unrelated investors. A subsidiary of which RCC Real EstateRE purchased 16.7%$10.0 million, or approximately 20%, of the Class D senior notes andnotes. Additionally, RCC RE purchased 100% of the Class E and Class F notes. In addition,notes and a subsidiary of RCC Real EstateRE purchased an equity interest representing 100% of the outstanding preference shares. The Class E and Class F notes purchased by a subsidiary of RCC Real EstateRE are subordinated in right of payment to all other senior notes issued by XAN 2018-RSO6,2019-RSO7, but are senior in right of the payment to the preference shares. The equity interest ispreference shares are subordinated in right of payment to all other securities issued by XAN 2018-RSO6.

2019-RSO7.

At closing, the senior notes issued to investors consisted of the following classes: (i) $290.5$390.0 million of Class A notes bearing interest at one-month LIBOR plus 0.83%1.00%, increasing to 1.08%1.25% in May 2023;April 2024; (ii) $39.2$70.4 million of Class A-S notes bearing interest at one-month LIBOR plus 1.50%, increasing to 1.75% in April 2024; (iii) $33.5 million of Class B notes bearing interest at one-month LIBOR plus 1.15%1.70%, increasing to 1.65%2.20% in July 2023; (iii) $30.2May 2024; (iv) $42.9 million of Class C notes bearing interest at one-month LIBOR plus 1.85%2.05%, increasing to 2.35%2.55% in July 2023; (iv) $45.0June 2024; and (v) $49.0 million of Class D notes bearing interest at one-month LIBOR plus 2.50%2.70%, increasing to 3.00%3.20% in September 2023; (v) $18.0 million of Class E notes bearing interest at one-month LIBOR plus 4.00%; and (vi) $21.9 million of Class F notes bearing interest at one-month LIBOR plus 5.00%.

July 2024.

All of the notes issued mature in June 2035,April 2036, although the Company has the right to call the notes any timeanytime after July 2020 until maturity.


May 2021. Principal repayments received, after closing and ending in April 2022, may be used to purchase funding participations with respect to existing collateral held outside of the securitization.

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29

25

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


Repurchase and Credit Facilities

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

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Outstanding Borrowings (1)

 

 

Value of Collateral

 

 

Number of Positions as Collateral

 

 

Weighted Average Interest Rate

 

 

Outstanding Borrowings (1)

 

 

Value of Collateral

 

 

Number of Positions as Collateral

 

 

Weighted Average Interest Rate

 

CRE - Term Repurchase Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo Bank, N.A. (2)

 

$

247,517

 

 

$

335,812

 

 

 

32

 

 

 

4.37

%

 

$

154,478

 

 

$

226,530

 

 

 

13

 

 

 

4.33

%

Morgan Stanley Bank, N.A. (3)

 

 

37,137

 

 

 

62,665

 

 

 

3

 

 

 

5.03

%

 

 

37,113

 

 

 

62,457

 

 

 

3

 

 

 

5.09

%

Barclays Bank PLC (4)

 

 

65,628

 

 

 

84,209

 

 

 

8

 

 

 

4.59

%

 

 

240,416

 

 

 

308,389

 

 

 

11

 

 

 

4.51

%

JPMorgan Chase Bank, N.A. (5)

 

 

46,810

 

 

 

61,988

 

 

 

3

 

 

 

4.22

%

 

 

75,440

 

 

 

98,839

 

 

 

5

 

 

 

4.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust Certificates - Term Repurchase Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSO Repo SPE Trust 2017 (6)

 

 

41,903

 

 

 

113,453

 

 

 

2

 

 

 

6.34

%

 

 

47,172

 

 

 

118,780

 

 

 

2

 

 

 

6.41

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS - Short-Term Repurchase Agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBC Capital Markets, LLC

 

 

216,167

 

 

 

276,512

 

 

 

30

 

 

 

3.55

%

 

 

246,476

 

 

 

313,644

 

 

 

33

 

 

 

3.64

%

JP Morgan Securities LLC

 

 

89,560

 

 

 

118,345

 

 

 

18

 

 

 

3.57

%

 

 

42,040

 

 

 

73,066

 

 

 

13

 

 

 

3.57

%

Deutsche Bank Securities Inc.

 

 

22,670

 

 

 

42,874

 

 

 

5

 

 

 

3.75

%

 

 

7,305

 

 

 

9,158

 

 

 

5

 

 

 

3.98

%

Total

 

$

767,392

 

 

$

1,095,858

 

 

 

 

 

 

 

 

 

 

$

850,440

 

 

$

1,210,863

 

 

 

 

 

 

 

 

 

 June 30, 2018 December 31, 2017
 
Outstanding Borrowings (1)
  Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate 
Outstanding Borrowings (1)
  Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate
CRE - Term Repurchase Facilities               
Wells Fargo Bank, N.A. (2)
$92,621
 $146,705
 8 4.09% $179,347
 $268,003
 19 3.68%
Morgan Stanley Bank, N.A. (3)
67,947

108,629

5
4.68%
112,151

164,122

9
4.05%
Barclays Bank PLC (4)
(1,782) —
 — —% —
 —
 — —%
                
CMBS - Term Repurchase Facilities               
Wells Fargo Bank, N.A.—
 —
 — —% 12,272
 14,984
 8 2.45%
Deutsche Bank AG (7)
—
 —
 — —% 15,356
 23,076
 14 3.53%
                
Trust Certificates - Term Repurchase Facilities               
RSO Repo SPE Trust 2015 (5)
26,624
 89,121
 2 7.57% 26,548
 89,121
 2 6.98%
RSO Repo SPE Trust 2017 (6)
47,093
 118,780
 2 6.02% 49,596
 125,254
 2 5.43%
                
CMBS - Short-Term Repurchase Agreements               
RBC Capital Markets, LLC156,643
 207,291
 22 3.48% 72,131
 97,745
 6 2.77%
JP Morgan Securities LLC13,780
 38,231
 5 3.48% 10,516
 33,777
 2 2.93%
Deutsche Bank Securities Inc. (7)
13,667
 17,132
 11 3.43% —
 —
 — —%
Total$416,593
 $725,889
     $477,917
 $816,082
    

(1)

(1)

Outstanding borrowings includesinclude accrued interest payable.

(2)

(2)

Includes $59,000$1.1 million and $565,000 of deferred debt issuance costs at June 30, 2018 and December 31, 2017, respectively.

(3)Includes $127,000 and $448,000 of deferred debt issuance costs at June 30, 2018 and December 31, 2017, respectively.
(4)Includes $1.8$1.6 million of deferred debt issuance costs at June 30, 20182019 and no deferred debt issuance costs at December 31, 2017.2018, respectively.

(3)

(5)

Includes $59,000$137,000 and $133,000$167,000 of deferred debt issuance costs at June 30, 20182019 and December 31, 2017,2018, respectively.

(4)

(6)

Includes $263,000$1.1 million and $320,000$1.5 million of deferred debt issuance costs at June 30, 20182019 and December 31, 2017,2018, respectively.

(5)

(7)In May 2018, the facility's term was rolled from a one-year basis, with extensions

Includes $1.6 million and $2.0 million of deferred debt issuance costs at the buyer's option, to a three-month basis. At June 30, 2019 and December 31, 2018, the facility was reclassified from CMBS - term repurchase facilities to CMBS - short term repurchase agreements.respectively.


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(6)

Includes $146,000 and $204,000 of deferred debt issuance costs at June 30, 2019 and December 31, 2018, respectively.

30
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

The following table shows information about the amount at risk under the repurchase facilities at June 30, 2018 (in thousands, except percentages)2019 (dollars in thousands):

 

 

Amount at Risk (1)

 

 

Weighted Average Remaining Maturity

 

Weighted Average Interest Rate

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

CRE - Term Repurchase Facilities

 

 

 

 

 

 

 

 

 

 

Wells Fargo Bank, N.A.

 

$

88,544

 

 

1.1 years

 

 

4.37

%

Morgan Stanley Bank, N.A.

 

$

25,690

 

 

72 days

 

 

5.03

%

Barclays Bank PLC

 

$

17,739

 

 

1.8 years

 

 

4.59

%

JPMorgan Chase Bank, N.A.

 

$

13,631

 

 

2.3 years

 

 

4.22

%

Trust Certificates - Term Repurchase Facility

 

 

 

 

 

 

 

 

 

 

RSO Repo SPE Trust 2017

 

$

71,440

 

 

1.2 years

 

 

6.34

%

CMBS - Short-Term Repurchase Agreements

 

 

 

 

 

 

 

 

 

 

RBC Capital Markets, LLC

 

$

60,817

 

 

20 days

 

 

3.55

%

JP Morgan Securities LLC

 

$

29,118

 

 

12 days

 

 

3.57

%

Deutsche Bank Securities Inc.

 

$

20,295

 

 

49 days

 

 

3.75

%

 
Amount at Risk (1)
 Weighted Average Remaining
Maturity		 Weighted Average
Interest Rate
At June 30, 2018:     
CRE - Term Repurchase Facilities     
Wells Fargo Bank, N.A.$54,677
 21 days 4.09%
Morgan Stanley Bank, N.A.$41,066
 72 days 4.68%
      
Trust Certificates - Term Repurchase Facilities     
RSO Repo SPE Trust 2015$62,515
 143 days 7.57%
RSO Repo SPE Trust 2017$71,438
 2.2 years 6.02%
      
CMBS - Short-Term Repurchase Agreements     
RBC Capital Markets, LLC$51,135
 48 days 3.48%
JP Morgan Securities LLC$24,535
 46 days 3.48%
Deutsche Bank Securities Inc.$3,510
 56 days 3.43%

(1)

(1)

Equal to the total of the estimated fair value of securities or loans sold and accrued interest receivable, minus the total of the repurchase agreement liabilities and accrued interest payable.

The Company iswas in compliance with all covenants in each of the respective agreements at June 30, 2018.

2019.

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26

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

CRE - Term Repurchase Facilities

In February 2012, aJuly 2018, the Company's wholly-owned subsidiary of the Company entered into aan amended and restated master repurchase and securities agreement (the "2012"2018 Facility") with Wells Fargo Bank, N.A. ("Wells Fargo") to finance the origination and acquisition of CRE loans. In JulyMay 2019, the Company executed an amendment of the 2018 Facility, amending certain terms to add an available loan servicer and to update references in connection with an amended fee letter.

Trust Certifications - Term Repurchase Facility

In September 2017, the Company's wholly-owned subsidiary entered into an amendeda repurchase and restated master repurchasesecurities agreement (the "2018(the "2017 Term Repurchase Trust Facility"), in exchange for an extension fee and other reasonable costs, that maintained with RSO Repo SPE Trust 2017. In July 2019, the $400.0 million maximum facility amount and extendedCompany paid off the termoutstanding balance of the facility to July 2020 with three one-year extension options exercisable at the Company's discretion. The 20182017 Term Repurchase Trust Facility charges interest rates of one-month LIBOR plus spreads from 1.75% to 2.50%.

The 2018 Facility, consistent with the 2012 Facility, contains customary events of default. The remedies for such events of default are also customary for this type of transaction and include the acceleration of all obligations of the Company to repay the purchase price for purchased assets.
The 2018 Facility, consistent with the 2012 Facility, also contains margin call provisions relating to a decline in the market value of a security. Under these circumstances, Wells Fargo may require the Company to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.
Consistent with the guaranty agreement dated February 2012, the Company continues to guarantee the payment and performance of its subsidiaries' obligations to the lender through an amended and restated guaranty agreement dated in July 2018 (the "2018 Guaranty"), including all reasonable expenses that are incurred by the lender in connection with the enforcementredemption of the 2018 Facility. The 2018 Guaranty includes covenants that, among other requirements, stipulate certain thresholds, including: required liquidity, required capital, total indebtedness to total equity, EBITDA to interest expense, and total indebtedness.

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31
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

RCC 2017-CRE5.

Contractual maturity dates of the Company's borrowings' principal outstanding by category and year are presented in the table below at June 30, 2018 (in thousands):

 

 

Total

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023 and Thereafter

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE securitizations

 

$

973,091

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

973,091

 

Unsecured junior subordinated debentures

 

 

51,548

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

51,548

 

4.50% Convertible Senior Notes

 

 

143,750

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

143,750

 

 

 

—

 

8.00% Convertible Senior Notes

 

 

21,182

 

 

 

—

 

 

 

21,182

 

 

 

—

 

 

 

—

 

 

 

—

 

Repurchase and credit facilities

 

 

771,646

 

 

 

365,671

 

 

 

290,750

 

 

 

115,225

 

 

 

—

 

 

 

—

 

Total

 

$

1,961,217

 

 

$

365,671

 

 

$

311,932

 

 

$

115,225

 

 

$

143,750

 

 

$

1,024,639

 

 Total 2018 2019 2020 2021 2022 and Thereafter
At June 30, 2018:           
CRE securitizations$640,642
 $—
 $—
 $—
 $—
 $640,642
Unsecured junior subordinated debentures51,548
 —
 —
 —
 —
 51,548
4.50% Convertible Senior Notes143,750
 —
 —
 —
 —
 143,750
6.00% Convertible Senior Notes70,453
 70,453
 —
 —
 —
 —
8.00% Convertible Senior Notes21,182
 —
 —
 21,182
 —
 —
Repurchase and credit facilities418,978
 371,526
 —
 47,452
 —
 —
Total$1,346,553
 $441,979
 $—
 $68,634
 $—
 $835,940

NOTE 1110 - SHARE ISSUANCE AND REPURCHASE

In JanuaryMarch 2018, the Company redeemed all shares of its 8.50% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") and 930,983remaining shares of its 8.25% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") at redemption prices of $25.00 per share plus accrued but unpaid distributions. The total redemption cost of $50.0 million was reported as a preferred stock redemption liability on the consolidated balance sheet at December 31, 2017.

In March 2018, the Company redeemed all remaining shares of its Series B Preferred Stock at a redemption price of $25.00 per share, or $115.3 million, plus accrued but unpaid distributions, resulting in a preferred stock redemption charge of $7.5 million on the consolidated statement of operations for the six months ended June 30, 2018.

On or after July 30, 2024, the Company may, at its option, redeem its 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock"), in whole or in 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. Effective July 30, 2024 and thereafter, the Company will pay cumulative distributions on the Series C Preferred Stock at a floating rate equal to three-month LIBOR plus 5.927% per annum based on the $25.00 liquidation preference, provided that such floating rate shall not be less than the initial rate of 8.625% at any date of determination.

At June 30, 2019, the Company had 4.8 million shares of Series C Preferred Stock outstanding, with a weighted average issuance price, excluding offering costs, of $25.00.

Under a share repurchase plan authorized by the Board in August 2015, the Company was authorized to repurchase up to $50.0 million of its outstanding equity and debt securities. In March 2016, the Company's Board approved a new securities repurchase program for up to $50.0 million of its outstanding securities, which replaced the August 2015 repurchase plan. During the three and six months ended June 30, 20182019 and 2017,2018, the Company did not repurchase any shares of its common or preferred stock through this program. At June 30, 2018,2019, $44.9 million remains available under this repurchase plan.

At

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27

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

NOTE 11 - SHARE-BASED COMPENSATION

In June 30, 2018,2019, the Company had 4.8 millionCompany's shareholders approved the Exantas Capital Corp. Second Amended and Restated Omnibus Equity Compensation Plan (the "June 2019 Plan"), which amended the May 2014 plan. The June 2019 Plan (i) increased the number of shares of Series C Preferred Stock outstanding, with a weighted averageauthorized for issuance price, excluding offering costs, of $25.00.

NOTE 12 - SHARE-BASED COMPENSATION
from 3,275,000 shares to 4,775,000 shares; (ii) extended the expiration date from May 2024 to June 2029; and (iii) made other clarifying and updating amendments.

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

 

 

Non-Employee Directors

 

 

Non-

Employees (1)

 

 

Former Employees

 

 

Total

 

Unvested shares at January 1, 2019

 

 

30,234

 

 

 

386,628

 

 

 

5,809

 

 

 

422,671

 

Issued

 

 

24,650

 

 

 

196,198

 

 

 

—

 

 

 

220,848

 

Vested

 

 

(27,032

)

 

 

(175,454

)

 

 

(5,809

)

 

 

(208,295

)

Forfeited

 

 

—

 

 

 

(8,453

)

 

 

—

 

 

 

(8,453

)

Unvested shares at June 30, 2019

 

 

27,852

 

 

 

398,919

 

 

 

—

 

 

 

426,771

 

  Non-Employee Directors 
Non-Employees (1)
 Former Employees Total
Unvested shares at January 1, 2018 34,565
 419,541
 28,967
 483,073
Issued 27,032
 209,355
 —
 236,387
Vested (29,947) (237,039) (23,158) (290,144)
Forfeited —
 (1,725) —
 (1,725)
Unvested shares at June 30, 2018 31,650
 390,132
 5,809
 427,591

(1)

(1)

Non-employees are employees of C-III or Resource America.America, Inc. ("Resource America").


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32
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

The Company is required to value any unvested shares of restricted common stock granted to non-employees at the current market price. 

The fair valuesvalue at grant date of the shares of restricted common stock granted to non-employees during the six months ended June 30, 2019 and 2018 and 2017 werewas $2.0 million and $2.7 million, respectively.million. The fair values at grant date of shares of restricted common stock issued to the Company's eight non-employee directors during the six months ended June 30, 2019 and 2018 were $265,000 and 2017 were $255,000, and $290,000, respectively.

At June 30, 2018,2019, the total unrecognized restricted common stock expense for non-employees was $2.2$2.1 million, with a weighted average amortization period remaining of 2.2 years. At December 31, 2017,2018, the total unrecognized restricted common stock expense for non-employees was $1.4$1.1 million, with a weighted average amortization period remaining of 2.01.8 years.

The following table summarizes restricted common stock grants during the six months ended June 30, 2018:2019:

Grant Date

 

Shares

 

 

Vesting per Year

 

 

Vesting Date(s)

January 22, 2019

 

 

196,198

 

 

33%

 

 

January 22, 2020, January 22, 2021 and January 22, 2022

February 1, 2019

 

 

3,308

 

 

100%

 

 

February 1, 2020

March 8, 2019

 

 

14,108

 

 

100%

 

 

March 8, 2020

June 3, 2019

 

 

3,164

 

 

100%

 

 

June 3, 2020

June 6, 2019

 

 

3,170

 

 

100%

 

 

June 6, 2020

June 19, 2019

 

 

900

 

 

100%

 

 

June 19, 2020

Date Shares Vesting per Year Vesting Date(s)
January 18, 2018 209,355 33.3% January 18, 2019, January 18, 2020 and January 18, 2021
February 1, 2018 3,727 100.0% February 1, 2019
March 8, 2018 16,302 100.0% March 8, 2019
June 1, 2018 3,493 100.0% June 1, 2019
June 6, 2018 3,510 100.0% June 6, 2019

The following table summarizes the status of the Company's vested stock options at June 30, 2018:2019:

Vested Options

 

Number of Options

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (in years)

 

 

Aggregate Intrinsic Value (in thousands)

 

Vested at January 1, 2019

 

 

10,000

 

 

$

25.60

 

 

 

 

 

 

 

 

 

Vested

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

Exercised

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

Forfeited

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

Expired

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

Vested at June 30, 2019

 

 

10,000

 

 

$

25.60

 

 

 

1.88

 

 

$

—

 

Vested Options Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands)
Vested at January 1, 2018 10,000
 $25.60
    
Vested —
 —
    
Exercised —
 —
    
Forfeited —
 —
    
Expired —
 —
    
Vested at June 30, 2018 10,000
 $25.60
 2.88 $—

There were no options granted during the six months ended June 30, 20182019 or 2017.2018. The outstanding stock options have contractual terms of ten years and will expire in 2021.

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28

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

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

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Restricted shares granted to non-employees (1)

 

$

338

 

 

$

587

 

 

$

949

 

 

$

1,481

 

Restricted shares granted to non-employee directors

 

 

74

 

 

 

72

 

 

 

146

 

 

 

145

 

Total

 

$

412

 

 

$

659

 

 

$

1,095

 

 

$

1,626

 

  For the Three Months Ended For the Six Months Ended
  June 30, June 30,
  2018 2017 2018 2017
Restricted shares granted to non-employees (1)
 $587
 $675
 $1,481
 $1,390
Restricted shares granted to non-employee directors 72
 59
 145
 132
Total equity compensation expense (2)
 $659
 $734
 $1,626
 $1,522

(1)

(1)

Non-employees are employees of C-III or Resource America.

(2)Amounts exclude equity compensation expense for employees of PCM, which is included in net income (loss) from discontinued operations, net of tax on the consolidated statements of operations during the three and six months ended June 30, 2017.

Under the Company's Third Amended and Restated Management Agreement ("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, recorded in management feefees on the consolidated statements of operations. During the three and six months ended June 30, 2019, the Company incurred incentive compensation payable to the Manager of $165,000, of which $124,000 was payable in cash and $41,000, representing 3,615 shares, was payable in common stock. The Manager received no incentive management feecompensation for the three and six months ended June 30, 2018 or 2017.

2018.

All equity awards, apart from incentive compensation under the Management Agreement, are discretionary in nature and subject to approval by the compensation committee of the Company's Board.


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33
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

NOTE 1312 - EARNINGS PER SHARE

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

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income from continuing operations

 

$

9,003

 

 

$

9,189

 

 

$

17,173

 

 

$

9,052

 

Net income allocated to preferred shares

 

 

(2,587

)

 

 

(2,587

)

 

 

(5,175

)

 

 

(7,797

)

Consideration paid in excess of carrying value of preferred shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(7,482

)

Net income (loss) from continuing operations allocable to common shares

 

 

6,416

 

 

 

6,602

 

 

 

11,998

 

 

 

(6,227

)

Net loss from discontinued operations, net of tax

 

 

(112

)

 

 

(450

)

 

 

(149

)

 

 

(203

)

Net income (loss) allocable to common shares

 

$

6,304

 

 

$

6,152

 

 

$

11,849

 

 

$

(6,430

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding - basic

 

 

31,438,247

 

 

 

31,215,598

 

 

 

31,409,063

 

 

 

31,163,859

 

Effect of dilutive securities - unvested restricted stock

 

 

217,933

 

 

 

186,412

 

 

 

184,983

 

 

 

—

 

Weighted average number of common shares outstanding - diluted

 

 

31,656,180

 

 

 

31,402,010

 

 

 

31,594,046

 

 

 

31,163,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.20

 

 

$

0.21

 

 

$

0.38

 

 

$

(0.20

)

Discontinued operations

 

 

—

 

 

 

(0.01

)

 

 

—

 

 

 

(0.01

)

Net income (loss) per common share - basic

 

$

0.20

 

 

$

0.20

 

 

$

0.38

 

 

$

(0.21

)

Net income (loss) per common share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.20

 

 

$

0.21

 

 

$

0.38

 

 

$

(0.20

)

Discontinued operations

 

 

—

 

 

 

(0.01

)

 

 

—

 

 

 

(0.01

)

Net income (loss) per common share - diluted

 

$

0.20

 

 

$

0.20

 

 

$

0.38

 

 

$

(0.21

)

Potentially dilutive shares excluded from calculation due to anti-dilutive effect (1)

 

 

12,618,770

 

 

 

14,885,296

 

 

 

12,618,770

 

 

 

14,885,296

 

 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
Net income from continuing operations$9,189
 $12,568
 $9,052
 $21,742
Net income allocated to preferred shares(2,587) (6,015) (7,797) (12,029)
Consideration paid in excess of carrying value of preferred shares—
 —
 (7,482) —
Net loss allocable to non-controlling interest, net of taxes—
 95
 —
 196
Net income (loss) from continuing operations allocable to common shares6,602
 6,648
 (6,227) 9,909
Net loss from discontinued operations, net of tax(450) (4,184) (203) (4,745)
Net income (loss) allocable to common shares$6,152
 $2,464
 $(6,430) $5,164
        
Net income (loss) per common share - basic:       
Weighted average number of shares outstanding31,215,598
 30,820,442
 31,163,859
 30,786,527
Continuing operations$0.21
 $0.22
 $(0.20) $0.32
Discontinued operations(0.01) (0.14) (0.01) (0.15)
Net income (loss) per common share - basic$0.20
 $0.08
 $(0.21) $0.17
        
Net income (loss) per common share - diluted: 
  
  
  
Weighted average number of shares outstanding31,215,598
 30,820,442
 31,163,859
 30,786,527
Additional shares due to assumed conversion of dilutive instruments186,412
 200,484
 —
 181,313
Adjusted weighted-average number of common shares outstanding31,402,010
 31,020,926
 31,163,859
 30,967,840
Continuing operations$0.21
 $0.22
 $(0.20) $0.32
Discontinued operations(0.01) (0.14) (0.01) (0.15)
Net income (loss) per common share - diluted$0.20
 $0.08
 $(0.21) $0.17
        
Potentially dilutive shares excluded from calculation due to anti-dilutive effect (1)
14,885,296
 9,002,859
 14,885,296
 9,002,859

(1)

(1)

Potentially dilutive shares issuable in connection with the potential conversion of the Company's 4.50% convertible senior notes due 2022 ("4.50% Convertible Senior Notes"), 6.00% convertible senior notes due 2018 ("6.00% Convertible Senior Notes") and 8.00% convertible senior notes due 2020 ("8.00% Convertible Senior Notes") (see Note 10)9) during the three and six months ended June 30, 2019 and 2018 and its 6.00% convertible senior notes due 2018 during the three and six months ended June 30, 2018 were not included in the calculation of diluted net income (loss) per share because the effect would be anti-dilutive.

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29

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

NOTE 1413 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the changes in each component of accumulated other comprehensive income (loss) for the six months ended June 30, 20182019 (in thousands):

 

 

Net Unrealized Gain (Loss) on Derivatives

 

 

Net Unrealized (Loss) Gain on Investment Securities Available-for-Sale

 

 

Accumulated Other Comprehensive Income (Loss)

 

Balance at January 1, 2019

 

$

563

 

 

$

(3,620

)

 

$

(3,057

)

Other comprehensive (loss) income before reclassifications

 

 

(4,390

)

 

 

9,196

 

 

 

4,806

 

Amounts reclassified from accumulated other comprehensive income (1)

 

 

(68

)

 

 

(4

)

 

 

(72

)

Balance at June 30, 2019

 

$

(3,895

)

 

$

5,572

 

 

$

1,677

 

 Net Unrealized Gain on Derivatives Net Unrealized Gain (Loss) on Investment Securities Available-for-Sale Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2018$602
 $695
 $1,297
Other comprehensive income (loss) before reclassifications1,604
 98
 1,702
Amounts reclassified from accumulated other comprehensive income (1)
—
 217
 217
Balance at June 30, 2018$2,206
 $1,010
 $3,216

(1)

(1)

Amounts reclassified from accumulated other comprehensive income are reclassified to interest expense and net realized and unrealized gain on investment securities available-for-sale and loans and derivatives on the Company's consolidated statements of operations.


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34
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

NOTE 1514 - RELATED PARTY TRANSACTIONS

Relationship with C-III and Certain of its Subsidiaries. The Manager is a wholly-owned subsidiary of Resource America, which is a wholly-owned subsidiary of C-III, a leading CRE investment management and services company engaged in a broad range of activities, including primary and special loan servicing, loan origination, fund management, CDO management, principal investment, zoning due diligence, investment sales and multifamily property management. C-III is indirectly controlled and partially owned by Island Capital Group LLC ("Island Capital"), of which Andrew L. Farkas, the Company's Chairman, is the managing member. Mr. Farkas is also chairman and chief executive officer of C-III. In addition, Robert C. Lieber, the Company's Chief Executive Officer, is an executive managing director of both C-III and Island Capital. Matthew J. Stern, the Company's President, is a seniorare executive managing directordirectors of both C-III and Island Capital. Jeffrey P. Cohen, who is a member of the Company's Board, is an executive managing directorpresident of both C-III and president of Island Capital. Those officers and the Company's other executive officers are also officers of the Company's Manager, Resource America, C-III and/or affiliates of those companies. At June 30, 2018,2019, C-III indirectly beneficially owned 766,718, or 2.4%, of the Company's outstanding common shares.

The Company has a Management Agreement with the Manager, amended and restated on December 14, 2017, pursuant to which the Manager provides the day-to-day management of the Company's operations and receives substantial fees. For the three and six months ended June 30, 2019, the Manager earned base management fees of approximately $2.1 million and $4.2 million, respectively. For the three and six months ended June 30, 2018, the Manager earned base management fees of approximately $2.8 million and $5.6 million, respectively. For the three and six months ended June 30, 2017,2019, the Manager earned base management feesincentive compensation of $2.6 millionapproximately $165,000, of which $124,000 was payable in cash and $5.2 million, respectively.approximately $41,000 was payable in common stock at June 30, 2019. No incentive management fees werecompensation was earned for the three and six months ended June 30, 2018 and 2017.2018. At June 30, 20182019 and December 31, 2017,2018, $699,000 and $938,000, and $1.0 million, respectively, of base management fees were payable by the Company to the Manager. At June 30, 2019, $165,000 of incentive compensation was payable by the Company to the Manager. There was no incentive compensation payable at December 31, 2018. The Manager and its affiliates provide the Company with a Chief Financial Officer and a sufficient number of additional accounting, finance, tax and investor relations professionals. The Company reimburses the Manager's and its affiliates' expenses for (a) the wages, salaries and benefits of the Chief Financial Officer, (b) a portion of the wages, salaries and benefits of accounting, finance, tax and investor relations professionals, in proportion to such personnel's percentage of time allocated to the Company's operations, and (c) personnel principally devoted to the Company's ancillary operating subsidiaries. The Company reimburses out-of-pocket expenses and certain other costs incurred by the Manager and its affiliates that relate directly to the Company's operations. For the three and six months ended June 30, 2018,2019, the Company reimbursed the Manager $1.9$1.1 million and $2.3$2.1 million, respectively, for all such compensation and costs. For the three and six months ended June 30, 2017,2018, the Company reimbursed the Manager $1.1$1.9 million and $3.0$2.8 million, respectively, for all such compensation and costs. At June 30, 20182019 and December 31, 2017,2018, the Company had payables to Resource America and its subsidiaries pursuant to the Management Agreement aggregatingtotaling approximately $463,000$401,000 and $629,000,$333,000, respectively. The Company's base management fee payable and expense reimbursements payable are recorded in management fee payable and accounts payable and other liabilities on the consolidated balance sheets, respectively.

At June 30, 2018,2019, the Company retained equity in seven securitizationssix securitization entities that were structured for the Company by the Manager, although three of the securitizationssecuritization entities had been substantially liquidated as of June 30, 2018.2019. 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 securitization entities and their assets.

Relationship with LCC.LCC, a former subsidiary of Resource America in which the Company owned a minority interest, originated and managed equipment leases and notes on behalf of the Company. In November 2011, the Company, together with LEAF Financial (which is a subsidiary of Resource America) and LCC, entered into a securities purchase agreement with Eos Partners, L.P. and certain of its affiliates. In July 2017, the Company sold its equity interests in LCC and received cash proceeds of $84.3 million and, as a result, LCC is no longer considered a related party. For the three and six months ended June 30, 2018, the Company did not record any income in respect of its equity interests in LCC. For the three and six months ended June 30, 2017, the Company recorded income of $122,000 and $288,000, respectively, in equity in earnings (losses) of unconsolidated entities on its consolidated statements of operations in respect of its equity interests in LCC.

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35

30

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


Relationship with CVC Credit Partners. In April 2012, ACM, a former subsidiary of Resource America, was sold to CVC Credit Partners, a joint venture entity in which Resource America indirectly owned a 24% interest through August 2017. CVC Credit Partners managed externally originated syndicated corporate loans on the Company's behalf.  In February 2011, one of the Company's subsidiaries 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 entitled to collect senior, subordinated and incentive fees related to five CLOs holding approximately $1.9 billion in assets managed by RCAM.  RCAM was 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 each of the three and six months ended June 30, 2018, CVC Credit Partners earned subordinated and incentive fees totaling $119,000. For the three and six months ended June 30, 2017, CVC Credit Partners earned subordinated and incentive fees totaling $775,000 and $1.3 million, respectively, netted in other revenue on the Company's consolidated statements of operations. The Company did not record any impairment on the related intangible assets of these CLOs during the six months ended June 30, 2018, and it recorded $177,000 of impairment during the six months ended June 30, 2017. The CLOs were liquidated in February 2013, January 2016, September 2016 and February 2017. At June 30, 2018 and December 31, 2017, the Company no longer had any investment in RCAM. C-III sold its interest in CVC Credit Partners in August 2017, and, as a result, CVC Credit Partners is no longer considered a related party of the Company.
Relationship with LTCC Funding. In December 2012, the Board authorized the Company to reimburse Resource America for costs incurred related to the Company's life care business, LTCC Funding. In December 2016, the Board authorized a reimbursement of $250,000 for fiscal year 2017, paid quarterly, of which $62,000 and $124,000 was incurred during the three and six months ended June 30, 2017. At December 31, 2017, $63,000 of authorized reimbursements were payable by the Company to Resource America and paid in January 2018. The annual reimbursement was not renewed for fiscal year 2018.

Relationship with Resource Real Estate, LLC.Resource Real Estate, LLC ("Resource Real Estate"), an indirect wholly-owned subsidiary of Resource America and C-III, originates, finances and manages the Company's CRE loan portfolio. The Company reimburses Resource Real Estate for loan origination costs associated with all loans originated. At June 30, 2018 and December 31, 2017,2018, the Company had net receivables from Resource Real Estate for loan deposits of $285,000 and $185,000, respectively.

$26,000. There were no loan deposits receivable from Resource Real Estate servesat June 30, 2019.

Resource Real Estate served as special servicer for the following fiveliquidated real estate securitization transactions, which provideprovided financing for CRE loans: (i) RCC CRE Notes 2013, a $307.8 million securitization that closed in December 2013; (ii) RCCResource Capital Corp. 2014-CRE2, Ltd., a $353.9 million securitization that closed in July 2014; (iii) RCC2014 and liquidated in August 2017; (ii) Resource Capital Corp. 2015-CRE3, Ltd., a $346.2 million securitization that closed in February 2015; (iv) RCC2015 and liquidated in August 2018; (iii) Resource Capital Corp. 2015-CRE4, Ltd., a $312.9 million securitization that closed in August 2015;2015 and (v)liquidated in July 2018; and (iv) RCC 2017-CRE5, a $376.7 million securitization that closed in July 2017. With respect to each specially serviced mortgage loan,2017 and liquidated in July 2019. Resource Real Estate receives adid not earn any special servicing fee, payable monthlyfees during the three and six months ended June 30, 2019 and 2018.

Relationship with C-III Commercial Mortgage and C3AM. In May 2019, RCC RE entered into a Mortgage Loan Sale and Purchase Agreement (the "May 2019 Loan Acquisition Agreement") with C-III Commercial Mortgage LLC ("C-III Commercial Mortgage"), a wholly-owned subsidiary of C-III, that provided for the acquisition by RCC RE of certain CRE loans on a servicing-released basis at par, plus accrued and unpaid interest on each loan for an asset-by-asset basis, equalaggregate purchase price of $197.6 million. In accordance with the terms of the May 2019 Loan Acquisition Agreement, C-III Commercial Mortgage retains its title to the productall exit fees in excess of (a) the special servicing fee rate, 0.25% per annum, multiplied by (b)0.50% of the outstanding principal balance of such specially serviced mortgage loan. In December 2016balance. During the three and August 2017, RCC CRE Notes 2013 and RCC 2014-CRE2, respectively, were liquidated and,six months ended June 30, 2019, C-III Commercial Mortgage did not earn any exit fees. The Company had no outstanding payables to C-III Commercial Mortgage LLC at June 30, 2019.

Additionally, C3AM served as a result, the remaining assets were returned to RCC Real Estate in exchangeprimary servicer for the Company's preference sharesCRE loans collateralizing RCC 2017-CRE5 and equity notes in those securitizations.

Relationship with C3AM and C-III Commercial Mortgage. C3AM serves as the primary servicer for RCC 2017-CRE5the CRE loans acquired in the May 2019 Loan Acquisition Agreement and the CRE loans collateralizing Exantas Capital Corp. 2018-RSO6, Ltd. ("XAN 2018-RSO6,2018-RSO6"), a $514.2 million securitization that closed in June 2018, and XAN 2019-RSO7, a $687.2 million securitization that closed in April 2019. C3AM receives a servicing fee,fees, payable monthly and on an asset-by-asset basis, equal to the product of (a) the servicing fee rate, 0.05% per annum, multiplied by (b) the outstanding principal balance of each mortgage loan for each securitization.basis. C3AM serves as special servicer for C40, XAN 2018-RSO6 and XAN 2019-RSO7, under which it receives a base special servicing fee equal tofee.

During the productthree and six months ended June 30, 2019, C3AM earned approximately $170,000 and $261,000, respectively, in servicing fees and the Company received $48,000 of (a)exit fees from C3AM on a CRE loan acquired in the special servicing fee rate, 0.25% per annum, multiplied by (b) the outstanding principal balance of such specially serviced mortgage loan, and C40.May 2019 Loan Acquisition Agreement. During the three and six months ended June 30, 2018, C3AM earned approximately $67,000 and $102,000, respectively, in servicing fees. The Company had payables to C3AM for approximately $16,000 at June 30, 2018.

In October 2017, C-III Commercial Mortgage LLC contributed loans to collateralize the C40 securitization, amounting to 10.2% of the total collateral pool value to the securitization.

