UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q


(Mark
One)


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




For the
quarterly period ended March 31, 2010




OR




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




For the
transition period from _________ to __________




Commission
file number: 1-32733







RESOURCE
CAPITAL CORP.


(Exact
name of registrant as specified in its charter)





Maryland
            
            20-2287134(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)712
      5th
      Avenue, 10th
      FloorNew
      York, New York
            
            10019(Address
      of principal executive offices)
            
            (Zip
      code)





(Registrant’s
      telephone number, including area code):  212-506-3870







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 R No o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes  ̈ No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer
             ̈
            
            Accelerated
      filer
            RNon-accelerated
      filer
             ̈
            (Do
      not check if a smaller reporting Company)
            Smaller
      reporting company
             ̈







Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No R




The
number of outstanding shares of the registrant’s common stock on May 3, 2010 was
41,403,172 shares.








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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


INDEX TO QUARTERLY REPORT


ON
FORM 10-Q








PAGEPART
      I
            FINANCIAL
      INFORMATIONItem 1.
            Financial
      StatementsConsolidated Balance Sheets – March 31, 2010 (unaudited) and
      December 31, 2009
            3Consolidated Statements of Operations
      (unaudited)
              Three Months
      Ended March 31, 2010 and 2009
            4Consolidated Statement of Changes in Stockholders’ Equity
      (unaudited)
              Three Months
      Ended March 31, 2010
            5Consolidated Statements of Cash Flows
      (unaudited)
              Three
      Months Ended March 31, 2010 and 2009
            6Notes to Consolidated Financial Statements – March 31, 2010
      (unaudited)
            7Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            28Item 3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            45Item 4.
            Controls and Procedures
            47PART
      II
            OTHER
      INFORMATIONItem 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            48Item 5.
            Exhibits
            48SIGNATURES
            50





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PART
I.                      FINANCIAL
INFORMATION







Item
      1.
            Financial
      Statements





RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(in
thousands, except share and per share data)





March
      31,
            
            
            December
      31,2010
            
            
            2009ASSETS
            
            (Unaudited)Cash and cash equivalents
            
            $
            27,650
            
            
            $
            51,991Restricted cash
            
            
            82,176
            
            
            
            85,125Investment securities
      available-for-sale, pledged as collateral, at fair value
            
            
            46,086
            
            
            
            39,304Investment securities
      available-for-sale, at fair value
            
            
            5,238
            
            
            
            5,238Investment securities
      held-to-maturity, pledged as collateral
            
            
            31,559
            
            
            
            31,401Loans, pledged as collateral and
      net of allowances of $37.9 million and$47.1
      million
            
            
            1,555,593
            
            
            
            1,558,687Loans held for sale
            
            
            2,376
            
            
            
            8,050Direct financing leases and
      notes, net of allowances of  $650,000 and
              $1.1 million and net of
      unearned income
            
            
            10,325
            
            
            
            927Loans receivable – related
      party
            
            
            10,000
            
            
            
            −Investments in unconsolidated
      entities
            
            
            4,040
            
            
            
            3,605Interest receivable
            
            
            5,367
            
            
            
            5,754Other assets
            
            
            4,735
            
            
            
            3,878Total assets
            
            $
            1,785,145
            
            
            $
            1,793,960LIABILITIESBorrowings
            
            $
            1,517,330
            
            
            $
            1,536,500Distribution payable
            
            
            10,053
            
            
            
            9,170Accrued interest expense
            
            
            1,551
            
            
            
            1,516Derivatives, at fair value
            
            
            13,267
            
            
            
            12,767Accounts payable and other
      liabilities
            
            
            3,297
            
            
            
            5,177Total liabilities
            
            
            1,545,498
            
            
            
            1,565,130STOCKHOLDERS’
      EQUITYPreferred stock, par value
      $0.001:  100,000,000 shares authorized;
              no shares issued and
      outstanding
            
            
            −
            
            
            
            −Common stock, par value
      $0.001:  500,000,000 shares authorized;
              40,079,753 and 36,545,737
      shares issued and outstanding
              (including 566,575 and 437,319
      unvested restricted shares)
            
            
            40
            
            
            
            36Additional paid-in capital
            
            
            424,584
            
            
            
            405,517Accumulated other comprehensive
      loss
            
            
            (61,761
            )
            
            
            (62,154
            )Distributions in excess of
      earnings
            
            
            (123,216
            )
            
            
            (114,569
            )Total stockholders’ equity
            
            
            239,647
            
            
            
            228,830TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            1,785,145
            
            
            $
            1,793,960




The
accompanying notes are an integral part of these consolidated financial
statements





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 3
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in
thousands, except share and per share data)
 (Unaudited)
  Three
      Months EndedMarch
      31,2010
              
              
              2009REVENUESNet interest
      income:Loans
              
              $
              18,267
              
              
              $
              22,620Securities
              
              
              2,874
              
              
              
              1,422Leases
              
              
              235
              
              
              
              2,233Interest income − other
              
              
              197
              
              
              
              347Total interest income
              
              
              21,573
              
              
              
              26,622Interest expense
              
              
              7,937
              
              
              
              13,877Net interest income
              
              
              13,636
              
              
              
              12,745OPERATING
      EXPENSESManagement fees − related
      party
              
              
              1,152
              
              
              
              1,001Equity compensation − related
      party
              
              
              724
              
              
              
              88Professional services
              
              
              819
              
              
              
              964Insurance expense
              
              
              212
              
              
              
              172General and administrative
              
              
              645
              
              
              
              405Income tax expense (benefit)
              
              
              105
              
              
              
              (45
              )Total expenses
              
              
              3,657
              
              
              
              2,585NET
      OPERATING INCOME
              
              
              9,979
              
              
              
              10,160OTHER
      INCOME (EXPENSES)Impairment losses on investment
      securities
              
              
              −
              
              
              
              (5,620
              )Recognized in other
      comprehensive loss
              
              
              −
              
              
              
              −Net impairment losses
      recognized in earnings
              
              
              −
              
              
              
              (5,620
              )Net realized gains on loans and
      investments
              
              
              146
              
              
              
              237Provision for loan and lease
      losses
              
              
              (15,371
              )
              
              
              (16,951
              )Gain on the extinguishment of
      debt
              
              
              6,628
              
              
              
              −Other income
              
              
              24
              
              
              
              22Total expenses
              
              
              (8,573
              )
              
              
              (22,312
              )NET
      INCOME (LOSS)
              
              $
              1,406
              
              
              $
              (12,152
              )NET
      INCOME (LOSS) PER SHARE – BASIC
              
              $
              0.04
              
              
              $
              (0.50
              )NET
      INCOME (LOSS) PER SHARE – DILUTED
              
              $
              0.04
              
              
              $
              (0.50
              )WEIGHTED
      AVERAGE NUMBER OF SHARES
                OUTSTANDING − BASIC
              
              
              37,987,192
              
              
              
              24,467,408WEIGHTED
      AVERAGE NUMBER OF SHARES
                OUTSTANDING − DILUTED
              
              
              38,150,605
              
              
              
              24,467,408DIVIDENDS
      DECLARED PER SHARE
              
              $
              0.25
              
              
              $
              0.30





The
accompanying notes are an integral part of these consolidated financial
statements





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 4
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY


THREE
MONTHS ENDED MARCH 31, 2010


(in
thousands, except share and per share data)


(Unaudited)





Common
      StockShares
            
            
            Amount
            
            
            Additional
                Paid-In
                Capital
            
            
            Accumulated
      Other Comprehensive Loss
            
            
            Retained
      Earnings
            
            
            Distributions
                in
      Excess of Earnings
            
            
            Treasury
      Shares
            
            
            Total
      Stockholders’ Equity
            
            
            Comprehensive
      IncomeBalance,
      January 1, 2010
            
            
            36,545,737
            
            
            $
            36
            
            
            $
            405,517
            
            
            $
            (62,154
            )
            
            $
            −
            
            
            $
            (114,569
            )
            
            $
            −
            
            
            $
            228,830Proceeds
      from dividend
              reinvestment and
stock
              purchase plan
            
            
            3,127,357
            
            
            
            3
            
            
            
            18,032
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            18,035Offering
      costs
            
            
            −
            
            
            
            −
            
            
            
            (64
            )
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            (64
            )Stock
      based compensation
            
            
            406,659
            
            
            
            1
            
            
            
            375
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            376Amortization
      of stock
              based compensation
            
            
            −
            
            
            
            −
            
            
            
            724
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            724Net
      income
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            1,406
            
            
            
            −
            
            
            
            −
            
            
            
            1,406
            
            
            $
            1,406Securities
      available-for-sale,
              fair value adjustment,
      net
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            724
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            724
            
            
            
            724Designated
      derivatives, fair
              value adjustment
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            (331
            )
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            (331
            )
            
            
            (331
            )Distributions
      on common
              stock
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            (1,406
            )
            
            
            (8,647
            )
            
            
            −
            
            
            
            (10,053
            )Comprehensive
      income
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            $
            1,799Balance,
      March 31, 2010
            
            
            40,079,753
            
            
            $
            40
            
            
            $
            424,584
            
            
            $
            (61,761
            )
            
            $
            −
            
            
            $
            (123,216
            )
            
            $
            −
            
            
            $
            239,647





The
accompanying notes are an integral part of these consolidated financial
statements





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 5
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
thousands)
 (Unaudited)
 Three
      Months EndedMarch
      31,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
                
                $
                1,406
                
                
                $
                (12,152
                )Adjustments to reconcile net
      income (loss) to net cash provided by
                  operating
      activities:Provision for loan and lease
      losses
                
                
                15,371
                
                
                
                16,951Depreciation and amortization
      of term facilities
                
                
                181
                
                
                
                187Accretion of net discounts on
      investments
                
                
                (4,044
                )
                
                
                (988
                )Amortization of discount on
      notes of CDOs
                
                
                13
                
                
                
                48Amortization of debt issuance
      costs on notes of CDOs
                
                
                1,067
                
                
                
                823Amortization of stock based
      compensation
                
                
                724
                
                
                
                88Amortization of terminated
      derivative instruments
                
                
                133
                
                
                
                120Non-cash incentive
      compensation to the Manager
                
                
                −
                
                
                
                (1
                )Unrealized losses on
      non-designated derivative instruments
                
                
                36
                
                
                
                92Net realized gains on
      investments
                
                
                (146
                )
                
                
                (237
                )Net impairment losses
      recognized in earnings
                
                
                −
                
                
                
                5,620Gain on the extinguishment of
      debt
                
                
                (6,628
                )
                
                
                −Changes in operating assets
      and liabilities:
                
                
                (1,556
                )
                
                
                3,297Net cash provided by operating
      activities
                
                
                6,557
                
                
                
                13,848CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase in restricted
      cash
                
                
                (5,002
                )
                
                
                (3,162
                )Purchase of securities
      available-for-sale
                
                
                (4,923
                )
                
                
                −Investment in unconsolidated
      entity
                
                
                (435
                )
                
                
                −Purchase of loans
                
                
                (69,825
                )
                
                
                (36,680
                )Principal payments received on
      loans
                
                
                55,592
                
                
                
                27,131Proceeds from sale of loans
                
                
                17,988
                
                
                
                8,376Purchase of direct financing
      leases and notes
                
                
                (10,333
                )
                
                
                −Payments received on direct
      financing leases and notes
                
                
                397
                
                
                
                6,825Proceeds from sale of direct
      financing leases and notes
                
                
                465
                
                
                
                506Investment in loans – related
      parties
                
                
                (10,000
                )
                
                
                −Net cash (used in) provided by
      investing activities
                
                
                (26,076
                )
                
                
                2,996CASH
      FLOWS FROM FINANCING ACTIVITIES:Net proceeds from issuances of
      common stock (net of offering costs
                  of $64 and $0)
                
                
                (64
                )
                
                
                −Net proceeds from dividend
      reinvestment and stock purchase plan (net of
                  offering costs of $0 and
      $0)
                
                
                18,035
                
                
                
                44Repurchase of common stock
                
                
                −
                
                
                
                (2,800
                )Payments on
      borrowings:Repurchase agreements
                
                
                −
                
                
                
                (1,054
                )Secured term facility
                
                
                −
                
                
                
                (7,003
                )Repurchase of debt
                
                
                (13,623
                )
                
                
                −Distributions paid on common
      stock
                
                
                (9,170
                )
                
                
                (9,946
                )Net cash used in financing
      activities
                
                
                (4,822
                )
                
                
                (20,759
                )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                
                
                (24,341
                )
                
                
                (3,915
                )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                
                
                51,991
                
                
                
                14,583CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                
                $
                27,650
                
                
                $
                10,668NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Distributions on common stock
      declared but not paid
                
                $
                10,053
                
                
                $
                7,529Issuance of restricted stock
                
                $
                333
                
                
                $
                217SUPPLEMENTAL
      DISCLOSURE:Interest expense paid in
      cash
                
                $
                7,978
                
                
                $
                13,933





The
accompanying notes are an integral part of these financial
statements





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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010


(Unaudited)





NOTE
1 – ORGANIZATION AND BASIS OF QUARTERLY PRESENTATION





Resource Capital Corp. and
subsidiaries’ (collectively the ‘‘Company’’) principal business activity is to
purchase and manage a diversified portfolio of commercial real estate-related
assets and commercial finance assets.  The Company’s investment
activities are managed by Resource Capital Manager, Inc. (‘‘Manager’’) pursuant
to a management agreement (the ‘‘Management Agreement’’).  The Manager
is a wholly-owned indirect subsidiary of Resource America, Inc. (“Resource
America”) (NASDAQ-GS: REXI).  The following subsidiaries are
consolidated on the Company’s financial statements:




·
            RCC
      Real Estate, Inc. (“RCC Real Estate”) holds real estate investments,
      including commercial real estate loans and commercial real estate-related
      securities.  RCC Real Estate owns 100% of the equity of the
      following variable interest entities
(“VIEs”):




-
            Resource
      Real Estate Funding CDO 2006-1 (“RREF CDO 2006-1”), a Cayman Islands
      limited liability company and qualified real estate investment trust
      (“REIT”) subsidiary (“QRS”).  RREF CDO 2006-1 was established to
      complete a collateralized debt obligation (“CDO”) issuance secured by a
      portfolio of commercial real estate loans and commercial mortgage-backed
      securities.




-
            Resource
      Real Estate Funding CDO 2007-1 (“RREF CDO 2007-1”), a Cayman Islands
      limited liability company and QRS.  RREF CDO 2007-1 was
      established to complete a CDO issuance secured by a portfolio of
      commercial real estate loans and commercial
      mortgage-backed securities.




·
            RCC
      Commercial, Inc. (“RCC Commercial”) holds bank loan investments and
      commercial real estate-related securities.  RCC Commercial owns
      100% of the equity of the following
VIEs:




-
            Apidos
      CDO I, Ltd. (“Apidos CDO I”), a Cayman Islands limited liability company
      and taxable REIT subsidiary (“TRS”).  Apidos CDO I was
      established to complete a CDO secured by a portfolio of bank
      loans.




-
            Apidos
      CDO III, Ltd. (“Apidos CDO III”), a Cayman Islands limited liability
      company and TRS.  Apidos CDO III was established to complete a
      CDO secured by a portfolio of bank
loans.




-
            Apidos
      Cinco CDO, Ltd. (“Apidos Cinco CDO”), a Cayman Islands limited liability
      company and TRS.  Apidos Cinco CDO was established to complete a
      CDO secured by a portfolio of bank
loans.




·
            Resource
      TRS, Inc. (“Resource TRS”), the Company’s directly-owned TRS, holds all
      the Company’s direct financing leases and
notes.





The consolidated financial statements
and the information and tables contained in the notes to the consolidated
financial statements are unaudited.  However, in the opinion of
management, these interim financial statements include all adjustments necessary
to fairly present the results of the interim periods presented.  The
unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2009.  The results of operations for the three months ended March 31,
2010 may not necessarily be indicative of the results of operations for the full
fiscal year ending December 31, 2010.





NOTE
2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




The Company has a 100% interest valued
at $1.5 million in the common shares (three percent of the total equity) in two
trusts, Resource Capital Trust I (“RCT I”) and RCC Trust II (“RCT II”). 
The Company completed a qualitative analysis to determine whether or not it is
the primary beneficiary of the VIE.  The Company does not have the power to
direct the activities of either trust, nor do they have the obligation to absorb
losses or recognize benefits of these trusts.  Therefore, the Company is
not deemed to be the primary beneficiary of either trust and they are not
consolidated into the Company’s consolidated financial statements.  The
Company records its investments in RCT I and RCT II’s common shares of $774,000
each as investments in unconsolidated trusts using the cost method and records
dividend income upon declaration by RCT I and RCT II.  For the three months
ended March 31, 2010 and 2009, the Company recognized $875,000 and $765,000,
respectively, of interest expense with respect to the subordinated debentures it
issued to RCT I and RCT II which included $74,000 and $37,000, respectively, of
amortization of deferred debt issuance costs.  The Company will continue to
do a continuous reassessment as to whether or not they are deemed to be the
primary beneficiary of the trusts.


All inter-company transactions and
balances have been eliminated.




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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)





Investment
Securities Available-for-Sale





The Company classifies its investment
portfolio as either trading investments, available-for-sale or
held-to-maturity.  Although the Company generally plans to hold most
of its investments to maturity, it may, from time to time, sell any of its
investments due to changes in market conditions or in accordance with its
investment strategy.  The Company’s available-for-sale securities are
reported at fair value which for the Company’s securities purchased during 2009
is based on dealer quotes due to their higher ratings and more active markets
and for the Company’s securities purchased prior to 2009 is based on taking a
weighted average of the following three measures:




·
            an
      income approach utilizing an appropriate current risk-adjusted yield, time
      value and projected estimated losses from default assumptions based on
      analysis of underlying loan
performance;




·
            quotes
      on similar-vintage, higher rate, more actively traded commercial
      mortgage-backed securities (“CMBS”) adjusted as appropriate for the lower
      subordination level of the Company’s securities;
  and




·
            dealer
      quotes on the Company’s securities for which there is not an active
      market.





On a quarterly basis, the Company
evaluates its investments for other-than-temporary impairment.  An
investment is impaired when its fair value has declined below its amortized cost
basis.  An impairment is considered other-than-temporary when the
amortized cost basis of the investment value will not be recovered over its
remaining life.  In addition, the Company’s intent to sell as well as
the likelihood that the Company will be required to sell the security before the
recovery of the amortized cost basis is considered.  Where credit
quality is believed to be the cause of the other-than-temporary impairment, that
component of the impairment is recognized as an impairment loss in the statement
of operations.  Where other market components are believed to be the
cause of the impairment, that component of the impairment is recognized on the
balance sheet as other comprehensive loss.





Investment securities transactions are
recorded on the trade date.  Purchases of newly issued securities are
recorded when all significant uncertainties regarding the characteristics of the
securities are removed, generally shortly before settlement
date.  Realized gains and losses on investment securities are
determined on the specific identification method.





Allowance
for Loan and Lease Losses





The Company maintains an allowance for
loan and lease losses.  Loans and leases held for investment are first
individually evaluated for impairment so specific reserves can be
applied.  Loans for which a specific reserve was not applicable are
then evaluated for impairment as a homogeneous pool of loans with substantially
similar characteristics so that a general reserve can be established, if
needed.  The reviews are performed at least quarterly.





The Company considers a loan to be
impaired when, based on current information and events, management believes it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement.  When a loan is
impaired, the allowance for loan losses is increased by the amount of the excess
of the amortized cost basis of the loan over its fair value.  Fair
value may be determined based on the present value of estimated cash flows; on
market price, if available; or on the fair value of the collateral less
estimated disposition costs.  When a loan, or a portion thereof, is
considered uncollectible and pursuit of collection is not warranted, the Company
will record a charge-off or write-down of the loan against the allowance for
loan and lease losses.




