UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (Exact name of registrant as specified in its charter) Maryland 20-2287134 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 390 RXR Plaza, Uniondale, New York 11556 (Address of principal executive offices) (Zip Code) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 ☐ TRANSITION REPORT ...

PART I [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) The unaudited consolidated financial statements for the period ended September 30, 2021, detail the company's financial position, performance, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Total assets and liabilities grew significantly due to increased CRE loans and borrowings, while equity rose from preferred stock issuances Balance Sheet Summary | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Assets | $2,061,750 | $1,654,084 | | Total Liabilities | $1,618,481 | $1,319,702 | | Total Stockholders' Equity | $443,269 | $334,382 | - Total assets increased by approximately **$407.7 million (24.6%)** from December 31, 2020, to September 30, 2021, primarily due to an increase in CRE loans[6](index=6&type=chunk) - Total liabilities increased by approximately **$298.8 million (22.6%)** over the same period, mainly from increased borrowings[6](index=6&type=chunk) - Stockholders' equity increased by approximately **$108.9 million (32.6%)** due to new preferred stock issuances[7](index=7&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) A net loss in Q3 2021 contrasts with prior-year income due to debt extinguishment costs, though nine-month results show a significant profit turnaround Operations Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $12,096 | $11,624 | $34,630 | $41,259 | | Total Operating Expenses | $8,089 | $324 | $5,240 | $68,881 | | Net (Loss) Income | $(4,928) | $8,159 | $21,767 | $(221,762) | | Net (Loss) Income Allocable to Common Shares | $(9,805) | $5,571 | $10,734 | $(229,525) | | Net (Loss) Income Per Common Share - Basic | $(1.03) | $0.51 | $1.09 | $(21.47) | - Net (loss) income allocable to common shares decreased significantly to **$(9.8) million** for the three months ended September 30, 2021, from $5.6 million in the prior year, primarily due to a **$9.0 million loss on extinguishment of debt**[11](index=11&type=chunk) - For the nine months ended September 30, 2021, net income allocable to common shares was **$10.7 million**, a substantial improvement from a **$(229.5) million net loss** in the prior year, largely driven by a net reversal of credit losses of **$15.4 million**[11](index=11&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) Comprehensive income for the nine-month period reflects a significant recovery from the prior year's loss, driven by reduced unrealized losses Comprehensive Income (Loss) Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net (Loss) Income | $(4,928) | $8,159 | $21,767 | $(221,762) | | Total Other Comprehensive Income (Loss) | $466 | $573 | $1,384 | $(12,265) | | Comprehensive (Loss) Income Allocable to Common Shares | $(9,339) | $6,144 | $12,118 | $(241,790) | - Comprehensive (loss) income allocable to common shares was **$(9.3) million** for the three months ended September 30, 2021, compared to **$6.1 million income** in the prior year[13](index=13&type=chunk) - For the nine months ended September 30, 2021, comprehensive income allocable to common shares was **$12.1 million**, a significant improvement from a **$(241.8) million loss** in the prior year, largely due to the absence of large unrealized losses on investment securities and derivatives seen in 2020[13](index=13&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS'%20EQUITY) Total equity increased significantly due to proceeds from preferred stock issuance and net income, partially offset by common stock repurchases Stockholders' Equity Summary | Metric (in thousands) | Dec 31, 2020 | Sep 30, 2021 | | :--- | :--- | :--- | | Total Stockholders' Equity | $334,382 | $443,269 | | Additional Paid-In Capital | $1,085,941 | $1,182,706 | | Distributions in Excess of Earnings | $(741,596) | $(730,862) | - Total stockholders' equity increased by **$108.9 million** from $334.4 million at December 31, 2020, to **$443.3 million** at September 30, 2021[16](index=16&type=chunk)[18](index=18&type=chunk) - This increase was primarily due to **$115.0 million in proceeds from the issuance