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36
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

Relationship with RCM Global. In July 2014, the Company formed RCM Global Manager to invest in RCM Global, which held a portfolio of structured product securities that were liquidated in the second quarter of 2018. Fordid not earn any special servicing fees during the three and six months ended June 30, 2018, the Company recorded losses of $6,0002019 and earnings of $7,000, respectively, on its investment in RCM Global. For the three and six months ended June 30, 2017, the Company recorded losses of $166,000 and $170,000, respectively, on its investment in RCM Global. Earnings and losses on the investment in RCM Global are recorded in equity in earnings (losses) of unconsolidated entities on the consolidated statements of operations. At June 30, 2018, the Company's residual ownership interest in RCM Global was 63.8%, and the remainder was owned by subsidiaries and current and former employees of Resource America.
Relationship with Pelium Capital. 2018. The Company holds a partnership interest in Pelium Capital, a specialized credit opportunity fund managed by an indirect wholly-owned subsidiaryhad payables to C3AM of C-III that formerly held a portfolio of investment securities. For the threeapproximately $47,000 and six months ended June 30, 2018, the Company recorded earnings of $75,000 and losses of $230,000, respectively, on its investment in Pelium Capital. For the three and six months ended June 30, 2017, the Company recorded earnings of $82,000 and losses of $77,000, respectively, on its investment in Pelium Capital. Earnings and losses on the investment in Pelium Capital are recorded in equity in earnings (losses) of unconsolidated entities on the consolidated statements of operations. During the six months ended June 30, 2018 and 2017, the Company received proceeds of $10.2 million and $13.6 million as a result of the substantial liquidation of Pelium Capital's investments. The Company's investment balances in Pelium Capital were $154,000 and $10.5 million$26,000 at June 30, 20182019 and December 31, 2017,2018, respectively. The Company held an 80.2% interest in Pelium Capital at June 30, 2018.
Relationship with Pearlmark Mezzanine Realty Partners IV. In June 2015, the Company committed to invest up to $50.0 million in Pearlmark Mezz. The investment advisor of Pearlmark Mezz is Pearlmark Real Estate LLC ("Pearlmark Manager"), which was 50% owned by Resource America. The Company paid Pearlmark Manager management fees of 1.0% on its unfunded committed capital and 1.5% on its invested capital. The Company was entitled to a management fee rebate of 25% for the first year of the fund, which ended in June 2016. Resource America credited any such fees paid by the Company to Pearlmark Manager against the base management fee that the Company paid to the Manager. In May 2017, the Company sold its equity interest in Pearlmark Mezz for proceeds of $16.2 million, and, as a result, ceased to have any further investment in or commitment to Pearlmark Mezz. As a result, Pearlmark Mezz is no longer considered a related party.

NOTE 1615 - DISTRIBUTIONS

For the quarters ended June 30, 20182019 and 2017,2018, the Company declared and subsequently paid dividends of $0.10$0.225 and $0.05$0.10 per common share, respectively.

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 to not 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 funds to make sufficient distribution payments.

The Company's 20182019 dividends are, and will be, determined by the Company's Board, which will also consider the composition of any dividends declared, including the option of paying a portion in cash and the balance in additional shares of common stock.


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37

31

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


The following tables present dividends declared (on a per share basis) for the six months ended June 30, 20182019 and year ended December 31, 2017 (and2018, with respect to the Company's common stock and Series C Preferred Stock, and for the period from January 1, 2018 through March 26, 2018, with respect to the Company's Series B Preferred Stock):Stock:

 

 

Common Stock

 

 

 

Date Paid

 

Total

Dividend

Paid

 

 

Dividend

Per Share

 

 

 

 

 

(in thousands)

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

June 30

 

July 26

 

$

7,172

 

 

$

0.225

 

March 31

 

April 26

 

$

6,373

 

 

$

0.20

 

2018

 

 

 

 

 

 

 

 

 

 

December 31

 

January 25, 2019

 

$

5,540

 

 

$

0.175

 

September 30

 

October 26

 

$

4,749

 

 

$

0.15

 

June 30

 

July 27

 

$

3,165

 

 

$

0.10

 

March 31

 

April 27

 

$

1,584

 

 

$

0.05

 

 

 

Series B Preferred Stock

 

 

Series C Preferred Stock

 

 

 

Date Paid

 

Total

Dividend

Paid

 

 

Dividend

Per Share

 

 

Date Paid

 

Total

Dividend

Paid

 

 

Dividend

Per Share

 

 

 

(in thousands)

 

 

(in thousands)

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30

 

N/A

 

N/A

 

 

N/A

 

 

July 30

 

$

2,587

 

 

$

0.539063

 

March 31

 

N/A

 

N/A

 

 

N/A

 

 

April 30

 

$

2,588

 

 

$

0.539063

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31

 

N/A

 

N/A

 

 

N/A

 

 

January 30, 2019

 

$

2,588

 

 

$

0.539063

 

September 30

 

N/A

 

N/A

 

 

N/A

 

 

October 30

 

$

2,588

 

 

$

0.539063

 

June 30

 

N/A

 

N/A

 

 

N/A

 

 

July 30

 

$

2,588

 

 

$

0.539063

 

March 31

 

N/A

 

N/A

 

 

N/A

 

 

April 30

 

$

2,588

 

 

$

0.539063

 

March 26

 

March 26

 

$

1,480

 

 

$

0.320830

 

 

N/A

 

N/A

 

 

N/A

 

  Common Stock
  Date Paid Total
Dividend Paid		 Dividend
Per Share
    (in thousands)  
2018      
March 31 April 27 $1,584
 $0.05
June 30 July 27 $3,165
 $0.10
       
2017      
March 31 April 27 $1,568
 $0.05
June 30 July 28 $1,567
 $0.05
September 30 October 27 $1,566
 $0.05
December 31 January 26, 2018 $1,572
 $0.05
 Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock
 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)  
2018                 
March 26N/A N/A N/A March 26 $1,480
 $0.320830
 N/A N/A N/A
March 31N/A N/A N/A N/A N/A N/A April 30 $2,588
 $0.539063
June 30N/A N/A N/A N/A N/A N/A July 30 $2,588
 $0.539063
                  
2017                 
March 31May 1 $568
 $0.531250
 May 1 $2,859
 $0.515625
 May 1 $2,588
 $0.539063
June 30July 31 $568
 $0.531250
 July 31 $2,859
 $0.515625
 July 31 $2,588
 $0.539063
September 30October 30 $568
 $0.531250
 October 30 $2,859
 $0.515625
 October 30 $2,588
 $0.539063
December 31January 30, 2018 $568
 $0.531250
 January 30, 2018 $2,859
 $0.515625
 January 30, 2018 $2,588
 $0.539063

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38
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

NOTE 1716 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the Company's financial instruments carried at fair value on a recurring basis based upon the fair value hierarchy (in thousands):

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale

 

$

—

 

 

$

—

 

 

$

445,664

 

 

$

445,664

 

Total assets at fair value

 

$

—

 

 

$

—

 

 

$

445,664

 

 

$

445,664

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

$

—

 

 

$

(4,470

)

 

$

—

 

 

$

(4,470

)

Total liabilities at fair value

 

$

—

 

 

$

(4,470

)

 

$

—

 

 

$

(4,470

)

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale

 

$

—

 

 

$

—

 

 

$

418,998

 

 

$

418,998

 

Derivatives

 

 

—

 

 

 

985

 

 

 

—

 

 

 

985

 

Total assets at fair value

 

$

—

 

 

$

985

 

 

$

418,998

 

 

$

419,983

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

$

—

 

 

$

1,043

 

 

$

—

 

 

$

1,043

 

Total liabilities at fair value

 

$

—

 

 

$

1,043

 

 

$

—

 

 

$

1,043

 

 Level 1 Level 2 Level 3 Total
At June 30, 2018:       
Assets:       
Investment securities available-for-sale$—
 $—
 $318,424
 $318,424
Derivatives—
 2,273
 —
 2,273
Total assets at fair value$—
 $2,273
 $318,424

$320,697
        
Liabilities: 
  
  
  
Derivatives$—
 $67
 $—
 $67
Total liabilities at fair value$—
 $67
 $—
 $67
        
At December 31, 2017: 
  
  
  
Assets: 
  
  
  
Investment securities available-for-sale$—
 $—
 $211,737
 $211,737
Investment securities, trading—
 —
 178
 178
Loans held for sale—
 —
 13
 13
Derivatives—
 602
 —
 602
Total assets at fair value$—
 $602
 $211,928
 $212,530
        
Liabilities: 
  
  
  
Derivatives$—
 $76
 $—
 $76
Total liabilities at fair value$—
 $76
 $—
 $76

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32

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

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 available-for-sale investment securities, trading, loans held for sale and derivatives from third-party pricing sources.

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

 

 

CMBS

 

Balance, January 1, 2019

 

$

418,998

 

Included in earnings

 

 

1,415

 

Purchases

 

 

40,594

 

Sale

 

 

(638

)

Paydowns (1)

 

 

(23,897

)

Included in other comprehensive income

 

 

9,192

 

Balance, June 30, 2019

 

$

445,664

 

 CMBS ABS Structured Notes Loans Held for Sale Total
Balance, January 1, 2018$211,579
 $158
 $178
 $13
 $211,928
Included in earnings (1)
1,346
 (217) 55
 16
 1,200
Purchases113,783
 —
 —
 —
 113,783
Sales—
 (48) (11) (29) (88)
Paydowns(8,522) —
 (222) —
 (8,744)
Capitalized interest—
 7
 —
 —
 7
Included in OCI238
 100
 —
 —
 338
Balance, June 30, 2018$318,424
 $—
 $—
 $—
 $318,424

(1)

Includes non-cash adjustments in connection with the recalculation of the accretable yield on certain interest-only CMBS.

(1)For

Legacy CRE loans held for sale classified as Level 3 at June 30, 2018, the Company recorded changes in unrealized gains of $9,000 and $16,000 for the three and six months ended June 30, 2018, in fair value adjustments on assets held for sale on the consolidated statements of operations.

Legacy CRE loans are measured at the lower of cost or market on a nonrecurring basis. To determine fair value of the legacy CRE loans held for sale, the Company primarily uses appraisals obtained from third-parties as a practical expedient. The Company may also use the present value of estimated cash flows, market price, if available, or other determinants of the fair value of the collateral less estimated disposition costs. The Company recorded losses of $1.3 million during the three months ended June 30, 2019 and $1.4 million, which included $102,000 of protective advances to cover borrower operating losses, during the six months ended June 30, 2019 on one legacy CRE loan held for sale. The losses comprised a $1.3 million fair value charge in connection with the updated fair value based on the average of three June 2019 brokers' opinion of value that were taken into account equally along with the latest appraisal received in February 2019. During the six months ended June 30, 2018, a lossthe Company recorded losses of $4.7 million was recorded on onethe same legacy CRE loan held for sale, which included protective advances to cover borrower operating losses of $172,000, to adjust$172,000. No losses were incurred during the three months ended June 30, 2018. The losses adjusted the loan to its fair value, less the average value of two appraisals,remaining estimated costs to repair the underlying collateral, equal to $18.0$16.1 million and $17.0 million at June 30, 2018. The loan had a carrying value of $22.5 million at2019 and December 31, 2017.2018, respectively. The terminal capitalization rates used in the updated appraisals were 9.25%appraisal and 9.75%brokers' opinion of values ranged from 8.50% to 10.00% at June 30, 2018.

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39
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

2019.

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, accrued interest receivable, principal paydowns receivable, accrued interest payable and distributions payable approximate their carrying values on the consolidated balance sheets. The fair values of the Company's investment securities tradingavailable-for-sale are reported in Note 7.  The fair values of the Company's investment securities available-for-sale are reported in Note 8.  The fair values of the Company's loans held for sale are reported in Note 5. The fair values of the Company's derivative instruments are reported in Note 18.

17.

The fair values of the Company's 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. Fair values of loans with variable interest rates are expected to approximate fair value. Fair values of loans with fixed rates are calculated using the net present values of future cash flows, discounted at market rates. The Company's CRE loans havehad interest rates from 4.48%5.13% to 8.26%8.68% and 5.06%5.08% to 7.63%8.63% at June 30, 20182019 and December 31, 2017,2018, respectively.

The fair value of the Company's mezzanine loan is measured by discounting the expected cash flows using the future expected coupon rate. The Company's mezzanine loan is discounted at a rate of 10.63%10.00%.

The fair value of the Company's preferred equity investment isinvestments are measured by discounting the expected cash flows using the future expected coupon rates. The Company's preferred equity investment isinvestments are discounted at a raterates of 12.78%12.08% and 11.54%.

Senior notes in CRE securitizations are valued using dealer quotes, typically sourced from the dealer who underwrote the applicable CRE securitization.

The fair values of the junior subordinated notes RCT I and RCT II are estimated by using a discounted cash flow model with discount rates of 11.34%8.99% and 11.34%8.99%, respectively.

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

The fair value of the convertible notes is 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 6.00% Convertible Senior Notes are discounted at a rate of 4.54%, the 8.00% Convertible Senior Notes are discounted at a rate of 4.92% and the 4.50% Convertible Senior Notes are discounted at a rate of 7.17%7.43%.

Repurchase agreements are variable rate debt instruments indexed to LIBOR that reset periodically and, as a result, their carrying value approximates their fair value, excluding deferred debt issuance costs.


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40
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

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 Value

 

 

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)

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans held for investment

 

$

1,918,382

 

 

$

1,928,828

 

 

$

—

 

 

$

—

 

 

$

1,928,828

 

CRE mezzanine loan

 

$

4,700

 

 

$

4,700

 

 

$

—

 

 

$

—

 

 

$

4,700

 

CRE preferred equity investments

 

$

25,410

 

 

$

25,565

 

 

$

—

 

 

$

—

 

 

$

25,565

 

Legacy CRE loans held for sale

 

$

16,082

 

 

$

16,082

 

 

$

—

 

 

$

—

 

 

$

16,082

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior notes in CRE securitizations

 

$

963,383

 

 

$

976,360

 

 

$

—

 

 

$

—

 

 

$

976,360

 

Junior subordinated notes

 

$

51,548

 

 

$

28,050

 

 

$

—

 

 

$

—

 

 

$

28,050

 

Convertible notes

 

$

152,942

 

 

$

164,932

 

 

$

—

 

 

$

—

 

 

$

164,932

 

Repurchase agreements

 

$

767,392

 

 

$

771,593

 

 

$

—

 

 

$

—

 

 

$

771,593

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans held for investment

 

$

1,527,712

 

 

$

1,538,759

 

 

$

—

 

 

$

—

 

 

$

1,538,759

 

CRE mezzanine loan

 

$

4,700

 

 

$

4,700

 

 

$

—

 

 

$

—

 

 

$

4,700

 

CRE preferred equity investment

 

$

19,555

 

 

$

19,718

 

 

$

—

 

 

$

—

 

 

$

19,718

 

Legacy CRE loans held for sale

 

$

17,000

 

 

$

17,000

 

 

$

—

 

 

$

—

 

 

$

17,000

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior notes in CRE securitizations

 

$

501,045

 

 

$

498,897

 

 

$

—

 

 

$

—

 

 

$

498,897

 

Junior subordinated notes

 

$

51,548

 

 

$

27,800

 

 

$

—

 

 

$

—

 

 

$

27,800

 

Convertible notes

 

$

151,190

 

 

$

164,932

 

 

$

—

 

 

$

—

 

 

$

164,932

 

Repurchase agreements

 

$

850,440

 

 

$

855,783

 

 

$

—

 

 

$

—

 

 

$

855,783

 

   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)
At June 30, 2018:         
Assets:         
CRE whole loans held for investment$1,422,127
 $1,432,072
 $—
 $—
 $1,432,072
Legacy CRE loans held for sale$18,000
 $18,000
 $—
 $—
 $18,000
CRE mezzanine loan$4,700
 $4,700
 $—
 $—
 $4,700
     CRE preferred equity investment$19,191
 $19,374
 $—
 $—
 $19,374
          
Liabilities:         
Senior notes in CRE securitizations$632,005
 $640,427
 $—
 $—
 $640,427
Junior subordinated notes$51,548
 $28,870
 $—
 $—
 $28,870
Convertible notes$219,501
 $235,385
 $—
 $—
 $235,385
Repurchase agreements$416,592
 $418,882
 $—
 $—
 $418,882
          
At December 31, 2017: 
  
  
  
  
Assets:         
CRE whole loans held for investment$1,284,822
 $1,294,664
 $—
 $—
 $1,294,664
Legacy CRE loans held for sale$61,841
 $62,841
 $—
 $—
 $62,841
          
Liabilities:         
Senior notes in CRE securitizations$416,655
 $420,084
 $—
 $—
 $420,084
Junior subordinated notes$51,548
 $26,574
 $—
 $—
 $26,574
Convertible notes$217,365
 $235,385
 $—
 $—
 $235,385
Repurchase agreements$477,917
 $479,383
 $—
 $—
 $479,383

NOTE 1817 - MARKET RISK AND DERIVATIVE INSTRUMENTS

The Company is 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 risksrisk managed by the Company through the use of derivative instruments areis interest rate risk and foreign currency exchange rate risk.

The Company may hold various derivatives in the ordinary course of business, including:including interest rate swaps and forward contracts.swaps. Interest rate swaps are contracts between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. Forward contracts represent future commitments

(Back to either purchase orIndex)

34

(Back to deliver a quantity of a currency (foreign currency hedging) at a predetermined future date, at a predetermined rate or price and are used to manage currency risk with respect to the Company's long positions in foreign currency-denominated investment securities.

Index)

EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

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. 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.


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41
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

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 seeks to mitigate the potential impact on net income (loss) of adverse fluctuations in interest rates incurred on its borrowings by entering into hedging agreements.

The Company classifies its interest rate risk 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 accumulated other comprehensive income (loss), and records changes in fair value of derivatives designated and ineffective as cash flow hedges in earnings.

At June 30, 20182019 and December 31, 2017,2018, the Company had fifteen18 and seven,16, respectively, interest rate swap contracts outstanding whereby the Company paid a weighted average fixed rate of 2.39%2.50% and 2.08%2.54%, respectively, and received a variable rate equal to one-month LIBOR. The aggregate notional amount of these contracts was $72.8$87.6 million and $41.8$81.1 million at June 30, 20182019 and December 31, 2017,2018, respectively. The counterparty for the Company's designated interest rate hedge contracts at June 30, 20182019 and December 31, 20172018 was Wells Fargo.

 At June 30, 2018, the estimated fair values of the Company's assets and liabilities related to

There were no interest rate swaps were $2.3 million and $67,000, respectively.in an asset position at June 30, 2019. At December 31, 2017,2018, the estimated fair value of the Company's assets related to interest rate swaps in an asset position was $602,000.$985,000. At June 30, 2019 and December 31, 2018, the estimated fair value of the Company's interest rate swaps in a liability position was $4.5 million and $1.0 million, respectively. The Company had aggregate unrealized losses of $3.9 million and aggregate unrealized gains of $2.2 million and $602,000$563,000 on theits interest rate swaps at June 30, 20182019 and December 31, 2017,2018, respectively, which are recorded in accumulated other comprehensive income (loss) on the consolidated balance sheets.

At June 30, 2019 and December 31, 2018, the Company had an unrealized gain of $576,000 and $621,000, respectively, attributable to two terminated interest rate swaps, in accumulated other comprehensive income (loss) on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt.The Company incurredrecorded accretion income, reported in interest expense on the consolidated statements of $18,000operations, of $23,000 and $45,000 during the three and six months ended June 30, 20172019, respectively, to fully amortizeaccrete the remaining accumulated other comprehensive (loss)income on athe terminated swap agreement that was terminated in April 2016.agreements. The Company did not record any interest expense for the three and six months ended June 30, 2018 and the three months ended June 30, 2017 relating to amortization ofamortize accumulated other comprehensive income (loss) forfrom terminated swap agreements.

The Company had a master netting agreement with Wells Fargo at June 30, 2018.2019. Regulations promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 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. AtThe Company had no centrally cleared interest rate swaps with fair values in an asset position at June 30, 2019. At December 31, 2018, the Company had centrally cleared interest rate swaps with fair values in an asset and liability position of $2.3 million$985,000. At June 30, 2019 and $67,000, respectively. At December 31, 2017,2018, the Company had centrally cleared interest rate swap contractsswaps with a fair value in an asseta liability position of $602,000.

The Company was also exposed to foreign currency exchange rate risk, a form of risk that arises from the change in price of one currency against another. However, substantially all of the Company's revenues were transacted in U.S. dollars. To address this market risk, the Company generally hedged foreign currency-denominated exposures (typically investments in debt instruments, including forecasted principal$4.5 million and interest payments) with foreign currency forward contracts. The Company classified these hedges as fair value hedges, which are hedges that mitigated the risk of changes in the fair values of assets, liabilities, and certain types of firm commitments. The Company recorded 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. As of June 30, 2018, the Company did not hold any foreign currency forward contracts.
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.

$1.0 million, respectively.

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42

35

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


The following tables present the fair value of the Company's derivative financial instruments as well as their classificationat June 30, 2019 and December 31, 2018 on the Company's consolidated balance sheets and the related effect of the derivative instruments on the consolidated statements of operations for the periods presented:

six months ended June 30, 2019 and 2018:

Fair Value of Derivative Instruments at June 30, 2018 (in thousands)

 

 

Liability Derivatives

 

At June 30, 2019

 

Notional Amount

 

 

Consolidated Balance Sheets Location

 

Fair Value

 

Interest rate swap contracts, hedging (1)

 

$

87,551

 

 

Derivatives, at fair value

 

$

4,470

 

Interest rate swap contracts, hedging

 

$

87,551

 

 

Accumulated other comprehensive income (loss)

 

$

(3,895

)

 

 

Asset Derivatives

 

At December 31, 2018

 

Notional Amount

 

 

Consolidated Balance Sheets Location

 

Fair Value

 

Interest rate swap contracts, hedging (1)

 

$

31,725

 

 

Derivatives, at fair value

 

$

985

 

 

 

Liability Derivatives

 

 

 

Notional Amount

 

 

Consolidated Balance Sheets Location

 

Fair Value

 

Interest rate swap contracts, hedging (1)

 

$

49,326

 

 

Derivatives, at fair value

 

$

1,043

 

Interest rate swap contracts, hedging

 

$

81,051

 

 

Accumulated other comprehensive income (loss)

 

$

563

 

 Asset Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Interest rate swap contracts, hedging (1)
$52,610
 Derivatives, at fair value $2,273
      
 Liability Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Interest rate swap contracts, hedging (1)
$20,216
 Derivatives, at fair value $67
Interest rate swap contracts, hedging$72,826
 Accumulated other comprehensive income $2,206

(1)

(1)

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

Fair Value of Derivative Instruments at December 31, 2017 (in thousands, except amount in footnotes)
 Asset Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Interest rate swap contracts, hedging (1)
$41,750
 Derivatives, at fair value $602
      
 Liability Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Forward contracts - foreign currency, hedging (2)(3)
$3,602
 Derivatives, at fair value $76
Interest rate swap contracts, hedging$41,750
 Accumulated other comprehensive income $602
(1)Interest rate swap contracts are accounted for as cash flow hedges.
(2)Foreign currency forward contracts are accounted for as fair value hedges.
(3)Notional amount is presented on a currency converted basis. The base currency notional amount of the Company's foreign currency hedging forward contracts in a liability position was €3.0 million at December 31, 2017.

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

Six Months Ended June 30, 2018 (in thousands)

 

 

Derivatives

 

Six Months Ended June 30, 2019

 

Consolidated Statements of Operations Location

 

Realized and Unrealized

Gain (Loss)

 

Interest rate swap contracts, hedging

 

Interest expense

 

$

20

 

 

 

Derivatives

 

Six Months Ended June 30, 2018

 

Consolidated Statements of Operations Location

 

Realized and Unrealized

Gain (Loss)

 

Interest rate swap contracts, hedging

 

Interest expense

 

$

(80

)

  Derivatives
  Consolidated Statements of Operations Location 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts, hedging Interest expense $(80)
(1)Negative values indicate a decrease to the associated consolidated statements of operations line items.
The Effect of Derivative Instruments on the Consolidated Statements of Operations for the
Six Months Ended June 30, 2017 (in thousands)
  Derivatives
  Consolidated Statements of Operations Location 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts, hedging Interest expense $(20)
Forward contracts - foreign currency, hedging Net realized and unrealized (loss) gain on investment securities available-for-sale and loans and derivatives $(1,479)
(1)Negative values indicate a decrease to the associated consolidated statements of operations line items.

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43
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

NOTE 1918 - OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

The following table presents a summary of the Company's offsetting of derivative assets (in thousands, except amountsthousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(iv)

Gross Amounts Not Offset on

the Consolidated Balance Sheets

 

 

 

 

 

 

 

(i)

Gross

Amounts of

Recognized

Assets

 

 

(ii)

Gross

Amounts

Offset on the

Consolidated

Balance

Sheets

 

 

(iii) = (i) - (ii)

Net

Amounts

of Assets

Included on

the

Consolidated

Balance

Sheets

 

 

Financial

Instruments

 

 

Cash

Collateral

Pledged

 

 

(v) = (iii) -

(iv)

Net Amount

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives, at fair value

 

$

985

 

 

$

—

 

 

$

985

 

 

$

—

 

 

$

—

 

 

$

985

 

There were no derivatives with a fair value in footnotes):

        (iv)
Gross Amounts Not Offset on
the Consolidated Balance Sheets		  
  (i)
Gross Amounts of
Recognized
Assets		  (ii)
Gross Amounts Offset on the
Consolidated
Balance Sheets		 (iii) = (i) - (ii)
Net Amounts of Assets Included on
the Consolidated
Balance Sheets		 Financial
Instruments		 Cash
Collateral
Pledged		 (v) = (iii) - (iv)
Net Amount
At June 30, 2018:            
Derivatives, at fair value $2,273
 $—
 $2,273
 $—
 $—
 $2,273
             
At December 31, 2017:            
Derivatives, at fair value (1)
 $602
 $—
 $602
 $—
 $—
 $602
(1)The Company posted cash margin of $1.9 million related to interest rate swap contracts entered into at December 31, 2017.
an asset position at June 30, 2019.

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36

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

The following table presents a summary of the Company's offsetting of financial liabilities and derivative liabilities (in thousands, except amounts in footnotes):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(iv)

Gross Amounts Not Offset on

the Consolidated Balance Sheets

 

 

 

 

 

 

 

(i)

Gross

Amounts

of

Recognized

Liabilities

 

 

(ii)

Gross

Amounts

Offset on the

Consolidated

Balance

Sheets

 

 

(iii) = (i) - (ii)

Net

Amounts

of

Liabilities

Included on

the

Consolidated

Balance

Sheets

 

 

Financial

Instruments (1)

 

 

Cash

Collateral

Pledged

 

 

(v) = (iii) - (iv)

Net Amount

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives, at fair value (2)

 

$

4,470

 

 

$

—

 

 

$

4,470

 

 

$

—

 

 

$

4,470

 

 

$

—

 

Repurchase agreements and term facilities (3)

 

 

767,392

 

 

 

—

 

 

 

767,392

 

 

 

767,392

 

 

 

—

 

 

 

—

 

Total

 

$

771,862

 

 

$

—

 

 

$

771,862

 

 

$

767,392

 

 

$

4,470

 

 

$

—

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives, at fair value (2)

 

$

1,043

 

 

$

—

 

 

$

1,043

 

 

$

—

 

 

$

1,043

 

 

$

—

 

Repurchase agreements and term facilities (3)

 

 

850,440

 

 

 

—

 

 

 

850,440

 

 

 

850,440

 

 

 

—

 

 

 

—

 

Total

 

$

851,483

 

 

$

—

 

 

$

851,483

 

 

$

850,440

 

 

$

1,043

 

 

$

—

 

        (iv)
Gross Amounts Not Offset on
the Consolidated Balance Sheets		  
  (i)
Gross Amounts of
Recognized
Liabilities		  (ii)
Gross Amounts Offset on the
Consolidated
Balance Sheets		 (iii) = (i) - (ii)
Net Amounts of Liabilities Included on
the Consolidated
Balance Sheets		 
Financial
Instruments (1)
 Cash
Collateral
Pledged		 (v) = (iii) - (iv)
Net Amount
At June 30, 2018:            
Derivatives, at fair value (2)
 $67
 $—
 $67
 $—
 $67
 $—
Repurchase agreements and term facilities (3)
 416,593
 —
 416,593
 416,593
 —
 —
Total $416,660
 $—
 $416,660
 $416,593
 $67
 $—
             
At December 31, 2017:            
Derivatives, at fair value $76
 $—
 $76
 $—
 $—
 $76
Repurchase agreements and term facilities (3)
 477,917
 —
 477,917
 477,917
 —
 —
Total $477,993
 $—
 $477,993
 $477,917
 $—
 $76

(1)

(1)

Amounts represent financial instruments pledged that are available to be offset against liability balances associated with term facilities, repurchase agreements and derivative transactions.derivatives.

(2)

(2)

The Company posted excess cash margincollateral of $739,000$3.4 million and $1.3 million related to interest rate swap contracts entered intooutstanding at June 30, 2018.2019 and December 31, 2018, respectively.

(3)

(3)

The combined fair value of securities and loans pledged against the Company's various repurchase agreements and term facilities was $725.9 million$1.1 billion and $816.1 million$1.2 billion at June 30, 20182019 and December 31, 2017,2018, respectively.

All balances associated with repurchase agreements and derivatives are presented on a gross basis on the Company's consolidated balance sheets.

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.


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44
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

NOTE 2019 - COMMITMENTS AND CONTINGENCIES

The Company may become involved in litigation on various matters due to the nature of the Company's business activities. 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. In addition, the Company may enter into settlements on certain matters in order to avoid the additional costs of engaging in litigation. Except as discussed below, the Company is unaware of any contingencies arising from such litigation that would require accrual or disclosure in the consolidated financial statements at June 30, 2018.

2019.

Open Litigation Matters

Six separate shareholder derivative suits (the "New York State Actions") purporting to assert claims on behalf of the Company were filed in the Supreme Court of New York on the following dates: December 2015 (the "Reaves Action"), February 2017 (the "Caito Action"), March 2017 (the "Simpson Action"), March 2017 (the "Heckel Action"), May 2017 (the "Schwartz Action") and August 2017 (the "Greff Action"). Plaintiffs in the Schwartz Action and Greff Action made demands on the Company's Board before filing suit, but plaintiffs in the Reaves Action, Caito Action, Simpson Action and Heckel Action did not. All of the shareholder derivative suits are substantially similar and allege that certain of the Company's current and former officers and directors breached their fiduciary duties, wasted corporate assets and/or were unjustly enriched. Certain complaints assert additional claims against the Manager and Resource America for unjust enrichment based on allegations that the Manager received excessive management fees from the Company. In June 2017, the Courtcourt stayed the Reaves Action, Caito Action, Simpson Action and Heckel Action (collectively, the "New York State Demand Futile Actions") in favor of the federal shareholder derivative litigation described below. The Company's time to respond to the complaints inbelow under "- Settled and Dismissed Litigation Matters." In June 2019 and July 2019, the Schwartz Action and Greff Action, is presently stayed by stipulation of the parties.respectively, were dismissed. The Company believes that the plaintiffs in each of the four remaining New York State Actions lack standing to assert claims derivatively on its behalf, and it intends to seek the dismissal of anyall of such remaining New York State Action asActions.

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Four separate shareholder derivative suits purportingIndex)

37

(Back to assert claims on behalf of the Company were filed in the United States District Court for the Southern District of New York (the "Court") on the following dates by shareholders who declined to make a demand on the Board prior to filing suit: January 2017 (the "Greenberg Action"), January 2017 (the "Canoles Action"), January 2017 (the "DeCaro Action") and April 2017 (the "Gehan Action"). In May 2017, the Court consolidated the Greenberg Action, Canoles Action, DeCaro Action and Gehan Action as the "Federal Demand Futile Actions" and, in July 2017, appointed lead counsel and directed that a consolidated complaint be filed. Following consolidation, the plaintiffs in the Canoles Action and Gehan Action voluntarily dismissed their suits. The consolidated complaint in the Federal Demand Futile Actions, filed in August 2017, alleged claims for breach of fiduciary duty, corporate waste, unjust enrichment and violations of Section 14(a) of the Securities Exchange Act of 1934, as amended. In April 2018, the consolidated complaint in the Federal Demand Futile Actions was dismissed, but such dismissal is currently on appeal.

Three additional shareholder derivative suits purporting to assert claims on behalf of the Company were filed in the United States District Court for the Southern District of New York on the following dates by shareholders who served demands on the Board to bring litigation and allege that their demands were wrongfully refused: February 2017 (the "McKinney Action"), March 2017 (the "Sherek/Speigel Action") and April 2017 (the "Sebenoler Action"). In May 2017, the Court consolidated the McKinney Action, Sherek/Speigel Action and Sebenoler Action as the "Federal Demand Refused Actions." A consolidated complaint was filed on JuneIndex)

EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2017, alleging claims for breach of fiduciary duty, unjust enrichment and violations of Section 14(a) of the Securities Exchange Act of 1934, as amended. The consolidated complaint in the Federal Demand Refused Actions was dismissed in February 2018 but such dismissal is currently on appeal.

2019

(unaudited)

In August 2017, Robert Canoles filed a shareholder derivative suit in Maryland Circuit Court against certain of the Company's current and former officers and directors, as well as the Manager and Resource America (the "Canoles Action"). Mr. Canoles had previously filed his suit in the United States District Court for the Southern District of New York, but voluntarily dismissed that action after the Court declined to appoint his counsel as lead counsel in the Federal Demand Futile Actions. The complaint in the Canoles Action, as amended in October 2017, asserts a variety of claims, including claims for breach of fiduciary duty, unjust enrichment and corporate waste, which are based on allegations substantially similar to those at issue in the Federal Demand Futile Actions.Actions (defined below). The Canoles Action was stayed by the Maryland Circuit Court in favor of the federal shareholder litigation described above.below under "- Settled and Dismissed Litigation Matters." The Company believes that Canoles lacks standing to assert claims derivatively on its behalf andbehalf. The Company intends to seek the dismissal of the Canoles ActionAction.

In April 2018, the Company funded $2.0 million into escrow in connection with the proposed settlement of outstanding litigation, which was settled in August 2018. The Company did not have any general litigation reserve at June 30, 2019 and December 31, 2018.

Primary Capital Mortgage, LLC ("PCM") is subject to litigation related to claims for repurchases or indemnifications on loans that basis ifPCM has sold to third parties. At June 30, 2019 and December 31, 2018, no such litigation demand was outstanding. Reserves for such litigation demands are included in the stay is lifted.


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45
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNEreserve for mortgage repurchases and indemnifications that totaled $1.7 million at June 30, 2018
(unaudited)

In September 2017, Michael Hafkey filed a2019 and December 31, 2018. The reserves for mortgage repurchases and indemnifications are included in liabilities held for sale on the consolidated balance sheets.

Settled and Dismissed Litigation Matters

The Company previously disclosed two consolidated shareholder derivative actions pending in the United States District Court for the Southern District of New York (the "Court") purporting to assert claims on behalf of the Company similar to the claims in the New York State Actions (collectively, the "Federal Actions"): (a) by shareholders who declined to make a demand on the Board prior to filing suit (the "Federal Demand Futile Actions") comprising a suit filed in January 2017 (the "Greenberg Action") and another suit filed in January 2017 (the "DeCaro Action") and (b) by shareholders who served demands on the Board to bring litigation and allege that their demands were wrongfully refused ("Federal Demand Refused Actions") comprising a suit by filed in February 2017 (the "McKinney Action"), a suit filed in March 2017 (the "Sherek/Speigel Action") and a suit filed in April 2017 (the "Sebenoler Action"). In January 2019, the parties to the Federal Actions executed a stipulation and agreement of settlement (the "Federal Actions Settlement Agreement"), which received final approval from the Court on May 17, 2019. Under the Federal Actions Settlement Agreement, the Company agreed to implement certain corporate governance changes and paid $550,000 in plaintiffs' attorneys' fees, funded by the Company's insurers. In exchange for the settlement consideration, the defendants were released from liability for certain claims, including all claims asserted in the Federal Actions. Among other terms and conditions, the Federal Actions Settlement Agreement provides that the defendants deny any and all allegations of wrongdoing and maintain that they have acted lawfully and in accordance with their fiduciary duties at all times.

The Company previously disclosed another shareholder derivative action filed in the United States District Court for the District of Maryland against certain of the Company's former officers and directors and the Manager (the "Hafkey Action"). The complaint assertsasserted a breach of fiduciary duty claim that iswas substantially similar to the claims at issue in the Federal Demand Refused Actions. In May 2019, Mr. Hafkey previously made a demand onvoluntarily dismissed his suit in light of the Board to investigate this claim, which was ultimately denied. settlement and dismissal of the Federal Actions.

The Company believes that Hafkey's claim that his demand to bringpreviously disclosed a securities litigation was wrongfully refused is without merit and that Hafkey consequently lacks standing to assert claims derivatively onsuit against certain of the Company's behalf. The Company filed a motion to stay the Hafkey Action in favor of the duplicative Federal Demand Futile Actions, which is pending.

In April 2018, the Company funded $2.0 million into escrow in connection with the proposed settlement of outstanding litigation. The Company did not have any general litigation reserve at June 30, 2018,current and it had a general litigation reserve of $2.2 million, including estimated legal costs, at December 31, 2017.
PCM is subject to litigation related to claims for repurchases or indemnifications on loans that PCM has sold to third parties. At June 30, 2018, no such litigation demand was outstanding. At December 31, 2017, such litigation demands totaled approximately $6.5 million. Reserves for such litigation demands are included in the reserve for mortgage repurchasesformer officers and indemnifications that totaled $1.7 million and $5.7 million at June 30, 2018 and December 31, 2017, respectively. The reserves for mortgage repurchases and indemnifications are included in liabilities held for sale on the consolidated balance sheets.
Settled Litigation Matters
PCM was the subject of a lawsuit brought by a purchaser of residential mortgage loans alleging breaches of representations and warranties made on loans sold to the purchaser. The asserted repurchase claims related to loans sold to the purchaser that were subsequently sold by the purchaser to either the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation and loans sold to the purchaser that were subsequently securitized and sold as RMBS by the purchaser to RMBS investors. This matter was settled on January 8, 2018.
On November 22, 2017, the Plaintiff's motion for class certification was granted in directors titled Levin v. Resource Capital Corp. (the "Levin Action"), a previously disclosed securities litigation against the Company and certain of its current and former officers that was pending in the United States District Court for the Southern District of New York.. On February 5, 2018, the Company entered into a stipulation and agreement of settlement (the "Settlement"Levin Action Settlement Agreement"), which received final approval from the Court on August 3, 2018. The Levin Action Settlement Agreement settled all claims asserted in the action on behalf of the certified class (the "Settlement"), which consisted, with specified exceptions, of all persons who purchased the Company's common stock, Series B Preferred Stock or Series C Preferred Stock between October 31, 2012 and August 5, 2015. Under the terms of the Levin Action Settlement Agreement, which has been filed publicly with the Court, a payment of $9.5 million has beenwas made to settle the litigation. The settlement payment was funded principally by insurance coverage, and the Company does not anticipate that the Settlement will have a material adverse impact on its financial condition.coverage. In exchange for the settlement consideration, the Company and the individual defendants in the Levin Action (and certain related parties) have been released from all claims that have been or could have been asserted in the case by class members (and certain related parties), excluding one holder of less than 500 shares who opted out of the Settlement. The terms of the Settlement and release of claims are described in greater detail in the Levin Action Settlement Agreement filed with the Court and the Final Judgment and Order of Dismissal with Prejudice entered by the Court on August 3, 2018. The Levin Action Settlement Agreement contains no admission of misconduct by the Company or any of the individual defendants and expressly acknowledges that the Company and the individual defendants deny all allegations of wrongdoing and maintain that it and they have at all times acted in good faith and in compliance with the law.