The balance of impaired loans and
leases was $120.6 million and $100.1 million at March 31, 2010 and December 31,
2009, respectively.  The total balance of impaired loans and leases
with a valuation allowance at March 31, 2010 and December 31, 2009 was $65.9
million and $82.2 million, respectively.  The total balance of
impaired loans and leases without a specific valuation allowance was $54.7
million and $17.9 million at March 31, 2010 and December 31, 2009,
respectively.  The specific valuation allowance related to these
impaired loans and leases was $20.9 million and $31.0 million at March 31, 2010
and December 31, 2009, respectively.  The Company did not recognize
any income on impaired loans and leases during the three months ended March 31,
2010 and the year ended December 31, 2009 once each individual loan or lease
became impaired unless cash was received.





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 8
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)





Allowance
for Loan and Lease Losses – (Continued)





An impaired loan or lease may remain on
accrual status during the period in which the Company is pursuing repayment of
the loan or lease; however, the loan or lease would be placed on non-accrual
status at such time as (i) management believes that scheduled debt service
payments will not be met within the coming 12 months; (ii) the loan or lease
becomes 90 days delinquent; (iii) management determines the borrower is
incapable of, or has ceased efforts toward, curing the cause of the impairment;
or (iv) the net realizable value of the loan’s underlying collateral
approximates the Company’s carrying value of such loan.  While on
non-accrual status, the Company recognizes interest income only when an actual
payment is received.




Recent
Accounting Pronouncements
 
 In February 2010, the Financial
Accounting Standards Board (“FASB”) issued guidance which removes the
requirement for an U.S. Securities and Exchange Commission filer to disclose a
date through which subsequent events have been evaluated in both issued and
revised financial statements.  Revised financial statements include
financial statements revised as a result of either a correction of error or
retrospective application of U.S. GAAP.  This guidance was effective
upon issuance.
 
 In January 2010, the FASB issued
guidance for fair value measurements and disclosures.  The guidance
requires new disclosures for transferring in and out of Level 1 and Level 2
amounts and clarifies existing disclosures regarding levels of disaggregation
and inputs surrounding valuation techniques.  This guidance will be
effective for interim and annual periods beginning after December 15,
2009.  The adoption did not have a material impact on its consolidated
financial statements.  In addition, this guidance requires new
disclosure surrounding activity in Level 3 fair value measurements, to present
separately information about purchases, sales, issuances and
settlements.  This guidance will be effective for interim and annual
periods beginning after December 15, 2010.  Adoption will require
additional disclosure to delineate such categories in the notes to the Company’s
consolidated financial statements (see Note 14).
 
 In January 2010, the FASB issued
guidance that requires new disclosures and clarifies some existing disclosure
requirements about fair value measurements.  The new pronouncement
requires a reporting entity: (1) to disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers; and (2) to present separately
information about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable
inputs. In addition, it clarifies the requirements of the following existing
disclosures: (1) for purposes of reporting fair value measurement for each
class of assets and liabilities, a reporting entity needs to use judgment in
determining the appropriate classes of assets and liabilities, and (2) a
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements.  The new guidance is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the
rollforward of activity in Level 3 fair value measurements which will be
effective for the Company in fiscal 2011.
 
 In
December 2009, the FASB issued guidance for improving financial reporting for
enterprises involved with VIEs regarding power to direct the activities of a VIE
as well as obligations to absorb the losses.  This guidance is
effective for interim and annual periods beginning after November 15,
2009.  The Company has evaluated the potential impact of adopting this
statement.  The Company’s evaluation indicated that the adoption of
this accounting guidance will not have an impact on its consolidated financial
statements.
 
 In June 2009, the FASB issued guidance
for consolidation of VIEs which changes the consolidation guidance applicable to
a VIE and amends the guidance governing the determination of whether an
enterprise is the primary beneficiary of a VIE and therefore, required to
consolidate an entity, by requiring a qualitative analysis rather than a
quantitative analysis.  This standard also requires continuous
reassessment of whether an enterprise is the primary beneficiary of a VIE as
well as enhanced disclosures about an enterprise’s involvement with a
VIE.  This guidance is effective for interim and annual periods
beginning after November 15, 2009.  The Company has evaluated the
potential impact of adopting this statement and concluded that it will continue
to consolidate its VIEs that it identified in Note 1 to the consolidated
financial statements.  The Company will do a continuous reassessment
of its conclusion as stipulated in this statement.
 
 In June 2009, the FASB issued guidance
for accounting for transfers of financial assets.  The guidance
eliminates the concept of a “qualifying special-purpose entity,” changes the
requirements for derecognizing financial assets and requires greater
transparency of related disclosures.  This statement is effective for
fiscal years beginning after November 15, 2009.  Adoption did not
have a material impact on the consolidated financial statements.


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 9
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
2 − SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)





Reclassifications




Certain reclassifications have been
made to the 2009 consolidated financial statements to conform to the 2010
presentation.  The adoption of these new accounting standards did not
have a material impact on the Company’s consolidated financial position, results
of operations or cash flows.




NOTE
3 – INVESTMENT SECURITIES AVAILABLE-FOR-SALE





The following table summarizes the
Company's mortgage-backed securities (“MBS”) and asset-backed securities
(“ABS”), including those pledged as collateral and classified as
available-for-sale, which are carried at fair value (in thousands):





Amortized
                Cost
      (1)
            
            
            Unrealized
      Gains
            
            
            Unrealized
      Losses
            
            
            FairValue
      (1)March 31,
      2010:Commercial mortgage-backed
      private placement
            
            $
            98,169
            
            
            $
            4,954
            
            
            $
            (51,823
            )
            
            $
            51,300Other asset-backed
            
            
            24
            
            
            
            −
            
            
            
            −
            
            
            
            24Total
            
            $
            98,193
            
            
            $
            4,954
            
            
            $
            (51,823
            )
            
            $
            51,324December 31,
      2009:Commercial mortgage-backed
      private placement
            
            $
            92,110
            
            
            $
            2,622
            
            
            $
            (50,214
            )
            
            $
            44,518Other asset-backed
            
            
            24
            
            
            
            −
            
            
            
            −
            
            
            
            24Total
            
            $
            92,134
            
            
            $
            2,622
            
            
            $
            (50,214
            )
            
            $
            44,542


(1)
            As
      of March 31, 2010 and 2009, $47.0 million and $39.3 million, respectively,
      of securities were pledged as collateral security under related
      financings.




The following table summarizes the
estimated maturities of the Company’s MBS and other ABS according to their
estimated weighted average life classifications (in thousands, except
percentages):
 
 Weighted
      Average Life
                
                Fair
      Value
                
                
                Amortized
      Cost
                
                
                Weighted
      Average CouponMarch 31,
      2010:Less than one year
                
                $
                9,022
                (1)
                
                $
                25,044
                
                
                
                1.59%Greater than one year and less
      than five years
                
                
                3,648
                
                
                
                9,432
                
                
                
                2.91%Greater than five years
                
                
                38,654
                
                
                
                63,717
                
                
                
                5.80%Total
                
                $
                51,324
                
                
                $
                98,193
                
                
                
                4.45%December
      31, 2009:Less than one year
                
                $
                7,503
                
                
                $
                20,043
                
                
                
                1.50%Greater than one year and less
      than five years
                
                
                4,346
                
                
                
                12,728
                
                
                
                2.24%Greater than five years
                
                
                32,693
                
                
                
                59,363
                
                
                
                5.76%Total
                
                $
                44,542
                
                
                $
                92,134
                
                
                
                4.35%
 (1)
              All
      of the $9.0 million of CMBS maturing in these categories are
      collateralized by floating-rate loans and are expected to extend for up to
      a minimum of two additional years as the loans in the floating-rate
      structures have a contractual right to extend with options ranging from
      two one-year options to three one-year
options.
 
 The contractual maturities of the
investment securities available-for-sale range from January 2011 to October
2017.





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 10
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
3 – INVESTMENT SECURITIES AVAILABLE-FOR-SALE – (Continued)





The following table shows the fair
value and gross unrealized losses, aggregated by investment category and length
of time, of those individual investment securities that have been in a
continuous unrealized loss position (in thousands):


Less
      than 12 Months
            
            
            More
      than 12 Months
            
            
            TotalFair
                Value
            
            
            Gross
      Unrealized Losses
            
            
            Fair
                Value
            
            
            Gross
      Unrealized Losses
            
            
            Fair
                Value
            
            
            Gross
      Unrealized LossesMarch 31,
      2010:Commercial
      mortgage-
              backed private
      placement
            
            $
            8,527
            
            
            $
            (1,207
            )
            
            $
            13,191
            
            
            $
            (50,616
            )
            
            $
            21,718
            
            
            $
            (51,823
            )Total temporarily
              impaired securities
            
            $
            8,527
            
            
            $
            (1,207
            )
            
            $
            13,191
            
            
            $
            (50,616
            )
            
            $
            21,718
            
            
            $
            (51,823
            )December
      31, 2009:Commercial
      mortgage-
              backed private
      placement
            
            $
            11,193
            
            
            $
            (1,073
            )
            
            $
            14,588
            
            
            $
            (49,141
            )
            
            $
            25,781
            
            
            $
            (50,214
            )Total temporarily
              impaired securities
            
            $
            11,193
            
            
            $
            (1,073
            )
            
            $
            14,588
            
            
            $
            (49,141
            )
            
            $
            25,781
            
            
            $
            (50,214
            )





The Company holds 18 and 13 investment
securities available-for-sale that have been in a loss position for more than 12
months as of March 31, 2010 and December 31, 2009, respectively.  The
unrealized losses in the above table are considered to be temporary impairments
due to market factors and are not reflective of credit
deterioration.





The determination of
other-than-temporary impairment is a subjective process, and different judgments
and assumptions could affect the timing of loss realization.  The
Company reviews its portfolios monthly and the determination of
other-than-temporary impairment is made at least quarterly.  The
Company considers the following factors when determining if there is an
other-than-temporary impairment on a security:




·
            the
      length of time the market value has been less than amortized
      cost;




·
            the
      severity of the impairment;




·
            the
      expected loss of the security as generated by third party
      software;




·
            credit
      ratings from the rating agencies;




·
            underlying
      credit fundamentals of the collateral backing the securities;
      and




·
            the
      Company’s intent is more likely than not to sell the security before
      the recovery of the amortized cost
basis.





At March 31, 2010 and December 31,
2009, the Company held $51.3 million and $44.5 million, respectively, net of
unrealized losses of $46.9 million and $47.6 million, respectively, of CMBS at
fair value which, for the Company’s positions purchased after 2009, is based on
dealer quotes due to their higher ratings and more active markets and, for
the Company’s positions purchased during 2009, is based on taking a
weighted average of the following three measures:




·
            an
      income approach utilizing an appropriate current risk-adjusted yield, time
      value and projected estimated losses from default assumptions based on
      historical analysis of underlying loan
  performance;




·
            quotes
      on similar-vintage, higher rated, more actively traded CMBS securities
      adjusted for the lower subordination level of its securities;
      and




·
            dealer
      quotes on its securities for which there is not an active
      market.








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 11
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
3 – INVESTMENT SECURITIES AVAILABLE-FOR-SALE – (Continued)





During the three months ended March 31,
2009, a collateral position that supported the Company’s other-ABS investment
weakened to the point that default of that position became
probable.  As a result, the Company recognized a $5.6 million
other-than-temporary impairment on its other-ABS investment as of March 31, 2009
and an additional $45,000 of other-than-temporary impairment on this investment
during the three months ended June 30, 2009 bringing the fair value to
$0.  During the three months ended December 31, 2009, two collateral
positions that supported the Company’s CMBS portfolio weakened to the point that
default of these positions became probable.  The assumed default of
these collateral positions in the Company’s cash flow model yielded a value of
less than full recovery of the Company’s cost basis.  The Company
recognized a $6.9 million other-than-temporary impairment on its CMBS
investments as of December 31, 2009 bringing the combined fair value to
$206,000.  All of the Company's other-than-temporary impariment losses
are related to credit losses.





While the Company’s remaining
securities classified as available-for-sale have continued to decline in fair
value, the decline continues to be temporary.  The Company performs an
on-going review of third-party reports and updated financial data on the
underlying property financial information to analyze current and projected loan
performance.  All securities but the ones described above are current
with respect to interest and principal payments.  Rating agency
downgrades are considered with respect to the Company’s income approach when
determining other-than-temporary impairment and when inputs are stressed, the
resulting projected cash flows reflect a full recovery of
principal.  The Company does not believe that any other of its
securities classified as available-for-sale were other-than-temporarily impaired
as of March 31, 2010.





Changes in interest rates may also have
an effect on the rate of mortgage principal prepayments and, as a result,
prepayments on MBS in the Company’s investment portfolio.  The Company
seeks to mitigate the effect of changes in the mortgage principal repayment rate
by balancing assets purchased at a premium with assets purchased at a
discount.  At March 31, 2010, the aggregate discount exceeded the
aggregate premium on the Company’s MBS by approximately $30.8
million.  At December 31, 2009, the aggregate discount exceeded the
aggregate premium on the Company’s MBS by approximately $29.1
million.





NOTE
4 – INVESTMENT SECURITIES HELD-TO-MATURITY





The following table summarizes the
Company's securities held-to-maturity which are carried at amortized cost (in
thousands):





Amortized
                Cost
            
            
            Unrealized
                Gains
            
            
            Unrealized
                Losses
            
            
            Fair
                ValueMarch 31,
      2010:Collateralized loan obligation
      securities
            
            $
            31,559
            
            
            $
            314
            
            
            $
            (8,684
            )
            
            $
            23,189Total
            
            $
            31,559
            
            
            $
            314
            
            
            $
            (8,684
            )
            
            $
            23,189December
      31, 2009:Collateralized loan obligation
      securities
            
            $
            31,401
            
            
            $
            267
            
            
            $
            (10,348
            )
            
            $
            21,320Total
            
            $
            31,401
            
            
            $
            267
            
            
            $
            (10,348
            )
            
            $
            21,320











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 12
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
4 – INVESTMENT SECURITIES HELD-TO-MATURITY – (Continued)





The following table summarizes the
estimated maturities of the Company’s securities held-to-maturity according to
their contractual lives (in thousands):




Contractual
      Life
              
              Fair
                  Value
              
              
              Amortized
      Cost
              
              
              Weighted
                  Average
      CouponMarch 31,
      2010:Greater than five years and less
      than ten years
              
              $
              16,536
              
              
              $
              19,725
              
              
              
              3.03%Greater than ten years
              
              
              6,653
              
              
              
              11,834
              
              
              
              4.13%Total
              
              $
              23,189
              
              
              $
              31,559December
      31, 2009:Greater than five years and less
      than ten years
              
              $
              15,628
              
              
              $
              19,667
              
              
              
              3.06%Greater than ten years
              
              
              5,692
              
              
              
              11,734
              
              
              
              4.14%Total
              
              $
              21,320
              
              
              $
              31,401


The following table shows the fair
value and gross unrealized losses, aggregated by investment category and length
of time, of those individual investment securities that have been in a
continuous unrealized loss position (in thousands):





Less
      than 12 Months
            
            
            More
      than 12 Months
            
            
            TotalFair
                Value
            
            
            Gross
                Unrealized
                Losses
            
            
            Fair
                Value
            
            
            Gross
                Unrealized
                Losses
            
            
            Fair
                Value
            
            
            Gross
                Unrealized
                LossesMarch  31,
      2010:Collateralized loanobligations
            
            $
            3,751
            
            
            $
            (44
            )
            
            $
            12,747
            
            
            $
            (8,640
            )
            
            $
            16,498
            
            
            $
            (8,684
            )Total temporarily
              impaired securities
            
            $
            3,751
            
            
            $
            (44
            )
            
            $
            12,747
            
            
            $
            (8,640
            )
            
            $
            16,498
            
            
            $
            (8,684
            )December
      31, 2009:Collateralized loanobligations
            
            $
            2,530
            
            
            $
            (44
            )
            
            $
            10,980
            
            
            $
            (10,304
            )
            
            $
            13,510
            
            
            $
            (10,348
            )Total temporarily
              impaired securities
            
            $
            2,530
            
            
            $
            (44
            )
            
            $
            10,980
            
            
            $
            (10,304
            )
            
            $
            13,510
            
            
            $
            (10,348
            )




The
Company holds 14 investment securities held-to-maturity that have been in a loss
position for more than 12 months at both March 31, 2010 and December 31,
2009.  The unrealized losses in the above table are considered to be
temporary impairments due to market factors and are not reflective of credit
deterioration.
 
 During the year ended December 31,
2009, based on a credit rating downgrade and the cash flow analysis performed, a
collateral position that supported the investments held-to-maturity became
impaired as the Company’s cash flow model yielded a value of less than full
recovery of the Company’s cost basis.  As a result, the Company recognized
an $895,000 other-than-temporary impairment on one of its investments
held-to-maturity as of December 31, 2009.  Because of the impairment
charges, the cost of this security was written down to fair value through net
impairment losses recognized in earnings in the consolidated statements of
operations.  The Company does not believe that any other of its
investments classified as held-to-maturity were other-than-temporarily impaired
as of March 31, 2010.
 
 During the year ended December 31,
2009, based on the downgrading of the issuers’ published credit rating, the
Company sold three securities classified as held-to-maturity.  The
Company is more likely than not to hold its remaining securities until
maturity.


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 13
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
5 – LOANS HELD FOR INVESTMENT





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





Loan
      Description
            
            Principal
            
            
            Unamortized
              (Discount)
      Premium
            
            
            Carrying
                Value
      (1)March 31, 2010:Bank loans (2)
            
            $
            904,325
            
            
            $
            (29,864
            )
            
            $
            874,461Commercial real estate
      loans:Whole loans
            
            
            457,535
            
            
            
            (157
            )
            
            
            457,378B notes
            
            
            81,303
            
            
            
            18
            
            
            
            81,321Mezzanine loans
            
            
            182,523
            
            
            
            159
            
            
            
            182,682Total commercial real estate
      loans
            
            
            721,361
            
            
            
            20
            
            
            
            721,381Subtotal loans before
      allowances
            
            
            1,625,686
            
            
            
            (29,844
            )
            
            
            1,595,842Allowance for loan loss
            
            
            (37,873
            )
            
            
            −
            
            
            
            (37,873
            )Total
            
            $
            1,587,813
            
            
            $
            (29,844
            )
            
            $
            1,557,969December
      31, 2009:Bank loans (2)
            
            $
            893,183
            
            
            $
            (27,682
            )
            
            $
            865,501Commercial real estate
      loans:Whole loans
            
            
            484,464
            
            
            
            (269
            )
            
            
            484,195B notes
            
            
            81,450
            
            
            
            27
            
            
            
            81,477Mezzanine loans
            
            
            182,523
            
            
            
            163
            
            
            
            182,686Total commercial real estate
      loans
            
            
            748,437
            
            
            
            (79
            )
            
            
            748,358Subtotal loans before
      allowances
            
            
            1,641,620
            
            
            
            (27,761
            )
            
            
            1,613,859Allowance for loan loss
            
            
            (47,122
            )
            
            
            −
            
            
            
            (47,122
            )Total
            
            $
            1,594,498
            
            
            $
            (27,761
            )
            
            $
            1,566,737


(1)
            Substantially
      all loans are pledged as collateral under various borrowings at March 31,
      2010 and December 31, 2009,
respectively.




(2)
            Amounts
      include $2.4 million and $8.1 million of loans held for sale as of March
      31, 2010 and December 31, 2009,
respectively.





At March 31, 2010, the Company’s bank
loan portfolio consisted of $862.7 million (net of allowance of $11.9 million)
of floating rate loans, which bear interest ranging between the London Interbank
Offered Rate (“LIBOR”) plus 0.50% and LIBOR plus 17.25% with maturity dates
ranging from March 2011 to March 2017.





At December 31, 2009, the Company’s
bank loan portfolio consisted of $847.7 million (net of allowance of $17.8
million) of floating rate loans, which bear interest ranging between the LIBOR
plus 0.50% and LIBOR plus 18.25% with maturity dates ranging from June 2011 to
August 2022.