of preferred stock** and **$13.0 million in net income**, partially offset by **$9.5 million in common stock repurchases**[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) A net increase in cash was driven by significant cash from financing activities, which more than offset cash used in investing activities Cash Flow Summary | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,494 | $20,289 | | Net cash (used in) provided by investing activities | $(316,421) | $154,725 | | Net cash provided by (used in) financing activities | $365,541 | $(113,567) | | Net increase in cash and cash equivalents and restricted cash | $74,614 | $61,447 | - Net cash provided by operating activities increased to **$25.5 million** for the nine months ended September 30, 2021, from $20.3 million in the prior year[20](index=20&type=chunk) - Investing activities shifted from providing $154.7 million in cash in 2020 to using **$(316.4) million** in 2021, mainly due to higher origination and purchase of loans[20](index=20&type=chunk) - Financing activities provided **$365.5 million** in cash in 2021, a significant turnaround from using $(113.6) million in 2020, driven by proceeds from preferred stock issuance and increased borrowings[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Detailed disclosures cover the company's organization, accounting policies, loan portfolio, borrowings, equity, and other key financial items [NOTE 1 - ORGANIZATION](index=10&type=section&id=NOTE%201%20-%20ORGANIZATION) The company operates as a REIT focused on CRE debt, undergoing a management change in 2020 and a reverse stock split in 2021 - ACRES Commercial Realty Corp. is a REIT primarily focused on originating, holding, and managing **CRE mortgage loans** and other CRE-related debt investments[22](index=22&type=chunk) - On July 31, 2020, ACRES Capital, LLC acquired the company's management contract, shifting focus to **nationwide middle market CRE lending**[22](index=22&type=chunk) - A **one-for-three reverse stock split** of outstanding common stock was effective February 16, 2021, with retroactive effect on financial statements[24](index=24&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Key accounting policies include consolidation principles, use of estimates impacted by COVID-19, and recent adoption of LIBOR transition guidance - The consolidated financial statements are prepared in conformity with GAAP, including accounts of majority-owned or controlled subsidiaries and VIEs where the company is the primary beneficiary[25](index=25&type=chunk) - Estimates, particularly those related to investment and derivative fair values, credit losses, and useful lives, are subject to **increased uncertainty due to the COVID-19 pandemic**[27](index=27&type=chunk)[28](index=28&type=chunk) - The company adopted guidance for LIBOR transition, replacing one-month LIBOR with **Compounded SOFR** plus a benchmark adjustment for certain senior notes in June 2021[40](index=40&type=chunk)[41](index=41&type=chunk) - New FASB guidance on convertible debt instruments, effective after December 15, 2021, will remove certain separation models, potentially impacting the accounting for convertible debt as a single liability[42](index=42&type=chunk) [NOTE 3 - VARIABLE INTEREST ENTITIES](index=15&type=section&id=NOTE%203%20-%20VARIABLE%20INTEREST%20ENTITIES) The company consolidates six CRE securitization VIEs for which it is the primary beneficiary, with assets and liabilities reflected on its balance sheet - The company was the primary beneficiary of **six Consolidated VIEs** at September 30, 2021, and December 31, 2020, which are CRE securitizations and CDOs[47](index=47&type=chunk) Consolidated VIE Metrics | Metric (in thousands) | Consolidated VIEs (Sep 30, 2021) | | :--- | :--- | | Total Assets | $1,231,607 | | Total Liabilities | $961,517 | - Creditors of Consolidated VIEs have **no recourse to the general credit of the company**, and the company did not provide financial support to any VIEs during the nine months ended September 30, 2021 or 2020[49](index=49&type=chunk) - The company holds a 100% interest in the common shares of unconsolidated VIEs, RCT I and RCT II, with an aggregate value of **$1.5 million**, and is not the primary beneficiary[53](index=53&type=chunk) [NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION](index=17&type=section&id=NOTE%204%20-%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) This