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38

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2019

(unaudited)

PCM was the subject of a lawsuit brought by a purchaser of residential mortgage loans alleging breaches of representations and warranties made on loans sold to the purchaser. The asserted repurchase claims related to loans sold to the purchaser that were subsequently sold by the purchaser to either the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation and loans sold to the purchaser that were subsequently securitized and sold as residential mortgage-backed securities ("RMBS") by the purchaser to RMBS investors. This matter was settled and dismissed in January 2018.

Other Contingencies

In

As part of the May 2017 the Company received proceeds of $16.2 million from the sale of its equity interest in Pearlmark Mezz, an unconsolidated entity. As part of the sale of Pearlmark Mezz,Mezzanine Realty Partners IV, L.P., the Company entered into an indemnification agreement wherebypursuant to which the Company agreed to indemnify the purchaser against realized losses of up to $4.3 million on the Kingswayone mezzanine loan until theits final maturity date in 2020. At June 30, 2019 and December 31, 2018, the Company hashad a contingent liability, reported in accounts payable and other liabilities on its consolidated balance sheets, of $703,000 outstanding as a reserve for probable indemnification losses. NoThe Company did not record any additional reserve for probable losses was recorded during the three orand six months ended June 30, 2019 and 2018.


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46
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

PCM is subject to additional claims for repurchases or indemnifications on loans that PCM has sold to investors. At both June 30, 20182019 and December 31, 2017,2018, outstanding demands for indemnification, repurchase or make whole payments totaled $3.3 million. The Company's estimated exposure for such outstanding claims, as well as unasserted claims, is included in its reserve for mortgage repurchases and indemnifications.

Unfunded Commitments

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.

Whole loans had $119.7 million and $108.1 million in unfunded loan commitments at June 30, 2019 and December 31, 2018, respectively. Preferred equity investments had $3.2 million in unfunded investment commitments at June 30, 2019. There were no preferred equity investment unfunded commitments at December 31, 2018.

NOTE 2120 - DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE

In November 2016, the Company received approval from itsCompany's Board to executeapproved the Plan to focus its strategy on CRE debt investments. The Plan contemplatescontemplated disposing of certain legacy CRE loans and exiting underperforming non-core asset classes. Non-real estateclasses and businesses, identified for sale wereincluding the residential mortgage and middle market lending segments as well as the Company's life settlement policy portfolio, or LCF.contract portfolio. The Company reclassified the operating results of theCompany's residential mortgage and middle market lending segmentssegments' operations were classified as discontinued operations and excluded from continuing operations for all periods presented. In addition,Certain of the Company transferred the assets and liabilities of LCF and non-performingCompany's legacy CRE loans towere classified as held for sale in the fourth quarter of 2016.sale. As of June 30, 2018,2019, the Company has disposed of substantially allcompleted the execution of the non-real estate businesses identified for sale.


Plan.

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47

39

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018

2019

(unaudited)


The following table summarizes the operating results of the residential mortgage and middle market lending segments' discontinued operations as reported separately as net loss from discontinued operations, net of tax for the three and six months ended June 30, 20182019 and 20172018 (in thousands):

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

—

 

 

$

10

 

 

$

—

 

 

$

580

 

Other

 

 

—

 

 

 

9

 

 

 

—

 

 

 

13

 

Total interest income

 

 

—

 

 

 

19

 

 

 

—

 

 

 

593

 

Interest expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net interest income

 

 

—

 

 

 

19

 

 

 

—

 

 

 

593

 

Other revenue

 

 

—

 

 

 

(53

)

 

 

—

 

 

 

32

 

Total revenues

 

 

—

 

 

 

(34

)

 

 

—

 

 

 

625

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

112

 

 

 

443

 

 

 

284

 

 

 

1,103

 

Total operating expenses

 

 

112

 

 

 

443

 

 

 

284

 

 

 

1,103

 

 

 

 

(112

)

 

 

(477

)

 

 

(284

)

 

 

(478

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives

 

 

—

 

 

 

27

 

 

 

135

 

 

 

275

 

Total other income

 

 

—

 

 

 

27

 

 

 

135

 

 

 

275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS BEFORE TAXES

 

 

(112

)

 

 

(450

)

 

 

(149

)

 

 

(203

)

Income tax expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

TOTAL LOSS FROM DISCONTINUED OPERATIONS

 

$

(112

)

 

$

(450

)

 

$

(149

)

 

$

(203

)

 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
REVENUES       
Interest income:       
Loans$10
 $893
 $580
 $1,790
Other9
 19
 13
 32
Total interest income19
 912
 593
 1,822
Interest expense—
 —
 —
 —
Net interest income19
 912
 593
 1,822
Gain (loss) on sale of residential mortgage loans13
 3,049
 (1) 6,874
Fee (loss) income(66) 1,497
 33
 3,677
Total revenues(34) 5,458
 625
 12,373
OPERATING EXPENSES       
Equity compensation—
 162
 —
 221
General and administrative443
 8,922
 1,103
 16,395
Total operating expenses443
 9,084
 1,103
 16,616
        
 (477) (3,626) (478) (4,243)
OTHER INCOME (EXPENSE)       
Net realized and unrealized gain (loss) on investment securities available-for-sale and loans and derivatives27
 (83) 275
 (85)
Fair value adjustments on financial assets held for sale—
 (475) —
 (417)
Total other income (expense)27
 (558) 275
 (502)
        
LOSS FROM DISCONTINUED OPERATIONS BEFORE TAXES(450) (4,184) (203) (4,745)
Income tax expense—
 —
 —
 —
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX(450) (4,184) (203) (4,745)
Loss from disposal of discontinued operations—
 —
 —
 —
TOTAL LOSS FROM DISCONTINUED OPERATIONS$(450) $(4,184) $(203) $(4,745)

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48
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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

The assets and liabilities of business segments classified as discontinued operations and other assets and liabilities classified as held for sale are reported separately in the accompanying consolidated financial statements and are summarized as follows at June 30, 20182019 and December 31, 20172018 (in thousands, except amounts in the footnote)thousands):

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Loans held for sale

 

$

16,082

 

 

$

17,000

 

Other assets

 

 

366

 

 

 

645

 

Total

 

$

16,448

 

 

$

17,645

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

1,770

 

 

$

1,820

 

Total

 

$

1,770

 

 

$

1,820

 

 June 30,
2018		 December 31,
2017
ASSETS   
Restricted cash$—
 $138
Accrued interest receivable—
 67
Loans held for sale (1)
19,978
 93,063
Other assets (2)
978
 14,450
Total assets held for sale$20,956
 $107,718
    
LIABILITIES   
Accounts payable and other liabilities$2,421
 $10,283
Management fee payable—
 56
Accrued interest payable—
 3
Total liabilities held for sale$2,421
 $10,342
(1)Includes a directly originated middle market loan with a carrying value of $2.0 million at June 30, 2018 and December 31, 2017. In July 2018 substantially all of the assets of the borrower were sold, resulting in $2.1 million of loan repayments.
(2)Includes the Company's investment in life settlement contracts of $5.1 million at December 31, 2017, which were transferred to held for sale in the fourth quarter of 2016. There were no life settlement contracts remaining at June 30, 2018.
In the first quarter of 2018, the Company sold its remaining syndicated middle market loans and recognized a $243,000 net realized gain on these sales for the six months ended June

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40

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

JUNE 30, 2018.

2019

(unaudited)

The following table summarizes the loans held for sale in the residential mortgage and middle market lending segments as well as the non-performing legacy CRE loans transferred to held for sale in the fourth quarter of 2016. The loans held for sale are carried at the lower of cost or fair value (in thousands, except quantitiesnumber of loans and amountsamount in footnotes)the footnote):

Loan Description

 

Number of Loans

 

 

Amortized Cost

 

 

Carrying Value

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Legacy CRE loan

 

 

1

 

 

$

22,150

 

 

$

16,082

 

Mezzanine loan (1)

 

 

1

 

 

 

—

 

 

 

—

 

Total

 

 

2

 

 

$

22,150

 

 

$

16,082

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Legacy CRE loan

 

 

1

 

 

$

21,666

 

 

$

17,000

 

Mezzanine loan (1)

 

 

1

 

 

 

—

 

 

 

—

 

Total

 

 

2

 

 

$

21,666

 

 

$

17,000

 

Loan Description Number of Loans Amortized Cost Carrying Value
At June 30, 2018:      
Legacy CRE loans (1)
 1 $24,614
 $18,000
Mezzanine loans (2)
 1 —
 —
Middle market loans (3)
 1 13,837
 1,978
Total loans held for sale 3 $38,451
 $19,978
       
At December 31, 2017:      
Legacy CRE loans (1)
 5 $63,783
 $61,841
Mezzanine loans (2)
 1 —
 —
Middle market loans (3)
 5 41,199
 29,308
Residential mortgage loans (4)(5)
 14 1,914
 1,914
Total loans held for sale 25 $106,896
 $93,063

(1)

(1)Two legacy CRE loans with amortized cost of $28.3 million were reclassified as CRE loans on the consolidated balance sheets at June 30, 2018 as it is now the Company's intent to hold these loans to maturity.
(2)Includes a

The mezzanine loan withhas a par value of $38.1 million thatand was acquired at a fair value of zero as a result of the liquidations of Resource Real Estate Funding CDO 2006-1, Ltd. in April 2016 and Resource Real Estate Funding CDO 2007-1, Ltd. in November 2016. The mezzanine loan is comprised of two tranches, maturing in November 2018 and September 2021.

(3)Includes a directly originated middle market loan with a fair value of $2.0 million at June 30, 2018 and December 31, 2017. In July 2018 substantially all of the assets of the borrower were sold, resulting in $2.1 million of loan repayments. The loan's fair value was supported by the projected proceeds from the sale of the business at June 30, 2018 and a third party valuation mark prepared at December 31, 2017.
(4)The fair value option was elected for residential mortgage loans held for sale.
(5)The Company's residential mortgage loan portfolio was comprised of both agency loans and non-agency jumbo loans. The fair values of the agency loan portfolio were 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 jumbo loan portfolio were generally classified as Level 3 in the fair value hierarchy, as those values are generally based upon valuation techniques that utilize unobservable inputs that reflect the assumptions that a market participant would use in pricing those assets.

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EXANTAS CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2018
(unaudited)

NOTE 2221 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this report and determined that there have not been any events, excluding the liquidation of RCC 2017-CRE5 securitization (see Note 9), that have occurred that would require adjustments to or disclosures in the consolidated financial statements.


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50

41


ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read in conjunction with our consolidated financial statements and accompanying 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 risks, uncertainties and assumptions associated with those statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.

2018.

We are a Maryland corporation and a real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate mortgage loans and other commercial real estate-related debt investments. We are externally managed by Exantas Capital Manager Inc. (our "Manager") (formerly known as Resource Capital Manager, Inc.), which is an indirect wholly-owned subsidiary of C-III Capital Partners LLC ("C-III"), a leading commercial real estate ("CRE") investment management and services company engaged in a broad range of activities. C-III is the beneficial owner of shares of our common stock (2.4%2.4% of our outstanding shares of common stock at June 30, 2018).2019. Our Manager draws upon the management teams of C-III and its subsidiaries and its collective investment experience to provide its services. 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. Historically, we have made other residential real estate and commercial finance investments. 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 our investments, and we have sought to mitigate interest rate risk through derivative instruments.

We are organized and have elected to be taxed as a REIT for U.S. federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended. We also intend to operate our business in a manner that will permit us to remain excluded from registration as an investment company under the Investment Company Act of 1940.

Our investment strategy targets the following CRE credit investments, including:

First mortgage loans, which we refer to as whole loans. These loans are typically secured by first liens on CRE property, including the following property types: office, multifamily, self-storage, retail, hotel, healthcare, student housing, manufactured housing, industrial and mixed-use.

First priority interests in first mortgage loans, which we refer to as A-Notes.A-notes. An A-NoteA-note is typically a privately negotiated loan that is secured by a first mortgage on a commercial property or group of related properties that is senior to a B-Note secured by the same first mortgage property or group.

Subordinated interests in first mortgage loans, which we refer to as B-Notes.B-notes. A B-NoteB-note is typically a privately negotiated loan that is secured by a first mortgage on a commercial property or group of related properties and is subordinated to an A-NoteA-note secured by the same first mortgage property or group. B-NotesB-notes are subject to more credit risk with respect to the underlying mortgage collateral than the corresponding A-Note.A-note.

Mezzanine debt that is senior to borrower's equity but is subordinated to other third-party debt. Like B-Notes,B-notes, these loans are also subordinated CRE loans, but are usually secured by a pledge of the borrower's equity ownership in the entity that owns the property or by a second lien mortgage on the property.

Preferred equity investments that are subordinate to first mortgage loans and mezzanine debt. These investments may be subject to more credit risk than subordinated debt but provide the potential for higher returns upon a liquidation of the underlying property and are typically structured to provide some credit enhancement differentiating it from the common equity in such investments.

Commercial mortgage-backed securities which we refer to as CMBS,("CMBS") that are collateralized by commercial mortgage loans, including senior and subordinated investment grade CMBS, below investment grade CMBS and unrated CMBS.

Other

CRE Investments:investments: We may invest in other income producing real estate debt and equity investments.

We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt and from hedging interest rate risks.  Historically, we have generated revenues from the interest and fees earned on our CRE whole loans, B notes, mezzanine loans, preferred equity investments, CMBS, middle market loans, other asset-backed securities ("ABS") and structured note investments.  


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51

42


We use 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. We historically have financed our CRE loan portfolio with repurchase agreements as a short-term financing source and securitizations and, to a lesser extent, other term financing as long-term financing sources. We expect to continue to use these financing sources into the near term future. At June 30, 2019 our match-funded, floating-rate CRE and CMBS investments, at carrying value, comprised 94% of the core investment portfolio totaling $2.4 billion. Additionally, in April 2019, we closed a CRE debt securitization that financed $687.2 million of CRE loans and sold $575.8 million of non-recourse, floating-rate notes to third-party investors.

We use derivative financial instruments to hedge a portion of the interest rate risk associated with our borrowings. We generally seek to minimize interest rate risk with a strategy that is expected to result in the least amount of volatility under generally accepted accounting principles while still meeting our strategic economic objectives and maintaining adequate liquidity and flexibility. These hedging transactions may include interest rate swaps, collars, caps or floors, puts, calls and options.

Our CRE floating rate loans have London Interbank Offered Rate ("LIBOR") floors. In a lower interest rate environment, LIBOR floors do provide some asset yield protection and investment returns would also be enhanced by a decline in the corresponding costs of our floating rate liabilities. Since the start of 2018, we have originated or acquired CRE loans with total commitments of $1.5 billion with a weighted average LIBOR floor of 2.04%.

In November 2016, we received approval from our board of directors (the(our "Board") to execute aapproved the strategic plan (the "Plan") to focus our strategy on CRE debt investments. The Plan contemplatescontemplated disposing of certain loans underwritten prior to 2010 ("legacy CRE loans"), exiting non-core asset classes and businesses and investments, including residential real estate and commercial finance assets (collectively the "Identified Assets"), and establishingmaintaining a dividend policy based on sustainable earnings.

We began the process of disposing of several ancillary businesses and investments as part of the Plan during the fourth quarter of 2016. The dispositions include our

Our residential mortgage origination operations and our middle market lending segment. We moved these segments towere classified as discontinued operations and also moved our life settlement contract investment as well as severalcertain legacy CRE loans towere classified as held for sale, classification in the fourth quarter of 2016 and recognizedsubject to impairments to adjust the carrying value of these businesses and investments to their estimated fair market value. We have substantially completed the execution of the Plan asPlan. As of June 30, 2018. At June 30, 2018,2019, we havehad approximately $47.6$27.6 million, left in the Plan,composed of which $46.3 million relates to remainingtwo legacy CRE loans.

The following table delineatesloans, remaining of the disposable investments by business segment and details the current net book value$480.1 million of each included in theidentified Plan (in millions):
 Identified Assets at Plan Inception 
Impairments/Adjustments on Non-Monetized Assets (1)(2)
 
Impairments/Adjustments on Monetized Assets (1)
 
Monetized through June 30, 2018 (3)
 
Net Book Value at June 30, 2018 (3)
Discontinued operations and assets held for sale:         
Legacy CRE loans (4)
$162.2
 $(11.5) $(17.5) $(115.2) $18.0
Middle market loans73.8
 —
 (17.7) (56.1) —
Residential mortgage lending segment (5)
56.6
 (2.2) (9.6) (43.7) 1.1
Other assets held for sale5.9
 —
 3.8
 (9.7) —
Subtotal - discontinued operations and assets held for sale298.5
 (13.7) (41.0) (224.7) 19.1
Legacy CRE loans held for investment (6)(7)
32.5
 —
 —
 (4.2) 28.3
Investments in unconsolidated entities86.6
 —
 38.3
 (124.7) 0.2
Commercial finance assets62.5
 —
 2.1
 (64.6) —
Total$480.1
 $(13.7) $(0.6) $(418.2) $47.6
(1)Reflects adjustments as a result of the designation as assets held for sale or discontinued operations, which occurred during the third and fourth quarters of 2016 except as noted in (2) below.
(2)The impairment adjustment to middle market loans includes $5.4 million of fair value adjustments that occurred prior to the inception of the Plan.
(3)Middle market loans include a pro forma adjustment of $2.1 million for proceeds received in July 2018.
(4)Legacy CRE loans include $88.2 million par value of loans at the inception of the Plan that were not reflected on the consolidated balance sheets until our investment in Resource Real Estate Funding CDO 2007-1, Ltd. ("RREF CDO 2007-1") was liquidated in November 2016.
(5)Includes $2.6 million of cash and cash equivalents not classified as assets held for sale in the residential mortgage lending segment at June 30, 2018.
(6)Legacy CRE loans with $28.3 million of net book value were reclassified to CRE loans on the consolidated balance sheets at June 30, 2018 as it is now our intent to hold these loans to maturity.
(7)Legacy CRE loans held for investment includes $30.0 million par value of loans at the inception of the Plan that were not reflected on the consolidated balance sheets until our investment in RREF CDO 2007-1 was liquidated in November 2016.

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52

assets. We have deployed the incremental capital received from executing the Plan primarily into our CRE lending business and CMBS investments. We typically target transitional floating-rate CRE loans between $20.0 millioninvestments, bringing our equity allocation in core assets and $30.0 million. Sincenon-core assets to 95% and 5%, respectively, at both June 30, 2019 and December 31, 2016, we have originated 47 CRE loans with total commitments of $941.9 million, of which $195.3 million of loan commitments were originated during the three months ended June 30, 2018. Since December 31, 2016, we have acquired CMBS with total face values of $333.3 million, of which $77.1 million were acquired during the three months ended June 30, 2018. These investments were initially financed in part through our CRE and CMBS term facilities and, in the case of CRE loans, through securitizations. In furtherance

We typically target transitional floating-rate CRE loans between $20.0 million and $30.0 million. During the three months ended June 30, 2019, we acquired 28 CRE loans with total commitments of $210.8 million from C-III Commercial Mortgage LLC, an affiliate of our Plan,Manager, and originated 17 CRE loans with total commitments of $252.1 million. During the three months ended June 30, 2019, we intendacquired CMBS with total face values of $13.2 million. At June 30, 2019, our $445.7 million CMBS portfolio, at fair value, comprised $321.8 million of floating-rate bonds and $123.8 million of fixed-rate bonds. We expect to continue to utilize proceeds fromdiversify and extend the monetized assets, coupled with available debt financingduration of $739.6our core CRE portfolio by investing in CMBS where we see attractive investment opportunities.

We expect to see continued positive momentum in 2019 and anticipate that our originations and investments for the year ended December 31, 2019 will be between $850.0 million and $1.0 billion.

Common stock book value was $14.06 per share at June 30, 2019, a $0.04 per share increase from December 31, 2018. We began reporting economic book value, a non-GAAP measure, at December 31, 2018 in an effort to growimprove transparency for our CRE lending operation in 2018.

shareholders and the analyst community. Two adjustments are made to common stock book value to arrive at economic book value.

In furtherance

Our common stock book value includes the remaining aggregate value of the actions taken to reduceequity conversion options on our costconvertible senior notes of capital, we redeemed all shares$9.6 million, or ($0.30) per share, at June 30, 2019. The liability balance of our 8.50%convertible senior notes increases and our common stock book value is reduced as the option discounts are amortized to interest expense.

The carrying amount of our 8.625% Fixed-to-Floating Series A Cumulative Redeemable Preferred Stock and 8.25% Series BC Cumulative Redeemable Preferred Stock ("Series BC Preferred Stock"), at a total redemption cost of $165.3$116.0 million duringdoes not reflect the first quarterfull obligation of 2018. The redemptions eliminated approximately $13.7$120.0 million, ofwhich is the balance on which we pay preferred distributions and would be the amount due should we choose to redeem the Series C Preferred Stock. Adjusting for this $4.0 million difference, common stock dividends on an annual basis.

As a result of the Plan, the allocation of our equitybook value would be reduced by $0.13 per share at June 30, 2018 was: 91% in core assets and 9% in non-core assets. At December 31, 2017, the allocation2019.

Adjusting for these two items yields economic book value of our equity was: 84% in core assets and 16% in non-core assets.

$13.63 per share at June 30, 2019.

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Results of Operations

Our net income allocable to common shares for the three months ended June 30, 2018 was $6.2 million, or $0.20 per share-basic ($0.20 per share-diluted), and our net loss allocable to common shares for the six months ended June 30, 2018 was $6.4 million, or $(0.21) per share-basic ($(0.21) per share-diluted) as compared to net income allocable to common shares for the three and six months ended June 30, 2017 of $2.52019 was $6.3 million, or $0.08$0.20 per share-basic ($0.080.20 per share-diluted) and $11.8 million, or $0.38 per share-basic ($0.38 per share-diluted), and $5.2respectively, as compared to net income allocable to common shares for the three months ended June 30, 2018 of $6.2 million, or $0.17$0.20 per share-basic ($0.170.20 per share-diluted), respectively.


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53

common shares for the six months ended June 30, 2018 of $6.4 million, or $(0.21) per share-basic ($(0.21) per share-diluted).

Net Interest Income

The following tables analyze the change in interest income and interest expense for the comparative three and six months ended June 30, 20182019 and 20172018 by changes in volume and changes in rates. The changes attributable to the combined changes in volume and rate have been allocated proportionately, based on absolute values, to the changes due to volume and changes due to rates (in thousands)(dollars in thousands, except amounts in footnotes):

 

 

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Due to Changes in

 

 

 

Net Change

 

 

Percent Change (1)

 

 

Volume

 

 

Rate

 

Increase (decrease) in interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (2)

 

$

4,916

 

 

 

20

%

 

$

5,593

 

 

$

(677

)

Legacy CRE loans (2)(3)

 

 

(156

)

 

 

(46

)%

 

 

(214

)

 

 

58

 

CRE mezzanine loan

 

 

88

 

 

 

293

%

 

 

88

 

 

 

—

 

CRE preferred equity investments (2)

 

 

105

 

 

 

19

%

 

 

106

 

 

 

(1

)

Securities (4)

 

 

2,386

 

 

 

57

%

 

 

2,067

 

 

 

319

 

Other

 

 

139

 

 

 

695

%

 

 

139

 

 

 

—

 

Total increase in interest income

 

 

7,478

 

 

 

25

%

 

 

7,779

 

 

 

(301

)

Increase (decrease) in interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securitized borrowings: (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RCC 2015-CRE3 Senior Notes

 

 

(272

)

 

 

(100

)%

 

 

(272

)

 

 

—

 

RCC 2015-CRE4 Senior Notes

 

 

(687

)

 

 

(100

)%

 

 

(687

)

 

 

—

 

RCC 2017-CRE5 Senior Notes

 

 

(1,223

)

 

 

(60

)%

 

 

(1,535

)

 

 

312

 

XAN 2018-RSO6 Senior Notes

 

 

3,859

 

 

 

2,442

%

 

 

3,845

 

 

 

14

 

XAN 2019-RSO7 Senior Notes

 

 

4,849

 

 

 

100

%

 

 

4,849

 

 

 

—

 

Unsecured junior subordinated debentures

 

 

49

 

 

 

6

%

 

 

—

 

 

 

49

 

Convertible senior notes: (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.50% Convertible Senior Notes

 

 

60

 

 

 

3

%

 

 

60

 

 

 

—

 

6.00% Convertible Senior Notes

 

 

(1,309

)

 

 

(100

)%

 

 

(1,309

)

 

 

—

 

8.00% Convertible Senior Notes

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

CRE - term repurchase facilities (5)

 

 

(758

)

 

 

(14

)%

 

 

(1,241

)

 

 

483

 

CMBS - term repurchase facilities

 

 

12

 

 

 

10

%

 

 

8

 

 

 

4

 

Trust certificates - term repurchase facilities (5)

 

 

(514

)

 

 

(40

)%

 

 

(509

)

 

 

(5

)

CMBS - short term repurchase agreements

 

 

1,393

 

 

 

111

%

 

 

1,281

 

 

 

112

 

Hedging

 

 

(37

)

 

 

(123

)%

 

 

(37

)

 

 

—

 

Total increase in interest expense

 

 

5,422

 

 

 

34

%

 

 

4,453

 

 

 

969

 

Net increase (decrease) in net interest income

 

$

2,056

 

 

 

 

 

 

$

3,326

 

 

$

(1,270

)

(1)

Percent change is calculated as the net change divided by the respective interest income or interest expense for the three months ended June 30, 2018.

(2)

Includes increases in fee income of approximately $18,000 and $75,000 recognized on our legacy CRE loans and our CRE preferred equity investments and a decrease in fee income of approximately $332,000 recognized on our CRE whole loans that were due to changes in volume in connection with originations, extensions and payoffs of the CRE loans.

  Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
    Due to Changes in
  Net Change Volume Rate
Increase (decrease) in interest income:      
CRE loans $3,594
 $2,161
 $1,433
Securities 2,876
 3,060
 (184)
Other (445) (436) (9)
Total increase in interest income 6,025
 4,785
 1,240
       
Increase (decrease) in interest expense:      
Securitized borrowings:      
RCC 2014-CRE2 Senior Notes (927) (927) —
RCC 2015-CRE3 Senior Notes (1,761) (2,358) 597
RCC 2015-CRE4 Senior Notes (374) (748) 374
RCC 2017-CRE5 Senior Notes 2,040
 2,040
 —
  XAN 2018-RSO6 Senior Notes 158
 158
 —
Unsecured junior subordinated debentures 124
 —
 124
Convertible senior notes:      
4.50% Convertible Senior Notes 2,388
 2,388
 —
6.00% Convertible Senior Notes (835) (835) —
8.00% Convertible Senior Notes (1,805) (1,805) —
CRE - term repurchase facilities 1,131
 235
 896
CMBS - term repurchase facilities (416) (480) 64
Trust certificates - term repurchase facilities 803
 809
 (6)
CMBS - short term repurchase agreements 1,259
 1,259
 —
Hedging 27
 27
 —
Total increase (decrease) in interest expense 1,812
 (237) 2,049
Net increase (decrease) in net interest income $4,213
 $5,022
 $(809)

(3)

Includes the change in interest income recognized on two legacy CRE loans reclassified to CRE whole loans in 2018. One of the reclassified legacy CRE loans paid off at par in December 2018.


(4)

Includes a decrease of net accretion income of approximately $24,000 that was due to changes in volume.

(5)

Includes increases of net amortization expense of approximately $893,000 and $53,000 on our securitized borrowings and CRE-term repurchase facilities, respectively, and decreases of approximately $192,000 and $37,000 on our convertible senior notes and trust certificates - term repurchase facilities, respectively, that were due to changes in volume in connection with deferred debt issuance costs and discounts capitalized to the respective borrowings.

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44

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Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Due to Changes in

 

 

 

Net Change

 

 

Percent Change (1)

 

 

Volume

 

 

Rate

 

Increase (decrease) in interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (2)

 

$

9,293

 

 

 

20

%

 

$

9,452

 

 

$

(159

)

Legacy CRE loans (2)(3)

 

 

(243

)

 

 

(37

)%

 

 

(371

)

 

 

128

 

CRE mezzanine loan

 

 

206

 

 

 

687

%

 

 

206

 

 

 

—

 

CRE preferred equity investments (2)

 

 

657

 

 

 

113

%

 

 

658

 

 

 

(1

)

Securities (4)

 

 

5,305

 

 

 

69

%

 

 

4,787

 

 

 

518

 

Other

 

 

235

 

 

 

170

%

 

 

235

 

 

 

—

 

Total increase in interest income

 

 

15,453

 

 

 

28

%

 

 

14,967

 

 

 

486

 

Increase (decrease) in interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securitized borrowings: (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RCC 2015-CRE3 Senior Notes

 

 

(992

)

 

 

(100

)%

 

 

(992

)

 

 

—

 

RCC 2015-CRE4 Senior Notes

 

 

(1,320

)

 

 

(100

)%

 

 

(1,320

)

 

 

—

 

RCC 2017-CRE5 Senior Notes

 

 

(1,711

)

 

 

(44

)%

 

 

(2,600

)

 

 

889

 

XAN 2018-RSO6 Senior Notes

 

 

7,873

 

 

 

4,983

%

 

 

7,859

 

 

 

14

 

XAN 2019-RSO7 Senior Notes

 

 

4,849

 

 

 

100

%

 

 

4,849

 

 

 

—

 

Unsecured junior subordinated debentures

 

 

187

 

 

 

12

%

 

 

—

 

 

 

187

 

Convertible senior notes: (5)

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.50% Convertible Senior Notes

 

 

119

 

 

 

3

%

 

 

119

 

 

 

—

 

6.00% Convertible Senior Notes

 

 

(2,617

)

 

 

(100

)%

 

 

(2,617

)

 

 

—

 

8.00% Convertible Senior Notes

 

 

—

 

 

 

—

%

 

 

—

 

 

 

—

 

CRE - term repurchase facilities (5)

 

 

1,951

 

 

 

21

%

 

 

867

 

 

 

1,084

 

CMBS - term repurchase facilities

 

 

(192

)

 

 

(49

)%

 

 

(170

)

 

 

(22

)

Trust certificates - term repurchase facilities (5)

 

 

(923

)

 

 

(37

)%

 

 

(980

)

 

 

57

 

CMBS - short term repurchase agreements

 

 

3,309

 

 

 

167

%

 

 

3,031

 

 

 

278

 

Hedging

 

 

(100

)

 

 

(125

)%

 

 

(100

)

 

 

—

 

Total increase in interest expense

 

 

10,433

 

 

 

34

%

 

 

7,946

 

 

 

2,487

 

Net increase (decrease) in net interest income

 

$

5,020

 

 

 

 

 

 

$

7,021

 

 

$

(2,001

)

(1)

Percent change is calculated as the net change divided by the respective interest income or interest expense for the six months ended June 30, 2018.


(2)

Includes increases in fee income of approximately $44,000, $87,000 and $85,000 recognized on our CRE whole loans, legacy CRE loans and our CRE preferred equity investments, respectively, that were due to changes in volume in connection with originations, extensions and payoffs of the CRE loans.

(3)

Includes the change in interest income recognized on two legacy CRE loans reclassified to CRE whole loans in 2018. One of the reclassified legacy CRE loans paid off at par in December 2018.

  Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
    Due to Changes in
  Net Change Volume Rate
Increase (decrease) in interest income:      
CRE loans $4,444
 $1,787
 $2,657
Securities 4,024
 5,036
 (1,012)
Other (1,957) (1,930) (27)
Total increase in interest income 6,511
 4,893
 1,618
       
Increase (decrease) in interest expense:      
Securitized borrowings:      
RCC 2014-CRE2 Senior Notes (2,358) (2,358) —
RCC 2015-CRE3 Senior Notes (2,663) (3,921) 1,258
RCC 2015-CRE4 Senior Notes (1,281) (2,054) 773
RCC 2017-CRE5 Senior Notes 3,897
 3,897
 —
  XAN 2018-RSO6 Senior Notes 158
 158
 —
Unsecured junior subordinated debentures 208
 —
 208
Convertible senior notes:      
4.50% Convertible Senior Notes 4,753
 4,753
 —
6.00% Convertible Senior Notes (1,672) (1,672) —
8.00% Convertible Senior Notes (3,608) (3,608) —
CRE - term repurchase facilities 1,602
 8
 1,594
CMBS - term repurchase facilities (695) (887) 192
Trust certificates - term repurchase facilities 1,558
 1,577
 (19)
CMBS - short term repurchase agreements 1,983
 1,983
 —
Hedging 60
 60
 —
Total increase (decrease) in interest expense 1,942
 (2,064) 4,006
Net increase (decrease) in net interest income $4,569
 $6,957
 $(2,388)

(4)

Includes an increase of net accretion income of approximately $64,000 that was due to changes in volume.


(5)

Includes increases of net amortization expense of approximately $1.3 million and $246,000 on our securitized borrowings and CRE-term repurchase facilities, respectively, and decreases of approximately $385,000 and $74,000 on our convertible senior notes and trust certificates - term repurchase facilities, respectively, that were due to changes in volume in connection with deferred debt issuance costs and discounts capitalized to the respective borrowings.

Net Change in Interest Income for the Comparative Three and Six Months Ended June 30, 2019 and 2018:

Aggregate interest income increased by $7.5 million and $15.5 million for the comparative three and six months ended June 30, 2019 and 2018, respectively. We attribute the changes to the following:

CRE whole loans. The increases of $4.9 million and $9.3 million for the comparative three and six months ended June 30, 2019 and 2018, respectively, were primarily attributable to increases in the outstanding balance of CRE whole loans, attributable to $513.4 million of loan originations and acquisitions net of loan repayments for the 12 months ended June 30, 2019.

CRE preferred equity investments. The increase of $657,000 for the comparative six months ended June 30, 2019 and 2018 was attributable to the recognition of a full six months' interest income on our March 2018 investment in a preferred equity interest with an outstanding principal balance of $20.1 million and an 11.50% interest rate at June 30, 2019.

Securities. The increases of $2.4 million and $5.3 million for the comparative three and six months ended June 30, 2019 and 2018, respectively, were primarily attributable to acquisitions, net of sales and repayments, of CMBS of $119.7 million during the 12 months ended June 30, 2019 and increases in coupon rates on our floating rate CMBS over the comparative periods.

(Back to Index)

55

45


Net Change in Interest Expense for the Comparative Three and Six Months Ended June 30, 2019 and 2018:

Aggregate interest expense increased by $5.4 million and $10.4 million for the comparative three and six months ended June 30, 2019 and 2018, respectively. We attribute the changes to the following:

Securitized borrowings. The net increases of $6.5 million and $8.7 million for the comparative three and six months ended June 30, 2019 and 2018, respectively, were primarily attributable to the issuances of Exantas Capital Corp. 2018-RSO6, Ltd. ("XAN 2018-RSO6") and Exantas Capital Corp. 2019-RSO7, Ltd. ("XAN 2019-RSO7"), which closed in June 2018 and April 2019, respectively. The increases were offset by the liquidations of Resource Capital Corp. 2015-CRE4, Ltd. ("RCC 2015-CRE4") and Resource Capital Corp. 2015-CRE3, Ltd. ("RCC 2015-CRE3") in July 2018 and August 2018, respectively, and $218.0 million of note paydowns on Resource Capital Corp. 2017-CRE5, Ltd. ("RCC 2017-CRE5") during the 12 months ended June 30, 2019.

Convertible senior notes. The net decreases of $1.2 million and $2.5 million for the comparative three and six months ended June 30, 2019 and 2018, respectively, were primarily attributable to the redemption of our 6.00% convertible senior notes in December 2018.

CRE - term repurchase facilities. The decrease of $758,000 for the comparative three months ended June 30, 2019 and 2018 was primarily attributable to the payoff of borrowings on the CRE - term repurchase facilities in connection with the April 2019 close of XAN 2019-RSO7, a CRE debt securitization that financed $687.2 million of CRE loans. The increase of $2.0 million for the comparative six months ended June 30, 2019 and 2018 was primarily attributable to an increase in one-month LIBOR over the comparative period and increased utilization of these facilities to finance CRE loans collateralizing XAN 2019-RSO7, which increased principal outstanding on borrowings by $498.0 million from June 30, 2018 through the date of close of the securitization, and the CRE loans acquired in the May 2019 Mortgage Loan Sale and Purchase Agreement, which had principal outstanding on borrowings of $137.1 million at June 30, 2019.

Trust certificates - term repurchase facilities. The decreases of $514,000 and $923,000 for the comparative three and six months ended June 30, 2019 and 2018, respectively, were primarily attributable to the repayment of the RSO Repo SPE Trust 2015 facility in July 2018.

CMBS - short term repurchase agreements. The increases of $1.4 million and $3.3 million for the comparative three and six months ended June 30, 2019 and 2018, respectively, were primarily attributable to the increased utilization of short term repurchase agreements to finance CMBS acquired in 2018, which, when compared with CMBS - short term repurchase agreements and CMBS - term repurchase facilities at June 30, 2018, increased principal outstanding on borrowings by $135.6 million from June 30, 2018 to June 30, 2019.