(Back to Index)
 14
 (Back to Index)





RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
5 – LOANS HELD FOR INVESTMENT – (Continued)





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





Description
              
              Quantity
              
              
              Amortized
      Cost
              
              Contracted
                Interest
      Rates
              
              Maturity Dates(3)March 31,
      2010:Whole loans, floating
      rate  (1)
              
              
              35
              
              
              $
              398,562
              
              LIBOR
      plus 1.50% to
                LIBOR
      plus 4.50%
              
              May
      2010 to
                February
      2017Whole loans, fixed
      rate  (1)
              
              
              4
              
              
              
              58,816
              
              6.98%
      to 10.00%
              
              June
      2011 to
                August
      2012B notes, floating rate
              
              
              3
              
              
              
              26,500
              
              LIBOR
      plus 2.50% to
                LIBOR
      plus 3.01%
              
              July
      2010 to
                October
      2010B notes, fixed rate
              
              
              3
              
              
              
              54,821
              
              7.00%
      to 8.68%
              
              July
      2011 to
                July
      2016Mezzanine loans, floating
      rate
              
              
              10
              
              
              
              124,048
              
              LIBOR
      plus 2.15% to
                LIBOR
      plus 3.45%
              
              May
      2010 to
                January
      2013Mezzanine loans, fixed
      rate
              
              
              5
              
              
              
              58,634
              
              8.14%
      to 11.00%
              
              May
      2010 to
                September
      2016Total (2)
              
              
              60
              
              
              $
              721,381December
      31, 2009:Whole loans, floating
      rate  (1)
              
              
              32
              
              
              $
              403,890
              
              LIBOR
      plus 1.50% to
                LIBOR
      plus 4.40%
              
              May
      2010 to
                February
      2017Whole loans, fixed
      rate  (1)
              
              
              6
              
              
              
              80,305
              
              6.98%
      to 10.00%
              
              May
      2010 to
                August
      2012B notes, floating rate
              
              
              3
              
              
              
              26,500
              
              LIBOR
      plus 2.50% to
                LIBOR
      plus 3.01%
              
              July
      2010 to
                October
      2010B notes, fixed rate
              
              
              3
              
              
              
              54,977
              
              7.00%
      to 8.68%
              
              July
      2011 to
                July
      2016Mezzanine loans, floating
      rate
              
              
              10
              
              
              
              124,048
              
              LIBOR
      plus 2.15% to
                LIBOR
      plus 3.45%
              
              May
      2010 to
                January
      2013Mezzanine loans, fixed
      rate
              
              
              5
              
              
              
              58,638
              
              8.14%
      to 11.00%
              
              May
      2010 to
                September
      2016Total (2)
              
              
              59
              
              
              $
              748,358


(1)
            Whole
      loans had $5.6 million and $5.6 million in unfunded loan commitments as of
      March 31, 2010 unchanged from December 31, 2009.  These
      commitments are funded as the loans require additional funding and
      the related borrowers have satisfied the requirements to obtain this
      additional funding.




(2)
            The
      total does not include an allowance for loan losses of $26.0 million and
      $29.3 million recorded as of March 31, 2010 and December 31, 2009,
      respectively.




(3)
            Excludes
      one floating rate whole loan which matured in July 2009 and is in
      foreclosure.




The
following table shows the changes in the allowance for loan loss (in
thousands):
 
 Allowance
      for loan loss at January 1, 2010
              
              $
              47,122Allowance charged to
      expense
              
              
              15,285Loans charged-off
              
              
              (24,534
              )Recoveries
              
              
              −Allowance
      for loan loss at March 31, 2010
              
              $
              37,873


As of March 31, 2010, the Company had
recorded an allowance for loan losses of $37.9 million consisting of a $11.9
million allowance on the Company’s bank loan portfolio and a $26.0 million
allowance on the Company’s commercial real estate portfolio as a result of the
Company deeming five bank loans and eight commercial real estate loans impaired
as well as the establishment of a general reserve on these
portfolios.




(Back to Index)
 15
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)




NOTE
5 – LOANS HELD FOR INVESTMENT – (Continued)





As of December 31, 2009, the Company
had recorded an allowance for loan loss of $47.1 million consisting of a $17.8
million allowance on the Company’s bank loan portfolio and a $29.3 million
allowance on the Company’s commercial real estate portfolio as a result of the
Company having seven bank loans and three commercial real estate loan that were
deemed impaired as well as the establishment of a general reserve on these
portfolios.





NOTE
6 –DIRECT FINANCING LEASES AND NOTES





The Company’s direct financing leases
and notes have weighted average initial lease and note terms of 54 months and 65
months as of March 31, 2010 and December 31, 2009, respectively.  The
interest rates on notes receivable range from 8.8% to 14.0% and from 8.0% to
15.0% as of March 31, 2010 and December 31, 2009,
respectively.  Investments in direct financing leases and notes, net
of unearned income, were as follows (in thousands):





March
      31,
            
            
            December
      31,2010
            
            
            2009Direct
      financing leases, net of unearned income
            
            $
            4,915
            
            
            $
            1,397Operating
      leases
            
            
            384
            
            
            
            −Notes
      receivable
            
            
            5,676
            
            
            
            670Subtotal
            
            
            10,975
            
            
            
            2,067Allowance
      for lease losses
            
            
            (650
            )
            
            
            (1,140
            )Total
            
            $
            10,325
            
            
            $
            927





The components of net investment in
direct financing leases are as follows (in thousands):





March
      31,
            
            
            December
      31,2010
            
            
            2009Total
      future minimum lease payments
            
            $
            5,616
            
            
            $
            1,610Unguaranteed
      residual
            
            
            160
            
            
            
            −Unearned
      income
            
            
            (861
            )
            
            
            (213
            )Total
            
            $
            4,915
            
            
            $
            1,397





The components of net investment in
operating leases are as follows (in thousands):





March
      31,
            
            
            December
      31,2010
            
            
            2009Investment
      in operating leases
            
            $
            486
            
            
            $
            −Accumulated
      depreciation
            
            
            (102
            )
            
            
            −Total
            
            $
            384
            
            
            $
            −




The Company evaluates the adequacy of
the allowance for credit losses in commercial finance based upon, among other
factors, management’s historical experience with the commercial finance
portfolios it manages, an analysis of contractual delinquencies, economic
conditions and trends, industry statistics and equipment finance portfolio
characteristics, as adjusted for expected recoveries.  In evaluating
historic performance of leases and loans, the Company performs a migration
analysis, which estimates the likelihood that an account progresses through
delinquency stages to ultimate write-off.  As a result, the Company
had recorded a provision for lease losses of $86,000.  The Company
also recorded a charge-off to the general reserve of $581,000 during the three
months ended March 31, 2010 and recorded provisions of $86,000 to bring the
total general reserve to $650,000 at March 31, 2010.  At December 31,
2009, the Company had recorded an allowance for lease losses of $1.1
million.
  (Back to Index)
 16
 (Back to Index)
  RESOURCE
CAPITAL CORP. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
 MARCH
31, 2010
 (Unaudited)
  NOTE
6 –DIRECT FINANCING LEASES AND NOTES - (Continued)
  The following
table shows the changes in the allowance for lease loss (in
thousands):





Allowance
      for lease loss at January 1, 2010
            
            $
            1,140Provision for lease loss
            
            
            86Leases charged-off
            
            
            (581
            )Recoveries
            
            
            5Allowance
      for lease loss at March 31, 2010
            
            $
            650




NOTE
7 – BORROWINGS





The Company has financed the
acquisition of its investments, including securities available-for-sale, loans
and equipment leases and notes, primarily through the use of secured and
unsecured borrowings in the form of CDOs, repurchase agreements, a secured term
facility, warehouse facilities, trust preferred securities issuances and other
secured and unsecured borrowings.  Certain information with respect to
the Company’s borrowings at March 31, 2010 and December 31, 2009 is summarized
in the following table (in thousands, except percentages):





Outstanding
      Borrowings
              
              
              Weighted
      Average Borrowing Rate
              
              Weighted
                  Average
                  Remaining
                  Maturity
              
              Value
      of CollateralMarch 31,
      2010:RREF CDO 2006-1 Senior Notes
      (1)
              
              $
              220,656
              
              
              
              1.17%
              
              36.4
      years
              
              $
              249,998RREF CDO 2007-1 Senior Notes
      (2)
              
              
              346,637
              
              
              
              0.80%
              
              36.5
      years
              
              
              445,392Apidos CDO I Senior Notes (3)
              
              
              319,264
              
              
              
              0.83%
              
              7.3 years
              
              
              307,955Apidos CDO III Senior Notes
      (4)
              
              
              260,289
              
              
              
              0.71%
              
              10.2
      years
              
              
              247,170Apidos Cinco CDO Senior Notes
      (5)
              
              
              318,936
              
              
              
              0.76%
              
              10.1
      years
              
              
              313,894Unsecured Junior Subordinated
      Debentures (6)
              
              
              51,548
              
              
              
              6.22%
              
              26.4 years
              
              
              −Total
              
              $
              1,517,330
              
              
              
              1.02%
              
              20.0 years
              
              $
              1,564,409December
      31, 2009:RREF CDO 2006-1 Senior Notes
      (1)
              
              $
              240,227
              
              
              
              1.11%
              
              36.6
      years
              
              $
              267,153RREF CDO 2007-1 Senior Notes
      (2)
              
              
              346,673
              
              
              
              0.81%
              
              36.8
      years
              
              
              435,225Apidos CDO I Senior Notes (3)
              
              
              319,103
              
              
              
              0.86%
              
              7.6 years
              
              
              290,578Apidos CDO III Senior Notes
      (4)
              
              
              260,158
              
              
              
              0.71%
              
              10.5
      years
              
              
              237,499Apidos Cinco CDO Senior Notes
      (5)
              
              
              318,791
              
              
              
              0.78%
              
              10.4
      years
              
              
              299,874Unsecured Junior Subordinated
      Debentures (6)
              
              
              51,548
              
              
              
              6.19%
              
              26.7 years
              
              
              −Total
              
              $
              1,536,500
              
              
              
              1.02%
              
              20.4 years
              
              $
              1,530,329


(1)
            Amount
      represents principal outstanding of $223.5 million and $243.5 million less
      unamortized issuance costs of $2.9 million and $3.3 million as of March
      31, 2010 and December 31, 2009, respectively.  This CDO
      transaction closed in August 2006.




(2)
            Amount
      represents principal outstanding of $351.0 million less unamortized
      issuance costs of $4.4 million as of March 31, 2010 and principal
      outstanding of $351.2 million less unamortized issuance costs of $4.6
      million as of December 31, 2009.  This CDO transaction closed in
      June 2007.




(3)
            Amount
      represents principal outstanding of $321.5 million less unamortized
      issuance costs of $2.2 million as of March 31, 2010 and $2.4 million as of
      December 31, 2009.  The CDO transaction closed in August
      2005.




(4)
            Amount
      represents principal outstanding of $262.5 million less unamortized
      issuance costs of $2.2 million as of March 31, 2010 and $2.3 million as of
      December 31, 2009.  This CDO transaction closed in May
      2006.




(5)
            Amount
      represents principal outstanding of $322.0 million less unamortized
      issuance costs of $3.1 million as of March 31, 2010 and $3.3 million as of
      December 31, 2009.  This CDO transaction closed in May
      2007.




(6)
            Amount
      represents junior subordinated debentures issued to Resource Capital Trust
      I and RCC Trust II in May 2006 and September 2006,
      respectively.





(Back to Index)
 17
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)







NOTE
7 – BORROWINGS − (Continued)
 
 Collateralized
Debt Obligations
 
 Resource
Real Estate Funding CDO 2007-1
 
 During the three months ended March 31,
2010, the Company repurchased $250,000 of the Class J note in RREF CDO 2007-1 at
a weighted average price of 9.00% to par which resulted in a $228,000 gain,
reported as a gain on the extinguishment of debt in the consolidated statements
of operations.  During the year ended December 31, 2009, the Company
repurchased $33.5 million of the Class E, F, G and J notes in RREF CDO 2007-1 at
a weighted average price of 25.66% to par which resulted in a $24.9 million
gain, reported as a gain on the extinguishment of debt in the consolidated
statements of operations.
 
 Resource
Real Estate Funding CDO 2006-1
 
 During the three months ended March 31,
2010, the Company repurchased $20.0 million of the Class A-1 note in RREF CDO
2006-1 at a weighted average price of 68.0% to par which resulted in a $6.4
million gain, reported as a gain on the extinguishment of debt in the
consolidated statements of operations.  During the year ended December
31, 2009, the Company repurchased $22.0 million of the Class D, E, and F notes
in RREF CDO 2006-1 at a weighted average price of 10.80% to par which resulted
in a $19.6 million gain, reported as a gain on the extinguishment of debt in its
consolidated statements of operations.


NOTE
8 – SHARE ISSUANCE AND REPURCHASE





Under a dividend reinvestment plan
authorized by the board of directors on June 12, 2008, the Company was
authorized to issue up to 5.5 million shares of common stock.  During
the three months ended March 31, 2010, the Company issued 3.1 million shares of
common stock through this plan at a weighted-average share price of $5.91 per
share and received proceeds of $18.0 million (net of
costs).  Including 1.9 million shares of common stock issued in 2009,
through March 31, 2010, the Company has issued an aggregate of 5.0 million
shares through this plan.





On March 22, 2010, the Company filed a
prospectus to issue up to 8.0 million shares through an updated dividend
reinvestment plan with similar terms, including the unused 500,000 shares under
the previous plan, which are incorporated into the new plan.  The new
plan became effective on April 7, 2010.





Under a share repurchase plan
authorized by the board of directors on July 26, 2007, the Company is authorized
to repurchase up to 2.5 million of its outstanding common shares.  No
shares were repurchased during the three months ended March 31,
2010.  The Company has repurchased a total of 1,663,000 shares under
this program as of March 31, 2010.





NOTE
9 – SHARE-BASED COMPENSATION





The following table summarizes
restricted common stock transactions:





Non-Employee
      Directors
            
            
            Non-Employees
            
            
            TotalUnvested
      shares as of January 1, 2009
            
            
            52,632
            
            
            
            384,687
            
            
            
            437,319Issued
            
            
            16,939
            
            
            
            315,905
            
            
            
            332,844Vested
            
            
            (52,632
            )
            
            
            (150,956
            )
            
            
            (203,588
            )Forfeited
            
            
            −
            
            
            
            −
            
            
            
            −Unvested
      shares as of March 31, 2010
            
            
            16,939
            
            
            
            549,636
            
            
            
            566,575








(Back to Index)
 18
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
9 – SHARE-BASED COMPENSATION – (Continued)





The Company is required to value any
unvested shares of restricted common stock granted to non-employees at the
current market price.  The estimated fair value of the unvested shares
of restricted stock granted during the three months ended March 31, 2020 and
2009, including shares issued to the five non-employee directors, was $1.8
million and $624,000, respectively.





On January 14, 2010, the Company issued
173,404 shares of restricted common stock under its 2007 Omnibus Equity
Compensation Plan.  These restricted shares will vest 33.3% on January
22, 2011.  The balance will vest annually thereafter through January
22, 2013.





On February 1, 2010 and March 8, 2010,
the Company granted 4,083 and 12,856 shares of restricted stock, respectively,
under its 2005 Stock Incentive Plan and 2007 Omnibus Equity Compensation Plan,
respectively, to the Company’s non-employee directors as part of their annual
compensation.  These shares vest in full on the first anniversary of
the date of grant.





On February 10, 2010, the Company
issued 142,501 shares of restricted common stock under its 2005 Stock Incentive
Plan and 2007 Omnibus Equity Compensation Plan.  These restricted
shares will vest 33.3% on February 10, 2011.  The balance will vest
annually thereafter through February 10, 2013.





The following table summarizes stock
option transactions:





Number
      of Options
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Term
                (in
      years)
            
            
            Aggregate
                Intrinsic
      Value
                (in
      thousands)Outstanding
      as of January 1, 2010
            
            
            607,666
            
            
            $
            14.99Granted
            
            
            −
            
            
            
            −Exercised
            
            
            −
            
            
            
            −Forfeited
            
            
            (5,000
            )
            
            
            15.00Outstanding
      as of March 31, 2010
            
            
            602,666
            
            
            $
            14.99
            
            
            
            5
            
            
            $
            1,006Exercisable
      at March 31, 2010
            
            
            582,666
            
            
            $
            15.00
            
            
            
            5
            
            
            $
            951





The stock options have a remaining
contractual term of five years.  Upon exercise of options, new shares
are issued.





The following table summarizes the
status of the Company’s unvested stock options as of March 31,
2010:





Unvested Options
            
            Options
            
            
            Weighted
      Average
                Grant
      Date
                Fair
      ValueUnvested
      at January 1, 2010
            
            
            21,666
            
            
            $
            14.88Granted
            
            
            −
            
            
            
            −Vested
            
            
            (1,666
            )
            
            $
            18.37Forfeited
            
            
            −
            
            
            
            −Unvested
      at March 31, 2010
            
            
            20,000
            
            
            $
            14.59





The weighted average period the Company
expects to recognize the remaining expense on the unvested stock options is
approximately one year.








(Back to Index)
 19
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
9 – SHARE-BASED COMPENSATION – (Continued)





The
following table summarizes the status of the Company’s vested stock options as
of March 31, 2010:





Vested Options
            
            Number
      of Options
            
            
            Weighted
      Average Exercise Price
            
            Weighted
      Average Remaining Contractual Term
                (in
      years)
            
            Aggregate
                Intrinsic
      Value
                (in
      thousands)Vested
      as of January 1, 2010
            
            
            586,000
            
            
            $
            14.99Vested
            
            
            1,666
            
            
            $
            18.37Exercised
            
            
            −
            
            
            
            −Forfeited
            
            
            (5,000
            )
            
            $
            15.00Vested
      as of March 31, 2010
            
            
            582,666
            
            
            $
            15.00
            
            5
            
            $        951





The stock option transactions are
valued using the Black-Scholes model using the following
assumptions:





As
      of March 31,2010Expected
      life
            
            7
      yearsDiscount
      rate
            
            
            3.40%Volatility
            
            
            112.34%Dividend
      yield
            
            
            15.08%





The estimated fair value of each option
granted for the three months ended March 31, 2010 and the year ended December
31, 2009 was $1.632 and $0.897, respectively.  For the three months
ended March 31, 2010 and 2009, the components of equity compensation expense
were as follows (in thousands):





Three
      Month Ended
              March
      31,2010
            
            
            2009Options
      granted to Manager and non-employees
            
            $
            20
            
            
            $
            (1
            )Restricted
      shares granted to Manager and non-employees
            
            
            676
            
            
            
            61Restricted
      shares granted to non-employee directors
            
            
            28
            
            
            
            28Total
      equity compensation expense
            
            $
            724
            
            
            $
            88





During the three months ended March 31,
2010 and 2009, the Manager received 73,815 and 26,097 shares as incentive
compensation valued at $1.5 million and $98,000, respectively pursuant to the
Management Agreement.  The incentive management fee is paid one
quarter in arrears.





Apart from incentive compensation
payable under the Management Agreement, the Company has established no formal
criteria for equity awards as of March 31, 2010.  All awards are
discretionary in nature and subject to approval by the compensation
committee.








(Back to Index)
 20
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
10 –EARNINGS PER SHARE





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





Three
      Months Ended
              March
      31,2010
            
            
            2009Basic:Net income (loss)
            
            $
            1,406
            
            
            $
            (12,152
            )Weighted average number of shares
      outstanding
            
            
            37,987,192
            
            
            
            24,467,408Basic net income (loss) per
      share
            
            $
            0.04
            
            
            $
            (0.50
            )Diluted:Net income (loss)
            
            $
            1,406
            
            
            $
            (12,152
            )Weighted average number of shares
      outstanding
            
            
            37,987,192
            
            
            
            24,467,408Additional shares due to assumed
      conversion of dilutive instruments
            
            
            163,413
            
            
            
            −Adjusted weighted-average number
      of common shares outstanding
            
            
            38,150,605
            
            
            
            24,467,408Diluted net income (loss) per
      share
            
            $
            0.04
            
            
            $
            (0.50
            )




Potentially dilutive shares relating to
163,413 and 242,464 shares of restricted stock are not included in the
calculation of diluted net loss per share for the three months ended March 31,
2010 and 2009, respectively, because the effect was
anti-dilutive.