note provides supplemental disclosures on cash interest paid and significant non-cash operating, investing, and financing activities Supplemental Cash Flow Data | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Interest expense paid in cash | $33,889 | $38,246 | | Income taxes paid in cash | $— | $— | | Distributions on preferred stock accrued but not paid | $3,260 | $6,900 | - Non-cash operating activities for the nine months ended September 30, 2021, included a receipt of right of use assets of **$(479) thousand** and execution of operating leases of **$479 thousand**[59](index=59&type=chunk) - Non-cash investing activities in 2020 included **$369.9 million** from the relinquishment of investment securities available-for-sale, with a corresponding non-cash financing activity of **$(369.9) million** for repayment of repurchase agreements[59](index=59&type=chunk) [NOTE 5 - LOANS](index=18&type=section&id=NOTE%205%20-%20LOANS) The company's loan portfolio, primarily CRE whole loans, increased significantly and is concentrated in the Southeast, Southwest, and Mountain regions Loan Portfolio Summary | Loan Type (in thousands) | Sep 30, 2021 (Carrying Value) | Dec 31, 2020 (Carrying Value) | | :--- | :--- | :--- | | CRE whole loans | $1,822,410 | $1,477,295 | | Mezzanine loan | $4,415 | $4,399 | | Preferred equity investments | $— | $25,988 | | Total CRE loans held for investment | $1,826,825 | $1,507,682 | - The total carrying value of CRE loans held for investment increased by approximately **$319.1 million (21.2%)** from December 31, 2020, to September 30, 2021[63](index=63&type=chunk) - At September 30, 2021, the CRE loan portfolio had a weighted-average one-month LIBOR floor of **1.03%**, down from 1.88% at December 31, 2020[63](index=63&type=chunk) - The portfolio is concentrated in the **Southeast (22.0%)**, **Southwest (18.4%)**, and **Mountain (15.7%)** regions at September 30, 2021[66](index=66&type=chunk) [NOTE 6 - FINANCING RECEIVABLES](index=19&type=section&id=NOTE%206%20-%20FINANCING%20RECEIVABLES) The allowance for credit losses decreased significantly due to net reversals reflecting improved macroeconomic conditions and loan performance Allowance for Credit Losses | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Allowance for credit losses at beginning of period | $34,310 | $1,460 | | (Reversal of) provision for credit losses | $(15,447) | $30,815 | | Allowance for credit losses at end of period | $18,863 | $34,310 | - A net reversal of expected credit losses of **$15.4 million** was recorded for the nine months ended September 30, 2021, driven by improved macroeconomic conditions, loan paydowns, and collateral performance[70](index=70&type=chunk) - At September 30, 2021, **$39.8 million** of whole loans were past due greater than 90 days, an increase from $11.4 million at December 31, 2020[85](index=85&type=chunk) - The company uses a **1-5 risk rating scale** for CRE loans, with Rating 2 representing performance consistent with expectations and Rating 5 indicating significant underperformance or default[75](index=75&type=chunk)[76](index=76&type=chunk) [NOTE 7 - INVESTMENT IN REAL ESTATE AND OTHER ACQUIRED ASSETS AND ASSUMED LIABILITIES](index=23&type=section&id=NOTE%207%20-%20INVESTMENT%20IN%20REAL%20ESTATE%20AND%20OTHER%20ACQUIRED%20ASSETS%20AND%20ASSUMED%20LIABILITIES) This note details investments in real estate, primarily a hotel property acquired via deed in lieu of foreclosure in November 2020 Real Estate Investment Summary | Asset Type (in thousands) | Sep 30, 2021 (Book Value) | Dec 31, 2020 (Book Value) | | :--- | :--- | :--- | | Investments in real estate | $32,799 | $33,806 | | Right of use assets | $5,529 | $5,592 | | Intangible assets | $3,041 | $3,294 | | Lease liabilities | $(3,072) | $(3,107) | - In November 2020, the company acquired a hotel property via deed in lieu of foreclosure, accounting for it as an asset acquisition with a fair value of total net assets acquired at **$39.8 million**[88](index=88&type=chunk) - Intangible assets include a franchise agreement and customer list, with expected amortization expenses of **$375,000** in 2021 and 2022[93](index=93&type=chunk) [NOTE 8 - LEASES](index=24&type=section&id=NOTE%208%20-%20LEASES) The company holds operating leases for office space, equipment, and a ground