(Back to Index)

46

(Back to Index)

Average Net Yield and Average Cost of Funds:

The following table presentstables present the average net yield and average cost of funds for the three months ended June 30, 2018 and 2017 (in thousands, except percentages):

  For the Three Months Ended June 30, 2018 For the Three Months Ended June 30, 2017
  Average Balance Interest Income (Expense) Average Net Yield (Cost of Funds) Average Balance Interest Income (Expense) Average Net Yield (Cost of Funds)
Interest-earning assets            
CRE loans $1,479,171
 $25,435
 6.93 % $1,429,352
 $21,841
 6.13 %
Securities 269,252
 4,205
 6.26 % 97,581
 1,329
 6.24 %
Other 3,368
 20
 0.59 % 38,200
 465
 13.48 %
Total interest income/average net yield 1,751,791
 29,660
 6.81 % 1,565,133
 23,635
 6.32 %
             
Interest-bearing liabilities            
Collateralized by:            
CRE whole loans 751,422
 (8,482) (4.53)% 772,625
 (8,215) (4.26)%
CMBS 162,808
 (1,385) (3.41)% 71,658
 (542) (3.03)%
General corporate debt:            
Unsecured junior subordinated debentures 51,548
 (806) (6.19)% 51,548
 (682) (5.09)%
4.50% Convertible Senior Notes 143,750
 (2,388) (6.57)% —
 —
 — %
6.00% Convertible Senior Notes 70,453
 (1,309) (7.35)% 115,000
 (2,145) (7.38)%
8.00% Convertible Senior Notes 21,182
 (481) (8.98)% 100,000
 (2,285) (9.04)%
Trust certificates - term repurchase facilities 73,931
 (1,278) (6.93)% 26,598
 (475) (7.17)%
Hedging 47,612
 (30) (0.25)% 1,501
 (3) (0.73)%
Total interest expense/average cost of funds $1,322,706
 (16,159) (4.88)% $1,138,930
 (14,347) (5.02)%
Total net interest income/average spread   $13,501
 
   $9,288
 

(Back to Index)
56

The following table presents the average net yield and average cost of funds for the six months ended June 30, 2019 and 2018 and 2017 (in(dollars in thousands, except percentages)amounts in footnotes):

 

 

For the Three Months Ended June 30, 2019

 

 

For the Three Months Ended June 30, 2018

 

 

 

Average Balance

 

 

Interest Income (Expense)

 

 

Average Net Yield (Cost of Funds) (1)

 

 

Average Balance

 

 

Interest Income (Expense)

 

 

Average Net Yield (Cost of Funds) (1)

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (2)

 

$

1,746,042

 

 

$

29,420

 

 

 

6.76

%

 

$

1,383,028

 

 

$

24,504

 

 

 

7.14

%

Legacy CRE loans (2)

 

 

38,905

 

 

 

183

 

 

 

1.89

%

 

 

75,692

 

 

 

339

 

 

 

1.79

%

CRE mezzanine loan

 

 

4,700

 

 

 

118

 

 

 

9.97

%

 

 

1,188

 

 

 

30

 

 

 

10.14

%

CRE preferred equity investments (2)

 

 

20,507

 

 

 

667

 

 

 

13.04

%

 

 

19,263

 

 

 

562

 

 

 

11.69

%

Securities (3)

 

 

440,120

 

 

 

6,591

 

 

 

5.93

%

 

 

269,252

 

 

 

4,205

 

 

 

6.26

%

Other

 

 

19,225

 

 

 

159

 

 

 

0.83

%

 

 

3,368

 

 

 

20

 

 

 

0.59

%

Total interest income/average net yield

 

 

2,269,499

 

 

 

37,138

 

 

 

6.53

%

 

 

1,751,791

 

 

 

29,660

 

 

 

6.81

%

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (4)

 

 

1,215,030

 

 

 

(14,250

)

 

 

(4.70

)%

 

 

751,422

 

 

 

(8,482

)

 

 

(4.53

)%

CMBS

 

 

304,835

 

 

 

(2,790

)

 

 

(3.67

)%

 

 

162,808

 

 

 

(1,385

)

 

 

(3.41

)%

General corporate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured junior subordinated debentures

 

 

51,548

 

 

 

(855

)

 

 

(6.56

)%

 

 

51,548

 

 

 

(806

)

 

 

(6.19

)%

4.50% Convertible Senior Notes (5)

 

 

131,472

 

 

 

(2,448

)

 

 

(7.37

)%

 

 

143,750

 

 

 

(2,388

)

 

 

(6.57

)%

6.00% Convertible Senior Notes (5)

 

 

—

 

 

 

—

 

 

 

—

%

 

 

70,453

 

 

 

(1,309

)

 

 

(7.35

)%

8.00% Convertible Senior Notes (5)

 

 

21,030

 

 

 

(481

)

 

 

(9.04

)%

 

 

21,182

 

 

 

(481

)

 

 

(8.98

)%

Trust certificates - term repurchase facilities (6)

 

 

44,699

 

 

 

(764

)

 

 

(6.86

)%

 

 

73,931

 

 

 

(1,278

)

 

 

(6.93

)%

Hedging (7)

 

 

83,357

 

 

 

7

 

 

 

0.04

%

 

 

47,612

 

 

 

(30

)

 

 

(0.25

)%

Total interest expense/average cost of funds

 

$

1,851,971

 

 

 

(21,581

)

 

 

(4.66

)%

 

$

1,322,706

 

 

 

(16,159

)

 

 

(4.88

)%

Total net interest income

 

 

 

 

 

$

15,557

 

 

 

 

 

 

 

 

 

 

$

13,501

 

 

 

 

 

  For the Six Months Ended June 30, 2018 For the Six Months Ended June 30, 2017
  Average Balance Interest Income (Expense) Average Net Yield (Cost of Funds) Average Balance Interest Income (Expense) Average Net Yield (Cost of Funds)
Interest-earning assets            
CRE loans $1,436,685
 $47,818
 6.71 % $1,447,704
 $43,374
 6.03 %
Securities 243,206
 7,661
 6.37 % 97,638
 3,637
 6.83 %
Other 19,652
 138
 0.71 % 43,516
 2,095
 13.66 %
Total interest income/average net yield 1,699,543
 55,617
 6.59 % 1,588,858
 49,106
 6.29 %
             
Interest-bearing liabilities            
Collateralized by:            
CRE whole loans 718,426
 (15,742) (4.42)% 801,198
 (16,387) (4.12)%
CMBS 140,917
 (2,372) (3.39)% 74,126
 (1,084) (2.95)%
General corporate debt:            
Unsecured junior subordinated debentures 51,548
 (1,530) (5.90)% 51,548
 (1,322) (5.02)%
4.50% Convertible Senior Notes 143,750
 (4,753) (6.58)% —
 —
 — %
6.00% Convertible Senior Notes 70,453
 (2,617) (7.39)% 115,000
 (4,289) (7.42)%
8.00% Convertible Senior Notes 21,182
 (961) (9.02)% 100,000
 (4,569) (9.09)%
Trust certificates - term repurchase facilities 74,174
 (2,488) (6.76)% 26,598
 (930) (7.05)%
Hedging 44,915
 (80) (0.36)% 755
 (20) (0.73)%
Total interest expense/average cost of funds $1,265,365
 (30,543) (4.85)% $1,169,225
 (28,601) (4.90)%
Total net interest income/average spread   $25,074
 
   $20,505
 
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, 2018 June 30, 2017
  Weighted Average Weighted Average
  
Yield (1)
 Balance 
Yield (1)
 Balance
Interest income:        
Interest income from loans:        
CRE whole loans 7.14% $1,383,028
 6.59% $1,269,726
Legacy CRE loans held for sale (2)
 1.79% $75,692
 2.47% $159,626
CRE preferred equity investment 11.69% $19,263
 —% $—
CRE mezzanine loan 10.14% $1,188
 —% $—
         
Interest income from securities:        
  CMBS 6.26% $269,252
 5.64% $91,685
  ABS —% $—
 18.62% $4,530
  RMBS —% $—
 5.44% $1,366
         
Preference payments on structured notes —% $—
 34.04% $14,816
Preference payments on trading securities —% $267
 1.87% $3,509

(1)

(1)The weighted average

Average net yield includes net amortization/accretion and fee income in the calculation.income.

(2)

(2)

Includes twofee income of approximately $1.7 million, $18,000 and $85,000 recognized on our CRE whole loans, legacy CRE loans reclassified toand our CRE preferred equity investments, respectively, for the three months ended June 30, 2019 and approximately $2.0 million and $10,000 on our CRE whole loans and our CRE preferred equity investments, respectively, for the three months ended June 30, 2018. There was no fee income recognized on our legacy CRE loans from assets held for salethe three months ended June 30, 2019 and 2018.

(3)

Includes net accretion income of approximately $682,000 and $706,000 for the three months ended June 30, 2019 and 2018, respectively, on our CMBS securities.

(4)

Includes amortization expense of approximately $2.1 million and $1.1 million for the three months ended June 30, 2019 and 2018, respectively, on our interest-bearing liabilities collateralized by CRE whole loans.

(5)

Includes aggregated amortization expense of approximately $888,000 and $1.1 million for the three months ended June 30, 2019 and 2018, respectively, on our convertible senior notes.

(6)

Includes amortization expense of approximately $40,000 and $77,000 for the three months ended June 30, 2019 and 2018, respectively, on our trust certificates - term repurchase facilities.

(7)

Includes accretion income of approximately $23,000 for the three months ended June 30, 2019 on two terminated interest rate swap agreements that were in a gain position at the time of termination. The remaining gains, reported in accumulated other comprehensive income (loss) on the consolidated balance sheet at June 30, 2018.sheets, will be accreted over the remaining life of the debt.


(Back to Index)

57

47

(Back to Index)

 

 

For the Six Months Ended June 30, 2019

 

 

For the Six Months Ended June 30, 2018

 

 

 

Average Balance

 

 

Interest Income (Expense)

 

 

Average Net Yield (Cost of Funds) (1)

 

 

Average Balance

 

 

Interest Income (Expense)

 

 

Average Net Yield (Cost of Funds) (1)

 

Interest-earning assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (2)

 

$

1,639,296

 

 

$

55,841

 

 

 

6.87

%

 

$

1,350,209

 

 

$

46,548

 

 

 

6.95

%

Legacy CRE loans (2)

 

 

38,816

 

 

 

417

 

 

 

2.16

%

 

 

75,876

 

 

 

660

 

 

 

1.75

%

CRE mezzanine loan

 

 

4,700

 

 

 

236

 

 

 

9.97

%

 

 

597

 

 

 

30

 

 

 

10.14

%

CRE preferred equity investments (2)

 

 

20,065

 

 

 

1,237

 

 

 

12.43

%

 

 

10,003

 

 

 

580

 

 

 

11.69

%

Securities (3)

 

 

434,643

 

 

 

12,966

 

 

 

5.98

%

 

 

243,206

 

 

 

7,661

 

 

 

6.37

%

Other

 

 

18,869

 

 

 

373

 

 

 

1.97

%

 

 

19,652

 

 

 

138

 

 

 

0.71

%

Total interest income/average net yield

 

 

2,156,389

 

 

 

71,070

 

 

 

6.62

%

 

 

1,699,543

 

 

 

55,617

 

 

 

6.59

%

Interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (4)

 

 

1,110,458

 

 

 

(26,392

)

 

 

(4.79

)%

 

 

718,426

 

 

 

(15,742

)

 

 

(4.42

)%

CMBS

 

 

299,668

 

 

 

(5,489

)

 

 

(3.69

)%

 

 

140,917

 

 

 

(2,372

)

 

 

(3.39

)%

General corporate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured junior subordinated debentures

 

 

51,548

 

 

 

(1,717

)

 

 

(6.63

)%

 

 

51,548

 

 

 

(1,530

)

 

 

(5.90

)%

4.50% Convertible Senior Notes (5)

 

 

131,065

 

 

 

(4,872

)

 

 

(7.39

)%

 

 

143,750

 

 

 

(4,753

)

 

 

(6.58

)%

6.00% Convertible Senior Notes (5)

 

 

—

 

 

 

—

 

 

 

—

%

 

 

70,453

 

 

 

(2,617

)

 

 

(7.39

)%

8.00% Convertible Senior Notes (5)

 

 

21,002

 

 

 

(961

)

 

 

(9.10

)%

 

 

21,182

 

 

 

(961

)

 

 

(9.02

)%

Trust certificates - term repurchase facilities (6)

 

 

46,009

 

 

 

(1,565

)

 

 

(6.86

)%

 

 

74,174

 

 

 

(2,488

)

 

 

(6.76

)%

Hedging (7)

 

 

82,211

 

 

 

20

 

 

 

0.05

%

 

 

44,915

 

 

 

(80

)

 

 

(0.36

)%

Total interest expense/average cost of funds

 

$

1,741,961

 

 

 

(40,976

)

 

 

(4.73

)%

 

$

1,265,365

 

 

 

(30,543

)

 

 

(4.85

)%

Total net interest income

 

 

 

 

 

$

30,094

 

 

 

 

 

 

 

 

 

 

$

25,074

 

 

 

 

 




For the Six Months Ended
For the Six Months Ended


June 30, 2018
June 30, 2017


Weighted Average
Weighted Average


Yield (1)

Balance
Yield (1)

Balance
Interest income:        
Interest income from loans:







CRE whole loans
6.95%
$1,350,209

6.48%
$1,276,209
Legacy CRE loans held for sale (2)

1.75%
$75,876

2.71%
$171,495
CRE preferred equity investment 11.69% $10,003
 —% $—
CRE mezzanine loan 10.14% $597
 —% $—
 









Interest income from securities:









  CMBS
6.37%
$243,153

6.48%
$93,890
  ABS
0.02%
$53

21.85%
$2,338
  RMBS
—%
$—

5.43%
$1,410
 







Preference payments on structured notes
—%
$—

22.02%
$16,171
Preference payments on trading securities
0.03%
$1,895

59.54%
$3,895

(1)

(1)The weighted average

Average net yield includes net amortization/accretion and fee income in the calculation.income.

(2)

(2)

Includes twofee income of approximately $3.4 million, $87,000 and $95,000 recognized on our CRE whole loans, legacy CRE loans reclassified toand our CRE preferred equity investments, respectively, for the six months ended June 30, 2019 and approximately $3.4 million and $10,000 on our CRE whole loans and our CRE preferred equity investments, respectively, for the six months ended June 30, 2018. There was no fee income recognized on our legacy CRE loans from assets held for salethe six months ended June 30, 2018.

(3)

Includes net accretion income of approximately $1.4 million and $1.3 million for the six months ended June 30, 2019 and 2018, respectively, on our CMBS securities.

(4)

Includes amortization expense of approximately $3.7 million and $2.1 million for the six months ended June 30, 2019 and 2018, respectively, on our interest-bearing liabilities collateralized by CRE whole loans.

(5)

Includes aggregated amortization expense of approximately $1.8 million and $2.1 million for the six months ended June 30, 2019 and 2018, respectively, on our convertible senior notes.

(6)

Includes amortization expense of approximately $79,000 and $153,000 for the six months ended June 30, 2019 and 2018, respectively, on our trust certificates - term repurchase facilities.

(7)

Includes accretion income of approximately $45,000 for the six months ended June 30, 2019 on two terminated interest rate swap agreements that were in a gain position at the time of termination. The remaining gains, reported in accumulated other comprehensive income (loss) on the consolidated balance sheet at June 30, 2018.sheets, will be accreted over the remaining life of the debt.

The following tables summarize interest income for the periods indicated (in thousands, except percentages):
Type of Investment Weighted Average Coupon Interest Unamortized (Discount) Premium Net Amortization/Accretion Interest Income 
Fee Income (1)
 Total
For the Three Months Ended June 30, 2018:            
CRE whole loans 6.49% $(7,916) $—
 $22,571
 $2,022
 $24,593
Legacy CRE loans held for sale (2)
 1.78% $—
 —
 339
 —
 339
CRE preferred equity investment 11.50% $(183) —
 552
 10
 562
CRE mezzanine loan 10.00% $—
 —
 30
 —
 30
Syndicated corporate loans —% $—
 —
 2
 (91) (89)
   Total interest income from loans     —
 23,494
 1,941
 25,435
             
CMBS 4.49% $(46,025) 706
 3,499
 —
 4,205
   Total interest income from securities     706

3,499
 —
 4,205
             
Other —% $—
 —
 20
 —
 20
   Total interest income - other     —
 20
 —
 20
Total interest income     $706
 $27,013
 $1,941
 $29,660
             
For the Three Months Ended June 30, 2017:            
CRE whole loans 5.93% $(5,602) $—
 $18,923
 $1,935
 $20,858
Legacy CRE loans held for sale (2)
 2.72% $—
 —
 981
 —
 981
Syndicated corporate loans —% $—
 —
 2
 —
 2
   Total interest income from loans     —
 19,906
 1,935
 21,841
             
CMBS 5.22% $(5,801) (99) 1,209
 —
 1,110
ABS 4.35% $—
 —
 200
 —
 200
RMBS 5.45% $35
 —
 19
 —
 19
   Total interest income from securities     (99) 1,428
 —
 1,329
             
Preference payments on structured notes —% $—
 —
 409
 —
 409
Preference payments on trading securities —% $—
 —
 16
 —
 16
Other —% $—
 —
 40
 —
 40
   Total interest income - other     —
 465
 —
 465
Total interest income     $(99) $21,799
 $1,935
 $23,635
(1)Fee income recognized as a component of interest income is primarily comprised of loan origination fees, loan exit fees and loan extension fees.
(2)Includes two legacy CRE loans reclassified to CRE loans from assets held for sale on the consolidated balance sheet at June 30, 2018.

(Back to Index)
58

Type of Investment Weighted Average Coupon Interest Unamortized (Discount) Premium Net Amortization/Accretion Interest Income 
Fee Income (1)
 Total
For the Six Months Ended June 30, 2018:            
CRE whole loans 6.38% $(7,916) $—
 $43,140
 $3,404
 $46,544
Legacy CRE loans held for sale (2)
 1.74% $—
 —
 660
 —
 660
CRE preferred equity investment 11.50% $(183) —
 570
 10
 580
CRE mezzanine loan 10.00% $—
 —
 30
 —
 30
Syndicated corporate loans —% $—
 —
 4
 —
 4
   Total interest income from loans     —
 44,404
 3,414
 47,818
             
CMBS 4.47% $(46,025) 1,347
 6,314
 —
 7,661
   Total interest income from securities     1,347
 6,314
 —
 7,661
             
Other —% $—
 —
 138
 —
 138
   Total interest income - other     —
 138
 —
 138
Total interest income     $1,347
 $50,856
 $3,414
 $55,617
             
For the Six Months Ended June 30, 2017:            
CRE whole loans 5.84% $(5,602) $(2) $37,204
 $3,819
 $41,021
Legacy CRE loans held for sale (2)
 2.65% $—
 —
 2,305
 —
 2,305
Syndicated corporate loans —% $—
 —
 48
 —
 48
   Total interest income from loans     (2) 39,557
 3,819
 43,374
             
CMBS 5.31% $(5,801) 103
 3,083
 —
 3,186
ABS 5.07% $—
 —
 413
 —
 413
RMBS 5.44% $35
 —
 38
 —
 38
   Total interest income from securities     103
 3,534
 —
 3,637
             
Preference payments on structured notes —% $—
 —
 880
 —
 880
Preference payments on trading securities —% $—
 —
 1,150
 —
 1,150
Other —% $—
 —
 65
 —
 65
   Total interest income - other     —
 2,095
 —
 2,095
Total interest income     $101
 $45,186
 $3,819
 $49,106
(1)Fee income recognized as a component of interest income is primarily comprised of loan origination fees, loan exit fees and loan extension fees.
(2)Includes two legacy CRE loans reclassified to CRE loans from assets held for sale on the consolidated balance sheet at June 30, 2018.

(Back to Index)
59

Operating Expenses

Three and Six Months Ended June 30, 20182019 as compared to Three and Six Months Ended June 30, 2017

  For the Three Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
Interest income:        
Interest income from loans:        
CRE whole loans $24,593
 $20,858
 $3,735
 18 %
Legacy CRE loans held for sale 339
 981
 (642) (65)%
CRE preferred equity investment 562
 —
 562
 100 %
CRE mezzanine loan 30
 —
 30
 100 %
Syndicated corporate loans (89) 2
 (91) 
N/M (1)

Total interest income from loans 25,435
 21,841
 3,594
 16 %
         
Interest income from securities:       

CMBS 4,205
 1,110
 3,095
 279 %
ABS —
 200
 (200) (100)%
RMBS —
 19
 (19) (100)%
Total interest income from securities 4,205
 1,329
 2,876
 216 %
         
Interest income - other:        
Preference payments on structured notes —
 409
 (409) (100)%
Preference payments on trading securities —
 16
 (16) (100)%
Other 20
 40
 (20) (50)%
     Total interest income - other 20
 465
 (445) (96)%
Total interest income $29,660
 $23,635
 $6,025
 25 %
(1)Results of computation are not meaningful.
  For the Six Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
Interest income:        
Interest income from loans:        
CRE whole loans $46,544
 $41,021
 $5,523
 13 %
Legacy CRE loans held for sale 660
 2,305
 (1,645) (71)%
CRE preferred equity investment 580
 —
 580
 100 %
CRE mezzanine loan 30
 —
 30
 100 %
Syndicated corporate loans 4
 48
 (44) (92)%
Total interest income from loans 47,818
 43,374
 4,444
 10 %
         
Interest income from securities:        
CMBS 7,661
 3,186
 4,475
 140 %
ABS —
 413
 (413) (100)%
RMBS —
 38
 (38) (100)%
Total interest income from securities 7,661
 3,637
 4,024
 111 %
         
Interest income - other:        
Preference payments on structured notes —
 880
 (880) (100)%
Preference payments on trading securities —
 1,150
 (1,150) (100)%
Other 138
 65
 73
 112 %
     Total interest income - other 138
 2,095
 (1,957) (93)%
Total interest income $55,617
 $49,106
 $6,511
 13 %
Aggregate interest income increased by $6.0 million and $6.5 million for the comparative three and six months ended June 30, 2018 and 2017, respectively. We attribute the changes to the following:

(Back to Index)
60

Interest Income from Loans
CRE whole loans. The increases of $3.7 million and $5.5 million for the comparative three and six months ended June 30, 2018 and 2017, respectively, are primarily attributable to an increase in the one-month London Interbank Offered Rate ("LIBOR"), our benchmark rate on CRE whole loans, over the comparative periods and an increase in the outstanding balance of the CRE whole loans, attributable to net fundings of $149.7 million for the 12 months ended June 30, 2018. The increases were offset by a decline in income related to origination, extension and exit fees for the comparative three and six months ended June 30, 2018 and 2017.
Legacy CRE loans held for sale. The decreases of $642,000 and $1.6 million for the comparative three and six months ended June 30, 2018 and 2017, respectively, are primarily attributable to legacy CRE loan payoffs, including: a February 2017 payoff of one loan with a carrying value of $14.3 million, the July 2017 payoffs of two loans with total carrying values of $61.4 million and a December 2017 payoff of one loan with a carrying value of $15.0 million.
CRE preferred equity investment. The increases of $562,000 and $580,000 for the comparative three and six months ended June 30, 2018 and 2017, respectively, are attributable to our March 2018 investment in a preferred equity interest with outstanding principal of $19.4 million and an 11.50% interest rate at June 30, 2018.
Interest Income from Securities
CMBS. The increases of $3.1 million and $4.5 million for the comparative three and six months ended June 30, 2018 and 2017, respectively, are primarily attributable to acquisitions of CMBS with aggregate face values of $314.1 million during the 12 months ended June 30, 2018. The yield for the six months ended June 30, 2017 includes $502,000 of non-recurring items. Adjusted for non-recurring items, the yield for the six months ended June 30, 2017 is 5.95%, as compared to 6.37% for the six months ended June 30, 2018.
ABS. The decreases of $200,000 and $413,000 for the comparative three and six months ended June 30, 2018 and 2017, respectively, are primarily attributable to ABS sales, including: the September 2017 sales of four securities with total amortized costs at sale of $2.5 million and the December 2017 sale of one security with an amortized cost at sale of $1.8 million. The remaining security was sold in March 2017.
Interest Income - Other
Preference payments on structured notes. The decreases of $409,000 and $880,000 for the comparative three and six months ended June 30, 2018 and 2017, respectively, are attributable to the May, June and September 2017 sales of the three remaining Harvest collateralized loan obligation ("CLO") securities.
Preference payments on trading securities. The decrease of $1.2 million for the comparative six months ended June 30, 2018 and 2017 are primarily attributable to the receipt of $1.1 million of cash in excess of our cost basis, recorded as interest income on our consolidated statements of operations, on a trading security in the first quarter of 2017.
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, 2018 June 30, 2017
  Weighted Average Weighted Average
  Cost of Funds Balance Cost of Funds Balance
Interest expense:        
CRE whole loans 4.53% $751,422
 4.26% $772,625
Convertible senior notes 7.02% $235,385
 8.15% $215,000
CMBS 3.41% $162,808
 3.03% $71,658
Trust certificates 6.93% $73,931
 7.17% $26,598
Unsecured junior subordinated debentures / other 6.19% $51,548
 5.09% $51,548
Hedging 0.25% $47,612
 0.73% $1,501

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61

  For the Six Months Ended For the Six Months Ended
  June 30, 2018 June 30, 2017
  Weighted Average Weighted Average
  Cost of Funds Balance Cost of Funds Balance
Interest expense:        
CRE whole loans 4.42% $718,426
 4.12% $801,198
Convertible senior notes 7.04% $235,385
 8.19% $215,000
CMBS 3.39% $140,917
 2.95% $74,126
Trust certificates 6.76% $74,174
 7.05% $26,598
Unsecured junior subordinated debentures / other 5.90% $51,548
 5.02% $51,548
Hedging 0.36% $44,915
 0.73% $755
The following tables summarize interest expense for the periods indicated (in thousands, except percentages):
Type of Security Coupon Interest Unamortized Deferred Debt Expense Net Amortization Interest Expense Total
For the Three Months Ended June 30, 2018:          
CRE whole loans 3.83% $10,606
 $1,123
 $7,359
 $8,482
Convertible senior notes 5.26% $15,884
 1,080
 3,098
 4,178
CMBS 3.37% $—
 —
 1,385
 1,385
Trust certificates 6.43% $417
 77
 1,201
 1,278
Unsecured junior subordinated debentures / other 6.19% $—
 —
 806
 806
Hedging (1)
 0.25% $—
 —
 30
 30
   Total interest expense     $2,280
 $13,879
 $16,159
           
For the Three Months Ended June 30, 2017:          
CRE whole loans 3.25% $5,346
 $1,737
 $6,478
 $8,215
Convertible senior notes 6.93% $5,296
 706
 3,724
 4,430
CMBS 2.90% $—
 7
 535
 542
Trust certificates 6.52% $208
 37
 438
 475
Unsecured junior subordinated debentures / other 5.09% $—
 —
 682
 682
Hedging (1)
 0.79% $—
 —
 3
 3
   Total interest expense     $2,487
 $11,860
 $14,347
(1)Hedging coupon interest is calculated as the net of the fixed pay rate and floating rate received.
Type of Security Coupon Interest Unamortized Deferred Debt Expense Net Amortization Interest Expense Total
For the Six Months Ended June 30, 2018:          
CRE whole loans 3.71% $10,606
 $2,092
 $13,650
 $15,742
Convertible senior notes 5.26% $15,884
 2,136
 6,195
 8,331
CMBS 3.23% $—
 —
 2,372
 2,372
Trust certificates 6.26% $417
 153
 2,335
 2,488
Unsecured junior subordinated debentures / other 5.90% $—
 —
 1,530
 1,530
Hedging (1)
 0.37% $—
 —
 80
 80
   Total interest expense     $4,381
 $26,162
 $30,543
           
 For the Six Months Ended June 30, 2017:          
CRE whole loans 3.08% $5,346
 $3,756
 $12,631
 $16,387
Convertible senior notes 6.93% $5,296
 1,408
 7,450
 8,858
CMBS 2.82% $—
 16
 1,068
 1,084
Trust certificates 6.41% $208
 74
 856
 930
Unsecured junior subordinated debentures / other 5.03% $—
 —
 1,322
 1,322
Hedging (1)
 0.79% $—
 —
 20
 20
   Total interest expense     $5,254
 $23,347
 $28,601
(1)Hedging coupon interest is calculated as the net of the fixed pay rate and floating rate received.

(Back to Index)
62

Three and Six Months Ended June 30, 2018 as compared to Three and Six Months Ended June 30, 2017
  For the Three Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
Interest expense:        
CRE whole loans $8,482
 $8,215
 $267
 3 %
Convertible senior notes 4,178
 4,430
 (252) (6)%
CMBS 1,385
 542
 843
 156 %
Trust certificates 1,278
 475
 803
 169 %
Unsecured junior subordinated debentures / other 806
 682
 124
 18 %
Hedging 30
 3
 27
 900 %
   Total interest expense $16,159
 $14,347
 $1,812
 13 %
  For the Six Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
Interest expense:        
CRE whole loans $15,742
 $16,387
 $(645) (4)%
Convertible senior notes 8,331
 8,858
 (527) (6)%
CMBS 2,372
 1,084
 1,288
 119 %
Trust certificates 2,488
 930
 1,558
 168 %
Unsecured junior subordinated debentures / other 1,530
 1,322
 208
 16 %
Hedging 80
 20
 60
 300 %
   Total interest expense $30,543
 $28,601

$1,942
 7 %
Aggregate interest expense increased by $1.8 million and $1.9 million for the comparative three and six months ended June 30, 2018 and 2017, respectively. We attribute the changes to the following:
CRE whole loans. The increase of $267,000 for the comparative three months ended June 30, 2018 and 2017 is primarily attributable to the execution of a new CRE - term repurchase facility in April 2018, resulting in $298,000 of incurred interest expense during the three months ended June 30, 2018. The decrease of $645,000 for the comparative six months ended June 30, 2018 and 2017 is primarily attributable to a decrease in the outstanding notes payable balances on our securitizations, attributable to the August 2017 liquidation of Resource Capital Corp. 2014-CRE2, Ltd. ("RCC 2014-CRE2") and paydowns of $120.9 million and $101.6 million on Resource Capital Corp. 2015-CRE3, Ltd. ("RCC 2015-CRE3") and Resource Capital Corp. 2015-CRE4, Ltd. ("RCC 2015-CRE4"), respectively, during the 12 months ended June 30, 2018. The decrease is offset by increases in the cost of funds on our CRE - term repurchase facilities, related to an increase in one-month LIBOR over the comparative period, and new senior notes from Resource Capital Corp. 2017-CRE5, Ltd. ("RCC 2017-CRE5") and Exantas Capital Corp. 2018-RSO6, Ltd. ("XAN 2018-RSO6"), which closed in July 2017 and June 2018, respectively.
Convertible senior notes. The decreases of $252,000 and $527,000 for the comparative three and six months ended June 30, 2018 and 2017, respectively, are primarily attributable to the extinguishment in the third quarter of 2017 of $44.5 million and $78.8 million of aggregate principal of our 6.00% convertible senior notes due 2018 ("6.00% Convertible Senior Notes") and 8.00% convertible senior notes due 2020 ("8.00% Convertible Senior Notes"), respectively. The decrease is offset by the issuance, in conjunction with the extinguishment, of our 4.50% convertible senior notes due 2022 ("4.50% Convertible Senior Notes"), with a lower cost of funds.
CMBS. The increases of $843,000 and $1.3 million for the comparative three and six months ended June 30, 2018 and 2017, respectively, are primarily attributable to our acquisitions of CMBS, financed with CMBS repurchase facilities.
Trust certificates. The increases of $803,000 and $1.6 million for the comparative three and six months ended June 30, 2018 and 2017, respectively, are primarily attributable to the September 2017 execution of the master repurchase agreement with RSO Repo SPE Trust 2017, with an outstanding balance of $47.1 million at June 30, 2018, and the increase in one-month LIBOR over the comparative period.

(Back to Index)
63

Other Revenue
Three and Six Months Ended June 30, 2018 as compared to Three and Six Months Ended June 30, 2017
Other revenue decreased by $812,000 and $1.8 million for the comparative three and six months ended June 30, 2018 and 2017, respectively, primarily due to decreases of $698,000 and $1.4 million, respectively, in fee income, attributable to management and incentive fee payments received in March and June 2017, on Resource Capital Asset Management, LLC's remaining CLO management contract, the CLO of which substantially liquidated in February 2017.
Operating Expenses
Three and Six Months Ended June 30, 2018 as compared to Three and Six Months Ended June 30, 2017

The following tables set forth information relating to our operating expenses for the periods presented (in thousands, except percentages)(dollars in thousands):

 

 

For the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Dollar Change

 

 

Percent Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

$

2,495

 

 

$

2,547

 

 

$

(52

)

 

 

(2

)%

Management fees

 

 

2,251

 

 

 

2,812

 

 

 

(561

)

 

 

(20

)%

Equity compensation

 

 

412

 

 

 

659

 

 

 

(247

)

 

 

(37

)%

Provision for loan losses

 

 

170

 

 

 

—

 

 

 

170

 

 

 

100

%

Depreciation and amortization

 

 

7

 

 

 

19

 

 

 

(12

)

 

 

(63

)%

Total

 

$

5,335

 

 

$

6,037

 

 

$

(702

)

 

 

(12

)%

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48

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For the Six Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Dollar Change

 

 

Percent Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

$

5,072

 

 

$

5,607

 

 

$

(535

)

 

 

(10

)%

Management fees

 

 

4,334

 

 

 

5,625

 

 

 

(1,291

)

 

 

(23

)%

Equity compensation

 

 

1,095

 

 

 

1,626

 

 

 

(531

)

 

 

(33

)%

Provision for (recovery of) loan losses, net

 

 

1,195

 

 

 

(799

)

 

 

1,994

 

 

 

250

%

Depreciation and amortization

 

 

31

 

 

 

32

 

 

 

(1

)

 

 

(3

)%

Total

 

$

11,727

 

 

$

12,091

 

 

$

(364

)

 

 

(3

)%

  For the Three Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
Operating expenses:        
Management fees $2,812
 $2,638
 $174
 7 %
General and administrative 2,547
 3,580
 (1,033) (29)%
Equity compensation 659
 734
 (75) (10)%
Depreciation and amortization 19
 32
 (13) (41)%
Provision for (recovery of) loan and lease losses, net —
 131
 (131) (100)%
Total operating expenses $6,037
 $7,115
 $(1,078) (15)%
  For the Six Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
Operating expenses:        
Management fees $5,625
 $5,318
 $307
 6 %
General and administrative 5,607
 7,443
 (1,836) (25)%
Equity compensation 1,626
 1,522
 104
 7 %
Depreciation and amortization 32
 100
 (68) (68)%
Impairment losses —
 177
 (177) (100)%
Provision for (recovery of) loan and lease losses, net (799) 1,130
 (1,929) (171)%
Total operating expenses $12,091
 $15,690
 $(3,599) (23)%

Aggregate operating expenses decreased by $1.1 million$702,000 and $3.6 million$364,000 for the comparative three and six months ended June 30, 20182019 and 2017,2018, respectively. We attribute the changes to the following:

Management fees.

General and administrative. The increases of $174,000General and $307,000administrative expenses decreased by $52,000 and $535,000 for the comparative three and six months ended June 30, 20182019 and 2017, respectively, are primarily attributable to the amended base management fee as defined in our Third Amended and Restated Management Agreement ("Management Agreement"), equal to 1/12th of the amount of our equity multiplied by 1.50%. The Management Agreement fixed the base management fee at $937,500 for each of the 15 successive months effective October 1, 2017.


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64

General and administrative. General and administrative expenses decreased by $1.0 million and $1.8 million for the comparative three and six months ended June 30, 2018, and 2017, respectively. The following tables summarizetable summarizes the information relating to our general and administrative expenses for the periods presented (in thousands, except percentages)(dollars in thousands):

 

 

For the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Dollar Change

 

 

Percent Change

 

General and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wages and benefits

 

$

700

 

 

$

910

 

 

$

(210

)

 

 

(23

)%

Professional services

 

 

559

 

 

 

536

 

 

 

23

 

 

 

4

%

Operating expenses

 

 

291

 

 

 

254

 

 

 

37

 

 

 

15

%

D&O insurance

 

 

283

 

 

 

283

 

 

 

—

 

 

 

—

%

Director fees

 

 

224

 

 

 

164

 

 

 

60

 

 

 

37

%

Dues and subscriptions

 

 

181

 

 

 

206

 

 

 

(25

)

 

 

(12

)%

Tax penalties, interest and franchise tax

 

 

99

 

 

 

25

 

 

 

74

 

 

 

296

%

Travel

 

 

80

 

 

 

85

 

 

 

(5

)

 

 

(6

)%

Rent and utilities

 

 

78

 

 

 

84

 

 

 

(6

)

 

 

(7

)%

Total

 

$

2,495

 

 

$

2,547

 

 

$

(52

)

 

 

(2

)%

 For the Three Months Ended    

 

For the Six Months Ended

 

 

 

 

 

 

 

 

 

 June 30,    

 

June 30,

 

 

 

 

 

 

 

 

 

 2018 2017 Dollar Change Percent Change

 

2019

 

 

2018

 

 

Dollar Change

 

 

Percent Change

 

General and administrative:        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wages and benefits $910
 $972
 $(62) (6)%

 

$

1,424

 

 

$

1,945

 

 

$

(521

)

 

 

(27

)%

Professional services 536
 1,077
 (541) (50)%

 

 

1,394

 

 

 

1,563

 

 

 

(169

)

 

 

(11

)%

Operating expenses

 

 

548

 

 

 

453

 

 

 

95

 

 

 

21

%

D&O insurance 283
 298
 (15) (5)%

 

 

564

 

 

 

593

 

 

 

(29

)

 

 

(5

)%

Operating expenses 254
 371
 (117) (32)%

Director fees

 

 

388

 

 

 

328

 

 

 

60

 

 

 

18

%

Dues and subscriptions 206
 313
 (107) (34)%

 

 

301

 

 

 

425

 

 

 

(124

)

 

 

(29

)%

Director fees 164
 253
 (89) (35)%

Tax penalties, interest and franchise tax

 

 

132

 

 

 

(8

)

 

 

140

 

 

 

1,750

%

Travel 85
 88
 (3) (3)%

 

 

150

 

 

 

146

 

 

 

4

 

 

 

3

%

Rent and utilities 84
 160
 (76) (48)%

 

 

171

 

 

 

162

 

 

 

9

 

 

 

6

%

Tax penalties, interest and franchise tax 25
 48
 (23) (48)%
Total general and administrative $2,547
 $3,580
 $(1,033) (29)%

Total

 

$

5,072

 

 

$

5,607

 

 

$

(535

)

 

 

(10

)%

  For the Six Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
General and administrative:        
Wages and benefits $1,945
 $1,760
 $185
 11 %
Professional services 1,563
 2,705
 (1,142) (42)%
D&O insurance 593
 494
 99
 20 %
Operating expenses 453
 781
 (328) (42)%
Dues and subscriptions 425
 601
 (176) (29)%
Director fees 328
 502
 (174) (35)%
Rent and utilities 162
 316
 (154) (49)%
Travel 146
 191
 (45) (24)%
Tax penalties, interest and franchise tax (8) 93
 (101) (109)%
Total general and administrative $5,607
 $7,443
 $(1,836) (25)%

Thedecreases decrease in general and administrative expenses for the comparative six months ended June 30, 2019 and 2018 was primarily attributable to a decrease of $521,000 in wages and benefits allocated to us by our Manager.