NOTE
11 – RELATED PARTY TRANSACTIONS





Relationship
with Resource America and Certain of its Subsidiaries





At March 31, 2010, Resource America
owned 2,265,824 shares, or 5.7%, of the Company’s outstanding common
stock.  In addition, Resource America held 2,166 options to purchase
restricted stock.





The Company is managed by the Manager
pursuant to the management agreement that provides for both base and incentive
management fees.  For the three months ended March 31, 2010 and 2009,
the Manager earned base management fees of approximately $1.2 million and $1.0
million, respectively.  The Company also reimburses the Manager and
Resource America for expenses and employees of Resource America who perform
legal, accounting, due diligence and other services that outside professionals
or consultants would otherwise perform.  On October 16, 2009, the
Company entered into an amendment to the management
agreement.  Pursuant to the amendment, the Manager must provide the
Company with a Chief Financial Officer and three accounting professionals, each
of whom will be exclusively dedicated to the operations of the
Company.  The Manager must also provide the Company with a director of
investor relations who will be 50% dedicated to the Company’s
operations.  The Company will bear the expense of the wages, salaries
and benefits of the Chief Financial Officer and three accounting professionals
and 50% of the salary and benefits of the director of investor
relations.  For the three months ended March 31, 2010 and 2009, the
Company paid the Manager $440,000 and $146,000, respectively, as expense
reimbursements.





At March
31, 2010, the Company was indebted to the Manager for base management fees of
$402,000 and for the reimbursement of expenses of $276,000.  At
December 31, 2009, the Company was indebted to the Manager for base management
fees of $371,000, incentive management fees of $1.5 million and expense
reimbursements of $129,000.  These amounts are included in accounts
payable and other liabilities.







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 21
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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
11 – RELATED PARTY TRANSACTIONS – (Continued)





Relationship
with Resource America and Certain of its Subsidiaries – (Continued)





The
Company purchased a membership interest in RRE VIP Borrower, LLC (an
unconsolidated VIE that holds the Company’s interests in a real estate joint
venture) from Resource America at book value.  This joint venture, which is
structured as a credit facility with Värde Investment Partners, LP acting as
lender, finances the acquisition of distressed properties and mortgage loans and
has the objective of repositioning both the directly owned properties and the
properties underlying the mortgage loans to enhance their value.  The
Company acquired the membership interests for $2.1 million.  The
agreement requires the Company to contribute 3% of the total funding required
for each asset acquisition on a monthly basis.  The investment balance
of $2.5 million and $2.1 million at March 31, 2010 and December 31, 2009,
respectively, is recorded as an investment in unconsolidated entities on the
Company’s consolidated balance sheet.





On January 15, 2010, the Company loaned
$2.0 million to Resource Capital Partners, Inc. so that it could acquire a 5.0%
limited partnership interest in Resource Real Estate Opportunity Fund,
L.P.  The loan is secured by Resource Capital Partner’s partnership
interest in the Resource Real Estate Opportunity Fund, L.P.  The
promissory note bears interest at a fixed rate of 8.0% per annum on the unpaid
principal balance.  In the event of default, interest will accrue and be
payable at a rate of 5.0% in excess of the fixed rate.  Interest payments
are due quarterly commencing on April 15, 2010.  Mandatory principal
payments must also be made to the extent distributable cash or other proceeds
from the partnership represents a return of Resource Capital Partners, Inc.’s
capital.  The term of the loan ends on January 14, 2015, with an option to
extend for two additional 12-month periods each.




On March 5, 2010, the Company entered
into a Promissory Note with Lease Equity Appreciation Fund II, L.P. (“LEAF II”),
that allows for an $8.0 million facility, of which all $8.0 million was funded
by March 31, 2010, for a one year term at 12% payable quarterly, with a 1% loan
origination fee and 20% amortization, which is secured by the all assets of LEAF
II, including its entire ownership interest in LEAF II Receivables Funding,
LLC.  The loan is to be fully repaid by March 3,
2011.





Relationship
with LEAF





LEAF Financial Corp. (“LEAF”), a
majority-owned subsidiary of Resource America, originates and manages equipment
leases and notes on the Company’s behalf.  The Company purchases its
equipment leases and notes from LEAF at a price equal to their book value plus a
reimbursable origination cost not to exceed 1% to compensate LEAF for its
origination costs.  For the three months ended March 31, 2010, the
Company had acquired $10.2 million of equipment lease and note investments from
LEAF, including $102,000 of origination cost reimbursements.  In
addition, the Company pays LEAF an annual servicing fee, equal to 1% of the book
value of managed assets, for servicing the Company’s equipment leases and
notes.  At March 31, 2010 and December 31, 2009, the Company was
indebted to LEAF for servicing fees in connection with the Company’s equipment
finance portfolio of $9,000 and $8,000, respectively.  LEAF servicing
fees for the three months ended March 31, 2010 and 2009 were $18,000 and
$253,000, respectively.





During the three months ended March 31,
2010, the Company sold two equipment notes back to LEAF at a price equal to
their book value.  The total proceeds received on the sale of the
outstanding notes receivable were $140,000.  During three months ended
March 31, 2009, the Company sold two equipment notes back to LEAF at a price
equal to their book value.  The total proceeds received on the sale of
the outstanding notes receivable were $822,000.





Relationship
with Resource Real Estate





Resource Real Estate, a subsidiary of
Resource America, originates, finances and manages the Company’s commercial real
estate loan portfolio, including whole loans, A notes, B notes and mezzanine
loans.  The Company reimburses Resource Real Estate for loan
origination costs associated with all loans originated.  At March 31,
2010 and December 31, 2009, the Company had no indebtedness to Resource Real
Estate for loan origination costs in connection with the Company’s commercial
real estate loan portfolio.








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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
11 – RELATED PARTY TRANSACTIONS – (Continued)





Relationship
with Law Firm





Until 1996, director Edward E. Cohen, a
director who was the Company’s Chairman from its inception until November 2009,
was of counsel to Ledgewood, P.C., a law firm.  In addition, one of the
Company’s executive officers, Jeffrey F. Brotman, was employed by Ledgewood
until 2007.  For the three months ended March 31, 2010 and 2009, the
Company paid Ledgewood approximately $24,000 and $15,000, respectively, for
legal services.  Mr. Cohen receives certain debt service payments from
Ledgewood related to the termination of his affiliation with Ledgewood and its
redemption of his interest in the firm.  Mr. Brotman also receives certain
debt service payments from Ledgewood related to the termination of his
affiliation with Ledgewood.





NOTE
12 – DISTRIBUTIONS





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





The Company’s 2010 dividends 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 common shares.  Generally, dividends payable in
stock are not treated as dividends for purposes of the deduction for dividends,
or as taxable dividends to the recipient.  The Internal Revenue
Service, in Revenue Procedures 2009-15 and 2010-12, has given guidance with
respect to certain stock distributions by publicly traded
REITs.  These Revenue Procedures apply to distributions made on or
after January 1, 2008 and declared with respect to a taxable year ending on or
before December 31, 2011.  They provide that publicly-traded REITs can
distribute stock (common shares in the Company’s case) to satisfy their REIT
distribution requirements if stated conditions are met.  These
conditions include that at least 10% of the aggregate declared distributions be
paid in cash and the shareholders be permitted to elect whether to receive cash
or stock, subject to the limit set by the REIT on the cash to be distributed in
the aggregate to all shareholders.  The Company did not use these
Revenue Procedures with respect to any distributions for its 2008 and 2009
taxable years, but may do so for distributions with respect to 2010 and
2011.





On March 18, 2010, the Company declared
a quarterly distribution of $0.25 per share of common stock, $10.1 million in
the aggregate, which was paid on April 27, 2010 to stockholders of record on
March 31, 2010.





NOTE
13 – FAIR VALUE OF FINANCIAL INSTRUMENTS





The Company follows the fair value
hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value.  The Company determines fair value based on quoted prices when
available or, if quoted prices are not available, through the use of alternative
approaches, such as discounting the expected cash flows using market interest
rates commensurate with the credit quality and duration of the
investment.  The hierarchy followed defines three levels of inputs
that may be used to measure fair value:





Level 1 -Quoted prices in
active markets for identical assets and liabilities that the reporting entity
has the ability to access at the measurement date.





Level 2 -Inputs other than
quoted prices included within Level 1 that are observable for the asset and
liability or can be corroborated with observable market data for substantially
the entire contractual term of the asset or liability.





Level 3 -Unobservable inputs
that reflect the entity’s own assumptions about the assumptions that market
participants would use in the pricing of the asset or liability and are
consequently not based on market activity, but rather through particular
valuation techniques.








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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
13 – FAIR VALUE OF FINANCIAL INSTRUMENTS – (Continued)





The determination of where an asset or
liability falls in the hierarchy requires significant judgment.  The
Company evaluates its hierarchy disclosures each quarter; depending on various
factors, it is possible that an asset or liability may be classified differently
from quarter to quarter.  However, the Company expects that changes in
classifications between levels will be rare.





Certain assets and liabilities are
measured at fair value on a recurring basis.  The following is a
discussion of these assets and liabilities as well as the valuation techniques
applied to each for fair value measurement.





The Company classifies all of its
investment securities as available-for-sale and reports them at fair value
which, for the Company’s positions purchased in the three months ended March 31,
2010, is based on dealer quotes due to their higher ratings and more active
markets and, for the Company’s positions purchased prior to the three months
ended March 31, 2010, is based on taking a weighted average of the following
three measures:




·
            an
      income approach utilizing an appropriate current risk-adjusted yield, time
      value and projected estimated losses from default assumptions based on
      analysis of underlying loan
performance;




·
            quotes
      on similar-vintage, higher rate, more actively traded CMBS adjusted as
      appropriate for the lower subordination level of the Company’s securities;
      and




·
            dealer
      quotes on the Company’s securities for which there is not an active
      market.





Derivatives (interest rate swap
contracts), both assets and liabilities, are valued by a third-party pricing
agent using an income approach and utilizing models that use as their primary
basis readily observable market parameters.  This valuation process
considers factors including interest rate yield curves, time value, credit
factors and volatility factors.  Although the Company has determined
that the majority of the inputs used to value its derivatives fall within
Level 2 of the fair value hierarchy, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs, such as estimates
of current credit spreads, to evaluate the likelihood of default by the Company
and its counterparties.  The Company has assessed the significance of
the impact of the credit valuation adjustments on the overall valuation of its
derivative positions and has determined that the credit valuation adjustments
are not significant to the overall valuation of its derivatives.  As a
result, the Company has determined that its derivative valuations in their
entirety are classified in Level 2 of the fair value
hierarchy.





The following table presents
information about the Company’s assets (including derivatives that are presented
net) measured at fair value on a recurring basis as of March 31, 2010 and
indicates the fair value hierarchy of the valuation techniques utilized by the
Company to determine such fair value (in thousands):





Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            TotalAssets:Investment securities
      available-for-sale
            
            $
            −
            
            
            $
            −
            
            
            $
            51,324
            
            
            $
            51,324Total assets at fair value
            
            $
            −
            
            
            $
            −
            
            
            $
            51,324
            
            
            $
            51,324Liabilities:Derivatives (net)
            
            $
            −
            
            
            $
            13,267
            
            
            $
            −
            
            
            $
            13,267Total liabilities at fair
      value
            
            $
            −
            
            
            $
            13,267
            
            
            $
            −
            
            
            $
            13,267





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





Level
      3Beginning
      balance, January 1, 2010
            
            $
            44,542Total
      gains or losses (realized/unrealized):Included in earnings
            
            
            1,080Purchases
            
            
            4,978Unrealized gains – included in
      accumulated other comprehensive income
            
            
            724Ending
      balance, March 31, 2010
            
            $
            51,324








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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
13 – FAIR VALUE OF FINANCIAL INSTRUMENTS – (Continued)





The Company did not have any losses
included in earnings due to the other-than-temporary impairment charges during
the three months ended March 31, 2010.





Loans held for sale consist of bank
loans identified for sale due to credit issues.  Interest on loans held for
sale is recognized according to the contractual terms of the loan and included
in interest income on loans.  The fair value of loans held for sale and
impaired loans is based on what secondary markets are currently offering for
these loans.  As such, the Company classifies loans held for sale and
impaired loans as recurring Level 2.  The amount of the adjustment for fair
value for loans held for sale for the three months ended March 31, 2010 was
$14,818 and is included in the consolidated statement of operations as realized
losses on loans and investments.  For loans where there is no market,
the loans are measured using cash flows and other valuation techniquesand these loans are
classified as nonrecurring Level 3.  The amount of nonrecurring fair value
losses for impaired loans for the three months ended March 31, 2010 was $15.1
million and is included in the consolidated statement of operations as provision
for loan and lease loss.





The
following table summarizes the financial assets and liabilities measured at fair
value on a nonrecurring basis as of March 31, 2010 and indicates the fair value
hierarchy of the valuation techniques utilized by the Company to determine such
fair value (in thousands):


Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              TotalAssets:Loans held for sale
              
              $
              −
              
              
              $
              2,376
              
              
              $
              −
              
              
              $
              2,376Impaired loans
              
              
              −
              
              
              
              8,606
              
              
              
              88,651
              
              
              
              97,257Total assets at fair value
              
              $
              −
              
              
              $
              10,982
              
              
              $
              88,651
              
              
              $
              99,633




The Company is required to disclose the
fair value of financial instruments for which it is practicable to estimate that
value.  The fair value of short-term financial instruments such as
cash and cash equivalents, restricted cash, interest receivable, other assets,
repurchase agreements, warehouse lending facilities and accrued interest expense
approximates their carrying value on the consolidated balance
sheet.  The fair value of the Company’s investment securities
available-for-sale is reported in Note 3.  The fair value of
the Company’s derivative instruments is reported in Note 14.





The fair values of the Company’s
remaining financial instruments that are not reported at fair value on the
consolidated statement of financial position are reported below.




Fair Value of Financial
      Instruments(in
      thousands)March
      31, 2010
            
            
            December
      31, 2009Carrying
      value
            
            
            Fair
      value
            
            
            Carrying
      value
            
            
            Fair
      valueInvestment
      securities held-to-maturity
            
            $
            31,559
            
            
            $
            23,189
            
            
            $
            31,401
            
            
            $
            21,320Loans
      held-for-investment
            
            $
            1,555,593
            
            
            $
            1,538,290
            
            
            $
            1,558,687
            
            
            $
            1,515,626CDO
      notes
            
            $
            1,465,782
            
            
            $
            862,106
            
            
            $
            1,484,952
            
            
            $
            857,262Junior
      subordinated notes
            
            $
            51,548
            
            
            $
            18,042
            
            
            $
            51,548
            
            
            $
            18,042





NOTE
14 – INTEREST RATE RISK AND DERIVATIVE INSTRUMENTS





At March 31, 2010, the Company had 11
interest rate swap contracts outstanding whereby the Company will pay an average
fixed rate of 5.16% and receive a variable rate equal to one-month
LIBOR.  The aggregate notional amount of these contracts was $195.5
million at March 31, 2010.  In addition, the Company also has one
interest rate cap agreement with a notional of $14.8 million outstanding whereby
it reduced its exposure to variability in future cash flows attributable to
LIBOR.  The interest rate cap is a non-designated cash flow hedge and,
as a result, the change in fair value is recorded through the consolidated
statement of operations.





At December 31, 2009, the Company had
13 interest rate swap contracts outstanding whereby the Company will pay an
average fixed rate of 5.18% and receive a variable rate equal to one-month
LIBOR.  The aggregate notional amount of these contracts was $217.9
million at December 31, 2009.





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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)


MARCH
31, 2010


(Unaudited)





NOTE
14 – INTEREST RATE RISK AND DERIVATIVE INSTRUMENTS – (Continued)





The estimated fair value of the
Company’s interest rate swaps was ($13.3) million and ($12.8) million as of
March 31, 2010 and December 31, 2009, respectively.  The Company had
aggregate unrealized losses of $14.9 million and $14.6 million on the interest
rate swap agreements as of March 31, 2010 and December 31, 2009, respectively,
which is recorded in accumulated other comprehensive loss.  In
connection with the August 2006 close of RREF CDO 2006-1, the Company realized a
swap termination loss of $119,000, which is being amortized over the life of
RREF CDO 2006-1.  The amortization is reflected in interest expense in
the Company’s consolidated statements of operations.  In connection
with the June 2007 close of RREF CDO 2007-1, the Company realized a swap
termination gain of $2.6 million, which is being amortized over the life of RREF
CDO 2007-1.  The accretion is reflected in interest expense in the
Company’s consolidated statements of operations.  In connection with
the termination of a $53.6 million swap related to RREF CDO 2006-1 during the
nine months ended September 30, 2008, the Company realized a swap termination
loss of $4.2 million, which is being amortized over the life of a new $45.0
million swap.  The amortization is reflected in interest expense in
the Company’s consolidated statements of operations.  In connection
with the payoff of a fixed-rate commercial real estate loan during the three
months ended September 30, 2008, the Company terminated a $12.7 million swap and
realized a $574,000 swap termination loss, which is being amortized over the
life of the terminated swap and the amortization is reflected in interest
expense in the Company’s consolidated statements of operations.





The
following tables present the fair value of the Company’s derivative financial
instruments as well as their classification on the balance sheet as of March 31,
2010 and on the consolidated statement of operations for the three months ended
March 31, 2010:




Fair
      Value of Derivative Instruments as of March 31, 2010
              (in
      thousands)Liability
      DerivativesNotional
      Amount
            
            Balance
      Sheet Location
            
            Fair
      ValueDerivatives
      not designated as hedging instrumentsunder
      SFAS 133Interest
      rate cap agreement
            
            $
            14,841
            
            Derivatives,
      at fair value
            
            $
            10Derivatives
      designated as hedging instrumentsunder
      SFAS 133Interest
      rate swap contracts
            
            $
            195,459
            
            Derivatives,
      at fair value
            
            $
            (13,277
            )Accumulated
      other comprehensive loss
            
            $
            13,277





The
      Effect of Derivative Instruments on the Statement of Operations for
      the
                Three
      Months Ended March 31, 2010
                (in
      thousands)Liability
      DerivativesNotional
      Amount
              
              Statement
      of Operations  Location
              
              Unrealized
      Loss (1)Derivatives
      not designated as hedging instrumentsunder
      SFAS 133Interest
      rate cap agreement
              
              $
              14,841
              
              Interest
      expense
              
              $
              36


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




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RESOURCE
CAPITAL CORP. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
 MARCH
31, 2010
 (Unaudited)
 
 NOTE
15 – SUBSEQUENT EVENTS
  The Company has evaluated subsequent
events through the filing of this form and determined that there have not been
any events that have occurred that would require adjustments to or disclosures
in the unaudited consolidated financial statements, other than listed
below.
 On April 7, 2010, the Company, as
borrower, entered into a Loan and Security Agreement with Resource TRS, as
guarantor, The Bancorp Bank, as lender, and LEAF Financial Corporation, as
collateral servicer.  The loan, in the principal amount of $6.5
million with a fixed rate of 6.0% and a loan fee of 1.0%, matures in 30
months, is secured by small business equipment leases serviced by LEAF Financial
Corporation, and was made in the ordinary course of the bank’s
business on the same terms as those prevailing for comparable transactions with
other lenders.  Our President is the brother of the Chairman of the Board
and son of the Chief Executive Officer of the bank’s parent, The Bancorp,
Inc.  One of our directors is the father of the Chairman of the Board
and the spouse of the Chief Executive Officer of Bancorp.  One of our
directors also serves as a director of Bancorp, and an additional
Bancorp director serves as a director of Resource America.  All of the
directors with related interests in the loan did not vote or participate in any
way in the loan approval.
 
 On April 12, 2010, the Company
repurchased $26.6 million of debt issued by RREF CDO 2006-1.
 