lease, with terms expiring between 2024 and 2028 - Operating leases for office space and equipment have terms expiring between **January 2024 and July 2028**[94](index=94&type=chunk) Lease Metrics | Metric (in thousands) | Sep 30, 2021 | | :--- | :--- | | Right of use assets | $455 | | Lease liabilities | $(488) | | Weighted average remaining lease term | 6.8 years | | Weighted average discount rate | 10.65% | - Operating lease costs for the nine months ended September 30, 2021, totaled **$50,000**[98](index=98&type=chunk) [NOTE 9 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE](index=26&type=section&id=NOTE%209%20-%20INVESTMENT%20SECURITIES%20AVAILABLE-FOR-SALE) The company disposed of its CMBS portfolio due to COVID-19 market disruptions, incurring significant losses in 2020 but gains in 2021 - Substantially all CMBS available-for-sale were sold by April 2020 due to COVID-19 related liquidity shocks, resulting in **$180.3 million in realized losses** during the nine months ended September 30, 2020[101](index=101&type=chunk)[102](index=102&type=chunk) - The remaining two CMBS securities were sold in March 2021 for **$3.0 million** cash proceeds, generating **$878,000 in gains** during the nine months ended September 30, 2021[102](index=102&type=chunk) [NOTE 10 - INVESTMENTS IN UNCONSOLIDATED ENTITIES](index=26&type=section&id=NOTE%2010%20-%20INVESTMENTS%20IN%20UNCONSOLIDATED%20ENTITIES) The company holds a 100% interest in the common shares of two unconsolidated entities, valued at $1.5 million and accounted for using the cost method - The company holds a 100% interest in RCT I and RCT II common shares, totaling **$1.5 million**, accounted for using the cost method[103](index=103&type=chunk) - Dividend income from these investments was **$16,000** for the three months and **$49,000** for the nine months ended September 30, 2021[103](index=103&type=chunk) [NOTE 11 - BORROWINGS](index=28&type=section&id=NOTE%2011%20-%20BORROWINGS) Borrowings increased significantly through new securitizations and senior notes, while existing convertible and senior notes were partially or fully redeemed Borrowings Summary | Borrowing Type (in thousands) | Sep 30, 2021 (Outstanding Borrowings) | Dec 31, 2020 (Outstanding Borrowings) | | :--- | :--- | :--- | | Total Borrowings | $1,602,602 | $1,304,727 | | Weighted Average Borrowing Rate | 2.62% | 2.83% | | Weighted Average Remaining Maturity | 9.9 years | 13.0 years | - Total outstanding borrowings increased by approximately **$297.9 million (22.8%)** from December 31, 2020, to September 30, 2021[107](index=107&type=chunk) - The company closed ACR 2021-FL1, a **$802.6 million CRE debt securitization**, and issued **$150.0 million of 5.75% Senior Unsecured Notes** in August 2021[116](index=116&type=chunk)[121](index=121&type=chunk) - The 12.00% Senior Unsecured Notes were fully redeemed for **$55.3 million**, and **$55.7 million** of 4.50% Convertible Senior Notes were repurchased, resulting in a **$9.0 million loss on extinguishment of debt**[127](index=127&type=chunk)[120](index=120&type=chunk) [NOTE 12 - SHARE ISSUANCE AND REPURCHASE](index=34&type=section&id=NOTE%2012%20-%20SHARE%20ISSUANCE%20AND%20REPURCHASE) The company issued 4.6 million shares of Series D Preferred Stock and repurchased $14.7 million of common stock under an authorized program - Issued **4.6 million shares** of 7.875% Series D Cumulative Redeemable Preferred Stock for net proceeds of **$110.5 million**[142](index=142&type=chunk) - Repurchased **$14.7 million** of common stock (approximately 1.1 million shares) during the nine months ended September 30, 2021, completing a $20.0 million program[144](index=144&type=chunk) - The Board reauthorized a new **$20.0 million share repurchase program** for common stock in November 2021[144](index=144&type=chunk)[212](index=212&type=chunk) [NOTE 13 - SHARE-BASED COMPENSATION](index=35&type=section&id=NOTE%2013%20-%20SHARE-BASED%20COMPENSATION) Shareholders approved an increase in authorized shares for equity compensation plans, with $961,000 in related expense recognized for the nine-month period - Shareholders approved the Omnibus Plan and Manager Plan, increasing authorized shares for issuance to **1,700,817 shares** of common stock combined[146](index=146&type=chunk) - Stock-based compensation expense was **$771,000** for the three months and **$961,000** for the nine months