Management fees. The decreases of $561,000 and $1.3 million for the comparative three and six months ended June 30, 2019 and 2018, and 2017 arerespectively, were primarily attributable to decreasesour base management fee reverting from a fixed amount of $541,000$937,500 per month from October 1, 2017 to December 31, 2018 per our Third Amended and $1.1 million, respectively, in professional services, relatedRestated Management Agreement ("Management Agreement") to $275,000an amount equal to 1/12th of legal expenses associated with legacy CRE loans held for sale and $308,000 of consulting fees for the reviewamount of our Management Agreement and the renaming and rebrandingequity multiplied by 1.50%. The decreases were offset by incentive compensation of $165,000 earned by our CompanyManager during the three and six months ended June 30, 2017.2019.

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49

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Equity compensation. The additionaldecreases of $247,000 and $531,000 for the comparative three and six months ended June 30, 2019 and 2018, respectively, were attributable to the adoption of updated guidance issued by the Financial Accounting Standards Board that discontinued the remeasurement of all unvested issuances of restricted stock and options after the initial grant date during the six months ended June 30, 2019. Additionally, the decrease in professional serviceswas attributable to accelerations of certain restricted stock awards during the six months ended June 30, 2018.

Provision for (recovery of) loan losses, net. The increase of $2.0 million from a recovery of, to a provision for loan losses for the comparative six months ended June 30, 2019 and 2018 and 2017 iswas primarily attributable to legal expensesan increase in the general reserve of $517,000 for an aborted CRE securitization$1.2 million during the six months ended June 30, 2017.

Provision for (recovery of) loan and lease losses, net. The2019, in connection with five loans, which were downgraded, in which performance lagged behind underwritten expectations, as compared to a decrease of $1.9 million for the comparative six months ended June 30, 2018 and 2017 is primarily attributable to recognition of a recovery ofin the general provisionreserve of approximately $800,000$799,000 during the six months ended June 30, 2018, duein connection with one loan that repaid and one loan, which was upgraded, in which performance improved to improvement of financial performance in our CRE whole loan portfolio, compared to a general provision of approximately $860,000, resulting from the review and reassessment of the amount of the allowance in our CRE whole loan portfolio during the six months ended June 30, 2017. Additionally, the decrease is attributable to approximately $270,000 of provisions on our direct financing leases during the sixwithin underwritten expectations. months ended June 30, 2017.

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65

Other Income (Expense)

Three and Six Months Ended June 30, 20182019 as compared to Three and Six Months Ended June 30, 2017

2018

The following tables set forth information relating to our other income (expense) incurred for the periods presented (in thousands, except percentages)(dollars in thousands):

 

 

For the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

Dollar Change

 

 

Percent Change

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

$

—

 

 

$

69

 

 

$

(69

)

 

 

(100

)%

Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives

 

 

4

 

 

 

932

 

 

 

(928

)

 

 

(100

)%

Net realized and unrealized gain on investment securities, trading

 

 

—

 

 

 

58

 

 

 

(58

)

 

 

(100

)%

Fair value adjustments on financial assets held for sale

 

 

(1,300

)

 

 

9

 

 

 

(1,309

)

 

 

(14,544

)%

Other income

 

 

51

 

 

 

506

 

 

 

(455

)

 

 

(90

)%

Total

 

$

(1,245

)

 

$

1,574

 

 

$

(2,819

)

 

 

(179

)%

 For the Three Months Ended    

 

For the Six Months Ended

 

 

 

 

 

 

 

 

 

 June 30,    

 

June 30,

 

 

 

 

 

 

 

 

 

 2018 2017 Dollar Change Percent Change

 

2019

 

 

2018

 

 

Dollar Change

 

 

Percent Change

 

Other Income (Expense):    
    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings (losses) of unconsolidated entities $69
 $(118) $187
 158 %

Equity in losses of unconsolidated entities

 

$

—

 

 

$

(223

)

 

$

223

 

 

 

(100

)%

Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives 932
 9,478
 (8,546) (90)%

 

 

4

 

 

 

290

 

 

 

(286

)

 

 

(99

)%

Net realized and unrealized gain (loss) on investment securities, trading 58
 (50) 108
 216 %

Net realized and unrealized gain on investment securities, trading

 

 

—

 

 

 

53

 

 

 

(53

)

 

 

(100

)%

Fair value adjustments on financial assets held for sale 9
 79
 (70) (89)%

 

 

(1,402

)

 

 

(4,656

)

 

 

3,254

 

 

 

70

%

Other income 506
 17
 489
 2,876 %

 

 

152

 

 

 

517

 

 

 

(365

)

 

 

(71

)%

Total other income (expense) $1,574
 $9,406
 $(7,832) (83)%

Total

 

$

(1,246

)

 

$

(4,019

)

 

$

2,773

 

 

 

69

%

  For the Six Months Ended    
  June 30,    
  2018 2017 Dollar Change Percent Change
Other Income (Expense):    
    
Equity in earnings (losses) of unconsolidated entities $(223) $243
 $(466) (192)%
Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives 290
 17,084
 (16,794) (98)%
Net realized and unrealized gain (loss) on investment securities, trading 53
 (961) 1,014
 106 %
Fair value adjustments on financial assets held for sale (4,656) 58
 (4,714) (8,128)%
Other income 517
 85
 432
 508 %
Total other income (expense) $(4,019) $16,509
 $(20,528) (124)%

Aggregate other income decreased by $7.8$2.8 million to other expense for the comparative three months ended June 30, 2019 and 2018 and 2017 and $20.5aggregate other expense decreased $2.8 million to an expense for the comparative six months ended June 30, 20182019 and 2017.2018. We attribute the changechanges to the following:

Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives.The decreases of $8.5 million$928,000 and $16.8 million$286,000 for the comparative three and six months ended June 30, 2019 and 2018, and 2017, respectively, arewere primarily attributable to non-recurringa gain of $1.0 million attributable to the payoff on one legacy CRE loan during the three and six months ended June 30, 2018. The decrease for the comparative six months ended June 30, 2019 and 2018 was offset by net losses of approximately $461,000 on our life settlement contract portfolio, which was fully resolved in 2018, and a realized gainsloss of $5.6 million$217,000 on the March 2018 sale of one asset-backed security ("ABS").

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50

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Fair value adjustments on financial assets held for sale. The change from a gain of $9,000 and $12.6a loss of $4.7 million during the three and six months ended June 30, 2017,2018, respectively, in connection with the payoffsto losses of legacy CRE loans. Additionally, the decreases are$1.3 million and $1.4 million during three and six months ended June 30, 2019, respectively, were primarily attributable to non-recurring realized gainscharges of $3.3$4.7 million, on the salewhich included protective advances to cover operating losses of two investment securities available-for-sale$172,000, recorded during the six months ended June 30, 20172018 in connection with the receipt of updated appraisals in April 2018 for a legacy CRE loan held for sale. We recorded additional charges of $1.3 million during the three months ended June 30, 2019 and net realized and unrealized gains of $655,000 and $1.1$1.4 million on our life settlement contractsthis asset, including $102,000 of protective advances to cover borrower operating losses, during the six months ended June 30, 2019 in connection with the receipt of three brokers' opinion of value in June 2019 that were taken into account equally along with the latest appraisal received in February 2019. No charges were recorded during the three months ended June 30, 2018.

Other income. The decreases of $455,000 and $365,000 for the comparative three and six months ended June 30, 2019 and 2018, respectively, were primarily attributable to the receipt of $478,000 of cash in excess of the total carrying value of an asset secured by collateral management fees during the three and six months ended June 30, 2017, respectively.

Net realized and unrealized gain (loss) on investment securities, trading. The increase of $1.0 million from a loss to a gain for the comparative six months ended June 30, 2018 and 2017 is primarily attributable to the receipt of a $4.1 million principal payment on one trading security in the first quarter of 2017. Consequently, the trading security's fair value declined following the payment. There were no such transactions during the three months ended June 30, 2018.
Fair value adjustments on financial assets held for sale. The decrease of $4.7 million for the comparative six months ended June 30, 2018 and 2017 is primarily attributable to carrying value charges of $4.7 million to write down one legacy CRE loan held for sale to its estimated fair value, based on appraisals received during the first quarter of 2018.
Other income. The increase of $489,000 for the comparative three months ended June 30, 2018 and 2017 is primarily attributable to the recognition of $478,000 of other income resulting from cash received, in excess of the total carrying values of the collateral management fee rebate assets, for the reduction of our right to the collateral management fee rebates to zero in the second quarter of 2018.

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66

Net Loss From Discontinued Operations, Net of Tax

In November 2016, our Board approved the Plan that would allow us to focus our strategy on making CRE debt investments andinvestments. The Plan contemplated disposing of certain underperforming legacy CRE loans, exiting underperforming non-core asset classes and investmentsbusinesses and establishingmaintaining a dividend policy based on sustainable earnings. We met all of the criteria to classify the operating results of the residential mortgage and middle market lending segments as discontinued operations and exclude them from continuing operations for all periods presented. In addition, we transferred the assets and liabilities of Life Care Funding, LLC andclassified certain legacy CRE loans toas held for sale in the fourth quarter of 2016.sale. As of June 30, 2018,2019, we disposed ofhave substantially allcompleted the execution of the non-real estate assets identified for sale.

Plan.

The following table summarizes the operating results of the residential mortgage and middle market lending segments' discontinued operations as reported separately as net loss from discontinued operations, net of tax for the three and six months ended June 30, 20182019 and 20172018 (in thousands):

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

—

 

 

$

10

 

 

$

—

 

 

$

580

 

Other

 

 

—

 

 

 

9

 

 

 

—

 

 

 

13

 

Total interest income

 

 

—

 

 

 

19

 

 

 

—

 

 

 

593

 

Interest expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net interest income

 

 

—

 

 

 

19

 

 

 

—

 

 

 

593

 

Other revenue

 

 

—

 

 

 

(53

)

 

 

—

 

 

 

32

 

Total revenues

 

 

—

 

 

 

(34

)

 

 

—

 

 

 

625

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

112

 

 

 

443

 

 

 

284

 

 

 

1,103

 

Total operating expenses

 

 

112

 

 

 

443

 

 

 

284

 

 

 

1,103

 

 

 

 

(112

)

 

 

(477

)

 

 

(284

)

 

 

(478

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gain on investment securities available-for-sale and loans and derivatives

 

 

—

 

 

 

27

 

 

 

135

 

 

 

275

 

Total other income

 

 

—

 

 

 

27

 

 

 

135

 

 

 

275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS BEFORE TAXES

 

 

(112

)

 

 

(450

)

 

 

(149

)

 

 

(203

)

Income tax expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

TOTAL LOSS FROM DISCONTINUED OPERATIONS

 

$

(112

)

 

$

(450

)

 

$

(149

)

 

$

(203

)

 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
REVENUES       
Interest income:       
Loans$10
 $893
 $580
 $1,790
Other9
 19
 13
 32
Total interest income19
 912
 593
 1,822
Interest expense—
 —
 —
 —
Net interest income19
 912
 593
 1,822
Gain (loss) on sale of residential mortgage loans13
 3,049
 (1) 6,874
Fee (loss) income(66) 1,497
 33
 3,677
Total revenues(34) 5,458
 625
 12,373
OPERATING EXPENSES       
Equity compensation—
 162
 —
 221
General and administrative443
 8,922
 1,103
 16,395
Total operating expenses443
 9,084
 1,103
 16,616
        
 (477) (3,626) (478) (4,243)
OTHER INCOME (EXPENSE)       
Net realized and unrealized gain (loss) on investment securities available-for-sale and loans and derivatives27
 (83) 275
 (85)
Fair value adjustments on financial assets held for sale—
 (475) —
 (417)
Total other income (expense)27
 (558) 275
 (502)
        
LOSS FROM DISCONTINUED OPERATIONS BEFORE TAXES(450) (4,184) (203) (4,745)
Income tax expense—
 —
 —
 —
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX(450) (4,184) (203) (4,745)
Loss from disposal of discontinued operations—
 —
 —
 —
TOTAL LOSS FROM DISCONTINUED OPERATIONS$(450) $(4,184) $(203) $(4,745)

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51

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Net loss from discontinued operations.Net loss from discontinued operations decreased by $3.7 million$338,000 and $4.5 million$54,000 for the comparative three and six months ended June 30, 20182019 and 2017,2018, respectively. The residential mortgage lending segment incurred a net losslosses of approximately $111,000 and $283,000 for the three and six months ended June 30, 2019, respectively, as compared to net losses of approximately $486,000 and $1.1 million for the three and six months ended June 30, 2018, respectively, each of which were primarily attributable to Primary Capital Mortgage, LLC's ("PCM")reduced general and administrative expenses, particularly from consulting fees, incurred in the wind-down of that business. DuringThe middle market lending segment incurred a net loss of approximately $1,000 for the three months ended June 30, 2019 and generated net income of $134,000 for the six months ended June 30, 2019, as compared to net income of $36,000 and $855,000 for the three and six months ended June 30, 2018, the middle market lending segment generated net income of approximately $36,000 and $855,000, respectively, which was primarily attributable to interest income earned and net gains of $135,000 and $243,000 on proceeds from the 2018 sales of the remaining syndicated middle market loans of $243,000 during the six months ended June 30, 2018.


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67

During the three2019 and six months ended June 30, 2017, the middle market lending segment generated net income of $798,000 and $1.7 million, respectively, primarily attributable to interest income earned on the remaining syndicated middle market loans. The residential mortgage lending segment recognized a net loss of approximately $5.0 million and $6.4 million for the three and six months ended June 30, 2017, respectively, primarily attributable to incurred costs resulting from the asset purchase agreement executed by PCM to sell its residential mortgage operating platform and certain other assets and liabilities.
2018, respectively.

Financial Condition

Summary

Our total assets were $1.9$2.5 billion at June 30, 2018 and2019 as compared to $2.1 billion at December 31, 2017.

2018. The increase was primarily attributable to the origination and acquisition of CRE loans and acquisitions of CMBS financed through the use of a CRE debt securitization, term repurchase facilities and short-term repurchase agreements.

Investment Portfolio

The tables below summarize the amortized cost and net carrying amount of our investment portfolio, classified by asset type, at June 30, 20182019 and December 31, 20172018 as follows (in(dollars in thousands, except percentages and amounts in footnotes):

At June 30, 2019

 

Amortized Cost

 

 

Net Carrying Amount

 

 

Percent of Portfolio

 

 

Weighted Average Coupon

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (1)

 

$

1,920,979

 

 

$

1,918,382

 

 

 

79.55

%

 

6.19%

 

CRE mezzanine loan

 

 

4,700

 

 

 

4,700

 

 

 

0.19

%

 

10.00%

 

CRE preferred equity investments

 

 

25,410

 

 

 

25,410

 

 

 

1.05

%

 

11.39%

 

 

 

 

1,951,089

 

 

 

1,948,492

 

 

 

80.79

%

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS, fixed rate

 

 

118,753

 

 

 

123,848

 

 

 

5.14

%

 

4.10%

 

CMBS, floating rate

 

 

321,341

 

 

 

321,816

 

 

 

13.34

%

 

5.09%

 

 

 

 

440,094

 

 

 

445,664

 

 

 

18.48

%

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in unconsolidated entities

 

 

1,548

 

 

 

1,548

 

 

 

0.06

%

 

N/A (3)

 

Other assets held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy CRE loans (2)

 

 

22,150

 

 

 

16,082

 

 

 

0.67

%

 

N/A (3)

 

Total investment portfolio

 

$

2,414,881

 

 

$

2,411,786

 

 

 

100.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

Amortized Cost

 

 

Net Carrying Amount

 

 

Percent of Portfolio

 

 

Weighted Average Coupon

 

Loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (1)

 

$

1,529,113

 

 

$

1,527,712

 

 

 

76.79

%

 

6.33%

 

CRE mezzanine loan

 

 

4,700

 

 

 

4,700

 

 

 

0.24

%

 

10.00%

 

CRE preferred equity investment

 

 

19,555

 

 

 

19,555

 

 

 

0.98

%

 

11.50%

 

 

 

 

1,553,368

 

 

 

1,551,967

 

 

 

78.01

%

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS, fixed rate

 

 

121,487

 

 

 

119,739

 

 

 

6.02

%

 

4.12%

 

CMBS, floating rate

 

 

301,132

 

 

 

299,259

 

 

 

15.04

%

 

4.11%

 

 

 

 

422,619

 

 

 

418,998

 

 

 

21.06

%

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in unconsolidated entities

 

 

1,548

 

 

 

1,548

 

 

 

0.08

%

 

N/A (3)

 

Other assets held for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy CRE loans (2)

 

 

21,666

 

 

 

17,000

 

 

 

0.85

%

 

N/A (3)

 

Total investment portfolio

 

$

1,999,201

 

 

$

1,989,513

 

 

 

100.00

%

 

 

 

 

At June 30, 2018 Amortized Cost Net Carrying Amount Percent of Portfolio Weighted Average Coupon
Loans held for investment:        
CRE whole loans (1)(2)
 $1,426,656
 $1,422,127
 79.62% 6.40%
CRE mezzanine loan 4,700
 4,700
 0.26% 10.00%
CRE preferred equity investment 19,191
 19,191
 1.07% 11.50%
  1,450,547
 1,446,018
 80.95%  
         
Investment securities available-for-sale:        
  CMBS 317,414
 318,424
 17.83% 4.44%
         
Investment securities, trading:        
Structured notes 1,000
 —
 —% 
N/A (7)
         
Other investments:        
Investments in unconsolidated entities 1,782
 1,782
 0.10% 
N/A (7)
Direct financing leases (4)
 801
 66
 —% 5.66%
  2,583
 1,848
 0.10%  
         
Other assets held for sale:        
Legacy CRE loan (2)(5)
 24,614
 18,000
 1.01% —%
Middle market loan (6)
 13,837
 1,978
 0.11% —%
  38,451
 19,978
 1.12%  
         
Total investment portfolio $1,809,995
 $1,786,268
 100.00%  

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68

At December 31, 2017 Amortized Cost Net Carrying Amount Percent of Portfolio Weighted Average Coupon
Loans held for investment:        
CRE whole loans (1)
 $1,290,150
 $1,284,822
 79.94% 6.09%
         
Investment securities available-for-sale:        
  CMBS 210,806
 211,579
 13.17% 4.35%
  ABS 259
 158
 0.01% 
N/A (7)
  211,065
 211,737
 13.18%  
         
Investment securities, trading:        
Structured notes 2,891
 178
 0.01% 
N/A (7)
         
Loans held for sale:        
Syndicated corporate loans (3)
 13
 13
 —% 
N/A (7)
         
Other investments:        
Investments in unconsolidated entities 12,051
 12,051
 0.75% 
N/A (7)
Direct financing leases (4)
 886
 151
 0.01% 5.66%
  12,937
 12,202
 0.76%  
         
Other assets held for sale:        
Legacy CRE loans (5)
 63,783
 61,841
 3.85% 1.64%
Middle market loans (6)
 41,199
 29,308
 1.82% 5.06%
Life settlement contracts 5,130
 5,130
 0.32% 
N/A (7)
Residential mortgage loans 1,913
 1,913
 0.12% 3.92%
  112,025
 98,192
 6.11%  
         
Total investment portfolio $1,629,081
 $1,607,144
 100.00%  

(1)

(1)

Net carrying amount includes an allowance for loan losses of $4.5$2.6 million and $5.3$1.4 million at June 30, 20182019 and December 31, 2017,2018, respectively.

(2)

(2)At June 30, 2018, two legacy CRE loans with total amortized costs and net carrying amounts of $28.3 million were reclassified to CRE whole loans as it is now our intent to hold these loans to maturity.
(3)The fair value option was elected for syndicated corporate loans held for sale.
(4)Net carrying amount includes allowance for lease losses of $735,000 at June 30, 2018 and December 31, 2017.
(5)

Net carrying amount includes lower of cost or market value adjustments of $6.6$6.1 million and $1.9$4.7 million at June 30, 20182019 and December 31, 2017,2018, respectively.

(3)

(6)Net carrying amount includes lower of cost or market value adjustments of $11.9 million at June 30, 2018 and December 31, 2017.
(7)

There are no stated rates associated with these investments.


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69

52


CRE loans and syndicated corporate loans.The following is a summary of our loans (dollars in thousands, except amounts in footnotes):

Description

 

Quantity

 

 

Principal

 

 

Unamortized (Discount) Premium, net (1)

 

 

Amortized Cost

 

 

Allowance for Loan Losses

 

 

Carrying Value (2)

 

 

Contractual Interest Rates

 

 

Maturity Dates (3)(4)

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans (5)

 

 

117

 

 

$

1,928,828

 

 

$

(7,849

)

 

$

1,920,979

 

 

$

(2,597

)

 

$

1,918,382

 

 

1M LIBOR

plus 2.70% to 1M LIBOR

plus 6.25%

 

 

July 2019 to July 2022

Mezzanine loan

 

 

1

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

10.00%

 

 

June 2028

Preferred equity investments (see Note

3) (5)(6)(7)

 

 

2

 

 

 

25,565

 

 

 

(155

)

 

 

25,410

 

 

 

—

 

 

 

25,410

 

 

11.00% to 11.50%

 

 

June 2022 to April 2025

Total CRE loans held for investment

 

 

 

 

 

$

1,959,093

 

 

$

(8,004

)

 

$

1,951,089

 

 

$

(2,597

)

 

$

1,948,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans (5)

 

 

79

 

 

$

1,538,759

 

 

$

(9,646

)

 

$

1,529,113

 

 

$

(1,401

)

 

$

1,527,712

 

 

1M LIBOR

plus 2.70% to 1M LIBOR

plus 6.25%

 

 

January 2019 to January 2022

Mezzanine loan

 

 

1

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

4,700

 

 

10.00%

 

 

June 2028

Preferred equity investment (see Note

3) (5)(6)(7)

 

 

1

 

 

 

19,718

 

 

 

(163

)

 

 

19,555

 

 

 

—

 

 

 

19,555

 

 

11.50%

 

 

April 2025

Total CRE loans held for investment

 

 

 

 

 

$

1,563,177

 

 

$

(9,809

)

 

$

1,553,368

 

 

$

(1,401

)

 

$

1,551,967

 

 

 

 

 

 

 

Description Quantity Principal 
Unamortized (Discount)
Premium, net (1)
 Amortized Cost Allowance for Loan Losses 
Carrying
Value (2)
 Contractual Interest Rates 
Maturity Dates (3)(4)(5)
At June 30, 2018:                
CRE loans held for investment:                
Whole loans (6)(7)
 78 $1,434,572
 $(7,916) $1,426,656
 $(4,529) $1,422,127
 1M LIBOR plus 2.50% to 1M LIBOR plus 6.25% July 2018 to July 2021
Mezzanine loan 1 4,700
 —
 4,700
 —
 4,700
 10.00% June 2028
Preferred equity investment (8)(9)
 1 19,374
 (183) 19,191
 —
 19,191
 11.50% April 2025
Total CRE loans held for investment   1,458,646
 (8,099) 1,450,547
 (4,529) 1,446,018
    
Total loans   $1,458,646
 $(8,099) $1,450,547
 $(4,529) $1,446,018
    
                 
At December 31, 2017:                
CRE loans held for investment:                
Whole loans (6)
 70 $1,297,164
 $(7,014) $1,290,150
 $(5,328) $1,284,822
 1M LIBOR plus 3.60% to 1M LIBOR plus 6.25% February 2018 to January 2021
Total CRE loans held for investment   1,297,164
 (7,014) 1,290,150
 (5,328) 1,284,822
    
Syndicated corporate loans (10)
 2 13
 —
 13
 —
 13
 N/A N/A
Total loans held for sale   13
 —
 13
 —
 13
    
Total loans   $1,297,177
 $(7,014) $1,290,163
 $(5,328) $1,284,835
    

(1)

(1)

Amounts include unamortized loan origination fees of $7.6$10.0 million and $6.7$9.6 million and deferred amendment fees of $482,000$245,000 and $268,000 being amortized over the life of the loans$171,000 at June 30, 20182019 and December 31, 2017,2018, respectively. Additionally, the amounts include unamortized loan acquisition costs of $2.3 million at June 30, 2019. There were no unamortized loan acquisition costs at December 31, 2018.

(2)

(2)

Substantially all loans are pledged as collateral under various borrowings at June 30, 20182019 and December 31, 2017.2018.

(3)

(3)

Maturity dates exclude contractual extension options, subject to the satisfaction of certain terms, that may be available to the borrowers.

(4)

(4)Maturity dates exclude one whole loan, with an amortized cost of $7.0 million, in default at June 30, 2018 and December 31, 2017.
(5)

Maturity dates exclude one whole loan, with an amortized cost of $11.5 million, in maturity default and performing with respect to debt service due in accordance with a forbearance agreement at June 30, 2018. The loan was classified as an asset held for sale2019 and in maturity default at December 31, 2017.2018.

(5)

(6)

Whole loans had $88.7$119.7 million and $84.1$108.1 million in unfunded loan commitments at June 30, 20182019 and December 31, 2017,2018, respectively. Preferred equity investments had $3.2 million in unfunded commitments at June 30, 2019. There were no preferred equity investment unfunded commitments at December 31, 2018. These unfunded loan commitments are advanced as the borrowers formally request additional funding and meet certain benchmarks, as permitted under the loan agreement, and any necessary approvals have been obtained.

(6)

(7)At June 30, 2018, two legacy CRE loans with amortized costs of $28.3 million were reclassified to whole loans from assets held for sale as it is now our intent to hold these loans to maturity.
(8)

The interest rate on our preferred equity investment paysinvestments pay currently at 8.00%. The remaining interest is deferred until maturity.

(7)

(9)

Beginning in April 2023, we have the right to unilaterally force the sale of theProspect Hackensack JV LLC's underlying property.

(10)All syndicated corporate loans are second lien loans and are accounted for under the fair value option.

At June 30, 2018,2019, approximately 31.2%23.8%, 24.0%21.6% and 13.1%13.5% of our CRE loan portfolio was concentrated in the Southwest, PacificMountain and MountainPacific regions, respectively, based on carrying value, as defined by the National Council of Real Estate Investment Fiduciaries ("NCREIF").Fiduciaries. At December 31, 2017,2018, approximately 28.0%32.3%, 24.3%,20.9% and 12.5%17.1% of our CRE loan portfolio was concentrated in the Southwest, PacificMountain and MountainPacific regions, respectively, based on carrying value.

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53

(Back to Index)

CMBS. During the six months ended June 30, 2018,2019, we purchased 20six CMBS positions with aggregate face values of $121.4$40.7 million, at a total cost of $113.8$40.6 million, sold one CMBS position with a face value of $634,000 for proceeds of $638,000 received in June 2019, and received paydowns of $8.5$24.0 million. At June 30, 20182019 and December 31, 2017,2018, the remaining discount to be accreted into income over the remaining lives of the securities was $46.1$42.8 million and $39.8$43.9 million, respectively. At June 30, 20182019 and December 31, 2017,2018, the remaining premium to be amortized into income over the remaining lives of the securities was $64,000$734,000 and $32,000,$466,000, respectively. These securities are classified as available-for-sale and carried at their fair value.


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70

The following table summarizes the activities in our CMBS investments at fair value for the six months ended June 30, 2019 (in thousands, except amounts in the footnote)footnotes):

 

 

Fair Value at December 31, 2018

 

 

Net Purchases

(Sales) (1)

 

 

Net Upgrades (Downgrades)

 

 

Paydowns (2)

 

 

MTM Change on Same Ratings

 

 

Fair Value at June 30, 2019

 

Moody's ratings category:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aaa

 

$

5,954

 

 

$

—

 

 

$

—

 

 

$

(1,088

)

 

$

(44

)

 

$

4,822

 

Aa1 through Aa3

 

 

—

 

 

 

—

 

 

 

874

 

 

 

(763

)

 

 

—

 

 

 

111

 

A1 through A3

 

 

—

 

 

 

—

 

 

 

118

 

 

 

(94

)

 

 

—

 

 

 

24

 

Baa1 through Baa3

 

 

10,084

 

 

 

—

 

 

 

(2,116

)

 

 

—

 

 

 

507

 

 

 

8,475

 

Ba1 through Ba3

 

 

4,921

 

 

 

—

 

 

 

—

 

 

 

(172

)

 

 

2

 

 

 

4,751

 

B1 through B3

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Caa1 through Caa3

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Ca through C

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Non-Rated

 

 

398,039

 

 

 

39,960

 

 

 

1,124

 

 

 

(21,780

)

 

 

10,138

 

 

 

427,481

 

Total

 

$

418,998

 

 

$

39,960

 

 

$

—

 

 

$

(23,897

)

 

$

10,603

 

 

$

445,664

 

S&P ratings category:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

 

$

117

 

 

$

—

 

 

$

—

 

 

$

(94

)

 

$

—

 

 

$

23

 

AA+ through AA-

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

A+ through A-

 

 

5,298

 

 

 

—

 

 

 

(5,298

)

 

 

—

 

 

 

—

 

 

 

—

 

BBB+ through BBB-

 

 

29,254

 

 

 

—

 

 

 

(5,014

)

 

 

(763

)

 

 

1,903

 

 

 

25,380

 

BB+ through BB-

 

 

92,649

 

 

 

—

 

 

 

(1,124

)

 

 

(3,047

)

 

 

770

 

 

 

89,248

 

B+ through B-

 

 

22,124

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

533

 

 

 

22,657

 

CCC+ through CCC-

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

D

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Non-Rated

 

 

269,556

 

 

 

39,960

 

 

 

11,436

 

 

 

(19,993

)

 

 

7,397

 

 

 

308,356

 

Total

 

$

418,998

 

 

$

39,960

 

 

$

—

 

 

$

(23,897

)

 

$

10,603

 

 

$

445,664

 

Fitch ratings category:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

 

$

4,351

 

 

$

—

 

 

$

—

 

 

$

(949

)

 

$

(72

)

 

$

3,330

 

AA+ through AA-

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

A+ through A-

 

 

118

 

 

 

—

 

 

 

—

 

 

 

(94

)

 

 

—

 

 

 

24

 

BBB+ through BBB-

 

 

64,018

 

 

 

—

 

 

 

(2,405

)

 

 

—

 

 

 

5,566

 

 

 

67,179

 

BB+ through BB-

 

 

12,257

 

 

 

—

 

 

 

(2,892

)

 

 

—

 

 

 

652

 

 

 

10,017

 

B+ through B-

 

 

60,072

 

 

 

—

 

 

 

(5,014

)

 

 

(172

)

 

 

660

 

 

 

55,546

 

CCC

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

CC through D

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Non-Rated

 

 

278,182

 

 

 

39,960

 

 

 

10,311

 

 

 

(22,682

)

 

 

3,797

 

 

 

309,568

 

Total

 

$

418,998

 

 

$

39,960

 

 

$

—

 

 

$

(23,897

)

 

$

10,603

 

 

$

445,664

 

  Fair Value at December 31, 2017 
Net Purchases (Sales) (1)
 Net Upgrades (Downgrades) Paydowns MTM Change
on Same Ratings		 Fair Value at June 30, 2018
Moody's ratings category:            
Aaa $8,390
 $—
 $—
 $(1,150) $(98) $7,142
Aa1 through Aa3 —
 —
 —
 —
 —
 —
A1 through A3 1,563
 —
 —
 (1,564) 1
 —
Baa1 through Baa3 8,432
 7,974
 —
 (2,177) (83) 14,146
Ba1 through Ba3 10,866
 —
 —
 (1,893) (60) 8,913
B1 through B3 —
 —
 —
 —
 —
 —
Caa1 through Caa3 426
 —
 —
 —
 (3) 423
Ca through C 191
 —
 —
 —
 (56) 135
Non-Rated 181,711
 105,809
 —
 (1,738) 1,883
 287,665
Total $211,579
 $113,783
 $—
 $(8,522) $1,584
 $318,424
             
S&P ratings category:            
AAA $1,318
 $—
 $—
 $(1,023) $—
 $295
AA+ through AA- 4,371
 —
 —
 (917) (17) 3,437
A+ through A- 11,593
 —
 —
 (3,242) (42) 8,309
BBB+ through BBB- 22,502
 7,974
 —
 (283) 443
 30,636
BB+ through BB- 86,259
 5,000
 —
 (1,657) 552
 90,154
B+ through B- —
 15,000
 —
 —
 19
 15,019
CCC+ through CCC- —
 —
 —
 —
 —
 —
D —
 —
 —
 —
 —
 —
Non-Rated 85,536
 85,809
 —
 (1,400) 629
 170,574
Total $211,579
 $113,783
 $—
 $(8,522) $1,584
 $318,424
             
Fitch ratings category:            
AAA $6,482
 $—
 $1,028
 $(1,787) $(72) $5,651
AA+ through AA- —
 —
 —
 —
 —
 —
A+ through A- 2,881
 —
 —
 (2,587) 1
 295
BBB+ through BBB- 40,577
 21,494
 862
 (146) 966
 63,753
BB+ through BB- 16,712
 —
 (1,890) (2,019) (54) 12,749
B+ through B- 43,191
 19,882
 —
 (244) 81
 62,910
CCC —
 —
 —
 —
 —
 —
CC through D 191
 —
 —
 —
 (56) 135
Non-Rated 101,545
 72,407
 —
 (1,739) 718
 172,931
Total $211,579
 $113,783
 $—
 $(8,522) $1,584
 $318,424

(1)

(1)

During the six months ended June 30, 2018,2019, we acquired $41.0$7.2 million of CMBS, at a cost of approximately $33.4$7.2 million, with a weighted average spread, based on cost, of 3.55%3.67% over the interpolated interest rate swap curve and $80.4$33.5 million of CMBS, at a cost of approximately $80.4$33.4 million, with a weighted average spread, based on face value, of 2.46%2.38% over LIBOR.

ABS.  In March 2018, we sold our remaining two ABS investment securities available-for-sale with total amortized costs of $265,000, receiving proceeds of $48,000. At June 30, 2018, we did not hold any ABS investment securities available-for-sale.  At December 31, 2017, we held two ABS investment securities available-for-sale with total fair values of $158,000.

(2)

Includes non-cash adjustments in connection with the recalculation of the accretable yield on certain interest-only CMBS.

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71

54


The following table summarizes our ABSCMBS investments earning coupon interest at fair value (in thousands):

 Fair Value at December 31, 2017 Net Purchases (Sales) MTM Change
on Same Ratings		 Fair Value at June 30, 2018
Moody's ratings category:       
Non-Rated$158
 $(259) $101
 $—
        
S&P ratings category: 
  
    
Non-Rated$158
 $(259) $101
 $—
        
Fitch ratings category:       
Non-Rated$158
 $(259) $101
 $—
Investment securities, trading. Structured notes are CLO debt securities collateralized by syndicated corporate loans. The following table summarizes our structured notes classified as investment securities, trading,floating rates or fixed rates at June 30, 2019 and carried at fair value (inDecember 31, 2018 (dollars in thousands, except number of securities)amounts in the footnote):

 

 

Face Value

 

 

Amortized Cost

 

 

Fair Value

 

 

Coupon Rates

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS, fixed rate (1)

 

$

186,654

 

 

$

118,753

 

 

$

123,848

 

 

2.88% - 8.48%

CMBS, floating rate

 

 

321,359

 

 

 

321,341

 

 

 

321,816

 

 

4.30% - 6.42%

Total

 

$

508,013

 

 

$

440,094

 

 

$

445,664

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS, fixed rate (1)

 

$

190,601

 

 

$

121,487

 

 

$

119,739

 

 

2.88% - 8.48%

CMBS, floating rate

 

 

301,254

 

 

 

301,132

 

 

 

299,259

 

 

4.25% - 6.48%

Total

 

$

491,855

 

 

$

422,619

 

 

$

418,998

 

 

 

(1)

Face value includes $25.9 million, with a total cost basis of $106,000, of CMBS that have been subject to other-than-temporarily-impairment charges at June 30, 2019 and December 31, 2018.

  Number of Securities Amortized Cost Unrealized Gains Unrealized Losses Fair Value
At June 30, 2018:          
Structured notes 1 $1,000
 $—
 $(1,000) $—
           
At December 31, 2017:    
  
  
  
Structured notes 4 $2,891
 $—
 $(2,713) $178
We did not sell any investment securities during the three months ended June 30, 2018 and two investment securities resulting in realized losses of $5,000 during the six months ended June 30, 2018. We did not sell any investment securities during the three months ended June 30, 2017 and one investment security resulting in a realized gain of $9,000 during the six months ended June 30, 2017.
We received a payoff on one investment security resulting in a realized loss of $3,000 during the three and six months ended June 30, 2018.

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72

Investment in unconsolidated entities. The following table shows our investments in unconsolidated entities at June 30, 20182019 and December 31, 20172018 and equity in earnings (losses) of unconsolidated entities for the three and six months ended June 30, 2019 and 2018 and 2017 (in(dollars in thousands, except percentages and amountsamount in the footnotes):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in Earnings (Losses) of Unconsolidated Entities

 

 

 

Ownership % at

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

2019

 

 

June 30,

2019

 

 

December 31,

2018

 

 

June 30,

2019

 

 

June 30,

2018

 

 

June 30,

2019

 

 

June 30,

2018

 

Pelium Capital (1)

 

 

—

%

 

$

—

 

 

$

—

 

 

$

—

 

 

$

75

 

 

$

—

 

 

$

(230

)

RCM Global

 

 

—

%

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6

)

 

 

—

 

 

 

7

 

Subtotal

 

 

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

69

 

 

 

—

 

 

 

(223

)

Investment in RCT I and II (2)

 

 

3.0

%

 

 

1,548

 

 

 

1,548

 

 

 

26

 

 

 

24

 

 

 

52

 

 

 

46

 

Total

 

 

 

 

 

$

1,548

 

 

$

1,548

 

 

$

26

 

 

$

93

 

 

$

52

 

 

$

(177

)

       Equity in Earnings (Losses) of Unconsolidated Entities
       For the Three Months Ended For the Six Months Ended
 Ownership % at June 30, 2018 June 30,
2018		 December 31,
2017		 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
       
Pelium Capital (1)
80.2% $154
 $10,503
 $75
 $82
 $(230) $(77)
RCM Global63.8% 80
 —
 (6) (166) 7
 (170)
RRE VIP Borrower, LLC (2)
—% —
 —
 —
 37
 —
 37
Pearlmark Mezzanine Realty Partners IV, L.P. (3)
—% —
 —
 —
 (193) —
 165
Investment in LCC Preferred Stock (4)
—% —
 —
 —
 122
 —
 288
Subtotal  234
 10,503
 69
 (118) (223) 243
Investment in RCT I and II (5)
3.0% 1,548
 1,548
 (806) (663) (1,530) (1,300)
Total  $1,782
 $12,051
 $(737) $(781) $(1,753) $(1,057)

(1)

(1)

During the six months ended June 30, 2018, and 2017, we received distributions of $10.2 million and $13.6 million, respectively, on our investment in Pelium Capital Partners, L.P. ("Pelium Capital").