 The Company received $9.0 million in
proceeds related to the issuance of 1,318,524 shares of common stock on the
Company’s dividend reinvestment plan during April 2010.


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





The following discussion provides
information to assist you in understanding our financial condition and results
of operations.  This discussion should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
report.  This discussion contains forward-looking
statements.  Actual results could differ materially from those
expressed in or implied by those forward looking statements.  Please
see “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form
10-K for the year ended December 31, 2009 for a discussion of certain risks,
uncertainties and assumptions associated with those statements.





Overview
 
 We are a specialty finance company that
focuses primarily on commercial real estate and commercial
finance.  We are organized and conduct our operations to qualify as a
REIT under Subchapter M of the Internal Revenue Code of 1986, as
amended.  Our objective is to provide our stockholders with total
returns over time, including quarterly distributions and capital appreciation,
while seeking to manage the risks associated with our investment
strategy.  We invest in a combination of real estate-related assets
and, to a lesser extent, higher-yielding commercial finance
assets.  We have financed a substantial portion of our portfolio
investments through borrowing strategies seeking to match the maturities and
repricing dates of our financings with the maturities and repricing dates of
those investments, and have sought to mitigate interest rate risk through
derivative instruments.
 
 We are externally managed by Resource
Capital Manager, Inc., a wholly-owned indirect subsidiary of Resource America,
Inc. (NASDAQ-GS: REXI), or Resource America, a specialized asset management
company that uses industry specific expertise to generate and administer
investment opportunities for its own account and for outside investors in the
commercial finance, real estate, and financial fund management
sectors.  As of March 31, 2010, Resource America managed approximately
$13.1 billion of assets in these sectors.  To provide its services,
the Manager draws upon Resource America, its management team and their
collective investment experience.
 
 We generate our income primarily from
the spread between the revenues we receive from our assets and the cost to
finance the purchase of those assets and hedge interest rate
risks.  We generate revenues from the interest and fees we earn on our
whole loans, senior interest in first mortgage loans, or A notes, junior
interests in first mortgage loans, or B notes, mezzanine debt, commercial
mortgage-backed securities, or CMBS, bank loans, payments on equipment leases
and notes and other asset-backed securities, or ABS.  Historically, we
have used a substantial amount of leverage to enhance our returns and we have
financed each of our different asset classes with different degrees of
leverage.  The cost of borrowings to finance our investments comprises
a significant part of our expenses.  Our net income depends on our
ability to control these expenses relative to our revenue.  In our
bank loans, CMBS, equipment leases and notes and other ABS, we historically have
used warehouse facilities as a short-term financing source and collateralized
debt obligations, or CDOs, and, to a lesser extent, other term financing as a
long-term financing source.  In our commercial real estate loan
portfolio, we historically have used repurchase agreements as a short-term
financing source, and CDOs and, to a lesser extent, other term financing as a
long-term financing source.  Our other term financing has consisted of
long-term match-funded financing provided through long-term bank financing and
asset-backed financing programs, depending upon market conditions and credit
availability.
 
 Ongoing problems in real estate and
credit markets continue to impact our operations, particularly our ability to
generate capital and financing to execute our investment strategies.  These
problems have also affected a number of our commercial real estate borrowers
and, with respect to 31 of our commercial real estate, or CRE, loans, caused us
to enter into loan modifications.  We have increased our provision for
loan and lease losses to reflect the effect of these conditions on our borrowers
and have recorded both temporary and other than temporary impairments in the
market valuation of the CMBS and other ABS in our investment portfolio. 
While we believe we have appropriately valued the assets in our investment
portfolio at March 31, 2010, we cannot assure you that further impairments will
not occur or that our assets will otherwise not be adversely affected by market
conditions.
 
 The events occurring in the credit
markets have impacted our financing and investing strategies and, as a result,
our ability to originate new investments and to grow.  The market for
securities issued by new securitizations collateralized by assets similar to
those in our investment portfolio has largely disappeared.  Since our
sponsorship in June 2007 of Resource Real Estate Funding CDO 2007-1, or RREF CDO
2007-1, we have not sponsored any new securitizations and we do not expect to be
able to sponsor new securitizations for the foreseeable
future.  Short-term financing through warehouse lines of credit and
repurchase agreements had been largely unavailable and unreliable as increasing
volatility in the valuation of assets similar to those we originate had
increased the risk of margin calls.  However, we now see signs of the
CRE term financing market opening and have seen the bank loan financing market
open in 2010.





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Credit market conditions and the
recessionary economy have also resulted in an increasing number of loan
modifications, particularly in our commercial real estate
loans.  Borrowers have experienced deterioration in the performance of
the properties we have financed or delays in implementing their business
plans.  In order to assist our borrowers in effectuating their
business plans, including the leasing and repositioning of the underlying
assets, we have been willing to enter into loan modifications that would adapt
our financing to their particular situations.  The most common loan
modifications have included term extensions and modest interest rate reductions
through the lowering of London Interbank Offered Rate, or LIBOR, floors, offset
by increased interest rate spreads over LIBOR.  In exchange for the
loan modifications, we have received partial principal paydowns, new equity
investment commitments in the properties from the borrowers or their principals,
additional fees and other structural improvements and enhancements to the
loans.  Since the beginning of 2008 through March 31, 2010, we have
modified 31 CRE loans.  Management determined that seven of these
modifications were due to financial distress of the borrowers and accordingly,
qualified as troubled debt restructurings.  We expect that we may have
more CRE loan modifications in the future.




Currently, we seek to manage our
liquidity and originate new assets primarily through capital recycling as loan
payoffs and paydowns occur and through existing capacities within our completed
securitizations.  The following is a summary of repayments we received
during the three months ended March 31, 2010:




·
            $17.1
      million of commercial real estate loan principal
    repayments;




·
            $38.5
      million of bank loan principal repayments;
and




·
            $18.0
      million of bank loan sale proceeds.




We have used recycled capital in our
CRE CDO and bank loan CLO structures to make new investments at discounts to
par.  This reinvested capital and the related discount will produce
additional income as the discount is accreted through interest
income.  In addition, the purchase of these investments at discounts
allows us to build collateral in the CDO and CLO structures since we receive
credit in these structures for these investments at par.  During 2010
and 2009, we purchased CMBS with a combined par value of $59.4 million with a
discount to par of 45.9% and bank loans of $358.9 million with a discount to par
of 11.1%.  From the net discounts of approximately $27.3 million and
$40.0 million, we expect to recognize income from accretion of these discounts
of approximately $4.6 million and $8.6 million in our CMBS and bank loan
portfolio, respectively, through 2010.
 As of March 31, 2010, we had no
outstanding repurchase agreements.
 
 We expect to continue to generate net
investment income from our current investment portfolio and generate dividends
for our shareholders.
 
 As of March 31, 2010, we had invested
74.6% of our portfolio in CRE assets, 22.5% in commercial bank loans and 2.9% in
direct financing leases and notes.  As of December 31, 2009, we had
invested 76.4% of our portfolio in CRE assets, 23.2% in commercial bank loans
and 0.4% in direct financing leases and notes.  We invested $10.3
million in direct financing leases and notes during the March 2010 period and
subsequent to quarter end obtained financing for this
investment.  Therefore, the shift in equity allocation from December
31, 2009 to March 31, 2010 is a temporary one as we expect the equity allocation
to move back toward the December 31, 2009 percentages after giving effect to the
financing transaction on our equipment leasing portfolio.
 
 Critical
Accounting Policies
 
 The discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America.  The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of our assets, liabilities, revenues
and cost and expenses, and related disclosure of contingent assets and
liabilities.  On an on-going basis, we evaluate our estimates,
including those related to the provision for credit losses, recovery of deferred
tax assets, fair value of investment securities, potential impairment of
intangible assets and goodwill, guarantees and certain accrued
liabilities.  We base our estimates on historical experience and on
various other assumptions that we believe reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources.  Actual results may differ from these estimates under
different assumptions or conditions.
 
 For a complete discussion of our
critical accounting policies and estimates, see the discussion of our Annual
Report on Form 10-K for the year ended December 31, 2009 under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations −
Critical Accounting Policies and Estimates.”





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 29
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Results
of Operations − Three Months
Ended March 31, 2010 as compared to Three Months Ended March 31,
2009





Our net income for the three months
ended March 31, 2010 was $1.4 million, or $0.04 per share (basic and diluted),
as compared to a net loss of $12.2 million, or ($0.50) per share (basic and
diluted), for the three months ended March 31, 2009.




Interest
Income





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


Three
      Months Ended
                March
      31, 2010
              
              
              Three
      Months Ended
                March
      31, 2009Weighted
      Average
              
              
              
              
              
              Weighted
      AverageInterest
      Income
              
              
              Yield
      (1)
              
              
              Balance
              
              
              Interest Income
              
              
              Yield
      (1)
              
              
              BalanceInterest
      income:Interest income from
      loans:Bank
      loans
              
              $
              9,721
              
              
              
              4.27%
              
              
              $
              907,934
              
              
              $
              8,897
              
              
              
              3.83%
              
              
              $
              927,891Commercial real estate
      loans
              
              
              8,546
              
              
              
              4.71%
              
              
              $
              727,131
              
              
              
              13,723
              
              
              
              6.83%
              
              
              $
              801,373Total interest income
      from
                loans
              
              
              18,267
              
              
              
              
              
              
              
              
              
              
              
              22,620Interest
      income from securities:CMBS-private
      placement
              
              
              2,534
              
              
              
              7.53%
              
              
              $
              131,247
              
              
              
              882
              
              
              
              4.76%
              
              
              $
              74,138Securities
      held-to-maturity
              
              
              337
              
              
              
              3.75%
              
              
              $
              35,945
              
              
              
              540
              
              
              
              6.83%
              
              
              $
              29,710Other
      ABS
              
              
              3
              
              
              
              N/A
              
              
              
              N/A
              
              
              
              −
              
              
              
              N/A
              
              
              
              N/ATotal interest income
      from
                securities
      available-for-sale
              
              
              2,874
              
              
              
              
              
              
              
              
              
              
              
              1,422Leasing
              
              
              235
              
              
              
              10.50%
              
              
              $
              9,164
              
              
              
              2,233
              
              
              
              8.70%
              
              
              $
              99,213Interest
      income – other:Temporary investment
      in
                over-night repurchase
      agreements
              
              
              197
              
              
              
              N/A
              
              
              
              N/A
              
              
              
              347
              
              
              
              N/A
              
              
              
              N/ATotal interest income −
      other
              
              
              197
              
              
              
              
              
              
              
              
              
              
              
              347Total
      interest
      income
              
              $
              21,573
              
              
              
              
              
              
              
              
              
              
              $
              26,622


(1)
            Certain
      one-time items reflected in interest income have been excluded in
      calculating the weighted average rate, since they are not indicative of
      expected future results.





Aggregate interest income decreased
$5.0 million (19%) to $21.6 million for the three months ended March 31, 2010
from $26.6 million for the three months ended March 31, 2009.  We
attribute this decrease to the following:





Interest
Income from Loans





Aggregate interest income from loans
decreased $4.4 million (19%) to $18.3 million for the three months ended March
31, 2010 from $22.6 million for the three months ended March 31,
2009.





Commercial
real estate loans produced $8.5 million of interest income for the three months
ended March 31, 2010 as compared to $13.7 million for the three months ended
March 31, 2009, a decrease of $5.2 million (38%).  This decrease is a
result of the following:




·
            a
      decrease in the weighted average balance of $74.3 million on our
      commercial real estate loans to $727.1 million for the three months ended
      March 31, 2010 from $801.4 million for the three months ended March 31,
      2009 primarily as a result of payoffs and paydowns;
  and




·
            a
      decrease in the weighted average rate to 4.71%
      for the three months ended March 31, 2010 from 6.83% for the three months
      ended March 31, 2009, primarily due to decreases in LIBOR floors, which is
      a reference index for the rates payable on these loans, from loan
      modifications during 2009 and 2010.  Management determined that seven
      of these modifications were due to financial distress of the borrowers
      and, accordingly, qualified as troubled debt restructurings.  To
      summarize the impact of modifications on the weighted average rate at
      March 31, 2010, we have $189.6 million of loans with a weighted average
      LIBOR floor of 2.24% as compared to $382.1 million of loans with a
      weighted average LIBOR floor of 4.73% at March 31,
      2009.






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 30
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This
decrease in interest income on loans was partially offset by the
following:
 
 Bank
loans generated $9.7 million of interest income for the three months ended March
31, 2010 as compared to $8.9 million for the three months ended March 31, 2009,
an increase of $824,000 (9%).  This increase was primarily the result
of an increase in accretion income of $2.0 million to $2.9 million for the three
months ended March 31, 2010 from $888,000 for the three months ended March 31,
2009.  The increase in accretion income is a result of the purchase of
$73.4 million of bank loans at discounts and the accretion of those discounts
into income.  These discounted loan purchases are made as we invest
the proceeds from the loan payoffs from our borrowers and from the loans we have
sold, typically for credit reasons.




This
increase in bank loan accretion income was partially offset by the
following:


·
            a
      decrease in the weighted average balance on these loans of $20.0 million
      to $907.9 million for the three months ended March 31, 2010 from $927.9
      million for the three months ended March 31,
  2009.




·
            a
      decrease in the weighted average rate earned by our bank loans to 4.27%
      for the three months ended March 31, 2010 from 3.83% for the three months
      ended March 31, 2009.  This was principally a result of the
      decrease in LIBOR which is a reference index for the rates payable on
      these loans.





Interest
Income from Securities





Aggregate interest income from
securities increased $1.5 million (102%) to $2.9 million for the three months
ended March 31, 2010, from $1.4 million for the three months ended March 31,
2009.  The increase in interest income from securities
available-for-sale resulted principally from the following:





CMBS-private placement increased $1.7
million (187%) to $2.5 million for the three months ended March 31, 2010 as
compared to $882,000 for the three months ended March 31, 2009.  The
increase is primarily attributed to the following:




·
            an
      increase in the weighted average balance of assets of $57.1 million to
      $131.2 million for the three months ended March 31, 2010 from $74.1
      million for the three months ended March 31, 2009 primarily as a result of
      the purchase of $7.7 million par value of assets during the three months
      ended March 31, 2010 and $54.8 million par value of assets during the last
      two quarters of the year ended December 31, 2009;
  and




·
            an
      increase in the weighted average yield to 7.53% for the three months ended
      March 31, 2010 from 4.76% for the three months ended March 31, 2009
      primarily as a result of the increase in accretion income from
      securities purchased at discounts.





Securities held-to-maturity decreased
$203,000 (38%) to $337,000 for the three months ended March 31, 2010 from
$540,000 for the three months ended March 31, 2009.  This decrease is
primarily attributed to the following:




·
            a
      decrease in the weighted average rate earned by these securities to 2.38%
      for the three months ended March 31, 2010 from 6.83% for the three months
      ended March 31, 2009.  This was principally a result of the
      decrease in LIBOR which is a reference index for the rates payable on
      these securities.





Interest
Income − Leasing





Our
equipment leasing portfolio generated $235,000 of interest income for the three
months ended March 31, 2010 as compared to $2.2 million for the three months
ended March 31, 2009, a decrease of $2.0 million (89%).  This decrease
is primarily the result of our sale of the majority of the leasing portfolio, at
par, as of June 30, 2009.  This decrease was partially offset by the
addition of a $10.2 million pool of leases during the three months ended March
31, 2010.





Interest
Income − Other





Aggregate interest income-other
decreased $150,000 (43%) to $197,000 for the three months ended March 31, 2010
as compared to $347,000 for the three months ended March 31,
2009.  This decrease in interest income-other resulted principally
from lower rates earned on our overnight repurchase agreements on our temporary
investments.




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 31
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Interest
Expense





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




Three
      Months Ended
              March
      31, 2010
            
            
            Three
      Months Ended
              March
      31, 2009Weighted
      Average
            
            
            
            
            
            Weighted
      AverageInterest
      Expense
            
            
            Yield
            
            
            Balance
            
            
            Interest
      Expense
            
            
            Yield
            
            
            BalanceBank
      loans
            
            $
            2,193
            
            
            
            0.97%
            
            
            $
            906,000
            
            
            $
            5,719
            
            
            
            2.53%
            
            
            $
            906,000Commercial
      real estate loans
            
            
            2,113
            
            
            
            1.43%
            
            
            $
            587,314
            
            
            
            2,625
            
            
            
            1.55%
            
            
            $
            667,521Leasing
            
            
            −
            
            
            
            N/A
            
            
            
            N/A
            
            
            
            830
            
            
            
            3.58%
            
            
            $
            92,521General
            
            
            3,631
            
            
            
            5.57%
            
            
            $
            256,048
            
            
            
            4,703
            
            
            
            4.90%
            
            
            $
            372,689Total interest expense
            
            $
            7,937
            
            
            
            
            
            
            
            
            
            
            $
            13,877





Aggregate interest expense decreased $6.0 million (43%) to $7.9 million for the
three months ended March 31, 2010 from $13.9 million for the three months ended
March 31, 2009.  We attribute this decrease to the
following:





Interest expense on bank loans was $2.2
million for the three months ended March 31, 2010 as compared to $5.7 million
for the three months ended March 31, 2009, a decrease of $3.5 million
(62%).  This decrease resulted primarily from a decrease in the
weighted average yield on this debt to 0.97% for the three months ended March
31, 2010 from 2.53% for the three months ended March 31, 2009 as a result of the
decrease in LIBOR which is a reference index for the rates payable on most of
these notes.





Interest expense on commercial real
estate loans was $2.1 million for the three months ended March 31, 2010 as
compared to $2.6 million for the three months ended March 31, 2009, a decrease
of $512,000 million (20%).  This decrease resulted primarily from a
decrease in the weighted average yield on our financings to 1.43% for the three
months ended March 31, 2010 as compared to 1.55% for the three months ended
March 31, 2009 primarily due to the decrease in LIBOR which is a reference index
for the rates payable on a vast majority of these borrowings.





Interest
expense on our equipment leasing portfolio was $0 for the three months ended
March 31, 2010 as compared to $830,000 for the three months ended March 31,
2009, a decrease of $830,000 (100%).  The decrease is the result of
the sale of most of the leasing portfolio and the simultaneous transfer of all
of the related debt to Resource America who purchased the leases, at
par, as of June 30, 2009.





General
interest expense was $3.6 million for the three months ended March 31, 2010 as
compared to $4.7 million for the three months ended March 31, 2009, a decrease
of $1.1 million (23%).  This decrease resulted primarily from the sale of
our leasing portfolio, at par, as of June 30, 2009, as well as the transfer of
the related hedges.




Non-Investment
Expenses





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


Three
      Months Ended
              March
      31,2010
            
            
            2009Non-investment
      expenses:Management fees – related
      party
            
            $
            1,152
            
            
            $
            1,001Equity compensation − related
      party
            
            
            724
            
            
            
            88Professional services
            
            
            819
            
            
            
            964Insurance
            
            
            212
            
            
            
            172General and administrative
            
            
            645
            
            
            
            405Income tax
      expense (benefit)
            
            
            105
            
            
            
            (45
            )Total
      non-investment expenses
            
            $
            3,657
            
            
            $
            2,585






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Management fee – related party
increased $151,000 (15%) to $1.2 million for the three months ended March
31, 2010 as compared to $1.0 million for the three months ended March 31,
2009.  This amounts represent compensation in the form of base
management fees and incentive management fees pursuant to our management
agreement.  This increase was due to increased stockholders’ equity, a
component in the formula by which base management fees are calculated,
principally due to the receipt of $43.4 million of net proceeds from our common
stock offering completed in December 2009 and from the receipt of $18.0 million
of net proceeds we received from the sales of common stock through our Dividend
Reinvestment Plan, or DRIP.  There was no incentive management fee
earned for the three months ended March 31, 2010 and March 31,
2009.
 
 Equity compensation – related party
increased $636,000 (723%) to $724,000 for the three months ended March 31, 2010
as compared to $88,000 for the three months ended March 31,
2009.  This expense relates to the amortization of annual grants of
restricted common stock to our non-employee independent directors, and annual
and discretionary grants of restricted stock to several employees of Resource
America who provided investment management services to us through our
Manager.  The increase in expense was primarily the result of an
increase in our stock price and its impact on our quarterly remeasurement of
unvested stock and options as well as issuances of new grants during the
year.
 