ended September 30, 2021[147](index=147&type=chunk) - At September 30, 2021, 333,329 unvested restricted common stock shares were outstanding, with **$4.9 million in unrecognized compensation costs** expected to be recognized over a weighted average of 3.7 years[148](index=148&type=chunk)[149](index=149&type=chunk) [NOTE 14 - EARNINGS PER SHARE](index=36&type=section&id=NOTE%2014%20-%20EARNINGS%20PER%20SHARE) The company reported a net loss per share for Q3 2021 and net income per share for the nine-month period Earnings Per Share Summary | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net (Loss) Income Allocable to Common Shares | $(9,805) (in thousands) | $10,734 (in thousands) | | Net (Loss) Income Per Common Share - Basic | $(1.03) | $1.09 | | Net (Loss) Income Per Common Share - Diluted | $(1.03) | $1.09 | - Weighted average common shares outstanding (basic) were **9,086,751** for the three months and **9,351,477** for the nine months ended September 30, 2021[155](index=155&type=chunk) - The 4.50% Convertible Senior Notes were **excluded from diluted EPS calculations** because the average market price of common stock did not exceed the conversion price[157](index=157&type=chunk) [NOTE 15 - DISTRIBUTIONS](index=37&type=section&id=NOTE%2015%20-%20DISTRIBUTIONS) The company paid preferred stock distributions but suspended common share distributions to preserve liquidity and utilize net operating loss carryforwards - The company must distribute at least **90% of its taxable income** to qualify as a REIT[158](index=158&type=chunk) - **No common share distributions** were paid for the three or nine months ended September 30, 2021, or the year ended December 31, 2020, due to a focus on liquidity and net operating loss carryforwards[158](index=158&type=chunk)[159](index=159&type=chunk) Preferred Stock Distributions | Preferred Stock Type | Date Paid | Total Distributions Paid (in thousands) - 2021 | Distributions Per Share - 2021 | | :--- | :--- | :--- | :--- | | Series C Preferred Stock | Nov 1 | $2,588 | $0.5390625 | | Series C Preferred Stock | Jul 30 | $2,588 | $0.5390625 | | Series C Preferred Stock | Apr 30 | $2,588 | $0.5390625 | | Series D Preferred Stock | Nov 1 | $2,264 | $0.4921875 | | Series D Preferred Stock | Jul 30 | $1,736 | $0.377344 | [NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE LOSS](index=38&type=section&id=NOTE%2016%20-%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) The accumulated other comprehensive loss, comprising net unrealized loss on derivatives, decreased due to reclassification adjustments AOCI Reconciliation | Metric (in thousands) | Amount | | :--- | :--- | | Balance at January 1, 2021 | $(9,978) | | Amounts reclassified from accumulated other comprehensive loss | $1,384 | | Balance at September 30, 2021 | $(8,594) | - The accumulated other comprehensive loss decreased by **$1.384 million** during the nine months ended September 30, 2021, due to reclassification adjustments from unrealized losses on derivatives[165](index=165&type=chunk) [NOTE 17 - RELATED PARTY TRANSACTIONS](index=38&type=section&id=NOTE%2017%20-%20RELATED%20PARTY%20TRANSACTIONS) The company has significant related party transactions with its manager, ACRES Capital Corp., including management fees and expense reimbursements - The Manager (a subsidiary of ACRES Capital Corp.) earned base management fees of **$1.7 million** for the three months and **$4.4 million** for the nine months ended September 30, 2021[167](index=167&type=chunk) - The company reimbursed the Manager **$899,000** for the three months and **$3.5 million** for the nine months ended September 30, 2021, for compensation and costs[167](index=167&type=chunk) - A **$12.0 million loan** to ACRES Capital Corp. (the 'ACRES Loan') had a principal balance of **$11.7 million** at September 30, 2021, accruing interest at 3.00% per annum[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) - ACRES Share Holdings, LLC, an affiliate of the Manager, was granted **299,999 shares** under the Manager Incentive Plan during the nine months ended September 30, 2021[174](index=174&type=chunk) [NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS](index=42&type=section&id=NOTE%2018%20-%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) Fair value measurements for financial instruments are provided, with most assets and liabilities valued using