(2)

(2)We sold our investment in RRE VIP Borrower in December 2014. Earnings for

During the three and six months ended June 30, 2017 are related to insurance premium refunds with respect to the underlying sold properties in the portfolio.

(3)We sold our investment in Pearlmark Mezzanine Realty Partners IV, L.P. ("Pearlmark Mezz") in May 2017.
(4)Our investment in LEAF Commercial Capital, Inc. ("LCC") liquidated in July 2017 as a result of the sale of LCC.
(5)For the six months ended June 30,2019 and 2018, and 2017, distributionsdividends from the trustsinvestments in Resource Capital Trust I and RCC Trust II's common shares are recorded in interest expenseother revenue. See Note 9 for the disclosures on our consolidated statements of operations as the investments are accounted for under the cost method.associated unsecured junior subordinated debentures.

During the six months ended June 30,

In 2018, investments held by Pelium Capital and RCM Global LLC were substantiallyfully liquidated.


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73

55


Financing Receivables

The following tables show the activity in the allowance for loan and lease losses for the six months ended June 30, 20182019 and year ended December 31, 20172018 and the allowance for loan and lease losses and recorded investments in loans and leases at June 30, 20182019 and December 31, 20172018 (in thousands)thousands, except amount in the footnotes):

 

 

Six Months Ended June 30, 2019

 

 

Year Ended December 31, 2018

 

 

 

Commercial Real

Estate Loans

 

 

Commercial Real

Estate Loans

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

Allowance for loan losses at beginning of period

 

$

1,401

 

 

$

5,328

 

Provision for (recovery of) loan losses, net (1)

 

 

1,196

 

 

 

(1,595

)

Loans charged-off

 

 

—

 

 

 

(2,332

)

Allowance for loan losses at end of period

 

$

2,597

 

 

$

1,401

 

(1)

Excludes the recovery of loan losses on one bank loan with no amortized cost or carrying value at June 30, 2019 and December 31, 2018 that received a payment of approximately $1,000 during the six months ended June 30, 2019.

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Commercial Real

Estate Loans

 

 

Commercial Real

Estate Loans

 

Allowance for loan losses ending balance:

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

—

 

 

$

—

 

Collectively evaluated for impairment

 

$

2,597

 

 

$

1,401

 

Loans:

 

 

 

 

 

 

 

 

Amortized cost ending balance:

 

 

 

 

 

 

 

 

Individually evaluated for impairment (1)

 

$

30,110

 

 

$

24,255

 

Collectively evaluated for impairment

 

$

1,920,979

 

 

$

1,529,113

 

(1)

Our mezzanine loan and preferred equity investments are evaluated individually for impairment.

  Six Months Ended June 30, 2018 Year Ended December 31, 2017
  Commercial Real Estate Loans Direct Financing Leases Total Commercial Real Estate Loans Syndicated Corporate Loans Direct Financing Leases Total
Allowance for loan and lease losses:              
Allowance for loan and lease losses at beginning of period $5,328
 $735
 $6,063
 $3,829
 $—
 $465
 $4,294
Provision for (recovery of) loan and lease losses, net (799) —
 (799) 1,499
 3
 270
 1,772
Loans charged-off —
 —
 —
 —
 (3) —
 (3)
Allowance for loan and lease losses at end of period $4,529
 $735
 $5,264
 $5,328
 $—
 $735
 $6,063
               
  June 30, 2018 December 31, 2017
  Commercial Real Estate Loans Direct Financing Leases Total Commercial Real Estate Loans Syndicated Corporate Loans Direct Financing Leases Total
Allowance for loan and lease losses ending balance:  
    
        
Individually evaluated for impairment $2,500
 $735
 $3,235
 $2,500
 $—
 $735
 $3,235
Collectively evaluated for impairment $2,029
 $—
 $2,029
 $2,828
 $—
 $—
 $2,828
Loans acquired with deteriorated credit quality $—
 $—
 $—
 $—
 $—
 $—
 $—
Loans and Leases:  
    
        
Amortized cost ending balance:      
        
Individually evaluated for impairment $30,891
 $801
 $31,692
 $7,000
 $—
 $886
 $7,886
Collectively evaluated for impairment $1,419,656
 $—
 $1,419,656
 $1,283,150
 $—
 $—
 $1,283,150
Loans acquired with deteriorated credit quality $—
 $—
 $—
 $—
 $—
 $—
 $—

Credit quality indicators

Commercial Real Estate Loans

CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or reunderwritten loan-to-collateral value ratios, loan structure and exit plan. Depending on the loan's performance against these various factors, loans are rated on a scale from 1 to 5, with loans rated 1 representing loans with the highest credit quality and loans rated 5 representing loans with the lowest credit quality. The factors evaluated provide general criteria to monitor credit migration in our loan portfolio,portfolio; as such, a loan's rating may improve or worsen, depending on new information received.

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56

(Back to Index)

The criteria set forth below should be used as general guidelines and, therefore, not every loan will have all of the characteristics described in each category below. Loans that are performing according to their underwritten plans generally will not require an allowance for loan loss.


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74

Risk Rating

Risk Characteristics

Risk Rating

Risk Characteristics

1

1

• Property performance has surpassed underwritten expectations.

• Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high quality tenant mix.

2

• Property performance is consistent with underwritten expectations and covenants and performance criteria are being met or exceeded.

• Occupancy is stabilized, near stabilized or is on track with underwriting.

3

• Property performance lags behind underwritten expectations.

• Occupancy is not stabilized and the property has some tenancy rollover.

4

• Property performance significantly lags behind underwritten expectations. Performance criteria and loan covenants have required occasional waivers.

• Occupancy is not stabilized and the property has a large amount of tenancy rollover.

5

• Property performance is significantly worse than underwritten expectations. The loan is not in compliance with loan covenants and performance criteria and ismay be in default. Expected sale proceeds would not be sufficient to pay off the loan at maturity.

• The property has a material vacancy rate and significant rollover of remaining tenants.

• An updated appraisal is required.required upon designation and updated on an as-needed basis.

All CRE loans are evaluated for any credit deterioration by debt asset management and certain finance personnel on at least a quarterly basis.

Whole loans are first individually evaluated for impairment; and to the extent not deemed impaired, a general reserve is established.

The allowance for loan loss is computed as (i) 1.5% of the aggregate face values of loans rated as a 3, plus (ii) 5.0% of the aggregate face values of loans rated as a 4, plus (iii) specific allowances measured and determined on loans individually evaluated, which are loans rated as a 5. While the overall risk rating is generally not the sole factor used in determining whether a loan is impaired, a loan with a higher overall risk rating would tend to have more adverse indicators of impairment, and therefore would be more likely to experience a credit loss.

The Company's

Our mezzanine loan and preferred equity investmentinvestments are evaluated individually for impairment.

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57

(Back to Index)

Credit risk profiles of CRE loans at amortized cost and legacy CRE loans held for sale at the lower of cost or fair value were as follows (in thousands, except amounts in footnotes):

 

 

Rating 1

 

 

Rating 2

 

 

Rating 3 (1)

 

 

Rating 4

 

 

Rating 5

 

 

Held for Sale (2)

 

 

Total

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

1,758,536

 

 

$

158,095

 

 

$

4,348

 

 

$

—

 

 

$

—

 

 

$

1,920,979

 

Mezzanine loan (3)

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

Preferred equity investments (3)

 

 

—

 

 

 

25,410

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25,410

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16,082

 

 

 

16,082

 

Total

 

$

—

 

 

$

1,788,646

 

 

$

158,095

 

 

$

4,348

 

 

$

—

 

 

$

16,082

 

 

$

1,967,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

1,447,206

 

 

$

77,067

 

 

$

4,840

 

 

$

—

 

 

$

—

 

 

$

1,529,113

 

Mezzanine loan (3)

 

 

—

 

 

 

4,700

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

Preferred equity investment (3)

 

 

—

 

 

 

19,555

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,555

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

17,000

 

 

 

17,000

 

Total

 

$

—

 

 

$

1,471,461

 

 

$

77,067

 

 

$

4,840

 

 

$

—

 

 

$

17,000

 

 

$

1,570,368

 

 Rating 1 Rating 2 
Rating 3 (1)
 Rating 4 
Rating 5 (2)
 
Held for Sale (3)
 Total
At June 30, 2018:             
Whole loans$13,000
 $1,271,509
 $130,302
 $4,845
 $7,000
 $—
 $1,426,656
Mezzanine loan (4)
—
 4,700
 —
 —
 —
 —
 4,700
Preferred equity investment (4)
—
 19,191
 —
 —
 —
 —
 19,191
Legacy CRE loans held for sale—
 —
 —
 —
 —
 18,000
 18,000
 $13,000
 $1,295,400
 $130,302
 $4,845
 $7,000
 $18,000
 $1,468,547
              
At December 31, 2017: 
  
  
    
  
  
Whole loans$65,589
 $1,040,883
 $171,841
 $4,837
 $7,000
 $—
 $1,290,150
Legacy CRE loans held for sale—
 —
 —
 —
 —
 61,841
 61,841
 $65,589
 $1,040,883
 $171,841
 $4,837
 $7,000
 $61,841
 $1,351,991

(1)

(1)

Includes one whole loan, with an amortized cost of $11.5 million, thatwhich was in maturity default at June 30, 2019 and December 31, 2018. The loan is performing with respect to debt service due in accordance with a forbearance agreement at June 30, 2019 and December 31, 2018.

(2)

(2)

Includes one wholelegacy CRE loan with an amortized cost of $7.0 million, that was in default at June 30, 2018 and December 31, 2017.

(3)Includes one and two legacy CRE loans that were in default with a total carrying valuesvalue of $18.0$16.1 million and $22.5$17.0 million at June 30, 20182019 and December 31, 2017,2018, respectively.

(3)

(4)

Our mezzanine loan and preferred equity investmentinvestments are evaluated individually for impairment.


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75

At June 30, 20182019 and December 31, 2017, we had one CRE whole loan designated as an impaired loan with a risk rating of 5 due to short term vacancy/tenant concerns and a past due maturity of February 2017. The loan had an amortized cost of $7.0 million at June 30, 2018 and December 31, 2017. We obtained an appraisal of the collateral in 2016, indicating a fair value of $4.5 million, which we relied upon as a practical expedient for determining the value of the loan at June 30, 2018 and December 31, 2017. No additional provision was recorded on the loan for the three and six months ended June 30, 2018 and 2017. This loan was in default at June 30, 2018 and December 31, 2017.

At June 30, 2018, we had one legacy CRE loan and one mezzanine loan included in assets held for sale with total carrying values of $18.0$16.1 million and $17.0 million, respectively, comprising total amortized cost bases of $24.6$22.2 million and $21.7 million, respectively, less a valuation allowanceaccumulated lower of $6.6 million.cost or market charges of $6.1 million and $4.7 million, respectively. The mezzanine loan held for sale had no fair value at June 30, 2018.
At2019 and December 31, 2017, we had four2018.

Our remaining legacy CRE loans and one mezzanine loan included in assets held for sale with total carrying values of $61.8 million, comprising total amortized cost bases of $63.8 million less a valuation allowance of $1.9 million. The mezzanine loan held for sale had noincurred fair value at December 31, 2017.

Inadjustments to reduce the carrying value of $1.3 million during the three months ended June 30, 2019 and $1.4 million, which included protective advances to cover borrower operating losses of $102,000, during the six months ended June 30, 2019. The adjustments comprised a $1.3 million fair value charge in connection with the updated fair value based on the average of three June 2019 brokers' opinion of value that were taken into account equally along with the latest appraisal received in February 2019. During the six months ended June 30, 2018, we soldincurred fair value adjustments to reduce the notecarrying value of $4.7 million, which included protective advances to cover borrower operating losses of $172,000. No fair value adjustments were incurred during the three months ended June 30, 2018. The adjustments for the six months ended June 30, 2018 were calculated based on updated appraisals, less estimated costs for repairs to be performed on the collateral, and deed of trust of one legacy CREwere reserved against the funded protective advances. The loan for $12.0 million, resultingis currently in a realized gain of $1.0 million fordefault.

During the three and six months ended June 30, 2018.

At June 30, 2018,2019, we reclassified two legacy CRErecorded increases in the general reserve of $170,000 and $1.0 million, respectively, primarily attributable to one and five loans, back into the CRE loan portfolio at the lesserrespectively, which migrated from a rating of each loan's cost or market value, totaling $28.3 million, as we now intend2 to hold the loans to maturity. The loans are classified as CRE loans on the consolidated balance sheets. One reclassified loan with an amortized costa rating of $11.5 million was3, in maturity default at June 30, 2018 and December 31, 2017. The loan is performing with respect to debt service due in accordance with a forbearance agreement.
At June 30, 2018 and December 31, 2017, the one remaining legacy CRE loan had a carrying value of $18.0 million and $22.5 million, respectively. An additional fair value adjustment of $4.7 million, which included protective advances of $172,000, to reduce the carrying value was recognized duringperformance lagged behind underwritten expectations. During the six months ended June 30, 2018. This adjustment2018, we recorded a decrease in the general reserve of approximately $799,000, primarily attributable to one loan rated as a 3 that repaid and one loan, which migrated from a rating of 3 to a rating of 2, in which performance improved to within underwritten expectations. There was recorded based onno change in the receipt of updated appraisals in April 2018 and was recognized in fair value adjustments on financial assets held for sale on our consolidated statements of operations. No valuation adjustments were recognized forgeneral reserve during the three months ended June 30, 2018, nor the three and six months ended June 30, 2017. The loan is currently in default.
At December 31, 2017, 45.8%, 36.4% and 17.8% of our legacy CRE loans were concentrated in retail, hotel and office, respectively, based on carrying value. Of these loans, 82.2% and 17.8% were within the Pacific and Mountain regions, respectively.
Except as previously discussed, all of our CRE loans, our mezzanine loan and our preferred equity investment were current with respect to contractual principal and interest at June 30, 2018.
Direct Financing Leases
We recorded no provision for lease losses against the value of our direct financing leases during the three and six months ended June 30, 2018. We recorded a provision for lease losses of $131,000 and $270,000 during the three and six months ended June 30, 2017, respectively. We held $66,000 and $151,000 of direct financing leases, net of reserves, at June 30, 2018 and December 31, 2017, respectively.

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76

58


Loan Portfolios Aging Analysis

The following table presents the CRE loan portfolio aging analysis as of the dates indicated at amortized cost and legacy CRE loans held for sale at the lower of cost or fair value (in thousands, except amounts in footnotes):

 

 

30-59 Days

 

 

60-89 Days

 

 

Greater than 90 Days (1)(2)

 

 

Total Past Due

 

 

Current

 

 

Total Loans Receivable

 

 

Total Loans > 90 Days and Accruing (1)

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

—

 

 

$

11,516

 

 

$

11,516

 

 

$

1,909,463

 

 

$

1,920,979

 

 

$

11,516

 

Mezzanine loan

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

 

 

4,700

 

 

 

—

 

Preferred equity investments

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25,410

 

 

 

25,410

 

 

 

—

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

16,082

 

 

 

16,082

 

 

 

—

 

 

 

16,082

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

$

27,598

 

 

$

27,598

 

 

$

1,939,573

 

 

$

1,967,171

 

 

$

11,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Whole loans

 

$

—

 

 

$

—

 

 

$

11,516

 

 

$

11,516

 

 

$

1,517,597

 

 

$

1,529,113

 

 

$

11,516

 

Mezzanine loan

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,700

 

 

 

4,700

 

 

 

—

 

Preferred equity investment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,555

 

 

 

19,555

 

 

 

—

 

Legacy CRE loans held for sale

 

 

—

 

 

 

—

 

 

 

17,000

 

 

 

17,000

 

 

 

—

 

 

 

17,000

 

 

 

—

 

Total

 

$

—

 

 

$

—

 

 

$

28,516

 

 

$

28,516

 

 

$

1,541,852

 

 

$

1,570,368

 

 

$

11,516

 

 30-59 Days 60-89 Days 
Greater
than
90 Days (1)(2)
 
Total Past Due (3)
 Current 
Total
Loans
Receivable (4)
 
Total Loans > 90 Days and Accruing (2)
At June 30, 2018: 
  
    
  
    
Whole loans$—
 $—
 $18,516
 $18,516
 $1,408,140
 $1,426,656
 $11,516
Mezzanine loan—
 —
 —
 —
 4,700
 4,700
 —
Preferred equity investment—
 —
 —
 —
 19,191
 19,191
 —
Legacy CRE loans held for sale—
 —
 18,000
 18,000
 —
 18,000
 —
Total loans$—
 $—
 $36,516
 $36,516
 $1,432,031
 $1,468,547
 $11,516
              
At December 31, 2017: 
  
  
  
  
  
  
Whole loans$—
 $—
 $7,000
 $7,000
 $1,283,150
 $1,290,150
 $—
Legacy CRE loans held for sale11,516
 —
 11,000
 22,516
 39,325
 61,841
 —
Total loans$11,516
 $—
 $18,000
 $29,516
 $1,322,475
 $1,351,991
 $—

(1)Includes one whole loan, with an amortized cost of $7.0 million, that was in default at June 30, 2018 and December 31, 2017.

(1)

(2)

Includes one whole loan, with an amortized cost of $11.5 million, thatwhich was in maturity default at June 30, 2019 and December 31, 2018. The loan is performing with respect to debt service due in accordance with a forbearance agreement at June 30, 2019 and December 31, 2018. During the three and six months ended June 30, 2019, we recognized interest income of $165,000 and $330,000, respectively, on this whole loan. During the three and six months ended June 30, 2018, we recognized interest income of $152,000 and $302,000, respectively, on this whole loan.

(2)

(3)

Includes one and two legacy CRE loansloan that werewas in default with a total carrying valuesvalue of $18.0$16.1 million and $22.5$17.0 million at June 30, 20182019 and December 31, 2017,2018, respectively.

(4)Excludes direct financing leases of $66,000 and $151,000, net of reserves, at June 30, 2018 and December 31, 2017, respectively.

Impaired Loans

The following tables show

We did not have any impaired loans as of the dates indicated (in thousands):

 Recorded Balance Unpaid Principal Balance Specific Allowance Average Investment in Impaired Loans Interest Income Recognized
At June 30, 2018:         
Loans without a specific valuation allowance:         
Whole loans$—
 $—
 $—
 $—
 $—
Loans with a specific valuation allowance:         
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—
Total: 
  
  
  
  
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—
          
At December 31, 2017: 
  
  
  
  
Loans without a specific valuation allowance: 
  
  
  
  
Whole loans$—
 $—
 $—
 $—
 $—
Loans with a specific valuation allowance: 
  
  
  
  
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—
Total: 
  
  
  
  
Whole loans$7,000
 $7,000
 $(2,500) $7,000
 $—
at June 30, 2019 and December 31, 2018.

Troubled-Debt Restructurings ("TDR"TDRs")

There were no TDRs for the six months ended June 30, 20182019 and 2017.


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77

2018.

Restricted Cash

At June 30, 2018,2019, we had restricted cash of $10.1$14.1 million,, which consisted of $9.2$6.1 million of restricted cash within sixfive of our eightsix consolidated securitizations, $739,000securitization entities, $8.0 million held as margin and $86,000$43,000 held in various reserve accounts. At December 31, 2017,2018, we had restricted cash of $22.9$12.7 million,, which consisted of $20.8$6.2 million of restricted cash within sixfour of our sevensix consolidated securitizations, $1.9securitization entities, $6.4 million held as margin, $100,000 held in escrow and $25,000$21,000 held in various reserve accounts. The decreaseincrease of $12.8$1.4 million is was primarily attributable to paydownscash held in our CRE securitizations from principal repayments and, to a lesser extent, an increase due to initial margin requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 on interest payments on the RCC 2017-CRE5 notes payable,rates swaps, offset by future fundings madefunding acquisitions by RCC 2017-CRE5 and the net receipt of previously posted margin from our interest rate swap counterparty.

CRE securitizations.

Accrued Interest Receivable

The following table summarizes our accrued interest receivable at June 30, 20182019 and December 31, 20172018 (in thousands):

 

 

June 30, 2019

 

 

December 31, 2018

 

 

Net Change

 

Accrued interest receivable from loans

 

$

7,992

 

 

$

6,974

 

 

$

1,018

 

Accrued interest receivable from securities

 

 

1,047

 

 

 

1,156

 

 

 

(109

)

Accrued interest receivable from escrow, sweep and reserve accounts

 

 

116

 

 

 

68

 

 

 

48

 

Total

 

$

9,155

 

 

$

8,198

 

 

$

957

 

 June 30,
2018		 December 31,
2017		 Net Change
Accrued interest receivable from loans$6,207
 $6,096
 $111
Accrued interest receivable from securities929
 756
 173
Accrued interest receivable from escrow and sweep accounts21
 7
 14
Total$7,157
 $6,859
 $298

The $298,000$957,000 increase in accrued interest receivable iswas primarily attributable to new loan production, including the acquisition of a portfolio of CRE loans from an increase in one-month LIBOR and the purchaseaffiliate of CMBS,our Manager, partially offset by loan payoffs and the sale of our remaining two ABS during the six months ended June 30, 2018.

Other Assets

The following table summarizes our other assets at June 30, 20182019 and December 31, 20172018 (in thousands):

 

 

June 30, 2019

 

 

December 31, 2018

 

 

Net Change

 

Tax receivables and prepaid taxes

 

$

2,687

 

 

$

3,219

 

 

$

(532

)

Other prepaid expenses

 

 

1,036

 

 

 

361

 

 

 

675

 

Other receivables

 

 

170

 

 

 

261

 

 

 

(91

)

Fixed assets - non real estate

 

 

105

 

 

 

108

 

 

 

(3

)

Direct financing leases

 

 

66

 

 

 

66

 

 

 

—

 

Total

 

$

4,064

 

 

$

4,015

 

 

$

49

 

 June 30,
2018		 December 31,
2017		 Net Change
Tax receivables and prepaid taxes$3,243
 $4,286
 $(1,043)
Management fees receivable—
 2,029
 (2,029)
Other receivables812
 495
 317
Fixed assets - non real estate153
 157
 (4)
Other1,017
 484
 533
Total$5,225
 $7,451
 $(2,226)

The $2.2 million decrease $49,000 increase in other assets iswas primarily attributable to a $2.0 million decrease$675,000 increase in management fees receivable, due to amortization andother prepaid expenses, resulting from the reductionMarch 2019 payment of our right to the remaining $1.5$1.1 million of collateral management fee rebate assets to zero in exchangeD&O insurance for cash in the second quarter of 2018, andensuing year. The increase was partially offset by a $1.0 million$532,000 decrease in tax receivables and prepaid taxes, due to tax refunds of $1.1 millionapproximately $472,000 received during the six months ended June 30, 2018. The decrease in other assets was offset by a $533,000 increase in other, primarily attributable to the payment of $1.1 million of premiums for the renewal of our directors and officers liability insurance.

Deferred Tax Asset, Net
At June 30, 2018 and December 31, 2017, our net deferred tax asset was zero. The future realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. During 2017, we recorded a full valuation allowance against our net deferred tax assets as we believed it was more likely than not that some or all of the deferred tax assets would not be realized. This assessment was based on our cumulative historical losses and uncertainties as to the amount of taxable income that would be generated in future years.  In recognition of this risk, we have recorded a full valuation allowance of $10.4 million and $9.9 million at June 30, 2018 and December 31, 2017, respectively. We will continue to evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies.
In accordance with Securities and Exchange Commission staff issued guidance, a company must reflect the income tax effects of those aspects of the Tax Cuts and Jobs Act (the "Tax Act") for which the accounting is complete. We were able to determine a reasonable provisional estimate that has been recorded in the consolidated financial statements. Our accounting for the impact of the Tax Act is complete.

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78

2019.

Core and Non-Core Asset Classes

Our investment strategy targets the following core asset class:

CRE/

Core Asset Class

Principal Investments

Commercial real estate-related assets

• First mortgage loans, which we refer to as whole loans;

• First priority interests in first mortgage loans, which we refer to as A notes;

• Subordinated interests in first mortgage loans, which we refer to as B notes;

• Mezzanine debt related to CRE that is senior to the borrower's equity position but subordinated to other third-party debt;

• Preferred equity investments related to CRE that are subordinate to first mortgage

 loans and are not collateralized by the property underlying the investment;

• CMBS; and

• Other CRE equity investments.

As we discussed in the "Overview" section, in November 2016, our Board approved the Plan to focus our strategy on CRE debt investments. The Plan contemplated disposing of certain legacy CRE debt investments, exiting underperforming non-core asset classes and businesses and maintaining a dividend policy based on sustainable earnings. Legacy CRE loans are loans underwritten prior to 2010. The non-core asset classes in which we have historically invested are described below:

In November 2016, we received approval from our Board to execute the Plan to focus our strategy on CRE debt investments.  The Plan contemplates disposing of certain legacy CRE debt investments, exiting underperforming non-core asset classes and establishing a dividend policy based on sustainable earnings.  Legacy CRE loans are loans underwritten prior to 2010. The non-core asset classes in which we have historically invested are described below:

Non-Core Asset Classes

Principal Investments

Residential real estate-related assets

• Residential mortgage loans; and

• Residential mortgage-backed securities, which comprise our available-for-sale portfolio.

Commercial finance assets

• Middle market secured corporate loans and preferred equity investments;

• ABS, backed by senior secured corporate loans;

• Debt tranches of collateralized debt obligations, which we refer to as CDOs, and CLOs,collateralized loan obligations, respectively, and sometimes, collectively, as CDOs;

• Structured note investments, which comprise our trading securities portfolio;

• Syndicated corporate loans; and

• Preferred equity investment in a commercial leasing enterprise that originates and holds small- and middle-ticket commercial direct financing leases and notes.


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79

60


The table below summarizes the amortized costcosts and net carrying amountamounts of our investment portfoliocore and non-core investments at June 30, 2018,2019, classified by asset type (in thousands, except percentages and amounts in footnotes):

At June 30, 2019

 

Amortized Cost

 

 

Net Carrying Amount

 

 

Percent of Portfolio

 

 

Weighted Average Coupon

 

Core Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE whole loans (1)(2)

 

$

1,909,463

 

 

$

1,906,866

 

 

 

79.11

%

 

6.19%

 

CRE mezzanine loan and preferred equity investments (2)

 

 

30,110

 

 

 

30,110

 

 

 

1.25

%

 

11.18%

 

CMBS, fixed rate (3)

 

 

118,753

 

 

 

123,848

 

 

 

5.14

%

 

4.10%

 

CMBS, floating rate (3)

 

 

321,341

 

 

 

321,816

 

 

 

13.35

%

 

5.09%

 

Total Core Assets

 

 

2,379,667

 

 

 

2,382,640

 

 

 

98.85

%

 

 

 

 

Non-Core Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Structured notes (4)

 

 

1,000

 

 

 

—

 

 

 

—

%

 

N/A (7)

 

Direct financing leases (4)

 

 

801

 

 

 

66

 

 

 

—

%

 

N/A (7)

 

Legacy CRE loans (5)(6)

 

 

33,666

 

 

 

27,598

 

 

 

1.15

%

 

1.66%

 

Total Non-Core Assets

 

 

35,467

 

 

 

27,664

 

 

 

1.15

%

 

 

 

 

Total Core and Non-Core Assets

 

$

2,415,134

 

 

$

2,410,304

 

 

 

100.00

%

 

 

 

 

At June 30, 2018 Amortized Cost Net Carrying Amount Percent of Portfolio Weighted Average Coupon
Core Assets:        
CRE whole loans (1)(2)
 $1,398,315
 $1,393,786
 78.10% 6.43%
CRE mezzanine loan and preferred equity investment (2)
 23,891
 23,891
 1.34% 11.21%
CMBS (3)
 317,414
 318,424
 17.84% 4.44%
Total Core Assets 1,739,620
 1,736,101
 97.28%  
         
Non-Core Assets:        
Structured notes (4)
 1,000
 —
 —% 
N/A (11)
Investments in unconsolidated entities (5)
 234
 234
 0.01% 
N/A (11)
Direct financing leases (6)
 801
 66
 —% 5.66%
Legacy CRE loans (7)(8)
 52,955
 46,341
 2.60% 2.32%
Middle market loan held for sale (9)(10)
 13,837
 1,978
 0.11% 
N/A (11)
Total Non-Core Assets 68,827
 48,619
 2.72%  
         
Total investment portfolio $1,808,447
 $1,784,720
 100.00%  

(1)

(1)

Net carrying amount includes an allowance for loan losses of $4.5$2.6 million at June 30, 2018.2019.

(2)

(2)

Classified as CRE loans on the consolidated balance sheets.sheet.

(3)

(3)

Classified as investment securities available-for-sale on the consolidated balance sheets.sheet.

(4)

(4)

Classified as investment securities, tradingother assets on the consolidated balance sheets.sheet.

(5)

(5)Classified as investments in unconsolidated entities on the consolidated balance sheets.
(6)Net carrying amount includes an allowance for lease losses of $735,000 at June 30, 2018.
(7)A

Includes one legacy CRE loan with an amortized cost of $24.6$11.5 million andclassified as a net carrying amount of $18.0 million is classified in assets held for saleCRE loan on the consolidated balance sheets. At June 30, 2018, two legacy CRE loans with total amortized costs and net carrying amounts of $28.3 million were reclassified to CRE loans on the consolidated balance sheetssheet as it is now our intentwe intend to hold these loansthis loan to maturity.

(6)

(8)

Net carrying amount includes a lower of cost or market value adjustment of $6.6$6.1 million at June 30, 2018.2019.

(7)

(9)Classified as assets held for sale on the consolidated balance sheets.
(10)Net carrying amount includes the lower of cost or market value adjustment of $11.9 million at June 30, 2018.
(11)

There are no stated rates associated with these investments.

Assets and Liabilities Held for Sale

The assets and liabilities of business segments classified as discontinued operations and other assets and liabilities classified as held for sale are reported separately in the accompanying consolidated financial statements and are summarized as follows at June 30, 20182019 and December 31, 20172018 (in thousands, except amounts in the footnote)thousands):

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Loans held for sale

 

$

16,082

 

 

$

17,000

 

Other assets

 

 

366

 

 

 

645

 

Total

 

$

16,448

 

 

$

17,645

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

1,770

 

 

$

1,820

 

Total

 

$

1,770

 

 

$

1,820

 

 June 30,
2018		 December 31,
2017
ASSETS   
Restricted cash$—
 $138
Accrued interest receivable—
 67
Loans held for sale (1)
19,978
 93,063
Other assets (2)
978
 14,450
Total assets held for sale$20,956
 $107,718
    
LIABILITIES   
Accounts payable and other liabilities$2,421
 $10,283
Management fee payable—
 56
Accrued interest payable—
 3
Total liabilities held for sale$2,421
 $10,342
(1)Includes a directly originated middle market loan with a carrying value of $2.0 million at June 30, 2018 and December 31, 2017. In July 2018 substantially all of the assets of the borrower were sold, resulting in $2.1 million of loan repayments.
(2)Includes our investment in life settlement contracts of $5.1 million at December 31, 2017, which were transferred to held for sale in the fourth quarter of 2016. There were no life settlement contracts remaining at June 30, 2018.

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80

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 seek to manage the extent to which net income changes as a fluctuation of changes in interest rates by matching adjustable-rate assets with variable-rate borrowings. We seek to mitigate the potential impact on net income (loss) of adverse fluctuations in interest rates incurred on our borrowings by entering into hedging agreements.

We classify our interest rate hedges as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability. We record changes in fair value of derivatives designated and effective as cash flow hedges in accumulated other comprehensive income (loss), and record changes in fair value of derivatives designated and ineffective as cash flow hedges in earnings.

We were also exposed

(Back to foreign currency exchange risk, a form of risk that arises from the change in price of one currency against another. However, substantially all of our revenues are transacted in U.S. dollars. To address this market risk, we generally hedged our foreign currency-denominated exposures (typically investments in debt instruments, including forecasted principal and interest payments) with foreign currency forward contracts. We classified 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 recorded 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. As we continueIndex)

61

(Back to further implement the Plan, as outlined in the "Overview" section, we eliminated our foreign currency exchange risk in the first quarter of 2018.

Index)

The following tables present the fair value of our derivative financial instruments as well as their classificationat June 30, 2019 and December 31, 2018 on our consolidated balance sheets and the related effect of derivative instruments on the consolidated statements of operations for the periods presented:

six months ended June 30, 2019 and 2018:

Fair Value of Derivative Instruments at June 30, 2018 (in thousands)

 

 

Liability Derivatives

 

At June 30, 2019

 

Notional Amount

 

 

Consolidated Balance Sheets Location

 

Fair Value

 

Interest rate swap contracts, hedging (1)

 

$

87,551

 

 

Derivatives, at fair value

 

$

4,470

 

Interest rate swap contracts, hedging

 

$

87,551

 

 

Accumulated other comprehensive income (loss)

 

$

(3,895

)

 

 

Asset Derivatives

 

At December 31, 2018

 

Notional Amount

 

 

Consolidated Balance Sheets Location

 

Fair Value

 

Interest rate swap contracts, hedging (1)

 

$

31,725

 

 

Derivatives, at fair value

 

$

985

 

 

 

Liability Derivatives

 

 

 

Notional Amount

 

 

Consolidated Balance Sheets Location

 

Fair Value

 

Interest rate swap contracts, hedging (1)

 

$

49,326

 

 

Derivatives, at fair value

 

$

1,043

 

Interest rate swap contracts, hedging

 

$

81,051

 

 

Accumulated other comprehensive income (loss)

 

$

563

 

 Asset Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Interest rate swap contracts, hedging (1)
$52,610
 Derivatives, at fair value $2,273
      
 Liability Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Interest rate swap contracts, hedging (1)
$20,216
 Derivatives, at fair value $67
Interest rate swap contracts, hedging$72,826
 Accumulated other comprehensive income $2,206

(1)

(1)

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


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81

Fair Value of Derivative Instruments at December 31, 2017 (in thousands, except amount in footnotes)
 Asset Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Interest rate swap contracts, hedging (1)
$41,750
 Derivatives, at fair value $602
      
 Liability Derivatives
 Notional Amount Consolidated Balance Sheets Location Fair Value
Forward contracts - foreign currency, hedging (2)(3)
$3,602
 Derivatives, at fair value $76
Interest rate swap contracts, hedging$41,750
 Accumulated other comprehensive income $602
(1)Interest rate swap contracts are accounted for as cash flow hedges.
(2)Foreign currency forward contracts are accounted for as fair value hedges.
(3)Notional amount is presented on a currency converted basis. The base currency notional amount of our foreign currency hedging forward contracts in a liability position was €3.0 million at December 31, 2017.

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

Six Months Ended June 30, 2018 (in thousands)

 

 

Derivatives

 

Six Months Ended June 30, 2019

 

Consolidated Statements of Operations Location

 

Realized and Unrealized

Gain (Loss)

 

Interest rate swap contracts, hedging

 

Interest expense

 

$

20

 

 

 

Derivatives

 

Six Months Ended June 30, 2018

 

Consolidated Statements of Operations Location

 

Realized and Unrealized

Gain (Loss)

 

Interest rate swap contracts, hedging

 

Interest expense

 

$

(80

)

  Derivatives
  Consolidated Statements of Operations Location 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts, hedging Interest expense $(80)
(1)Negative values indicate a decrease to the associated consolidated statements of operations line items.
The Effect of Derivative Instruments on the Consolidated Statements of Operations for the
Six Months Ended June 30, 2017 (in thousands)
  Derivatives
  Consolidated Statements of Operations Location 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts, hedging Interest expense $(20)
Forward contracts - foreign currency, hedging Net realized and unrealized (loss) gain on investment securities available-for-sale and loans and derivatives $(1,479)
(1)Negative values indicate a decrease to the associated consolidated statements of operations line items.