 Professional services decreased
$145,000 (15%) to $819,000 for the three months ended March 31, 2010 as
compared to $964,000 for the three months ended March 31, 2009 primarily due to
a decrease of $235,000 in lease servicing expense as a result of the sale of the
majority of the leasing portfolio.  This decrease was offset by an
increase of $102,000 in legal fees for compliance work performed.
 
 General and administrative expense
increased $240,000 (59%) to $645,000 for the three months ended March 31, 2010
as compared to $405,000 for the three months ended March 31,
2009.  This increase is related to an agreement that we will reimburse
Resource America for the wages, salary and benefits of our Chief Financial
Officer, three accounting professionals and 50% of the salary and benefits of a
director of investor relations, beginning in October 2009.
 
 Income tax expense (benefit) increased
$150,000 (333%) to an expense of $105,000 for the three months ended March 31,
2010 from a benefit of $45,000 for the three months ended March 31, 2009 as a
result of a corresponding increase in pre-tax income of Resource TRS, Inc., our
domestic taxable REIT subsidiary.


Other
(Expense)/Income





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




Three
      Months Ended
                March
      31,2010
              
              
              2009Impairment
      losses on investment securities
              
              $
              −
              
              
              $
              (5,620
              )Recognized
      in other comprehensive loss
              
              
              −
              
              
              
              −Net
      impairment losses recognized in earnings
              
              
              −
              
              
              
              (5,620
              )Net
      realized losses on loans and investments
              
              
              146
              
              
              
              237Provision
      for loan and lease losses
              
              
              (15,371
              )
              
              
              (16,951
              )Gain
      on the extinguishment of debt
              
              
              6,628
              
              
              
              −Other
      income
              
              
              24
              
              
              
              22Total
              
              $
              (8,573
              )
              
              $
              (22,312
              )




Net
impairment losses recognized in earnings were $5.6 million during the three
months ended March 31, 2009 due to the other-than-temporary impairment charge on
one of our other ABS positions.  There was no such impairment during
the three months ended March 31, 2010.
 
 Our
provision for loan and lease losses decreased $1.6 million (9%) to $15.4 million
for the three months ended March 31, 2010 as compared to $17.0 million for the
three months ended March 31, 2009.  The provision for the three months
ended March 31, 2010 consisted of a provision of $15.5 million in our CRE loan
portfolio, a $0.1 million provision on our direct financing leases and notes
offset by a reduction in the provision for our bank loan portfolio of $0.2
million.  The provision for the three months ended March 31, 2009
consisted of an $11.9 million provision on our bank loan portfolio, a $5.0
million provision on our CRE portfolio and a $160,000 provision on our direct
financing leases and notes.  The principal reason for the decrease
from the 2009 period was the significant improvement in market conditions on our
bank loan portfolio.  The improvement in bank loan conditions was
offset by a $13.4 million allowance taken on a large position in our CRE
portfolio and allowances on other CRE loans of $2.1
million.


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Gain on
the extinguishment of debt was $6.6 million for the three months ended March 31,
2010 and is due to the buyback of a portion of the debt issued by RREF 2006-1
and RREF 2007-1 during the period.  The notes, issued at par, were
bought back as an investment by us at a weighted average price of
67.3%.  The related deferred debt issuance costs were
immaterial.  There was no such transaction in the three months ended
March 31, 2009.
 
 Financial
Condition
 
 Summary.  Our total
assets at March 31, 2010 were $1.8 billion unchanged from December 31,
2009.  As of March 31, 2010, we held $27.7 million of unrestricted
cash and cash equivalents.
 
 Investment
Portfolio.The table below summarizes the amortized cost and
net carrying amount of our investment portfolio as of March 31, 2010 and
December 31, 2009, classified by interest rate type.  The following
table includes both (i) the amortized cost of our investment portfolio and the
related dollar price, which is computed by dividing amortized cost by par
amount, and (ii) the net carrying amountof our investment
portfolio and the related dollar price, which is computed by dividing the net
carrying amount by par amount (in thousands, except
percentages):





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Amortized
                cost
      (3)
            
            
            Dollar
      price
            
            
            Net
      carrying amount
            
            
            Dollar
      price
            
            
            Net
      carrying amount less amortized cost
            
            
            Dollar
      priceMarch
      31, 2010Floating rateCMBS-private
      placement
            
            $
            32,043
            
            
            
            100.00%
            
            
            $
            10,322
            
            
            
            32.21%
            
            
            $
            (21,721
            )
            
            
            -67.79%Other
      ABS
            
            
            24
            
            
            
            0.29%
            
            
            
            24
            
            
            
            0.29%
            
            
            
            −
            
            
            
            −%B
      notes (1)
            
            
            26,500
            
            
            
            100.00%
            
            
            
            26,298
            
            
            
            99.24%
            
            
            
            (202
            )
            
            
            -0.76%Mezzanine
      loans (1)
            
            
            124,048
            
            
            
            100.00%
            
            
            
            123,101
            
            
            
            99.24%
            
            
            
            (947
            )
            
            
            -0.76%Whole
      loans (1)
            
            
            410,657
            
            
            
            99.98%
            
            
            
            407,387
            
            
            
            99.18%
            
            
            
            (3,270
            )
            
            
            -0.80%Bank
      loans
            
            
            872,085
            
            
            
            96.69%
            
            
            
            843,454
            (2)
            
            
            93.51%
            
            
            
            (28,631
            )
            
            
            -3.18%Bank
      loans held for sale (3)
            
            
            2,376
            
            
            
            88.99%
            
            
            
            2,376
            
            
            
            88.99%
            
            
            
            −
            
            
            
            −%ABS
      held-to-maturity (4)
            
            
            31,559
            
            
            
            89.06%
            
            
            
            23,189
            
            
            
            65.44%
            
            
            
            (8,370
            )
            
            
            -23.62%Total floating rate
            
            
            1,499,292
            
            
            
            97.25%
            
            
            
            1,436,151
            
            
            
            93.15%
            
            
            
            (63,141
            )
            
            
            -4.10%Fixed rateCMBS
      – private placement
            
            
            66,125
            
            
            
            65.16%
            
            
            
            40,978
            
            
            
            40.38%
            
            
            
            (25,147
            )
            
            
            -24.78%B
      notes (1)
            
            
            54,820
            
            
            
            100.03%
            
            
            
            54,402
            
            
            
            99.27%
            
            
            
            (418
            )
            
            
            -0.76%Mezzanine
      loans (1)
            
            
            58,634
            
            
            
            100.27%
            
            
            
            51,788
            
            
            
            88.56%
            
            
            
            (6,846
            )
            
            
            -11.71%Whole
      loans (1)
            
            
            46,721
            
            
            
            99.83%
            
            
            
            32,371
            
            
            
            69.17%
            
            
            
            (14,350
            )
            
            
            -30.66%Equipment
      leases and loans (5)
            
            
            10,975
            
            
            
            100.01%
            
            
            
            10,325
            
            
            
            94.09%
            
            
            
            (650
            )
            
            
            -5.92%Total fixed rate
            
            
            237,275
            
            
            
            87.06%
            
            
            
            189,864
            
            
            
            69.67%
            
            
            
            (47,411
            )
            
            
            -17.39%Grand total
            
            $
            1,736,567
            
            
            
            95.72%
            
            
            $
            1,626,015
            
            
            
            89.62%
            
            
            $
            (110,552
            )
            
            
            -6.10%December
      31, 2009Floating rateCMBS-private
      placement
            
            $
            32,043
            
            
            
            100.00%
            
            
            $
            11,185
            
            
            
            34.91%
            
            
            $
            (20,858
            )
            
            
            -65.09%Other
      ABS
            
            
            24
            
            
            
            0.29%
            
            
            
            24
            
            
            
            0.29%
            
            
            
            −
            
            
            
            −%B
      notes (1)
            
            
            26,500
            
            
            
            100.00%
            
            
            
            26,283
            
            
            
            99.18%
            
            
            
            (217
            )
            
            
            -0.82%Mezzanine
      loans (1)
            
            
            124,048
            
            
            
            100.00%
            
            
            
            123,033
            
            
            
            99.18%
            
            
            
            (1,015
            )
            
            
            -0.82%Whole
      loans (1)
            
            
            403,890
            
            
            
            99.98%
            
            
            
            382,371
            
            
            
            94.65%
            
            
            
            (21,519
            )
            
            
            -5.33%Bank
      loans
            
            
            857,451
            
            
            
            96.87%
            
            
            
            798,614
            (2)
            
            
            90.23%
            
            
            
            (58,837
            )
            
            
            -6.65%Bank
      loans held for sale (3)
            
            
            8,050
            
            
            
            78.88%
            
            
            
            8,050
            
            
            
            78.88%
            
            
            
            −
            
            
            
            −%ABS
      held-to-maturity (4)
            
            
            31,401
            
            
            
            88.77%
            
            
            
            21,287
            
            
            
            60.18%
            
            
            
            (10,114
            )
            
            
            -28.59%Total floating rate
            
            
            1,483,407
            
            
            
            97.23%
            
            
            
            1,370,847
            
            
            
            89.85%
            
            
            
            (112,560
            )
            
            
            -7.38%Fixed rateCMBS
      – private placement
            
            
            60,067
            
            
            
            64.08%
            
            
            
            33,333
            
            
            
            35.56%
            
            
            
            (26,734
            )
            
            
            -28.52%B
      notes (1)
            
            
            54,977
            
            
            
            100.05%
            
            
            
            54,527
            
            
            
            99.23%
            
            
            
            (450
            )
            
            
            -0.82%Mezzanine
      loans (1)
            
            
            58,638
            
            
            
            100.28%
            
            
            
            53,200
            
            
            
            90.98%
            
            
            
            (5,438
            )
            
            
            -9.30%Whole
      loans (1)
            
            
            80,305
            
            
            
            99.78%
            
            
            
            79,647
            
            
            
            98.96%
            
            
            
            (658
            )
            
            
            -0.82%Equipment
      leases and loans (5)
            
            
            2,067
            
            
            
            100.05%
            
            
            
            927
            
            
            
            44.87%
            
            
            
            (1,140
            )
            
            
            -55.18%Total fixed rate
            
            
            256,054
            
            
            
            88.38%
            
            
            
            221,634
            
            
            
            76.50%
            
            
            
            (34,420
            )
            
            
            -11.88%Grand total
            
            $
            1,739,461
            
            
            
            95.82%
            
            
            $
            1,592,481
            
            
            
            87.72%
            
            
            $
            (146,980
            )
            
            
            -8.10%


(1)
            Net
      carrying amount includes an allowance for loan losses of $26.0 million at
      March 31, 2010, allocated as follows:  B notes ($0.6 million),
      mezzanine loans ($7.8 million) and whole loans ($17.6
      million).  Net carrying amount includes an allowance for loan
      losses of $29.3 million at December 31, 2009, allocated as
      follows:  B notes ($0.7 million), mezzanine loans ($6.4 million)
      and whole loans ($22.2 million).




(2)
            The
      bank loan portfolio is carried at amortized cost less allowance for loan
      loss and was $860.2 million at March 31, 2010.  The amount
      disclosed represents net realizable value at March 31, 2010, which
      includes $11.9 million allowance for loan losses at March 31,
      2010.  The bank loan portfolio is carried at amortized cost less
      allowance for loan loss and was $839.6 million at December 31,
      2009.  The amount disclosed represents net realizable value at
      December 31, 2009, which includes $17.8 million allowance for loan losses
      at December 31, 2009.




(3)
            Bank
      loans held for sale are carried at the lower of cost or
      market.  Amortized cost is equal to fair
  value.




(4)
            ABS
      held to maturity are carried at amortized cost less other-than-temporary
      impairment.




(5)
            Net
      carrying amount includes a $650,000 and $1.1 million allowance for
      equipment leases and loans losses at March 31, 2010 and December 31, 2009,
      respectively.





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 35
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Commercial Mortgage-Backed
Securities-Private Placement.  The determination of
other-than-temporary impairment is a subjective process, and different judgments
and assumptions could affect the timing of loss realization.  We
review our portfolios monthly and the determination of other-than-temporary
impairment is made at least quarterly.  We consider the following
factors when determining if there is an other-than-temporary impairment on a
security:




·
            the
      length of time the market value has been less than amortized
      cost;




·
            the
      severity of the impairment;




·
            the
      expected loss of the security as generated by third party
      software;




·
            credit
      ratings from the rating agencies;




·
            underlying
      credit fundamentals of the collateral backing the security;
      and




·
            our
      intent to sell as well as the likelihood that we will be required to sell
      the security before the recovery of the amortized cost
    basis.





At March 31, 2010 and December 31,
2009, we held $51.3 million and $44.5 million, respectively, net of unrealized
gains of $5.0 million and $2.6 million, respectively, and net of unrealized
losses of $51.8 million and $50.2 million at March 31, 2010 and December 31,
2009, respectively, of CMBS-private placement at fair value which, for our
positions purchased in 2009, is based on dealer quotes due to their higher
ratings and more active markets and, for our positions purchased prior to 2009,
is based on taking a weighted average of the following three
measures:




·
            an
      income approach utilizing an appropriate current risk-adjusted yield, time
      value and projected estimated losses from default assumptions based on
      analysis of underlying loan
performance;




·
            quotes
      on similar-vintage, higher rate, more actively traded CMBS adjusted as
      appropriate for the lower subordination level of our securities;
      and




·
            dealer
      quotes on our securities for which there is not an active
      market.





In the aggregate, we purchased our
CMBS-private placement portfolio at a discount.  At March 31, 2010 and
December 31, 2009, the remaining discount to be accreted into income over the
remaining lives of the securities was $30.8 million and $29.1 million,
respectively.  These securities are classified as available-for-sale
and, as a result, are carried at their fair value.





During
the three months ended December 31, 2009, two collateral positions that
supported the CMBS portfolio weakened to the point that default of these
positions became probable.  The assumed default of these collateral
positions in our cash flow model yielded a value that would result in less than
a full recovery of our cost basis.  Accordingly, we recognized a $6.9
million other-than-temporary impairment on two of our CMBS investments during
the three months ended December 31, 2009, bringing the combined fair value to
$206,000.  We recognized these impairments through the consolidated
statements of operations.





While our CMBS investments have
continued to decline in fair value, we believe that their change continues to be
temporary.  We perform an on-going review of third-party reports and
updated financial data with respect to the financial information on the
underlying properties to analyze current and projected loan
performance.  Rating agency downgrades are considered with respect to
our income approach when determining other-than-temporary impairment and when
inputs are stressed the resulting projected cash flows are adequate to recover
principal.





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The following table summarizes our
CMBS-private placement as of March 31, 2010 and December 31, 2009 (in thousands,
except percentages).  Dollar price is computed by dividing amortized
cost by par amount.





March
      31, 2010
            
            
            December
      31, 2009Amortized
      Cost
            
            
            Dollar
      Price
            
            
            Amortized
      Cost
            
            
            Dollar
      PriceMoody’s
      Ratings Category:Aaa
            
            $
            11,933
            
            
            
            66.05%
            
            
            $
            11,690
            
            
            
            64.70%Aa1
      through Aa3
            
            
            8,767
            
            
            
            58.44%
            
            
            
            9,639
            
            
            
            50.73%A1
      through A3
            
            
            10,010
            
            
            
            61.26%
            
            
            
            4,826
            
            
            
            56.14%Baa1
      through Baa3
            
            
            2,019
            
            
            
            33.65%
            
            
            
            2,021
            
            
            
            33.68%Ba1
      through Ba3
            
            
            11,870
            
            
            
            82.19%
            
            
            
            10,443
            
            
            
            100.00%B1
      through B3
            
            
            24,493
            
            
            
            85.42%
            
            
            
            24,449
            
            
            
            85.27%Caa1
      through Caa3
            
            
            12,839
            
            
            
            98.76%
            
            
            
            12,832
            
            
            
            98.71%Ca
      through C
            
            
            16,238
            
            
            
            73.81%
            
            
            
            16,210
            
            
            
            73.68%Total
            
            $
            98,169
            
            
            
            73.52%
            
            
            $
            92,110
            
            
            
            73.23%S&P
      Ratings Category:AAA
            
            $
            6,145
            
            
            
            61.45%
            
            
            $
            5,997
            
            
            
            59.97%AA+
      through AA-
            
            
            −
            
            
            
            −%
            
            
            
            3,659
            
            
            
            40.65%A+
      through A-
            
            
            8,484
            
            
            
            64.39%
            
            
            
            6,544
            
            
            
            62.75%BBB+
      through BBB-
            
            
            16,758
            
            
            
            64.22%
            
            
            
            11,955
            
            
            
            59.49%BB+
      through BB-
            
            
            10,595
            
            
            
            58.98%
            
            
            
            7,847
            
            
            
            78.76%B+
      through B-
            
            
            9,112
            
            
            
            91.12%
            
            
            
            9,081
            
            
            
            90.81%CCC+
      through CCC-
            
            
            47,075
            
            
            
            83.63%
            
            
            
            47,027
            
            
            
            83.54%Total
            
            $
            98,169
            
            
            
            73.52%
            
            
            $
            92,110
            
            
            
            73.23%Weighted
      average rating factor
            
            
            2,856
            
            
            
            
            
            
            
            2,971





Other Asset-Backed
Securities.  At March 31, 2010, we held two other ABS
positions with a fair value of $24,000.  At December 31, 2009, we held
two other ABS positions with a fair value of $24,000 that is the result of
other-than-temporary impairment of $5.7 million recognized during the year ended
December 31, 2009.








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 37
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Real Estate
Loans.The following table is a summary of the loans in our
commercial real estate loan portfolio at the dates indicated (in
thousands):





Description
            
            Quantity
            
            
            Amortized
      Cost
            
            Contracted
              Interest
      Rates
            
            Maturity Dates(3)March 31,
      2010:Whole loans, floating
      rate  (1)
            
            
            35
            
            
            $
            398,562
            
            LIBOR
      plus 1.50% to
              LIBOR
      plus 4.50%
            
            May
      2010 to
              February
      2017Whole loans, fixed
      rate  (1)
            
            
            4
            
            
            
            58,816
            
            6.98%
      to 10.00%
            
            June
      2011 to
              August
      2012B notes, floating rate
            
            
            3
            
            
            
            26,500
            
            LIBOR
      plus 2.50% to
              LIBOR
      plus 3.01%
            
            July
      2010 to
              October
      2010B notes, fixed rate
            
            
            3
            
            
            
            54,821
            
            7.00%
      to 8.68%
            
            July
      2011 to
              July
      2016Mezzanine loans, floating
      rate
            
            
            10
            
            
            
            124,048
            
            LIBOR
      plus 2.15% to
              LIBOR
      plus 3.45%
            
            May
      2010 to
              January
      2013Mezzanine loans, fixed
      rate
            
            
            5
            
            
            
            58,634
            
            8.14%
      to 11.00%
            
            May
      2010 to
              September
      2016Total (2)
            
            
            60
            
            
            $
            721,381December
      31, 2009:Whole loans, floating
      rate  (1)
            
            
            32
            
            
            $
            403,890
            
            LIBOR
      plus 1.50% to
              LIBOR
      plus 4.40%
            
            May
      2010 to
              February
      2017Whole loans, fixed
      rate  (1)
            
            
            6
            
            
            
            80,305
            
            6.98%
      to 10.00%
            
            May
      2010 to
              August
      2012B notes, floating rate
            
            
            3
            
            
            
            26,500
            
            LIBOR
      plus 2.50% to
              LIBOR
      plus 3.01%
            
            July
      2010 to
              October
      2010B notes, fixed rate
            
            
            3
            
            
            
            54,977
            
            7.00%
      to 8.68%
            
            July
      2011 to
              July
      2016Mezzanine loans, floating
      rate
            
            
            10
            
            
            
            124,048
            
            LIBOR
      plus 2.15% to
              LIBOR
      plus 3.45%
            
            May
      2010 to
              January
      2013Mezzanine loans, fixed
      rate
            
            
            5
            
            
            
            58,638
            
            8.14%
      to 11.00%
            
            May
      2010 to
              September
      2016Total (2)
            
            
            59
            
            
            $
            748,358


(1)
            Whole
      loans had $5.6 million in unfunded loan commitments as of March 31, 2010
      unchanged from December 31, 2009.  These commitments are
      funded as the loans require additional funding and the related borrowers
      have satisfied the requirements to obtain this additional
      funding.




(2)
            The
      total does not include an allowance for loan losses of $26.0 million and
      $29.3 million recorded as of March 31, 2010 and December 31, 2009,
      respectively.




(3)
            Excludes
      one floating rate whole loan which matured in July 2009 and is in
      foreclosure.





During the three months ended March 31,
2010, we determined that three loans deemed troubled debt restructurings had
probable losses and we recorded an additional allowance for each of the three
loans.  For one whole loan, secured by a hotel in Southern California
that had experienced zoning difficulties with an amortized cost balance of $34.0
million we recorded an allowance of $13.4 million for probable
losses.  On a second whole loan secured by multifamily properties in
southern California, we’ve agreed to a settlement and gave the borrower a
concession of $1.0 million that was recorded as an allowance for loss on that
loan. With the third loan, secured by an improved pad zoned for retail use, the
borrower has marketed the improved pad for sale at an amount approximately
$150,000 less than our basis in the loan and we took an allowance for loss in
the same amount against the loan.  In addition, we recorded an
additional $1.0 million in allowance for loan losses against the remaining CRE
portfolio of loans during the three months ended March 31, 2010.
 
 As of March 31, 2010, we recorded an
allowance for loan losses of $37.9 million consisting of a $11.9 million
allowance on our bank loan portfolio and a $26.0 million allowance on our
commercial real estate portfolio as a result of us deeming five bank loans and
eight commercial real estate loans impaired as well as the establishment of a
general reserve on these portfolios.
 
 As of December 31, 2009, we recorded an
allowance for loan loss of $47.1 million consisting of a $17.8 million allowance
on our bank loan portfolio and a $29.3 million allowance on our commercial real
estate portfolio as a result of us having seven bank loans and three commercial
real estate loan that were deemed impaired as well as the establishment of a
general reserve on these portfolios.




(Back to Index)
 38
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Bank Loans.At
March 31, 2010, we held a total of $843.4 million of bank loans at fair value
through Apidos CDO I, Apidos CDO III and Apidos Cinco CDO, all of which secure
the debt issued by these entities.  This is an increase of $44.8
million over our holdings at December 31, 2009.  The increase in total
bank loans was principally due to improved market prices for bank
loans.  We own 100% of the equity issued by Apidos CDO I, Apidos CDO
III and Apidos Cinco CDO which we have determined are VIEs of which we are the
primary beneficiary.  See “-Variable Interest Entities,”
entities.  As a result, we consolidate Apidos CDO I, Apidos CDO III
and Apidos Cinco CDO.





The following table summarizes our bank
loan investments as of March 31, 2010 and December 31, 2009 (in thousands,
except percentages).  Dollar price is computed by dividing amortized
cost by par amount.





March
      31, 2010
            
            
            December
      31, 2009Amortized
      cost
            
            
            Dollar
      price
            
            
            Amortized
      cost
            
            
            Dollar
      priceMoody’s
      ratings category:Baa1
      through Baa3
            
            
            $
            37,294
            
            
            
            98.43%
            
            
            $
            38,419
            
            
            
            98.09%Ba1
      through Ba3
            
            
            
            431,752
            
            
            
            96.97%
            
            
            
            404,609
            
            
            
            96.91%B1
      through B3
            
            
            
            352,565
            
            
            
            95.87%
            
            
            
            355,441
            
            
            
            96.33%Caa1
      through Caa3
            
            
            
            34,898
            
            
            
            99.81%
            
            
            
            44,265
            
            
            
            99.79%Ca
            
            
            
            7,061
            
            
            
            99.99%
            
            
            
            13,697
            
            
            
            88.68%No
      rating provided
            
            
            
            10,891
            
            
            
            92.87%
            
            
            
            9,070
            
            
            
            91.64%Total
            
            
            $
            874,461
            
            
            
            96.67%
            
            
            $
            865,501
            
            
            
            96.67%S&P
      ratings category:BBB+
      through BBB-
            
            
            $
            65,533
            
            
            
            98.67%
            
            
            $
            73,629
            
            
            
            98.23%BB+
      through BB-
            
            
            
            358,461
            
            
            
            97.19%
            
            
            
            353,725
            
            
            
            97.11%B+
      through B-
            
            
            
            354,141
            
            
            
            95.85%
            
            
            
            337,193
            
            
            
            96.12%CCC+
      through CCC-
            
            
            
            31,223
            
            
            
            98.79%
            
            
            
            42,198
            
            
            
            96.65%CC+
      through CC-
            
            
            
            1,634
            
            
            
            100.25%
            
            
            
            3,104
            
            
            
            100.13%C+
      through C-
            
            
            
            −
            
            
            
            −%
            
            
            
            −
            
            
            
            −%D
            
            
            
            7,364
            
            
            
            100.00%
            
            
            
            8,602
            
            
            
            95.91%No
      rating provided
            
            
            
            56,105
            
            
            
            94.60%
            
            
            
            47,050
            
            
            
            94.85%Total
            
            
            $
            874,461
            
            
            
            96.67%
            
            
            $
            865,501
            
            
            
            96.67%Weighted
      average rating factor
            
            
            
            2,103
            
            
            
            
            
            
            
            2,131




Asset-backed securities
held-to-maturity.  At March 31, 2010, we held a total of $23.2
million of ABS held-to-maturity at amortized cost through Apidos CDO I, Apidos
CDO III and Apidos Cinco CDO, all of which secure the debt issued by these
entities.  This is an increase of $1.9 million over our holdings at
December 31, 2009.  The increase in total ABS held-to-maturity was
principally due to the improved marked prices.
 
 During
the three months ended September 30, 2009, one collateral position that
supported the ABS held-to-maturity weakened to the point that default of this
position became probable.  The assumed default of this collateral
position in our cash flow model yielded a value that would result in less than a
full recovery of our cost basis.  Accordingly, we recognized an
$895,000 other-than-temporary impairment on our ABS held-to-maturity investment
during the three months ended September 30, 2009 bringing the combined fair
value to $925,000.  We recognized this impairment through the
consolidated statements of operations.




(Back to Index)
 39
 (Back to Index)




The following table summarizes our ABS
held-to-maturity, at cost as of March 31, 2010 and December 31, 2009 (in
thousands, except percentages).  Dollar price is computed by dividing
amortized cost by par amount.





March
      31, 2010
            
            
            December
      31, 2009Amortized
      cost
            
            
            Dollar
      price
            
            
            Amortized
      cost
            
            
            Dollar
      priceMoody’s
      ratings category:Aa1
      through Aa3
            
            $
            2,850
            
            
            
            83.48%
            
            
            $
            2,854
            
            
            
            82.89%A1
      through A3
            
            
            306
            
            
            
            76.50%
            
            
            
            303
            
            
            
            75.75%Ba1
      through Ba3
            
            
            4,433
            
            
            
            95.85%
            
            
            
            4,427
            
            
            
            95.72%B1
      through B3
            
            
            4,400
            
            
            
            97.69%
            
            
            
            4,240
            
            
            
            97.58%Caa1
      through Caa3
            
            
            9,929
            
            
            
            99.16%
            
            
            
            9,913
            
            
            
            99.14%Ca
            
            
            3,550
            
            
            
            79.22%
            
            
            
            3,629
            
            
            
            79.57%No
      rating provided
            
            
            6,091
            
            
            
            76.16%
            
            
            
            6,035
            
            
            
            75.44%Total
            
            $
            31,559
            
            
            
            89.06%
            
            
            $
            31,401
            
            
            
            88.77%S&P
      ratings category:No
      rating provided
            
            $
            31,559
            
            
            
            89.06%
            
            
            $
            31,401
            
            
            
            88.77%Total
            
            $
            31,559
            
            
            
            89.06%
            
            
            $
            31,401
            
            
            
            88.77%Weighted
      average rating factor
            
            
            4,144
            
            
            
            
            
            
            
            4,028





Equipment Leases and
Notes.  Investments in direct financing leases and notes, net
of unearned income, were as follows (in thousands):





March
      31,
            
            
            December
      31,2010
            
            
            2009Direct
      financing leases, net of unearned income
            
            $
            4,915
            
            
            $
            1,397Operating
      leases
            
            
            384
            
            
            
            −Notes
      receivable
            
            
            5,676
            
            
            
            670Subtotal
            
            
            10,975
            
            
            
            2,067Allowance
      for lease losses
            
            
            (650
            )
            
            
            (1,140
            )Total
            
            $
            10,325
            
            
            $
            927





Interest
Receivable.  At March 31, 2010, we had interest receivable of
$5.4 million, which consisted of $5.4 million of interest on our securities,
loans and equipment leases and notes and $8,000 of interest earned on escrow and
sweep accounts At December 31, 2009, we had interest receivable of $5.8 million,
which consisted of $5.7 million of interest on our securities, loans and
equipment leases and notes and $9,000 of interest earned on escrow and sweep
accounts.  The decrease in interest receivable resulted primarily from
a $500,000 decrease in interest on our commercial real estate portfolio which
was offset by an $119,000 increase in interest on our Apidos
portfolio.





Loans Receivable – Related
Party.  At March 31, 2010, we had loans receivable that
consisted of two loans comprising $10.0 million outstanding.  There
was no such receivable as of December 31, 2009.




Other Assets.  Other
Assets at March 31, 2010 of $4.7 million consisted of $1.6 million of principal
paydown receivables on our bank loan and commercial real estate loan portfolios,
$1.4 million of loan origination costs associated with our commercial real
estate loan portfolio and trust preferred securities issuances, $1.2 million of
deferred tax assets, which is offset by a corresponding $1.2 million of
valuation allowance, $1.1 million of prepaid expenses, and $660,000 of other
receivables. Other assets at December 31, 2009 of $5.1 million consisted of $1.7
million of deferred tax assets, $1.6 million of loan origination costs
associated with our commercial real estate loan portfolio and trust preferred
securities issuances, $1.1 million of principal paydown receivables on our bank
loan and commercial real estate loan portfolios, $469,000 of prepaid expenses,
and $230,000 of other receivables.  The decrease of $367,000 in other
assets was due to $1.2 million of valuation allowance on our deferred tax asset,
a decrease of $467,000 in deferred tax assets and a decrease of $181,000 in loan
origination costs.  These decreases are partially offset by an increase of
$600,000 in prepaid assets, an increase of $476,000 in principal paydown
receivables, and an increase of $429,000 in other receivables.


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Hedging
Instruments.  Our hedges at March 31, 2010 and December 31,
2009 were fixed-for-floating interest rate swap agreements whereby we swapped
the floating rate of interest on the liabilities we hedged for a fixed rate of
interest.  With interest rates at historically low levels and the
pending maturity of several agreements, we expect that the fair value of our
hedges will modestly improve during the remainder of 2010.  We intend
to continue to seek such hedges for our floating rate debt in the
future.  Our hedges at March 31, 2010 were as follows (in
thousands):





Benchmark
      rate
            
            Notional
      value
            
            
            Strike
      rate
            
            
            Effective
      date
            
            Maturity
      date
            
            Fair
      valueInterest
      rate swap
            
            1
      month LIBOR
            
            $
            28,000
            
            
            
            5.10%
            
            
            05/24/07
            
            06/05/10
            
            $
            (245
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            12,965
            
            
            
            4.63%
            
            
            12/04/06
            
            07/01/11
            
            
            (656
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            12,150
            
            
            
            5.44%
            
            
            06/08/07
            
            03/25/12
            
            
            (1,056
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            12,750
            
            
            
            5.275
            
            
            07/25/07
            
            08/06/12
            
            
            (1,191
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            34,464
            
            
            
            4.13%
            
            
            01/10/08
            
            05/25/16
            
            
            (1,514
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            1,681
            
            
            
            5.72%
            
            
            07/09/07
            
            10/01/16
            
            
            (155
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            1,880
            
            
            
            5.68%
            
            
            07/13/07
            
            03/12/17
            
            
            (296
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            81,970
            
            
            
            5.58%
            
            
            06/08/07
            
            04/25/17
            
            
            (7,358
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            1,726
            
            
            
            5.65%
            
            
            06/28/07
            
            07/15/17
            
            
            (152
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            3,850
            
            
            
            5.65%
            
            
            07/19/07
            
            07/15/17
            
            
            (338
            )Interest
      rate swap
            
            1
      month LIBOR
            
            
            4,023
            
            
            
            5.41%
            
            
            08/07/07
            
            07/25/17
            
            
            (316
            )Total
            
            
            
            $
            195,459
            
            
            
            5.16%
            
            
            
            
            
            
            $
            (13,277
            )





In addition, we also had an interest
rate cap agreement with a notional of $14.8 million outstanding as of March 31,
2010 which reduced our exposure to variability in future cash flows attributable
to LIBOR.  The interest rate cap is a non-designated cash flow hedge
and as a result the change in fair value is recorded through the consolidated
statement of operations.  The interest rate cap had an effective date
of January 8, 2009, has a maturity date of August 5, 2011 and has a cap rate of
2.00%.  The interest rate cap had a fair value of $45,000 as of
December 31, 2009.





As of December 31, 2009, we had entered
into hedges with a notional amount of $217.9 million and maturities ranging from
February 2010 to July 2017.  At December 31, 2009, the fair value on
our interest rate swap agreements was ($12.8) million.





Repurchase
Agreements.  Historically, we have used repurchase agreements
to finance our commercial real estate loans and CMBS-private placement
portfolio.  We discuss these repurchase agreements in “−Repurchase
Agreements,” below.  When used, these agreements are secured by the
financed assets and bear interest rates that have historically moved in close
relationship to LIBOR.  At March 31, 2010 and December 31, 2009, we
had established nine borrowing arrangements with various financial institutions
and for the three months ended March 31, 2010, we had not utilized any of these
arrangements.  Because any repurchase transaction must be approved by
the lender, and as a result of current market conditions, we do not anticipate
using these facilities for the foreseeable future although, the facilities
remain available for use if market conditions improve.





Collateralized Debt
Obligations.  As of March 31, 2010, we had executed and
retained equity in five CDO transactions as follows:




·
            In
      June 2007, we closed RREF CDO 2007-1, a $500.0 million CDO transaction
      that provided financing for commercial real estate loans.  The
      investments held by RREF CDO 2007-1 collateralized $458.8 million of
      senior notes issued by the CDO vehicle, of which RCC Real Estate, Inc., or
      RCC Real Estate, a subsidiary of ours, purchased 100% of the class H
      senior notes, class K senior notes, class L senior notes and class M
      senior notes for $68.0 million at closing, $5.0 million of the Class J
      senior notes purchased in February 2008 an additional $2.5 million of the
      Class J senior notes in November 2009, and $11.9 million of the Class E
      senior notes, $11.9 million of the Class F senior notes, $7.3 million of
      the Class G senior notes in December 2009 and $250,000 of the Class J
      senior notes in January 2010.  In addition, RREF 2007-1 CDO
      Investor, LLC, a subsidiary of RCC Real Estate, purchased a $41.3 million
      equity interest representing 100% of the outstanding preference
      shares.  At March 31, 2010, the notes issued to outside
      investors, net of repurchased notes had a weighted average borrowing rate
      of 0.80%.




·
            In
      May 2007, we closed Apidos Cinco CDO, a $350.0 million CDO transaction
      that provided financing for bank loans.  The investments held by
      Apidos Cinco CDO collateralized $322.0 million of senior notes issued by
      the CDO vehicle, of which RCC Commercial Inc., or RCC Commercial, a
      subsidiary of ours, purchased a $28.0 million equity interest representing
      100% of the outstanding preference shares.  At March 31, 2010,
      the notes issued to outside investors had a weighted average borrowing
      rate of 0.76%.




·
            In
      August 2006, we closed RREF CDO 2006-1, a $345.0 million CDO transaction
      that provided financing for commercial real estate loans.  The
      investments held by RREF CDO 2006-1 collateralized $308.7 million of
      senior notes issued by the CDO vehicle, of which RCC Real Estate purchased
      100% of the class J senior notes and class K senior notes for $43.1
      million at closing and $7.5 million of the Class F senior notes in June
      2009, $3.5 million of the Class E senior note, $4.0 million of the Class F
      senior notes in September 2009 and $20.0 million of the Class A-1 senior
      notes in February 2010.  In addition, RREF 2006-1 CDO Investor,
      LLC, a subsidiary of RCC Real Estate, purchased a $36.3 million equity
      interest representing 100% of the outstanding preference
      shares.  At March 31, 2010, the notes issued to outside
      investors, net of repurchased notes had a weighted average borrowing rate
      of 1.17%.






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·
            In
      May 2006, we closed Apidos CDO III, a $285.5 million CDO transaction that
      provided financing for bank loans.  The investments held by
      Apidos CDO III collateralized $262.5 million of senior notes issued by the
      CDO vehicle, of which RCC Commercial purchased $23.0 million equity
      interest representing 100% of the outstanding preference
      shares.  At March 31, 2010, the notes issued to outside
      investors had a weighted average borrowing rate of
  0.71%.




·
            In
      August 2005, we closed Apidos CDO I, a $350.0 million CDO transaction that
      provided financing for bank loans.  The investments held by
      Apidos CDO I collateralize $321.5 million of senior notes issued by the
      CDO vehicle, of which RCC Commercial purchased $28.5 million equity
      interest representing 100% of the outstanding preference
      shares.  At March 31, 2010, the notes issued to outside
      investors had a weighted average borrowing rate of
  0.83%.





Trust Preferred
Securities.  In May and September 2006, we formed Resource
Capital Trust I and RCC Trust II, respectively, for the sole purpose of issuing
and selling trust preferred securities.  Resource Capital Trust I and
RCC Trust II are not consolidated into our consolidated financial statements
because we are not deemed to be the primary beneficiary of either
trust.  We own 100% of the common shares of each trust, each of which
issued $25.0 million of preferred shares to unaffiliated
investors.  Our rights as the holder of the common shares of each
trust are subordinate to the rights of the holders of preferred shares only in
the event of a default; otherwise, our economic and voting rights are pari passu
with the preferred shareholders.  We record each of our investments in
the trusts’ common shares of $774,000 as an investment in unconsolidated trusts
and record dividend income upon declaration by each trust.  The junior
subordinated debentures debt issuance costs are deferred in other assets in the
consolidated balance sheets.  We record interest expense on the junior
subordinated debentures and amortization of debt issuance costs in our
consolidated statements of operations.
 
 In October 2009, we amended our
unsecured junior subordinated debentures held by RCT I and RCT II with a total
value outstanding of $51.5 million.  The amendment provides for an
interest rate increase of 2% (from LIBOR plus 3.95% to LIBOR plus 5.95%) on both
issuances for a period of two years and a one-time restructuring fee of $250,000
in exchange for the waiver of financial covenants under our
guarantee.  The covenant waiver expires on January 1,
2012.  The debt issuance costs associated with the junior subordinated
debentures for RCT I and RCT II at March 31, 2010 were $57,000 and $37,000,
respectively.  The interest rate adjustment took effect as of October
1, 2009 and expires on September 30, 2011.  The rates for RCT I and
RCT II at March 31, 2010, were 6.24% and 6.20%, respectively.  The
rates for RCT I and RCT II at December 31, 2009, were 6.18% and 6.19%,
respectively.  The additional cost is approximately $280,000 per
quarter.
 