At June 30, 2018,2019, we had fifteen18 swap contracts outstanding in order to hedge against adverse rate movements againston our CMBSone-month LIBOR borrowings. Our interest rate hedges at June 30, 20182019 were as follows (in thousands except percentages)(dollars in thousands):

 

 

Benchmark Rate

 

Notional Value

 

 

Strike Rate

 

 

Effective Date

 

Maturity Date

 

Fair Value

 

Interest rate swap

 

One-month LIBOR

 

$

3,010

 

 

 

2.02

%

 

6/18/2017

 

1/18/2026

 

$

(62

)

Interest rate swap

 

One-month LIBOR

 

 

3,640

 

 

 

2.15

%

 

8/18/2017

 

3/18/2027

 

 

(108

)

Interest rate swap

 

One-month LIBOR

 

 

4,025

 

 

 

2.09

%

 

8/18/2017

 

10/18/2026

 

 

(104

)

Interest rate swap

 

One-month LIBOR

 

 

13,550

 

 

 

2.09

%

 

10/18/2017

 

9/18/2027

 

 

(349

)

Interest rate swap

 

One-month LIBOR

 

 

7,500

 

 

 

2.20

%

 

10/18/2017

 

9/18/2027

 

 

(255

)

Interest rate swap

 

One-month LIBOR

 

 

2,820

 

 

 

2.77

%

 

3/18/2018

 

3/18/2028

 

 

(229

)

Interest rate swap

 

One-month LIBOR

 

 

2,571

 

 

 

2.86

%

 

5/18/2018

 

3/18/2028

 

 

(228

)

Interest rate swap

 

One-month LIBOR

 

 

3,720

 

 

 

2.86

%

 

5/18/2018

 

11/18/2025

 

 

(269

)

Interest rate swap

 

One-month LIBOR

 

 

7,325

 

 

 

2.80

%

 

7/18/2018

 

1/18/2026

 

 

(509

)

Interest rate swap

 

One-month LIBOR

 

 

4,300

 

 

 

2.80

%

 

7/18/2018

 

1/18/2026

 

 

(299

)

Interest rate swap

 

One-month LIBOR

 

 

2,300

 

 

 

2.85

%

 

7/18/2018

 

2/18/2027

 

 

(186

)

Interest rate swap

 

One-month LIBOR

 

 

4,020

 

 

 

2.76

%

 

7/18/2018

 

7/18/2026

 

 

(284

)

Interest rate swap

 

One-month LIBOR

 

 

4,020

 

 

 

2.76

%

 

7/18/2018

 

7/18/2026

 

 

(285

)

Interest rate swap

 

One-month LIBOR

 

 

4,420

 

 

 

2.89

%

 

8/18/2018

 

7/18/2028

 

 

(414

)

Interest rate swap

 

One-month LIBOR

 

 

7,330

 

 

 

2.85

%

 

8/18/2018

 

12/18/2026

 

 

(585

)

Interest rate swap

 

One-month LIBOR

 

 

6,500

 

 

 

2.72

%

 

9/18/2018

 

7/18/2022

 

 

(217

)

Interest rate swap

 

One-month LIBOR

 

 

4,770

 

 

 

2.17

%

 

5/18/2019

 

7/18/2022

 

 

(81

)

Interest rate swap

 

One-month LIBOR

 

 

1,730

 

 

 

1.87

%

 

7/18/2019

 

6/18/2029

 

 

(6

)

Total interest rate swaps

 

 

 

$

87,551

 

 

 

 

 

 

 

 

 

 

$

(4,470

)

  Benchmark Rate Notional Value Strike Rate Effective Date Maturity Date Fair Value
Interest rate swap One-month LIBOR $7,500
 1.99% 6/18/2017 10/18/2025 $395
Interest rate swap One-month LIBOR 3,010
 2.02% 6/18/2017 1/18/2026 156
Interest rate swap One-month LIBOR 2,525
 1.94% 7/18/2017 10/18/2025 140
Interest rate swap One-month LIBOR 3,640
 2.15% 8/18/2017 3/18/2027 185
Interest rate swap One-month LIBOR 4,025
 2.09% 8/18/2017 10/18/2026 210
Interest rate swap One-month LIBOR 13,550
 2.09% 10/18/2017 9/18/2027 793
Interest rate swap One-month LIBOR 7,500
 2.20% 10/18/2017 9/18/2027 373
Interest rate swap One-month LIBOR 2,820
 2.77% 3/18/2018 3/18/2028 9
Interest rate swap One-month LIBOR 2,571
 2.86% 5/18/2018 3/18/2028 (12)
Interest rate swap One-month LIBOR 3,720
 2.86% 5/18/2018 11/18/2025 (25)
Interest rate swap One-month LIBOR 7,325
 2.80% 7/18/2018 1/18/2026 (12)
Interest rate swap One-month LIBOR 4,300
 2.80% 7/18/2018 1/18/2026 (7)
Interest rate swap One-month LIBOR 2,300
 2.85% 7/18/2018 2/18/2027 (11)
Interest rate swap One-month LIBOR 4,020
 2.76% 7/18/2018 7/18/2026 6
Interest rate swap One-month LIBOR 4,020
 2.76% 7/18/2018 7/18/2026 6
Total interest rate swaps   $72,826
       $2,206

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82

62


Repurchase and Credit Facilities

Borrowings under our repurchase agreements are guaranteed by us or one of our subsidiaries. The following table sets forth certain information with respect to our repurchase agreements (dollars in thousands, except amounts in footnotes):

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Outstanding Borrowings (1)

 

 

Value of Collateral

 

 

Number of Positions as Collateral

 

 

Weighted Average Interest Rate

 

 

Outstanding Borrowings (1)

 

 

Value of Collateral

 

 

Number of Positions as Collateral

 

 

Weighted Average Interest Rate

 

CRE - Term Repurchase Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo Bank, N.A. (2)

 

$

247,517

 

 

$

335,812

 

 

 

32

 

 

 

4.37

%

 

$

154,478

 

 

$

226,530

 

 

 

13

 

 

 

4.33

%

Morgan Stanley Bank, N.A. (3)

 

 

37,137

 

 

 

62,665

 

 

 

3

 

 

 

5.03

%

 

 

37,113

 

 

 

62,457

 

 

 

3

 

 

 

5.09

%

Barclays Bank PLC (4)

 

 

65,628

 

 

 

84,209

 

 

 

8

 

 

 

4.59

%

 

 

240,416

 

 

 

308,389

 

 

 

11

 

 

 

4.51

%

JPMorgan Chase Bank, N.A. (5)

 

 

46,810

 

 

 

61,988

 

 

 

3

 

 

 

4.22

%

 

 

75,440

 

 

 

98,839

 

 

 

5

 

 

 

4.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust Certificates - Term Repurchase Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSO Repo SPE Trust 2017 (6)

 

 

41,903

 

 

 

113,453

 

 

 

2

 

 

 

6.34

%

 

 

47,172

 

 

 

118,780

 

 

 

2

 

 

 

6.41

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMBS - Short-Term Repurchase Agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBC Capital Markets, LLC

 

 

216,167

 

 

 

276,512

 

 

 

30

 

 

 

3.55

%

 

 

246,476

 

 

 

313,644

 

 

 

33

 

 

 

3.64

%

JP Morgan Securities LLC

 

 

89,560

 

 

 

118,345

 

 

 

18

 

 

 

3.57

%

 

 

42,040

 

 

 

73,066

 

 

 

13

 

 

 

3.57

%

Deutsche Bank Securities Inc.

 

 

22,670

 

 

 

42,874

 

 

 

5

 

 

 

3.75

%

 

 

7,305

 

 

 

9,158

 

 

 

5

 

 

 

3.98

%

Total

 

$

767,392

 

 

$

1,095,858

 

 

 

 

 

 

 

 

 

 

$

850,440

 

 

$

1,210,863

 

 

 

 

 

 

 

 

 

 June 30, 2018 December 31, 2017
 
Outstanding Borrowings (1)
  Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate 
Outstanding Borrowings (1)
  Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate
CRE - Term Repurchase Facilities               
Wells Fargo Bank, N.A. (2)
$92,621
 $146,705
 8 4.09% $179,347
 $268,003
 19 3.68%
Morgan Stanley Bank, N.A. (3)
67,947
 108,629
 5 4.68% 112,151
 164,122
 9 4.05%
Barclays Bank PLC (4)
(1,782) —
 — —% —
 —
 — —%
                
CMBS - Term Repurchase Facilities               
Wells Fargo Bank, N.A.—
 —
 — —% 12,272
 14,984
 8 2.45%
Deutsche Bank AG (7)
—
 —
 — —% 15,356
 23,076
 14 3.53%
                
Trust Certificates - Term Repurchase Facilities               
RSO Repo SPE Trust 2015 (5)
26,624
 89,121
 2 7.57% 26,548
 89,121
 2 6.98%
RSO Repo SPE Trust 2017 (6)
47,093
 118,780
 2 6.02% 49,596
 125,254
 2 5.43%
                
CMBS - Short-Term Repurchase Agreements               
RBC Capital Markets, LLC156,643
 207,291
 22 3.48% 72,131
 97,745
 6 2.77%
JP Morgan Securities LLC13,780
 38,231
 5 3.48% 10,516
 33,777
 2 2.93%
Deutsche Bank Securities Inc. (7)
13,667
 17,132
 11 3.43% —
 —
 — —%
Total$416,593
 $725,889
     $477,917
 $816,082
    

(1)

(1)

Outstanding borrowings includesinclude accrued interest payable.

(2)

(2)

Includes $59,000$1.1 million and $565,000$1.6 million of deferred debt issuance costs at June 30, 20182019 and December 31, 2017,2018, respectively.

(3)

(3)

Includes $127,000$137,000 and $448,000$167,000 of deferred debt issuance costs at June 30, 20182019 and December 31, 2017,2018, respectively.

(4)

(4)

Includes $1.8$1.1 million and $0$1.5 million of deferred debt issuance costs at June 30, 20182019 and December 31, 2017,2018, respectively.

(5)

(5)

Includes $59,000$1.6 million and $133,000$2.0 million of deferred debt issuance costs at June 30, 20182019 and December 31, 2017,2018, respectively.

(6)

(6)

Includes $263,000$146,000 and $320,000$204,000 of deferred debt issuance costs at June 30, 20182019 and December 31, 2017,2018, respectively.

(7)In May 2018, the facility's term was rolled from a one-year basis, with extensions at the buyer's option, to a three-month basis. At June 30, 2018, the facility was reclassified from CMBS - term repurchase facilities to CMBS - short term repurchase agreements.

We arewere in compliance with all financial covenants in each of the respective agreements at June 30, 2019 and December 31, 2018.

CRE - Term Repurchase Facilities

In February 2012, one of ourJuly 2018, a wholly-owned subsidiariessubsidiary entered into aan amended and restated master repurchase and securities agreement (the "2012"2018 Facility") with Wells Fargo Bank, N.A. ("Wells Fargo") to finance the origination and acquisition of CRE loans. In JulyMay 2019, we executed an amendment of the 2018 theFacility, amending certain terms to add an available loan servicer and to update references in connection with an amended fee letter.

Trust Certifications - Term Repurchase Facility

In September 2017, a wholly-owned subsidiary entered into an amendeda repurchase and restated master repurchasesecurities agreement (the "2018(the "2017 Term Repurchase Trust Facility"), in exchange for an extension fee and other reasonable costs, that maintained with RSO Repo SPE Trust 2017. In July 2019, we paid off the $400.0 million maximum facility amount and extended the termoutstanding balance of the facility to July 2020 with three one-year extension options exercisable at the Company's discretion. The 20182017 Term Repurchase Trust Facility charges interest rates of one-month LIBOR plus spreads from 1.75% to 2.50%.

The 2018 Facility, consistent with the 2012 Facility, contains customary events of default. The remedies for such events of default are also customary for this type of transaction and include the acceleration of all our obligations to repay the purchase price for purchased assets.
The 2018 Facility, consistent with the 2012 Facility, also contains margin call provisions relating to a decline in the market value of a security. Under these circumstances, Wells Fargo may require us to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.

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83

Consistent with the guaranty agreement dated February 2012, we continue to guarantee the payment and performance of our subsidiaries' obligations to the lender through an amended and restated guaranty agreement dated in July 2018 (the "2018 Guaranty"), including all reasonable expenses that are incurred by the lender in connection with the enforcementredemption of the 2018 Facility. The 2018 Guaranty includes covenants that, among other requirements, stipulate certain thresholds, including: required liquidity, required capital, total indebtedness to total equity, EBITDA to interest expense, and total indebtedness.
RCC 2017-CRE5.

Securitizations

At June 30, 2018,2019, we retainretained equity in sevensix of the securitizationssecuritization entities we hadhave executed, of which three hadhave been substantially liquidated.

RCC 2015-CRE3

In August 2018, our subsidiary initiated the optional redemption feature of RCC 2015-CRE3.
RCC 2015-CRE4
2017-CRE5

In July 2018, our subsidiary exercised the optional redemption feature of RCC 2015-CRE4, and all of the outstanding senior notes were paid off from the payoff proceeds of certain of the securitizations's assets.

XAN 2018-RSO6
In June 2018,2017, we closed XAN 2018-RSO6,RCC 2017-CRE5, a $514.2$376.7 million CRE securitization transaction that provided financing for transitional CRE loans. In May 2019, we paid off all of the outstanding, third-party owned senior notes from the payoff proceeds of certain of the securitization's assets. In July 2019, we exercised the optional redemption feature of the securitization.

(Back to Index)

63

(Back to Index)

XAN 2018-RSO62019-RSO7

In April 2019, we closed XAN 2019-RSO7, a $687.2 million CRE debt securitization transaction that provided financing for CRE loans. XAN 2019-RSO7 issued a total of approximately $405.0$585.8 million of seniornon-recourse, floating-rate notes at par, to unrelated investors. A subsidiary of which RCC Real Estate, Inc. ("RCC RE") purchased 16.7%$10.0 million, or approximately 20%, of the Class D senior notes andnotes. Additionally, RCC RE purchased 100% of the Class E and Class F notes. In addition,notes and a subsidiary of RCC Real EstateRE purchased an equity interest representing 100% of the outstanding preference shares. The notes purchased by RCC RE are subordinated in right of payment to all other senior notes issued by XAN 2019-RSO7, but are senior in right of payment to the preference shares. The preferred shares are subordinated in right of payment to all other securities issued by XAN 2019-RSO7.

At June 30, 2018,closing, the senior notes issued to third party investors had a weighted averageconsisted of the following classes: (i) $390.0 million of Class A notes bearing interest rate ofat one-month LIBOR plus 1.10%. 1.00%, increasing to 1.25% in April 2024; (ii) $70.4 million of Class A-S notes bearing interest at one-month LIBOR plus 1.50%, increasing to 1.75% in April 2024; (iii) $33.5 million of Class B notes bearing interest at one-month LIBOR plus 1.70%, increasing to 2.20% in May 2024; (iv) $42.9 million of Class C notes bearing interest at one-month LIBOR plus 2.05%, increasing to 2.55% in June 2024; and (v) $49.0 million of Class D notes bearing interest at one-month LIBOR plus 2.70%, increasing to 3.20% in July 2024.

All of the notes issued mature in June 2035,April 2036, although we have the right to call the notes any timeanytime after July 2020 until maturity.

May 2021. Principal repayments received, after closing and ending in April 2022, may be used to purchase funding participations with respect to existing XAN 2019-RSO7 collateral held outside of the securitization.

Stockholders' Equity

Total stockholders' equity at June 30, 20182019 was $555.9$558.0 million and gave effect to $2.2$3.9 million of net unrealized gainslosses on our cash flow hedges and $1.0$5.6 million of net unrealized gains on our available-for-sale portfolio, shown as a component of accumulated other comprehensive income.income (loss). Stockholders' equity at December 31, 20172018 was $671.5$553.8 million and gave effect to $602,000$563,000 of unrealized gains on our cash flow hedges and $695,000, after tax,$3.6 million of net unrealized gainslosses, after tax, on our available-for-sale portfolio, shown as a component of accumulated other comprehensive income.income (loss). The decreaseincrease in stockholders' equity during the six months ended June 30, 20182019 was primarily attributable to the March 2018 redemption of all remaining shares of Series B Preferred Stock,$4.7 million decrease in net unrealized losses in connection with a carrying value of $107.9 millionmark-to-market adjustments on our CMBS and a loss on redemption of $7.5 million.


derivative contracts.

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84

64


Balance Sheet - Book Value Reconciliation

The following table reconcilesrolls forward our common stock book value for the three and six months ended June 30, 20182019 and reconciles our common stock book value to our economic book value, a non-GAAP measure, at June 30, 2019 (in thousands, except per share data and amounts in footnotes):

 

 

For the Three Months Ended June 30, 2019

 

 

For the Six Months Ended June 30, 2019

 

 

 

Total

Amount

 

 

Per Share

Amount

 

 

Total

Amount

 

 

Per Share

Amount

 

Common stock book value at beginning of period (1)

 

$

441,867

 

 

$

14.06

 

 

$

437,863

 

 

$

14.02

 

Net income allocable to common shares

 

 

6,304

 

 

 

0.20

 

 

 

11,849

 

 

 

0.38

 

Change in other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

 

3,326

 

 

 

0.11

 

 

 

9,192

 

 

 

0.29

 

Derivatives

 

 

(2,741

)

 

 

(0.09

)

 

 

(4,458

)

 

 

(0.14

)

Common stock dividends

 

 

(7,075

)

 

 

(0.23

)

 

 

(13,363

)

 

 

(0.42

)

Common stock dividends on unvested shares

 

 

(96

)

 

 

—

 

 

 

(182

)

 

 

(0.01

)

Accretion (dilution) from additional shares outstanding at June 30, 2019 (2)

 

 

411

 

 

 

0.01

 

 

 

1,095

 

 

 

(0.06

)

Total net increase

 

 

129

 

 

 

—

 

 

 

4,133

 

 

 

0.04

 

Common stock book value at end of period (1)(3)

 

 

441,996

 

 

 

14.06

 

 

 

441,996

 

 

 

14.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciling items in arriving at economic book value at June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash convertible senior notes' unamortized discounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.50% Convertible Senior Notes

 

 

(9,519

)

 

 

(0.30

)

 

 

(9,519

)

 

 

(0.30

)

8.00% Convertible Senior Notes

 

 

(77

)

 

 

—

 

 

 

(77

)

 

 

—

 

Series C Preferred Stock redemption value in excess of carrying value

 

 

(4,045

)

 

 

(0.13

)

 

 

(4,045

)

 

 

(0.13

)

Economic book value at June 30, 2019

 

$

428,355

 

 

$

13.63

 

 

$

428,355

 

 

$

13.63

 

 For the Three Months Ended June 30, 2018 For the Six Months Ended June 30, 2018
 Total Amount Per Share Amount Total Amount Per Share Amount
Common stock book value at beginning of period (1)
$434,224
 $13.92
 $447,634
 $14.46
Net income (loss) allocable to common shares6,152
 0.20
 (6,430) (0.21)
Change in other comprehensive income:       
Available-for-sale securities1,607
 0.05
 315
 0.01
Derivatives455
 0.02
 1,604
 0.05
Common stock dividends(3,122) (0.10) (4,682) (0.15)
Common stock dividends on unvested shares(43) —
 (66) —
Accretion (dilution) from additional shares outstanding at June 30, 2018 (2)
659
 —
 1,557
 (0.07)
Total net increase (decrease)5,708
 0.17
 (7,702) (0.37)
Common stock book value at end of period (1)(3)
$439,932
 $14.09
 $439,932
 $14.09

(1)

(1)

Per share calculations exclude unvested restricted stock, as disclosed on our consolidated balance sheets, of 427,591, 465,808426,771, 430,986 and 483,073422,671 shares at June 30, 2018,2019, March 31, 20182019 and December 31, 2017,2018, respectively. The denominator for the calculation is 31,229,829, 31,184,60931,443,123, 31,436,120 and 30,946,81931,234,828 shares at June 30, 2018,2019, March 31, 20182019 and December 31, 2017,2018, respectively.

(2)

(2)

Per share amount calculation includes the impactcalculations include 7,003 and 208,295 shares of 45,220 and 283,010 additional shares forrestricted stock that vested during the three and six months ended June 30, 2018, respectively.2019.

(3)

(3)

Common stock book value is calculated as total stockholders' equity of $555.9$558.0 million less preferred stock equity of $116.0 million at June 30, 2018.2019.

Common stock book value includes $12.6 million of total discount resulting from

Management Agreement Equity

Our base management fee, as defined in the valueManagement Agreement, is equal to (i) 1/12 of the conversion option onamount of our convertible senior notes. equity multiplied by (ii) 1.50%.

The convertible senior notes' discounts will be amortized into interest expense overfollowing table summarizes the remaining lifecalculation of each note issuance. At June 30, 2018, common stock book value excluding this item would be $427.4 million, which equates to $13.68 per share.equity, as defined in the Management Agreement (in thousands):

 

 

Amount

 

At June 30, 2019:

 

 

 

 

Proceeds from capital stock issuances, net (1)

 

$

1,219,936

 

Retained earnings, net (2)

 

 

(453,356

)

Payments for repurchases of capital stock, net

 

 

(207,011

)

Total

 

$

559,569

 

(1)

Deducts underwriting discounts and commissions and other expenses and costs relating to such issuances.

(2)

Excludes non-cash equity compensation expense incurred to date.

Core Earnings

We use

Core Earnings asis a non-GAAP financial measure that we use to evaluate our operating performance.

Core Earnings exclude the effects of certain transactions and adjustments in accordance with accounting principles generally accepted in the United States of America ("GAAP") adjustments that we believe are not necessarily indicative of our current CRE loan portfolio and other CRE-related investments and operations. Core Earnings exclude income (loss) from all non-core assets such as commercial finance, middle market lending, residential mortgage lending, certain legacy CRE loans and other non-CRE assets designated as assets held for sale at the initial measurement date.(1)

date of December 31, 2016.

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Core Earnings, for reporting purposes, is defined as GAAP net income (loss) allocable to common shareholders,shares, excluding (i) non-cash equity compensation expense, (ii) unrealized gains and losses, (iii) non-cash provisions for loan losses, (iv) non-cash impairments on securities, (v) non-cash amortization of discounts or premiums associated with borrowings, (vi) net income or loss from a limited partnership interest owned at the initial measurement date, (vii) net income or loss from non-core assets,(1)(2)(3) (viii) real estate depreciation and amortization, (ix) foreign currency gains or losses and (x) income or loss from discontinued operations. Core Earnings may also be adjusted periodically to exclude certain one-time events pursuant to changes in GAAP and certain non-cash items.

Although pursuant to the Management Agreement we calculate incentive compensation using Core Earnings excludingthat exclude incentive feescompensation payable to theour Manager, beginning with the three months and year ended December 31, 2017 we include incentive feescompensation payable to theour Manager in calculating Core Earnings for reporting purposes.

Core Earnings doesallocable to common shares, adjusted ("Core Earnings Adjusted") is a non-GAAP financial measure used to evaluate our operating performance. Core Earnings Adjusted exclude certain non-recurring items and the results of certain transactions that are not indicative of our ongoing operating performance.

Core Earnings and Core Earnings Adjusted do not represent net income or cash generated from operating activities and should not be considered as an alternativealternatives to GAAP net income or as a measuremeasures of liquidity under GAAP. Our methodology for calculating Core Earnings and Core Earnings Adjusted may differ from methodologies used by other companies to calculate similar supplemental performance measures, and, accordingly, our reported Core Earnings and Core Earnings Adjusted may not be comparable to similar performance measures used by other companies.


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66


The following table provides a reconciliation from GAAP net income (loss) income allocable to common shares to Core Earnings allocable to common shares and Core Earnings allocable to common shares, adjusted for the periods presented (in thousands, except per share data and amountsamount in the footnotes):

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

Per Share Data

 

 

2018

 

 

Per Share Data

 

 

2019

 

 

Per Share Data

 

 

2018

 

 

Per Share Data

 

Net income (loss) allocable to common shares - GAAP

 

$

6,304

 

 

$

0.20

 

 

$

6,152

 

 

$

0.20

 

 

$

11,849

 

 

$

0.38

 

 

$

(6,430

)

 

$

(0.21

)

Adjustment for realized gains on CRE assets

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net income (loss) allocable to common shares - GAAP, adjusted

 

 

6,304

 

 

 

0.20

 

 

 

6,152

 

 

 

0.20

 

 

 

11,849

 

 

 

0.38

 

 

 

(6,430

)

 

 

(0.21

)

Reconciling items from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash equity compensation expense

 

 

412

 

 

 

0.01

 

 

 

659

 

 

 

0.02

 

 

 

1,095

 

 

 

0.03

 

 

 

1,626

 

 

 

0.05

 

Non-cash provision for (recovery of) CRE loan losses

 

 

170

 

 

 

0.01

 

 

 

—

 

 

 

—

 

 

 

1,195

 

 

 

0.04

 

 

 

(799

)

 

 

(0.03

)

Litigation settlement expense (3)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,167

)

 

 

(0.07

)

Non-cash amortization of discounts or premiums associated with borrowings

 

 

702

 

 

 

0.02

 

 

 

796

 

 

 

0.02

 

 

 

1,385

 

 

 

0.04

 

 

 

1,574

 

 

 

0.05

 

Income tax expense (benefit) from non-core investments (1)(2)

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(31

)

 

 

—

 

Net realized gain on non-core assets (1)(2)

 

 

(7

)

 

 

—

 

 

 

(691

)

 

 

(0.02

)

 

 

(15

)

 

 

—

 

 

 

(476

)

 

 

(0.02

)

Net loss from non-core assets (2)

 

 

31

 

 

 

—

 

 

 

50

 

 

 

—

 

 

 

26

 

 

 

—

 

 

 

447

 

 

 

0.01

 

Reconciling items from discontinued operations and CRE loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income on legacy CRE loans

 

 

(183

)

 

 

(0.01

)

 

 

(339

)

 

 

(0.01

)

 

 

(416

)

 

 

(0.01

)

 

 

(661

)

 

 

(0.02

)

Realized gain on liquidation of legacy CRE loans

 

 

—

 

 

 

—

 

 

 

(1,000

)

 

 

(0.03

)

 

 

—

 

 

 

—

 

 

 

(1,000

)

 

 

(0.03

)

Operating expenses on legacy CRE loans

 

 

—

 

 

 

—

 

 

 

187

 

 

 

0.01

 

 

 

—

 

 

 

—

 

 

 

187

 

 

 

0.01

 

Fair value adjustments on legacy CRE loans

 

 

1,300

 

 

 

0.04

 

 

 

—

 

 

 

—

 

 

 

1,402

 

 

 

0.04

 

 

 

4,672

 

 

 

0.15

 

Net loss from other non-CRE investments held for sale

 

 

—

 

 

 

—

 

 

 

28

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

506

 

 

 

0.02

 

Loss from discontinued operations, net of taxes

 

 

112

 

 

 

0.01

 

 

 

450

 

 

 

0.01

 

 

 

149

 

 

 

0.01

 

 

 

203

 

 

 

0.01

 

Core Earnings allocable to common shares

 

$

8,841

 

 

$

0.28

 

 

$

6,293

 

 

$

0.20

 

 

$

16,670

 

 

$

0.53

 

 

$

(2,349

)

 

$

(0.08

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciling items in arriving at Core Earnings allocable to common shares, adjusted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on redemption of Series B Preferred Stock

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7,482

 

 

 

0.24

 

Litigation settlement expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,167

 

 

 

0.07

 

Core Earnings allocable to common shares, adjusted (4)

 

$

8,841

 

 

$

0.28

 

 

$

6,293

 

 

$

0.20

 

 

$

16,670

 

 

$

0.53

 

 

$

7,300

 

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares - diluted

 

 

31,656

 

 

 

 

 

 

 

31,402

 

 

 

 

 

 

 

31,594

 

 

 

 

 

 

 

31,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core Earnings per common share - diluted

 

$

0.28

 

 

 

 

 

 

$

0.20

 

 

 

 

 

 

$

0.53

 

 

 

 

 

 

$

(0.08

)

 

 

 

 

Core Earnings per common share, adjusted - diluted (4)

 

$

0.28

 

 

 

 

 

 

$

0.20

 

 

 

 

 

 

$

0.53

 

 

 

 

 

 

$

0.23

 

 

 

 

 

 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
 2018 Per Share Data 2017 Per Share Data 2018 Per Share Data 2017 Per Share Data
Net income (loss) allocable to common shares - GAAP$6,152
 $0.20
 $2,464
 $0.08
 $(6,430) $(0.21) $5,164
 $0.17
Adjustment for realized gain on CRE assets—
 —
 —
 —
 —
 —
 —
 —
Net income (loss) allocable to common shares - GAAP, adjusted6,152
 0.20
 2,464
 0.08
 (6,430) (0.21) 5,164
 0.17
                
Reconciling items from continuing operations:               
Non-cash equity compensation expense659
 0.02
 734
 0.02
 1,626
 0.05
 1,522
 0.05
Non-cash (recovery of) provision for CRE loan losses—
 —
 —
 —
 (799) (0.03) 860
 0.03
Litigation settlement expense (4)
—
 —
 —
 —
 (2,167) (0.07) —
 —
Non-cash amortization of discounts or premiums associated with borrowings796
 0.02
 414
 0.01
 1,574
 0.05
 828
 0.03
Net loss from limited partnership interest owned at the initial measurement date (1)
—
 —
 728
 0.02
 —
 —
 370
 0.01
Income tax expense (benefit) from non-core investments (2)(3)
1
 —
 —
 —
 (31) —
 1,499
 0.05
Net realized gain on non-core assets (2)(3)
(691) (0.02) (1,785) (0.06) (476) (0.02) (1,785) (0.06)
Net loss (income) from non-core assets (3)
50
 —
 (2,840) (0.09) 447
 0.01
 (4,269) (0.14)
                
Reconciling items from discontinued operations and CRE assets:               
Net interest income on legacy CRE loans(339) (0.01) (981) (0.03) (661) (0.02) (2,305) (0.07)
Realized gain on liquidation of legacy CRE loans(1,000) (0.03) (5,608) (0.18) (1,000) (0.03) (12,562) (0.41)
Operating expenses on legacy CRE loans187
 0.01
 —
 —
 187
 0.01
 —
 —
Fair value adjustments on legacy CRE loans—
 —
 —
 —
 4,672
 0.15
 —
 —
Net loss (income) from other non-CRE investments held for sale28
 —
 (275) (0.01) 506
 0.02
 (299) (0.01)
Loss from discontinued operations, net of taxes450
 0.01
 4,184
 0.14
 203
 0.01
 4,745
 0.15
Core Earnings allocable to common shares (5)
$6,293
 $0.20
 $(2,965) $(0.10) $(2,349) $(0.08) $(6,232) $(0.20)
                
Reconciling items for nonrecurring activities:               
Loss on redemption of Series B Preferred Stock—
 —
 —
 —
 7,482
 0.24
 —
 —
Litigation settlement expense—
 —
 —
 —
 2,167
 0.07
 —
 —
Core Earnings allocable to common shares, adjusted$6,293
 $0.20
 $(2,965) $(0.10) $7,300
 $0.23
 $(6,232) $(0.20)
                
Weighted average common shares - diluted31,402
   30,820
   31,164
   30,787
  
                
Core Earnings per common share - diluted (5)
$0.20
   $(0.10)   $(0.08)   $(0.20)  
Core Earnings per common share, adjusted - diluted$0.20
   $(0.10)   $0.23
   $(0.20)  

(1)

(1)Initial measurement date is December 31, 2016.
(2)

Income tax (benefit) expense from non-core investments and net realized loss on non-core assets are components of net income or loss from non-core assets.

(2)

(3)

Non-core assets are investments and securities owned by us at the initial measurement date in (i) commercial finance, (ii) middle market lending, (iii) residential mortgage lending, (iv) legacy CRE loans designated as held for sale and (v) other non-CRE assets included in assets held for sale.

(3)

(4)Payment

Includes the payment of pendingthe settlement of a securities litigation, previously accrued in 2017.

(5)Core Earnings2017, for the six months ended June 30, 2018 include2018.

(4)

Core Earnings, adjusted exclude a non-recurring charge of $7.5 million, or $(0.24) per common share-diluted, for the six months ended June 30, 2018 in connection with the redemption of our remaining 8.25% Series B Cumulative Redeemable Preferred Stock.


Core Earnings in accordance with the Management Agreement, which excludes incentive compensation payable of $165,000, was $9.0 million, or $0.28 per common share outstanding, for the three months ended June 30, 2019.

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67

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Incentive Compensation Hurdle

In accordance with the Management Agreement, incentive compensation is earned by our Manager when our Core Earnings per common share (as defined in the Management Agreement) for such quarter exceeds an amount equal to: (1) the weighted average of (a) book value (as defined in the Management Agreement) as of the end of such quarter divided by 30,881,351 shares and (b) the price per share (including the conversion price, if applicable) paid for common shares in each offering (or issuance, upon the conversion of convertible securities) by us subsequent to September 30, 2017, in each case at the time of issuance, multiplied by (2) the greater of (a) 1.75% and (b) 0.4375% plus one-fourth of the ten year treasury rate, as defined in the Management Agreement, for such quarter (the "Incentive Compensation Hurdle").

The following table summarizes the calculation of the Incentive Compensation Hurdle for the three months ended June 30, 2019 (dollars in thousands, except per share data):

 

 

Amount

 

Book value:

 

 

 

 

Stockholders' equity, excluding equity attributable to preferred stock at September 30, 2017

 

$

460,569

 

Net income (loss) from operations and gain (loss) on resolutions of Plan assets (1)

 

 

(7,535

)

Book value at June 30, 2019

 

$

453,034

 

Book value per share at June 30, 2019

 

$

14.67

 

 

 

 

 

 

One-fourth of the ten year treasury rate (2)

 

 

0.59

%

 

 

 

 

 

Greater of (a) 1.75% and (b) 0.4375% plus one-fourth of the ten year treasury rate

 

 

1.75

%

 

 

 

 

 

Incentive Compensation Hurdle (3)

 

$

0.26

 

(1)

Includes activity during the period beginning October 1, 2017 and ending December 31, 2018.


(2)

The ten year treasury rate, as defined in the Management Agreement, is the average of the weekly average yield to maturity for U.S. Treasury securities (adjusted to a constant maturity of ten years) as published weekly by the Federal Reserve Board during a fiscal quarter. During the three months ended June 30, 2019, the ten year treasury rate was 2.34%.

(3)

Calculated as book value per share at June 30, 2019 multiplied by 1.75%.

We have not had a public offering of common shares nor have we issued any common shares resulting from the conversion of any of our convertible securities subsequent to September 30, 2017.

The amount by which Core Earnings per common share exceeds the Incentive Compensation Hurdle is multiplied by (a) 20% and (b) the weighted average number of common shares (as defined in the Management Agreement) outstanding during the quarter to arrive at incentive compensation for the quarter. Additionally, incentive compensation is adjusted: (i) to exclude events pursuant to changes in GAAP or the application of GAAP, as well as non-recurring or unusual transactions or events, after discussion between our Manager and the independent directors and approval by a majority of the independent directors in the case of non-recurring or unusual transactions or events, and (ii) by deducting an amount equal to any taxable REIT subsidiary directly paid fees accrued (calculated as if such fees were payable on a quarterly basis) not previously used to offset incentive compensation.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repay borrowings and provide for other general business needs, including payment of our base management fee.fee and incentive compensation. Our ability to meet our on-going liquidity needs is subject to our ability to generate cash from operating activities and our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to below.

In November 2016, our Board approved the Plan, pursuant to which we are focused on making CRE debt investments going forward. The Plan includes disposing of certain non-core businesses and investments and underperforming legacy CRE loans, as well as maintaining a dividend policy based on sustainable earnings. As part of the Plan, the Identified Assets were reclassified as discontinued operations and/or assets held for sale during the fourth quarter of 2016. The following table delineates these disposable investments by business segment and details the current net book value of the businesses and investments included in the Plan (in millions):
 Identified Assets at Plan Inception 
Impairments/Adjustments on Non-Monetized Assets (1)(2)
 
Impairments/Adjustments on Monetized Assets (1)
 
Monetized through June 30, 2018 (3)
 
Net Book Value at June 30, 2018 (3)
Discontinued operations and assets held for sale:         
Legacy CRE loans (4)
$162.2
 $(11.5) $(17.5) $(115.2) $18.0
Middle market loans73.8
 —
 (17.7) (56.1) —
Residential mortgage lending segment (5)
56.6
 (2.2) (9.6) (43.7) 1.1
Other assets held for sale5.9
 —
 3.8
 (9.7) —
Subtotal - discontinued operations and assets held for sale$298.5
 $(13.7) $(41.0) $(224.7) $19.1
Legacy CRE loans held for investment (6)(7)
32.5
 —
 —
 (4.2) 28.3
Investments in unconsolidated entities86.6
 —
 38.3
 (124.7) 0.2
Commercial finance assets62.5
 —
 2.1
 (64.6) —
Total$480.1
 $(13.7) $(0.6) $(418.2) $47.6
(1)Reflects adjustments as a result of the designation as assets held for sale or discontinued operations, which occurred during the third and fourth quarters of 2016 except as noted in (2) below.
(2)The impairment adjustment to middle market loans includes $5.4 million of fair value adjustments that occurred prior to the inception of the Plan.
(3)Middle market loans include a pro forma adjustment of $2.1 million for proceeds received in July 2018.
(4)Legacy CRE loans includes $88.2 million par value of loans at the inception of the Plan that were not reflected on the consolidated balance sheets until our investment in RREF CDO 2007-1 was liquidated in November 2016.
(5)Includes $2.6 million of cash and cash equivalents not classified as assets held for sale in the residential mortgage lending segment at June 30, 2018.
(6)Legacy CRE loans with $28.3 million of net book value were reclassified to CRE loans on the consolidated balance sheets at June 30, 2018 as it is now our intent to hold these loans to maturity.
(7)Legacy CRE loans held for investment includes $30.0 million par value of loans at the inception of the Plan that were not reflected on the consolidated balance sheets until our investment in RREF CDO 2007-1 was liquidated in November 2016.

For the six months ended June 30, 2018,2019, our principal sources of liquidity were: (i) proceeds of $479.7 million from financing sourced from our CRE - term repurchase facilities and net CMBS - short-term repurchase agreements, (ii) net proceeds of $273.7$31.5 million from additional financing, (ii)the close of XAN 2019-RSO7, (iii) proceeds of $90.6$30.2 million from net repayments on our CRE loan portfolio, (iii) net proceeds of $63.2 million from the close of a new CRE securitization, XAN 2018-RSO6,and CMBS portfolios and (iv) proceeds of $27.6 million from the sale of middle market loans, (v) proceeds of $12.0 million from the sale of a legacy CRE loan classified as an asset held for sale, (vi) proceeds of $10.3$24.7 million from our CRE securitizationsecuritizations that used repaid principal paydowns to invest in CRE loan future funding commitments, (vii) proceeds of $10.2 million from our interest in Pelium Capital, an equity method investment and (viii) proceeds of $6.4 million from our investment in life settlement contracts.commitments. These sources of liquidity, offset by our deployments in CRE debt investments, distributions on our common and preferred stock and operating expenses, substantially providedresulted in the $80.2$47.2 million of unrestricted cash we held at June 30, 2018.


2019.

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68


We utilize a variety of financing arrangements to finance certain assets. We generally utilize the following two types of financing arrangements:

1.

Repurchase Agreements: Repurchase agreements effectively allow us to borrow against loans and securities that we own. Under these agreements, we sell our loans and securities to a counterparty and agree to repurchase the same loans and securities from the counterparty at a price equal to the original sales price plus interest. The counterparty retains the sole discretion over both whether to purchase the loan and security from us and, subject to certain conditions, the market value of such loan or security for purposes of determining whether we are required to pay margin to the counterparty. Generally, if the lender determines (subject to certain conditions) that the market value of the collateral in a repurchase transaction has decreased by more than a defined minimum amount, we would be required to repay any amounts borrowed in excess of the product of (i) the revised market value multiplied by (ii) the applicable advance rate. During the term of a repurchase agreement, we receive the principal and interest on the related loans and securities and pay interest to the counterparty.

At June 30, 2019, we had various repurchase agreements, as summarized below (in thousands, except amounts in footnotes):

 

 

Execution Date

 

Maturity Date (1)

 

Maximum Capacity

 

 

Principal Outstanding

 

 

Availability

 

CRE - Term Repurchase Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo Bank, N.A.

 

February 2012

 

July 2020

 

$

400,000

 

 

$

248,286

 

 

$

151,714

 

Morgan Stanley Bank, N.A.

 

September 2015

 

September 2019

 

$

67,936

 

 

 

37,206

 

 

$

30,730

 

Barclays Bank PLC

 

April 2018

 

April 2021

 

$

250,000

 

 

 

66,667

 

 

$

183,333

 

JPMorgan Chase Bank, N.A.