 Stockholders’
Equity
 
 Stockholders’ equity at March 31, 2010
was $239.6 million and included $46.9 million of net unrealized losses on our
available-for-sale portfolio, and $13.3 million of unrealized losses on cash
flow hedges, shown as a component of accumulated other comprehensive loss. 
Stockholders’ equity at December 31, 2009 was $228.8 million and included $47.6
million of unrealized losses on our available-for-sale portfolio and $12.8
million of unrealized losses on cash flow hedges, shown as a component of
accumulated other comprehensive loss.  The increase in stockholder’s equity
during the three months ended March 31, 2010 was principally due to the proceeds
received related to our DRIP.
 
 Fluctuations in market values of assets
in our available-for-sale portfolio that have not been other-than-temporarily
impaired, do not impact our income determined in accordance with GAAP, or our
taxable income, but rather are reflected on our consolidated balance sheets by
changing the carrying value of the asset and stockholders’ equity under
‘‘Accumulated Other Comprehensive Loss.”


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Estimated
REIT Taxable Income
 
 We calculate estimated REIT taxable
income, which is a non-GAAP financial measure, according to the requirements of
the Internal Revenue Code.  The following table reconciles net income
to estimated REIT taxable income for the periods presented (in thousands) (1):
 
 Three
      Months EndedMarch
      31,2010
              
              
              2009Net
      income (loss) − GAAP
              
              $
              1,406
              
              
              $
              (12,152
              )Taxable REIT subsidiary’s
      loss
              
              
              (125
              )
              
              
              −Adjusted net income (loss)
              
              
              1,281
              
              
              
              (12,152
              )Adjustments:Share-based compensation to
      related parties
              
              
              (316
              )
              
              
              17Capital loss carryover
      (utilization)/losses from the sale of securities
              
              
              −
              
              
              
              5,620Provisions for loan and lease
      losses unrealized
              
              
              15,500
              
              
              
              4,978Net book to tax adjustments for
      the inclusion of our taxable foreign
                REIT subsidiaries
              
              
              (6,378
              )
              
              
              7,590Subpart F income limitation
      (2)
              
              
              322
              
              
              
              −Other net book to tax
      adjustments
              
              
              (1,083
              )
              
              
              45Estimated
      REIT taxable income
              
              $
              9,326
              
              
              $
              6,098Amounts
      per share – diluted
              
              $
              0.24
              
              
              $
              0.25
 (1)
              RCC
      believes that a presentation of estimated REIT taxable income provides
      useful information to investors regarding its financial condition and
      results of operations as this measurement is used to determine the amount
      of dividends that RCC is required to declare to its stockholders in order
      to maintain its status as a REIT for federal income tax
      purposes.  Since RCC, as a REIT, expects to make distributions
      based on taxable income, RCC expects that its distributions may at times
      be more or less than its reported GAAP net income.  Total
      taxable income is the aggregate amount of taxable income generated by RCC
      and by its domestic and foreign taxable REIT
      subsidiaries.  Estimated REIT taxable income excludes the
      undistributed taxable income (if any) of RCC’s domestic taxable REIT
      subsidiary, which is not included in REIT taxable income until distributed
      to RCC.  There is no requirement that RCC’s domestic taxable
      REIT subsidiary distribute its income to RCC.  Estimated REIT
      taxable income, however, includes the taxable income of RCC’s foreign
      taxable REIT subsidiaries because RCC generally will be required to
      recognize and report their taxable income on a current
      basis.  Because not all companies use identical calculations,
      this presentation of estimated REIT taxable income may not be comparable
      to other similarly-titled measures of other
  companies.
  (2)
              U.S.
      shareholders of controlled foreign corporations are required to include
      their share of such corporations’ income on a current basis, however,
      losses sustained by such corporations do not offset income of their U.S.
      shareholders on a current
basis.




We
believe that a presentation of estimated REIT taxable income provides useful
information to investors regarding our financial condition and results of
operations as we use this measurement to determine the amount of tax
purposes.  Since we, as a REIT, expect to make distributions based on
taxable earnings, we expect that our distributions may at times be more or less
than our reported GAAP earnings.  Total taxable income is the
aggregate amount of taxable income generated by us and by our domestic and
foreign taxable REIT subsidiaries.  Estimated REIT taxable income
excludes the undistributed taxable income of our domestic TRS, if any such
income exists, which is not included in REIT taxable income until distributed to
us.  There is no requirement that our domestic TRS distribute its
earnings to us.  Estimated REIT taxable income, however, includes the
taxable income of our foreign TRSs because we will generally be required to
recognize and report their taxable income on a current basis.  Because
not all companies use identical calculations, this presentation of estimated
REIT taxable income may not be comparable to other similarly-titled measures of
other companies.





Liquidity
and Capital Resources





As of March 31, 2010, our principal
sources of current liquidity were $18.0 million of net proceeds from sales of
common stock through our DRIP, and funds available in existing CDO financings of
$78.2 million.  As of December 31, 2009, our principal sources of
current liquidity were $43.4 million of net proceeds from our December 2009
offering and $8.9 million of net proceeds from sales of common stock through our
DRIP, and funds available in existing CDO financings of $80.5
million.





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Our on-going liquidity needs consist
principally of funds to make investments, make debt repurchases, make
distributions to our stockholders and pay our operating expenses, including our
management fees.  Our ability to meet our on-going liquidity needs will be
subject to our ability to generate cash from operations and, with respect to our
investments, our ability to maintain and/or obtain additional debt financing and
equity capital together with the sources of funds referred to
above.  Historically, we have financed a substantial portion of our
portfolio investments through CDOs that essentially match the maturity and
repricing dates of these financing vehicles with the maturities and repricing
dates of our investments.  We derive substantial operating cash from
our equity investments in our CDOs, which if they fail to meet certain tests,
will cease.  Through March 31, 2010, we have not experienced
difficulty in maintaining our existing CDO financing and have passed all of the
critical tests required by these financings.  However, we cannot
assure you that we will continue to meet all such critical tests in the future.
 If we are unable to renew, replace or expand our sources of existing
financing on substantially similar terms, we may be unable to implement our
investment strategies successfully and may be required to liquidate portfolio
investments.  If required, a sale of portfolio investments could be at
prices lower than the carrying value of such assets, which would result in
losses and reduced income.  Our restricted cash balance has both
operating and investing uses, for which operating cash is generated from
interest collections for payment of interest to note holders and other expenses
and investing is generated from principal repayments or paydowns for making
reinvestments in income generating activities.


At April 30, 2010, after paying the first quarter dividend, RCC’s liquidity of
$116.4 million consists of two primary sources:




·
            unrestricted
      cash and cash equivalents of $17.9 million and restricted cash of $3.5
      million in margin call accounts;
and




·
            capital
      available for reinvestment in its five CDO entities of $95.0 million, of
      which $1.7 million is designated to finance future funding commitments on
      CRE loans.





Our leverage ratio may vary as a result
of the various funding strategies we use.  As of March 31, 2010 and
December 31, 2009, our leverage ratio was 6.3 times and 6.7 times,
respectively.  The decrease in leverage ratio was primarily due to the
DRIP proceeds received and the repurchase of our CDO debt, at substantial
discounts, during the three months ended March 31, 2010.





Distributions





In order to maintain our qualification
as a REIT and to avoid corporate-level income tax on the income we distribute to
our stockholders, we intend to make regular quarterly distributions of all or
substantially all of our net taxable income to holders of our common
stock.  This requirement can impact our liquidity and capital
resources.  On March 18, 2010, we declared a quarterly distribution of
$0.25 per share of common stock, $10.1 million in the aggregate, which was paid
on April 27, 2010 to stockholders of record on March 31, 2010.





Our 2010
dividends will be determined by our board of directors who will also consider
the composition of any common dividends declared, including the option of paying
a portion in cash and the balance in additional common shares. Generally,
dividends payable in stock are not treated as dividends for purposes of the
deduction for dividends, or as taxable dividends to the
recipient.  The Internal Revenue Service, in Revenue Procedure
2009-15, has given guidance with respect to certain stock distributions by
publicly traded REITs.  That Revenue Procedure applies to
distributions made on or after January 1, 2008 and declared with respect to a
taxable year ending on or before December 31, 2009.  It provides that
publicly-traded REITs can distribute stock (common shares in our case) to
satisfy their REIT distribution requirements if stated conditions are
met.  These conditions include that at least 10% of the aggregate
declared distributions be paid in cash and the shareholders be permitted to
elect whether to receive cash or stock, subject to the limit set by the REIT on
the cash to be distributed in the aggregate to all shareholders.  We
did not use this Revenue Procedure with respect to any distributions for its
2008 and 2009 taxable years, but we are permitted to do so for distributions
with respect to 2010 and 2011.






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Contractual
Obligations and Commitments





The table below summarizes our
contractual obligations as of March 31, 2010.  The table below
excludes contractual commitments related to our derivatives, which we discuss in
our Annual Report on Form 10-K for fiscal 2009 in Item 7A − “Quantitative and
Qualitative Disclosures about Market Risk,” and in this report, in “Financial
Condition − Hedging Instruments,” because those obligations do not have fixed
and determinable payments.





Contractual
      Commitments
              (dollars
      in thousands)Payments
      due by periodTotal
            
            
            Less
      than
                1
      year
            
            
            1 –
      3 years
            
            
            3 –
      5 years
            
            
            More
      than
                5
      yearsCDOs
            
            $
            1,465,782
            
            
            $
            −
            
            
            $
            −
            
            
            $
            −
            
            
            $
            1,465,782
            (1)Unsecured
      junior subordinated debentures
            
            
            51,548
            
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            51,548
            (2)Base
      management fees(3)
            
            
            4,820
            
            
            
            4,820
            
            
            
            −
            
            
            
            −
            
            
            
            −Total
            
            $
            1,522,150
            
            
            $
            4,820
            
            
            $
            −
            
            
            $
            −
            
            
            $
            1,517,330


(1)
            Contractual
      commitment does not include $1.4 million, $5.6 million, $4.6 million, $6.3
      million and $15.0 million of interest expense payable through the non-call
      dates of July 2010, May 2011, June 2011, August 2011 and June 2012,
      respectively, on Apidos CDO I, Apidos Cinco CDO, Apidos CDO III, RREF
      2006-1 and RREF 2007-1.  The non-call date represents the
      earliest period under which the CDO assets can be sold, resulting in
      repayment of the CDO notes.




(2)
            Contractual
      commitment does not include $3.2 million and $4.5 million of interest
      expense payable through the non-call dates of June 2011 and October 2011,
      respectively, on our trust preferred
securities.




(3)
            Calculated
      only for the next 12 months based on our current equity, as defined in our
      management agreement.  Our
      management agreement also provides for an incentive fee arrangement that
      is based on operating performance.  Because the incentive fee is
      not a fixed and determinable amount, it is not included in this
      table.





At March 31, 2010, we had 11 interest
rate swap contracts with a notional value of $195.5 million.  These
contracts are fixed-for-floating interest rate swap agreements under which we
contracted to pay a fixed rate of interest for the term of the hedge and will
receive a floating rate of interest.  As of March 31, 2010, the
average fixed pay rate of our interest rate hedges was 5.16% and our receive
rate was one-month LIBOR, or 0.23%.  In addition, we also had an
interest rate cap agreement with a notional amount of $14.8 million outstanding
which reduced our exposure to variability in future cash flows attributable to
LIBOR.  The interest rate cap is a non-designated cash flow hedge and,
as a result, the change in fair value is recorded through our consolidated
statements of operations.







Off-Balance
Sheet Arrangements





As of March 31, 2010, we did not
maintain any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance, special
purpose or variable interest entities, established for the purpose of
facilitating off-balance sheet arrangements or contractually narrow or limited
purposes.  Further, as of March 31, 2010, we had not guaranteed any
obligations of unconsolidated entities or entered into any commitment or letter
of intent to provide additional funding to any such entities.





We have certain unfunded commitments
related to our commercial real estate loan portfolio that we may be required to
fund in the future.  Our unfunded commitments generally fall into two
categories: (1) pre-approved capital improvement projects; and (2) new
or additional construction costs subject, in each case, to the borrower meeting
specified criteria.  Upon completion of the improvements or
construction, we would receive additional loan interest income on the advanced
amount.  As of March 31, 2010, we had four loans with unfunded
commitments totaling $5.6 million, of which $1.7 million will be
funded by restricted cash in RREF CDO 2007-1.








ITEM 3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





As of March 31, 2010 and December 31,
2009, 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.





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





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The following sensitivity analysis
tables show, at March 31, 2010 and December 31, 2009, the estimated impact on
the fair value of our interest rate-sensitive investments and liabilities of
changes in interest rates, assuming rates instantaneously fall 100 basis points
and rise 100 basis points (dollars in thousands):





March
      31, 2010Interest
      rates fall 100
                basis
      points
            
            
            Unchanged
            
            
            Interest
      rates rise 100
                basis
      pointsCMBS
      – private placement (1)Fair value
            
            $
            42,647
            
            
            $
            40,773
            
            
            $
            39,012Change in fair value
            
            $
            1,847
            
            
            $
            −
            
            
            $
            (1,761
            )Change as a percent of fair
      value
            
            
            4.60
            %
            
            
            −
            %
            
            
            4.32
            %Hedging
      instrumentsFair value
            
            $
            (28,373
            )
            
            $
            (13,277
            )
            
            $
            (11,718
            )Change in fair value
            
            $
            (15,096
            )
            
            $
            −
            
            
            $
            1,559Change as a percent of fair
      value
            
            
            113.70
            %
            
            
            −
            %
            
            
            11.74
            %





December
      31, 2009Interest
      rates fall 100
                basis
      points
            
            
            Unchanged
            
            
            Interest
      rates rise 100
                basis
      pointsCMBS
      – private placement (1)Fair value
            
            $
            34,815
            
            
            $
            33,333
            
            
            $
            31,914Change in fair value
            
            $
            1,482
            
            
            $
            −
            
            
            $
            (1,419
            )Change as a percent of fair
      value
            
            
            4.45
            %
            
            
            −
            %
            
            
            4.26
            %Hedging
      instrumentsFair value
            
            $
            (27,870
            )
            
            $
            (12,812
            )
            
            $
            (10,559
            )Change in fair value
            
            $
            (15,058
            )
            
            $
            −
            
            
            $
            2,253Change as a percent of fair
      value
            
            
            117.53
            %
            
            
            −
            %
            
            
            17.59
            %


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




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




Effect
on Fair Value
 
 A component of interest rate risk is
the effect changes in interest rates will have on the market value of our
assets.  We face the risk that the market value of our assets will
increase or decrease at different rates than that of our liabilities, including
our hedging instruments.
 
 It is important to note that the impact
of changing interest rates on fair value can change significantly when interest
rates change beyond 100 basis points from current levels.  Therefore,
the volatility in the fair value of our assets could increase significantly when
interest rates change beyond 100 basis points from current levels.  In
addition, other factors impact the fair value of our interest rate-sensitive
investments and hedging instruments, such as the shape of the yield curve,
market expectations as to future interest rate changes and other market
conditions.  Accordingly, in the event of changes in actual interest
rates, the change in the fair value of our assets would likely differ from that
shown above and such difference might be material and adverse to our
stockholders.


Risk
Management





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




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




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




·
            using
      derivatives, financial futures, swaps, options, caps, floors and forward
      sales, to adjust the interest rate sensitivity of our fixed-rate
      commercial real estate mortgages and CMBS and our
    borrowing.







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ITEM 4.
            CONTROLS
      AND PROCEDURES




Disclosure Controls and
Procedures
 
 We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our Securities Exchange Act of 1934 reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
our Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.  In designing and evaluating the disclosure
controls and procedures, our management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
 
 Under the supervision of our Chief
Executive Officer and Chief Financial Officer, we have carried out an evaluation
of the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report.  Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
 
 Changes in Internal Control
of Financial Reporting
 
 There were no significant changes in
our internal control over financial reporting during the quarter ended March 31,
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


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PART
II.  OTHER INFORMATION








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





(a)
            In
      accordance with the provisions of the management agreement, on January 31,
      2010, we issued 73,815 shares of common stock to the
      Manager.  These shares represented 25% of the Manager’s
      quarterly incentive compensation fee that accrued for the three months
      ended December 31, 2009.  The issuance of these shares was
      exempt from the registration requirements of the Securities Act pursuant
      to Section 4(2) thereof.








ITEM 5.
            EXHIBITS





Exhibit No.
            
            Description3.1
            
            Restated
      Certificate of Incorporation of Resource Capital Corp. (1)3.2
            
            Amended
      and Restated Bylaws of Resource Capital Corp. (1)4.1
            
            Form
      of Certificate for Common Stock for Resource Capital Corp. (1)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.(11)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.(11)4.4
            
            Amended
      Junior Subordinated Note due 2036 in the principal amount of $25,774,000,
      dated October 26, 2009.(11)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.(11)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.(11)4.7
            
            Amended
      Junior Subordinated Note due 2036 in the principal amount of $25,774,000,
      dated October 26, 2009.(11)10.1(a)
            
            Master
      Repurchase Agreement between RCC Real Estate SPE 3, LLC and Natixis Real
      Estate Capital.(4)10.1(b)
            
            First
      Amendment to Master Repurchase Agreement between RCC Real Estate SPE 3,
      LLC and Natixis Real Estate Capital, dated September 25, 2008. (5)10.1(c)
            
            Second
      Amendment to Master Repurchase Agreement between RCC Real Estate SPE 3,
      LLC and Natixis Real Estate Capital, dated November 25, 2008. (6)10.1(d)
            
            Letter
      Agreement with respect to master Repurchase Agreement between Natixis Real
      Estate Capital, Inc. and RCC Real Estate SPE 3, LLC, dated as of March 13,
      2009. (7)10.1(e)
            
            Letter
      Agreement with respect to Master Repurchase Agreement between Natixis Real
      Estate Capital and RCC Real Estate SPE 3, LLC, dated June 29, 2009. (8)10.2(a)
            
            Guaranty
      made by Resource Capital Corp. as guarantor, in favor Natixis Real Estate
      Capital, Inc., dated April 20, 2007. (4)10.2(b)
            
            Second
      Amendment to Guaranty made by Resource Capital Corp. as guarantor, in
      favor of Natixis Real Estate Capital, Inc., dated September 25, 2008.
      (5)10.3(a)
            
            Amended
      and Restated Management Agreement between Resource Capital Corp., Resource
      Capital Manager, Inc. and Resource America, Inc. dated as of June 30,
      2008. (9)10.3(b)
            
            First
      Amendment to Amended and Restated Management Agreement between Resource
      Capital Corp., Resource Capital Manager, Inc. and Resource America, Inc.
      dated as of June 30, 2008. (10)10.4
            
            2005
      Stock Incentive Plan. (1)10.5
            
            2007
      Omnibus Equity Compensation Plan.(12)31.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
            
            Certification
      of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
            
            Certification
      of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.








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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 Current Report on Form 8-K filed
      on April 23, 2007.




(5)
            Filed
      previously as an exhibit to the Company’s Current Report on Form 8-K filed
      on September 29, 2008.




(6)
            Filed
      previously as an exhibit to the Company’s Current Report on Form 8-K filed
      on December 2, 2008.




(7)
            Filed
      previously as an exhibit to the Company’s Current Report on Form 8-K filed
      on March 17, 2009.




(8)
            Filed
      previously as an exhibit to the Company’s Current Report on Form 8-K filed
      on July 6, 2009.




(9)
            Filed
      previously as an exhibit to the Company’s Current Report on Form 8-K filed
      on July 3, 2008.




(10)
            Filed
      previously as an exhibit to the Company’s Current Report on Form 8-K filed
      on October 20, 2009.




(11)
            Filed
      previously as an exhibit to the Company’s Quarterly Report on Form 10-Q
      for the quarter ended September 30,
2009.




(12)
            Filed
      previously as an exhibit to the Company’s Annual Report on Form 10-K for
      the year ended December 31, 2008.








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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 duly authorized.





RESOURCE
      CAPITAL CORP.(Registrant)Date:
      May 6, 2010
            By:          /s/
      Jonathan Z.
      CohenJonathan Z.
    CohenChief Executive Officer and
      President








Date:
      May 6, 2010
            By:          /s/ David
      J.
      BryantDavid J.
  BryantChief Financial Officer and
      Chief Accounting Officer