 

October 2018

 

October 2021

 

$

250,000

 

 

 

48,383

 

 

$

201,617

 

Trust Certificates - Term Repurchase Facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSO Repo SPE Trust 2017

 

September 2017

 

September 2020

 

N/A

 

 

 

42,006

 

 

N/A

 

CMBS - Short-Term Repurchase Agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RBC Capital Markets, LLC

 

August 2017

 

April 2019

 

N/A

 

 

 

215,938

 

 

N/A

 

JP Morgan Securities LLC

 

November 2012

 

April 2019

 

N/A

 

 

 

89,422

 

 

N/A

 

Deutsche Bank Securities Inc.

 

March 2005

 

April 2019

 

N/A

 

 

 

22,639

 

 

N/A

 

Total (2)

 

 

 

 

 

 

 

 

 

$

770,547

 

 

 

 

 

(1)

The CMBS - short-term repurchase agreements' maturity dates represent the next interest payment and extension dates. The agreements do not contain defined maturity dates.

(2)

Excludes accrued interest payable of $1.1 million and deferred debt issuance costs and discounts of $4.3 million at June 30, 2018, we have various2019.

The following table summarizes the average principal outstanding on our term and short-term repurchase agreements during the three months ended June 30, 2019 and December 31, 2018 and the principal outstanding on our term and short-term repurchase agreements at June 30, 2019 and December 31, 2018 (in thousands, except amounts in footnotes):

 

 

Three Months

Ended

June 30, 2019

 

 

June 30, 2019

 

 

Three Months

Ended

December 31, 2018

 

 

December 31, 2018

 

 

 

Average Principal Outstanding

 

 

Principal Outstanding (1)(2)

 

 

Average Principal Outstanding

 

 

Principal Outstanding (1)(2)

 

Term and Short-Term Repurchase Agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized by CRE loans

 

$

386,582

 

 

$

442,548

 

 

$

467,939

 

 

$

559,138

 

Collateralized by CMBS

 

 

304,835

 

 

 

327,999

 

 

 

267,990

 

 

 

295,048

 

Total

 

$

691,417

 

 

$

770,547

 

 

$

735,929

 

 

$

854,186

 

(1)

Excludes accrued interest payable on repurchase agreements as described below.collateralized by CRE loans of $701,000 and $1.0 million and deferred debt issuance costs and discounts of $4.3 million and $5.5 million at June 30, 2019 and December 31, 2018, respectively.

(2)

Excludes accrued interest payable on repurchase agreements collateralized by CMBS of $398,000 and $773,000 at June 30, 2019 and December 31, 2018, respectively.

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The following table summarizes the maximum month-end principal outstanding on our term and short-term repurchase agreements during the periods presented (in thousands):

 

 

Maximum Month-End Principal Outstanding During the

 

 

 

Six Months Ended

 

 

Years Ended December 31,

 

 

 

June 30, 2019

 

 

2018

 

 

2017

 

 

2016

 

Term and Short-Term Repurchase Agreements (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized by CRE loans

 

$

665,294

 

 

$

561,382

 

 

$

469,228

 

 

$

379,670

 

Collateralized by CMBS

 

$

334,677

 

 

$

295,048

 

 

$

122,574

 

 

$

82,916

 

2.

(1)

Increases in the maximum month-end outstanding principal balances for the periods presented result from financing assets that were originated or acquired as a direct result of the redeployment of capital into our core asset classes pursuant to the Plan.

2.

Securitizations: We seek non-recourse long-term financing from securitizations of our investments in CRE loans. The securitizations generally involve a senior portion of our loan, but may involve the entire loan. Securitization generally involves transferring notes to a special purpose vehicle (or the issuing entity), which then issues one or more classes of non-recourse notes pursuant to the terms of an indenture. The notes are secured by the pool of assets. In exchange for the transfer of assets to the issuing entity, we receive cash proceeds from the sale of non-recourse notes. Securitizations of our portfolio investments might magnify our exposure to losses on those portfolio investments because the retained subordinate interest in any particular overall loan would be subordinate to the loan components sold and we would, therefore, absorb all losses sustained with respect to the overall loan before the owners of the senior notes experience any losses with respect to the loan in question.

In February 2012, we entered into the 2012 Facility with Wells Fargo to finance the origination of CRE loans. The facility has a maximum capacity of $400.0 million. During the first quarter of 2018, we amended certain financial covenants within the facility and we are in full compliance with all covenants at June 30, 2018. In July 2018, we entered into the 2018 Facility, which extended the term of the facility to July 2020 and amended certain financial covenants within the facility. At June 30, 2018, we had $92.5 million of borrowings outstanding with Wells Fargo secured by our CRE loans.
In September 2015, we entered into a master repurchase and securities agreement with Morgan Stanley to finance the origination of CRE loans. The facility has a maximum capacity of $250.0 million and an initial three year term that expires in September 2018 with an annual one-year extension option through September 2019. During the first quarter of 2018, we amended certain financial covenants within the facility and we are in full compliance with all covenants at June 30, 2018. At June 30, 2018, we had $67.9 million of borrowings outstanding with Morgan Stanley secured by our CRE loans.
In April 2018, we entered into a master repurchase and securities agreement with Barclays to finance the origination of CRE loans. The facility has a maximum capacity of $250.0 million and an initial three year term that expires in April 2021, subject to certain one-year extension options in accordance with the facility's terms. At June 30, 2018, we did not have any outstanding borrowings with Barclays.
In March 2005, we entered into a master repurchase agreement (the "Deutsche Bank Agreement") with Deutsche Bank Securities Inc. to finance the purchase of CMBS. We had $13.7 million of outstanding borrowings payable under the Deutsche Bank Agreement at June 30, 2018.
In November 2012, we entered into a master repurchase and securities agreement (the "JP Morgan Securities Agreement") with JP Morgan Securities LLC to finance the purchase of CMBS. In April 2017, we entered into the first amendment of the JP Morgan Securities Agreement which amended the minimum stockholders' equity of the guarantor and maximum leverage ratio covenants. We had $13.8 million of outstanding borrowings payable under the JP Morgan Securities Agreement at June 30, 2018.
In August 2017, we entered into a master repurchase and securities agreement with RBC Capital Markets, LLC (the "RBC Securities Agreement") to finance the purchase of CMBS. We had $156.6 million of outstanding borrowings payable under the RBC Securities Agreement at June 30, 2018.

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Historically, we have financed the acquisition of our investments through CDOs and securitizations that essentially match the maturity and repricing dates of these financing vehicles with the maturities and repricing dates of our investments. We have inIn the past, we have derived substantial operating cash from our equity investments in our CDOs and securitizations, which will cease if the CDOs and securitizations fail to meet certain tests, will cease.tests. Through June 30, 2018,2019, we did not experience difficulty in maintaining our existing CDO and securitization financing and passed all of the critical tests required by these financings. We have called or substantially liquidated each of our remaining legacy CRE and commercial finance CDOs during 2016, which removes the requirement for us to maintain these tests going forward.

The following table sets forth the distributions received by us and coverage test summaries for our active securitizations for the periods presented (in thousands)thousands, except amount in the footnotes):

 

 

Cash Distributions

 

 

Overcollateralization Cushion (1)

 

 

 

Name

 

For the Six Months Ended June 30, 2019

 

 

For the Year Ended December 31, 2018

 

 

At June 30, 2019

 

 

At the Initial Measurement Date

 

 

End of Designated Principal Reinvestment Period

RCC 2017-CRE5 (2)(3)(4)

 

$

11,177

 

 

$

22,843

 

 

N/A

 

 

$

20,727

 

 

July 2020

XAN 2018-RSO6 (2)

 

$

9,524

 

 

$

8,323

 

 

$

25,766

 

 

$

25,731

 

 

December 2020

XAN 2019-RSO7 (2)

 

$

1,845

 

 

$

—

 

 

$

34,341

 

 

$

34,341

 

 

April 2022

Apidos CDO I, Ltd. (3)

 

$

708

 

 

$

—

 

 

N/A

 

 

$

17,136

 

 

N/A

Apidos CDO III, Ltd. (3)

 

$

—

 

 

$

618

 

 

N/A

 

 

$

11,269

 

 

N/A

Name Cash Distributions 
Overcollateralization Cushion (1)
 End of Designated Principal Reinvestment Period
 For the Six Months Ended June 30, 2018 For the Year Ended December 31, 2017 At June 30, 2018 At the Initial Measurement Date 
RCC 2015-CRE3 (2)(3)
 $2,628
 $8,672
 $61,469
 $20,313
 February 2017
RCC 2015-CRE4 (2)(4)
 $3,820
 $8,554
 $86,099
 $9,397
 September 2017
RCC 2017-CRE5 (2)
 $14,865
 $6,643
 $28,177
 $20,727
 July 2020
XAN 2018-RSO6 (2)
 $—
 $—
 $25,731
 $25,731
 December 2020
Apidos Cinco (5)
 $—
 $2,056
 N/A
 $17,774
 N/A

(1)

(1)

Overcollateralization cushion represents the amount by which the collateral held by the securitization issuer exceeds the maximumminimum amount required.

(2)

(2)

The designated principal reinvestment period for RCC 2015-CRE3, RCC 2015-CRE4, RCC 2017-CRE5, XAN 2018-RSO6 and XAN 2018-RSO62019-RSO7 is the period in which principal repayments can be utilized to purchase loans held outside of the respective securitization that represent the funded commitments of existing collateral in the respective securitization that were not funded as of the date the respective securitization was closed. Additionally, the indenture for each securitization does not contain any interest coverage test provisions.

(3)

(3)In August 2018, we initiated the optional redemption feature of

RCC 2015-CRE3.

(4)In2017-CRE5 was liquidated in July 2018, we exercised the optional redemption feature of RCC 2015-CRE42019. Apidos CDO I, Ltd. and its remaining assetsApidos CDO III, Ltd. were measured at fair value and returned to us in exchange for our preference share and equity notes.
(5)Apidos Cinco CDO was substantially liquidated in November 2016.October 2014 and June 2015, respectively.

(4)

Includes a principal distribution of $5.3 million on RCC 2017-CRE5's Class C notes.

The following table sets forth the distributions received by us and liquidation details for our liquidated securitizations for the periods presented (in thousands):

 

 

Cash Distributions

 

 

Liquidation Details

 

Name

 

For the Six Months Ended June 30, 2019

 

 

For the Year Ended December 31, 2018

 

 

Liquidation Date

 

Remaining Assets at the Liquidation

Date (1)

 

RCC 2015-CRE3

 

$

—

 

 

$

3,529

 

 

August 2018

 

$

80,632

 

RCC 2015-CRE4

 

$

—

 

 

$

4,487

 

 

July 2018

 

$

97,825

 

Whitney CLO I, Ltd. (2)

 

$

68

 

 

$

—

 

 

January 2019

 

$

—

 

Name Cash Distributions Liquidation Details
 For the Six Months Ended June 30, 2018 For the Year Ended December 31, 2017 Liquidation Date 
Remaining Assets at the Liquidation Date (1)
    
RCC 2014-CRE2 (2)
 $—
 $33,050
 August 2017 $92,980

(1)

(1)

The remaining assets at the liquidation date were measured at fair value and returneddistributed to us in exchange for our preference shareshares and equity notes in the respective securitization.

(2)

(2)Cash distributions for the year ended December 31, 2017 includes preference share and equity notes distributions at liquidation of $25.6 million for RCC 2014-CRE2.

Whitney CLO I, Ltd. was substantially liquidated in September 2013.

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At July 31, 2018,30, 2019, our liquidity consisted of two primary sources:

unrestricted cash and cash equivalents of $50.0$53.0 million; and

approximately $152.0$100.9 million of available liquidity from theavailable financing of unlevered CRE and CMBS positions.

Our leverage ratio, defined as the ratio of borrowings to stockholders' equity, may vary as a result of the various funding strategies we use. At June 30, 20182019 and December 31, 2017,2018, our leverage ratio was 2.43.5 times and 1.72.8 times, respectively. The leverage ratio increase was driven primarily by net additional borrowings combined with a decreaseattributable to an increase in stockholders' equity.

borrowings.

Distributions

We intend to continue to make regular quarterly distributions to holders of our common stock and preferred stock. U.S. federal income tax law generally requires that a REIT distribute at least 90% of its REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements on our repurchase agreements and other debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.


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Contractual Obligations and Commitments

 

 

Contractual Commitments

 

 

 

(dollars in thousands, except amounts in footnotes)

 

 

 

Payments due by Period

 

 

 

Total

 

 

Less than 1 Year

 

 

1 - 3 Years

 

 

3 - 5 Years

 

 

More than 5 Years

 

At June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE securitizations

 

$

973,091

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

973,091

 

Unsecured junior subordinated debentures (1)

 

 

51,548

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

51,548

 

4.50% Convertible Senior Notes (2)

 

 

143,750

 

 

 

—

 

 

 

—

 

 

 

143,750

 

 

 

—

 

8.00% Convertible Senior Notes (3)

 

 

21,182

 

 

 

21,182

 

 

 

—

 

 

 

—

 

 

 

—

 

Repurchase and credit facilities (4)

 

 

771,646

 

 

 

365,671

 

 

 

405,975

 

 

 

—

 

 

 

—

 

Unfunded commitments on CRE loans (5)

 

 

122,902

 

 

 

32,589

 

 

 

90,313

 

 

 

—

 

 

 

—

 

Base management fees (6)

 

 

8,394

 

 

 

8,394

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

2,092,513

 

 

$

427,836

 

 

$

496,288

 

 

$

143,750

 

 

$

1,024,639

 

  
Contractual Commitments (1)
  (dollars in thousands, except amounts in footnotes)
  Payments due by Period
  Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years
At June 30, 2018:          
CRE securitizations $632,004
 $—
 $—
 $—
 $632,004
Unsecured junior subordinated debentures (2) 
 51,548
 —
 —
 —
 51,548
4.50% Convertible Senior Notes (3)
 128,643
 —
 —
 128,643
 —
6.00% Convertible Senior Notes (4)
 70,028
 70,028
 —
 —
 —
8.00% Convertible Senior Notes (5)
 20,830
 —
 20,830
 —
 —
Repurchase and credit facilities (6) 
 416,593
 371,282
 45,311
 —
 —
Unfunded commitments on CRE loans (7)
 88,661
 22,200
 66,461
 —
 —
Base management fees (8) 
 9,794
 9,794
 —
 —
 —
Total $1,418,101
 $473,304
 $132,602
 $128,643
 $683,552

(1)

(1)Contractual commitments on borrowings are presented net of deferred debt issuance costs and discounts.
(2)

Contractual commitments exclude $33.1$27.3 million and $33.6$28.3 million of estimated interest expense payable through maturity, in June 2036 and October 2036, respectively, on our trust preferred securities.

(2)

(3)

Contractual commitments exclude $27.1$20.5 million of interest expense payable through maturity, in August 2022, on our 4.50% Convertible Senior Notes.convertible senior notes due 2022.

(3)

(4)

Contractual commitments exclude $1.8 million of interest expense payable through maturity, in December 2018, on our 6.00% Convertible Senior Notes.

(5)Contractual commitments exclude $2.7 million$937,000 of interest expense payable through maturity, in January 2020, on our 8.00% Convertible Senior Notes.convertible senior notes due 2020.

(4)

(6)

Contractual commitments include $1.2$1.1 million of accrued interest payable at June 30, 20182019 on our repurchase facilities.

(5)

(7)

Unfunded commitments on our originated CRE whole loans generally fall into two categories: (i) pre-approved capital improvement projects and (ii) 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 interest income on the advanced amount. At June 30, 2018,2019, we had unfunded commitments on 4478 CRE whole loans.loans and one CRE preferred equity investment.

(6)

(8)

Base management fees presented are based on an estimate of base management fees payable to our managerManager over the next 12 months. Our management agreementManagement Agreement also provides for an incentive feecompensation arrangement that is based on operating performance. The incentive feecompensation is not a fixed and determinable amount, and therefore it is not included in this table.

Off-Balance Sheet Arrangements

General

At June 30, 2018,2019, 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, at June 30, 2018,2019, we had not guaranteed obligations of any unconsolidated entities or entered into any commitment or letter of intent to provide additional funding to any such entities.

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Unfunded CRE Whole Loan Commitments

In the ordinary course of business, we make commitments to borrowers whose loans are in our CRE loan portfolio to provide additional loan funding in the future. Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial investments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Whole loans had $119.7 million and $108.1 million in unfunded loan commitments at June 30, 2019 and December 31, 2018, respectively. Preferred equity investments had $3.2 million in unfunded investment commitments at June 30, 2019. There were no preferred equity investment unfunded commitments at December 31, 2018.

Guarantees and Indemnifications

In the ordinary course of business, we may provide guarantees and indemnifications that contingently obligate us to make payments to the guaranteed or indemnified party based on changes in the value of an asset, liability or equity security of the guaranteed or indemnified party. As such, we may be obligated to make payments to a guaranteed party based on another entity's failure to perform or achieve specified performance criteria, or we may have an indirect guarantee of the indebtedness of others.


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In

As part of our May 2017 we received proceeds of $16.2 million from the sale of our equity interest in Pearlmark Mezz, an unconsolidated entity. As part of our sale of Pearlmark Mezz,Mezzanine Realty Partners IV, L.P., we entered into an indemnification agreement whereby we indemnified the purchaser against realized losses of up to $4.3 million on the Kingswayone mezzanine loan until theits final maturity date in 2020. At June 30, 2019 and December 31, 2018, we havehad a contingent liability, reported in accounts payable and other liabilities on our consolidated balance sheets, of $703,000 outstanding as a reserve for probable losses on the indemnification. NoWe did not record any additional reserve for probable losses was recorded during the three and six months ended June 30, 2019 and 2018.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 2018,2019, 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 that 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.

The following sensitivity analysis table presents, at June 30, 2018,2019, the estimated impact on the fair value of our interest rate-sensitive investments, instruments and liabilities of changes in interest rates, assuming rates instantaneously fall 100 basis points and rise 100 basis points (in thousands, except percentages)(dollars in thousands):

 

 

June 30, 2019

 

 

 

Interest Rates

Fall 100

Basis Points

 

 

Unchanged

 

 

Interest Rates

Rise 100

Basis Points

 

Interest rate-sensitive investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

120,389

 

 

$

113,482

 

 

$

107,843

 

Change in fair value

 

 

6,907

 

 

 

—

 

 

 

(5,639

)

Change as a percent of fair value

 

 

6.09

%

 

 

—

%

 

 

(4.97

)%

Interest rate-sensitive hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

(10,603

)

 

$

(4,470

)

 

$

1,205

 

Change in fair value

 

 

(6,133

)

 

 

—

 

 

 

5,675

 

Change as a percent of fair value

 

 

137

%

 

 

—

%

 

 

(127

)%

 June 30, 2018
 Interest rates fall 100
basis points		 Unchanged Interest rates rise 100
basis points
Interest rate-sensitive investment securities:     
Fair value$117,119
 $113,395
 $110,664
Change in fair value$3,724
 $—
 $(2,731)
Change as a percent of fair value3.28 % —% (2.41)%
      
Interest rate-sensitive hedging instruments: 
  
  
Fair value$(3,311) $2,206
 $7,264
Change in fair value$(5,517) $—
 $5,058
Change as a percent of fair value(250)% —% 229 %

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

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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 investment securities 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.


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Risk Management

To the extent consistent with maintaining our status as a real estate investment trust, we seek to manage our interest rate risk exposure to protect our variable rate 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 borrowings;

attempting to structure our borrowing agreements for our commercial mortgage-backed securities to have a range of different maturities, terms, amortizations and interest rate adjustment periods; and

using derivatives to adjust the interest rate sensitivity of our variable-rate borrowings, which we discuss in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Hedging Instruments."

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 quarter ended June 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II

PART II

ITEM 1.

LEGAL PROCEEDINGS

We may become involved in litigation on various matters due to the nature of our business activities. The resolution of these matters may result in adverse judgments, fines, penalties, injunctions and other relief against us as well as monetary payments or other agreements and obligations. In addition, we may enter into settlements on certain matters in order to avoid the additional costs of engaging in litigation. Except as discussed below, we are unaware of any contingencies arising from such litigation that would require accrual or disclosure in the consolidated financial statements at June 30, 2018.

2019.

Open Litigation Matters

Six separate shareholder derivative suits (the "New York State Actions") purporting to assert claims on our behalf of us were filed in the Supreme Court of New York on the following dates: December 2015 (the "Reaves Action"), February 2017 (the "Caito Action"), March 2017 (the "Simpson Action"), March 2017 (the "Heckel Action"), May 2017 (the "Schwartz Action"), and August 2017 (the "Greff Action"). Plaintiffs in the Schwartz Action and Greff Action made demands on our board of directors (the(our "Board") before filing suit, but plaintiffs in the Reaves Action, Caito Action, Simpson Action and Heckel Action did not. All of the shareholder derivative suits are substantially similar and allege that certain of our current and former officers and directors breached their fiduciary duties, wasted corporate assets and/or were unjustly enriched. Certain complaints assert additional claims against Exantas Capital Manager Inc. (the(our "Manager") (formerly known as Resource Capital Manager, Inc.) and Resource America, Inc. ("Resource America") for unjust enrichment based on allegations that our Manager received excessive management fees from us. In June 2017, the Courtcourt stayed the Reaves Action, Caito Action, Simpson Action and Heckel Action (collectively, the "New York State Demand Futile Actions") in favor of the federal shareholder derivative litigation described below. Our time to respond to the complaints inbelow under "- Settled and Dismissed Litigation Matters." In June 2019 and July 2019, the Schwartz Action and Greff Action, is presently stayed by stipulation of the parties.respectively, were dismissed. We believe that the plaintiffs in each of the four remaining New York State Actions lack standing to assert claims derivatively on our behalf, and we intend to seek the dismissal of anyall of such remaining New York State Action as to which the stay is lifted.

Four separate shareholder derivative suits purporting to assert claims on behalf of us were filed in the United States District Court for the Southern District of New York (the "Court") on the following dates by shareholders who declined to make a demand on the Board prior to filing suit: January 2017 (the "Greenberg Action"), January 2017 (the "Canoles Action"), January 2017 (the "DeCaro Action") and April 2017 (the "Gehan Action"). In May 2017, the Court consolidated the Greenberg Action, Canoles Action, DeCaro Action and Gehan Action as the "Federal Demand Futile Actions" and, in July 2017, appointed lead counsel and directed that a consolidated complaint be filed. Following consolidation, the plaintiffs in the Canoles Action and Gehan Action voluntarily dismissed their suits. The consolidated complaint in the Federal Demand Futile Actions, filed in August 2017, alleged claims for breach of fiduciary duty, corporate waste, unjust enrichment and violations of Section 14(a) of the Securities Exchange Act of 1934, as amended. In April 2018, the consolidated complaint in the Federal Demand Futile Actions was dismissed, but such dismissal is currently on appeal.
Three additional shareholder derivative suits purporting to assert claims on behalf of us were filed in the United States District Court for the Southern District of New York on the following dates by shareholders who served demands on the Board to bring litigation and allege that their demands were wrongfully refused: February 2017 (the "McKinney Action"), March 2017 (the "Sherek/Speigel Action") and April 2017 (the "Sebenoler Action"). In May 2017, the Court consolidated the McKinney Action, Sherek/Speigel Action and Sebenoler Action as the "Federal Demand Refused Actions." A consolidated complaint was filed on June 30, 2017, alleging claims for breach of fiduciary duty, unjust enrichment and violations of Section 14(a) of the Securities Exchange Act. The consolidated complaint in the Federal Demand Refused Actions was dismissed in February 2018 but such dismissal is currently on appeal.

In August 2017, Robert Canoles filed a shareholder derivative suit in Maryland Circuit Court against certain of our current and former officers and directors, as well as our Manager and Resource America (the "Canoles Action"). Mr. Canoles had previously filed his suit in the United States District Court for the Southern District of New York, but voluntarily dismissed that action after the Court declined to appoint his counsel as lead counsel in the Federal Demand Futile Actions. The complaint in the Canoles Action, as amended in October 2017, asserts a variety of claims, including claims for breach of fiduciary duty, unjust enrichment and corporate waste, which are based on allegations substantially similar to those at issue in the Federal Demand Futile Actions.Actions (defined below). The Canoles Action was stayed by the Maryland Circuit Court in favor of the federal shareholder litigation described above.below under "- Settled and Dismissed Litigation Matters." We believe that Canoles lacks standing to assert claims derivatively on our behalf andbehalf. We intend to seek the dismissal of the Canoles Action on that basis if the stay is lifted.


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In September 2017, Michael Hafkey filed a shareholder derivative suit in the United States District Court for the District of Maryland against certain of our former officers and directors and our Manager (the "Hafkey Action"). The complaint asserts a breach of fiduciary duty claim that is substantially similar to the claims at issue in the Federal Demand Refused Actions. Mr. Hafkey previously made a demand on the Board to investigate this claim, which was ultimately denied. We believe that Hafkey's claim that his demand to bring litigation was wrongfully refused is without merit and that Hafkey consequently lacks standing to assert claims derivatively on our behalf. We filed a motion to stay the Hafkey Action in favor of the duplicative Federal Demand Futile Actions, which is pending.
Action.

In April 2018, we funded $2.0 million into escrow in connection with the proposed settlement of outstanding litigation.litigation, which was settled in August 2018. We did not have any general litigation reserve at June 30, 2018,2019 and we had a general litigation reserve of $2.2 million, including estimated legal costs, at December 31, 2017.

2018.

Primary Capital Mortgage, LLC ("PCM") is subject to litigation related to claims for repurchases or indemnifications on loans that PCM has sold to third parties. At June 30, 2019 and December 31, 2018, no such litigation demand was outstanding. At December 31, 2017, such litigation demands totaled approximately $6.5 million. Reserves for such litigation demands are included in the reserve for mortgage repurchases and indemnifications that totaled $1.7 million and $5.7 million at June 30, 20182019 and December 31, 2017, respectively.2018. The reserves for mortgage repurchases and indemnifications are included in liabilities held for sale on the consolidated balance sheets.

Settled and Dismissed Litigation Matters

PCM was the subject of a lawsuit brought by a purchaser of residential mortgage loans alleging breaches of representations and warranties made on loans sold to the purchaser. The asserted repurchase claims related to loans sold to the purchaser that were subsequently sold by the purchaser to either the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation and loans sold to the purchaser that were subsequently securitized and sold as residential mortgage-backed securities ("RMBS") by the purchaser to RMBS investors. This matter was settled on January 8, 2018.
On November 22, 2017, the Plaintiff's motion for class certification was granted in Levin v. Resource Capital Corp. (the "Levin Action"), a

We previously disclosed securities litigation against us and certain of our current and former officers that wastwo consolidated shareholder derivative actions pending in the United States District Court for the Southern District of New York. OnYork (the "Court") purporting to assert claims on our behalf similar to the claims in the New York State Actions (collectively, the "Federal Actions"): (a) by shareholders who declined to make a demand on our Board prior to filing suit (the "Federal Demand Futile Actions") comprising a suit filed in January 2017 (the "Greenberg Action") and another suit filed in January 2017 (the "DeCaro Action") and (b) by shareholders who served demands on our Board to bring litigation and allege that their demands were wrongfully refused ("Federal Demand Refused Actions") comprising a suit by filed in February 5, 2018, we entered into2017 (the "McKinney Action"), a suit filed in March 2017 (the "Sherek/Speigel Action") and a suit filed in April 2017 (the "Sebenoler Action"). In January 2019, the parties to the Federal Actions executed a stipulation and agreement of settlement (the "Settlement"Federal Actions Settlement Agreement"), which received final approval from the Court on August 3, 2018. TheMay 17, 2019. Under the Federal Actions Settlement Agreement, settled all claims assertedwe agreed to implement certain corporate governance changes and paid $550,000 in the action on behalf of the certified class (the "Settlement"), which consisted, with specified exceptions, of all persons who purchasedplaintiffs' attorneys' fees, funded by our common stock, 8.25% Series B Cumulative Redeemable Preferred Stock or 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock between October 31, 2012 and August 5, 2015. Under the terms of the Settlement Agreement, which has been filed publicly with the Court, a payment of $9.5 million has been made to settle the litigation. The settlement payment was funded principally by insurance coverage, and we do not anticipate that the Settlement will have a material adverse impact on our financial condition.insurers. In exchange for the settlement consideration, we and the individual defendants in the Levin Action (and certain related parties) have beenwere released from liability for certain claims, including all claims that have been or could have been asserted in the case by class members (and certain related parties), excluding one holder of less than 500 shares who opted out ofFederal Actions. Among other terms and conditions, the Settlement. The terms of the Settlement and release of claims are described in greater detail in theFederal Actions Settlement Agreement filed withprovides that the Court and the Final Judgment and Order of Dismissal with Prejudice entered by the Court on August 3, 2018. The Settlement Agreement contains no admission of misconduct by us or any of the individual defendants and expressly acknowledges that we and the individual defendants deny any and all allegations of wrongdoing and maintain that we and they have acted lawfully and in accordance with their fiduciary duties at all times actedtimes.

We previously disclosed another shareholder derivative action filed in good faiththe United States District Court for the District of Maryland against certain of our former officers and directors and our Manager (the "Hafkey Action"). The complaint asserted a breach of fiduciary duty claim that is substantially similar to the claims at issue in compliance with the law.


Federal Actions. In May 2019, Mr. Hafkey voluntarily dismissed his suit in light of the settlement and dismissal of the Federal Actions.

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ITEM 1A.

RISK FACTORS

RISKS RELATED TO REAL ESTATE INVESTMENTS
Our investments in preferred equity involve a greater risk

As of loss than traditional debt financing.

We may make preferred equity investments in entities that own or acquire commercial real estate properties. Preferred equity investments involve a higher degreethe date of risk than first mortgage loans duethis report, there have been no material changes to a variety of factors, including the risk that, similar to mezzanine loans, such investments are subordinate to first mortgage loansfactors disclosed in our Annual Report on Form 10-K filed with the Securities and are not collateralized by property underlying the investment. Unlike mezzanine loans, preferred equity investments generally do not have a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. Although as a holder of preferred equityExchange Commission ("SEC"), except we may enhancedisclose changes to such factors or disclose additional factors from time to time in our positionfuture filings with covenants that limit the activities of the entity in which we hold an interest and protect our equity by obtaining an exclusive right to control the underlying property after an event of default, should such a default occur on our investment, we would only be able to proceed against the entity in which we hold an interest, and not the property owned by such entity and underlying our investment. As a result, we may not recover some or all of our investment.
ITEM 6.EXHIBITS
SEC.

ITEM 6.

EXHIBITS

Exhibit No.

Description

2.1

Asset Purchase Agreement, dated June 6, 2017, by and among Stearns Lending, LLC, Primary Capital Mortgage, LLC, and Resource Capital Corp. (34)(32)

3.1(a)

2.1(b)

Mortgage Loan Sale and Purchase Agreement, dated May 29, 2019, by and between RCC Real Estate, Inc. and C-III Commercial Mortgage LLC. (44)

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)(27)

3.1(c)

Articles Supplementary 8.50% Series A Cumulative Redeemable Preferred Stock. (15)

3.1(d)

Articles Supplementary 8.50% Series A Cumulative Redeemable Preferred Stock. (16)

3.1(d)

3.1(e)

Articles Supplementary 8.25% Series B Cumulative Redeemable Preferred Stock. (17)

3.1(f)

Articles Supplementary 8.50% Series A Cumulative Redeemable Preferred Stock. (17)(21)

3.1(e)

3.1(g)

Articles Supplementary 8.25% Series B Cumulative Redeemable Preferred Stock. (18)
3.1(f)
Articles Supplementary 8.50% Series A Cumulative Redeemable Preferred Stock. (22)
3.1(g)

Articles Supplementary 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (9)(8)

3.1(h)

Articles of Amendment, effective May 25, 2018. (41)(39)

3.2

Second Amended and Restated Bylaws of Exantas Capital Corp. (41)(39)

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)(12)

4.1(c)

Form of Certificate for 8.25% Series B Cumulative Redeemable Preferred Stock (18)(17)

4.1(d)

Form of Certificate for 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (9)(8)

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

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

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)(24)

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)(24)

4.8(c)

Form of 6.00% Convertible Senior Note due 2018 (included in Exhibit 4.8(b)).


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4.8(d)

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)(19)

4.8(e)

Form of 8.00% Convertible Senior Note due 2020 (included in Exhibit 4.8(d)).

4.8(f)

Third Supplemental Indenture, dated August 16, 2017, between Resource Capital Corp. and Wells Fargo Bank, National Association, as Trustee (including the form of 4.50% Convertible Senior Note due 2022). (36)(34)

4.8(g)

Form of 4.50% Convertible Senior Note due 2022 (included in Exhibit 4.8(f)).

10.1

Third Amended and Restated Management Agreement between Resource Capital Corp., Resource Capital Manager, Inc. and Resource America, Inc. dated as of December 4, 2017. (38)(36)

10.2(a)

2005 Stock Incentive Plan. (1)

10.2(b)

Form of Stock Award Agreement. (8)(7)

10.2(c)

Form of Stock Option Agreement. (8)(7)

10.3(a)

Second Amended and Restated Omnibus Equity Compensation Plan. (7)(45)

10.3(b)

Form of Stock Award Agreement. (27)(25)

10.3(c)

Form of Stock Award Agreement (for employees with Resource America, Inc. employment agreements). (27)(25)

10.4

Services Agreement between Resource Capital Asset Management, LLC and Apidos Capital Management, LLC, dated February 24, 2011. (11)(10)

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
Letter Agreement between Resource Capital Corp. and Resource America, Inc. (31)
10.7

Membership Interest Purchase Agreement, dated as of August 1, 2016, by and among CVC Credit Partners U.S. Lending I, L.P., Coller International Partners VII, L.P., Coller International Partners VII Parallel Fund, L.P. and Coller International Partners VII Luxembourg, SLP (solely with respect to Section 6.7 thereof), NEW NP, LLC, and Resource Capital Corp. (solely with respect to Section 6.8 thereof)).(32)(30)

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10.8

10.6

Form of Indemnification Agreement. (35)(33)

10.9

10.7

Exchange Agreement, dated August 10, 2017, by and between Resource Capital Corp., Oaktree Real Estate Debt Holdings Ltd., INVESTIN PRO RED HOLDINGS, LLC, and Oaktree TSE-16 Real Estate Debt, LLC. (36)(34)

12.1

31.1

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)

Amended and Restated Master Repurchase and Securities Contract by and between RCC Real Estate SPE 4, LLC, as Seller, and Wells Fargo Bank, National Association, as Buyer, dated as of July 19, 2018. (12)2018 (11)

99.1(b)

First Amendment to Amended and Restated Master Repurchase and Securities Contract by and between RCC Real Estate SPE 4, LLC, as Seller, and Wells Fargo Bank, National Association, as Buyer, dated as of May 29, 2019.

99.1(c)

Amended and Restated Guaranty Agreement made by Exantas Capital Corp., as guarantor, and Wells Fargo Bank, National Association, dated as of July 19, 2018 (12)(11)

99.2(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)(28)

99.2(b)

Second Amendment to Master Repurchase and Securities Contract Agreement between RCC Real Estate 6, LLC and Morgan Stanley Bank, N.A. dated as of September 10, 2018. (41)

99.2(c)

Guaranty dated as of September 10, 2015, made by Resource Capital Corp., as guarantor, in favor of Morgan Stanley Bank, N.A. (30)(28)

99.3(a)

Master Repurchase Agreement between RCC Real Estate SPE 7, LLC and Barclays Bank PLC, dated as of April 10, 2018. (40)(38)

99.3(b)

Guaranty dated as of April 10, 2018, made by Resource Capital Corp., as guarantor, in favor of Barclays Bank PLC. (40)(38)

99.4

99.4(a)

Master Repurchase Agreement for $250,000,000 between RCC Real Estate SPE 8, LLC, as Seller, and Plan of MergerJPMorgan Chase Bank, National Association, as Buyer, dated as of May 22, 2016 by and among Resource America, Inc., C-III Capital Partners LLC, and Regent Acquisition Inc. (included as Exhibit A to the Letter Agreement referred in Exhibit 10.7) (31)October 26, 2018. (40)

99.5

99.4(b)

Guarantee made by Exantas Capital Corp., as guarantor, in favor of JPMorgan Chase Bank, National Association, dated October 26, 2018. (40)

99.5(a)

Notice of Proposed Settlement of Shareholder Derivative Litigation. (43)

99.5(b)

Stipulation and Agreement of Settlement. (43)

99.6

Federal Income Tax Consequences of our Qualification as a REIT. (33)(42)

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)

(8)

Filed previously as an exhibit to the Company's Registration Statement on Form 8-A filed on June 9, 2014.

(10)

(9)

Filed previously as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

(11)

(10)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on March 2, 2011.

(12)

(11)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on July 25, 2018.

(13)

(12)

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)

(13)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on March 2, 2012.

(15)

(14)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on June 13, 2012.

(16)

(15)

Filed previously as an exhibit to the Company's registration statement on Form 8-A filed on June 8, 2012.

(17)

(16)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on June 29, 2012.

(18)

(17)

Filed previously as an exhibit to the Company's Registration Statement on Form 8-A filed on September 28, 2012.

(19)

(18)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 23, 2014.

(20)

(19)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on January 13, 2015.

(21)

(20)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on October 1, 2012.

(22)

(21)

Filed previously as an exhibit to the Company Current Report on Form 8-K filed on November 20, 2012.

(23)

(22)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on April 8, 2013.

(24)

(23)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on July 25, 2013.

(25)

(24)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on October 21, 2013.

(26)

(25)

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)

(26)

Filed previously as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.

(29)

(27)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 1, 2015.

(30)

(28)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 16, 2015.

(31)

(29)

Filed previously as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.

(32)

(30)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on August 5, 2016.

(33)

(31)

Filed previously as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

(34)

(32)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on June 8, 2017.

(35)

(33)

Filed previously as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

(36)

(34)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on August 16, 2017.

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(37)

(35)

Filed previously as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.

(38)

(36)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on December 18, 2017.

(39)

(37)

Filed previously as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

(40)

(38)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on April 12, 2018.

(41)

(39)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on May 25, 2018.

(40)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on October 30, 2018.

(41)

Filed previously as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.

(42)

Filed previously as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

(43)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on March 27, 2019.

(44)

Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on May 30, 2019.

(45)

Filed previously as an exhibit to the Company's Proxy Statement filed on April 18, 2019.


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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.

EXANTAS CAPITAL CORP.

(Registrant)

August 7, 20182019

By:

/s/ Robert C. Lieber

Robert C. Lieber

Chief Executive Officer

August 7, 20182019

By:

/s/ David J. Bryant

David J. Bryant

Senior Vice President

Chief Financial Officer and Treasurer

August 7, 20182019

By:

/s/ Eldron C. Blackwell

Eldron C. Blackwell

Vice President

Chief Accounting Officer




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