significant unobservable (Level 3) inputs Fair Value Summary | Asset/Liability (in thousands) | Carrying Value (Sep 30, 2021) | Fair Value (Sep 30, 2021) | Level 3 Fair Value (Sep 30, 2021) | | :--- | :--- | :--- | :--- | | CRE whole loans | $1,822,410 | $1,849,066 | $1,849,066 | | CRE mezzanine loan | $4,415 | $4,700 | $4,700 | | Loan receivable - related party | $11,675 | $10,473 | $10,473 | | Senior notes in CRE securitizations | $960,709 | $970,552 | $970,552 | | 4.50% Convertible Senior Notes | $85,810 | $87,935 | $87,935 | - The fair values of short-term financial instruments approximate their carrying values[185](index=185&type=chunk) - Fair values for CRE loans are estimated by discounting expected future cash flows using current interest rates for similar loans, with fixed-rate loans valued using third-party pricing sources[186](index=186&type=chunk)[187](index=187&type=chunk) [NOTE 19 - MARKET RISK AND DERIVATIVE INSTRUMENTS](index=44&type=section&id=NOTE%2019%20-%20MARKET%20RISK%20AND%20DERIVATIVE%20INSTRUMENTS) The company manages market risks using derivatives, though all interest rate swaps associated with its prior CMBS portfolio were terminated in 2020 - The company uses derivatives, primarily interest rate swaps, to mitigate interest rate risk[193](index=193&type=chunk) - All interest rate swap positions associated with the prior CMBS portfolio were terminated in April 2020, resulting in a **realized loss of $11.8 million**[195](index=195&type=chunk) - At September 30, 2021, the company had a **$9.0 million loss** recorded in accumulated other comprehensive (loss) income from terminated hedges, which will be amortized into earnings over the remaining debt life[195](index=195&type=chunk) Derivative Impact on Operations | Derivative Type | Consolidated Statements of Operations Location | Realized and Unrealized Gain (Loss) (in thousands) - 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Interest rate swap contracts, hedging | Interest expense | $(1,384) | [NOTE 20 - OFFSETTING OF FINANCIAL LIABILITIES](index=45&type=section&id=NOTE%2020%20-%20OFFSETTING%20OF%20FINANCIAL%20LIABILITIES) Warehouse financing facilities are presented on a gross basis on the balance sheet, though underlying agreements provide for a right of offset Offsetting Summary | Liability (in thousands) | Gross Amounts of Recognized Liabilities (Sep 30, 2021) | Net Amounts of Liabilities Included on the Consolidated Balance Sheets (Sep 30, 2021) | | :--- | :--- | :--- | | Warehouse financing facilities | $320,465 | $320,465 | - All balances associated with warehouse financing facilities are presented on a **gross basis** on the consolidated balance sheets[201](index=201&type=chunk) - Underlying agreements for certain warehouse financing facilities provide a **right of offset** in the event of default or bankruptcy[201](index=201&type=chunk) [NOTE 21 - COMMITMENTS AND CONTINGENCIES](index=46&type=section&id=NOTE%2021%20-%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces potential litigation, has significant unfunded loan commitments, and acknowledges uncertain long-term impacts from the COVID-19 pandemic - Reserves for potential litigation related to loan repurchases or indemnifications totaled **$1.4 million** at September 30, 2021[203](index=203&type=chunk) - Unfunded commitments on originated CRE loans were **$140.6 million** at September 30, 2021, an increase from $67.2 million at December 31, 2020[207](index=207&type=chunk) - The COVID-19 pandemic's prolonged duration and impact may continue to have a **long-term and material effect** on the company's results of operations, financial condition, and cash flows[204](index=204&type=chunk) [NOTE 22 - SUBSEQUENT EVENTS](index=48&type=section&id=NOTE%2022%20-%20SUBSEQUENT%20EVENTS) Subsequent events include an agreement to issue additional Series D Preferred Stock and the reauthorization of a common stock repurchase program - On October 4, 2021, the company entered into an Equity Distribution Agreement to issue and sell up to **2.2 million shares of Series D Preferred Stock**[211](index=211&type=chunk) - On November 5, 2021, the Board authorized a **$20.0 million common stock repurchase program**[212](index=212&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=49&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial results, the impact of the ACRES acquisition, COVID-19 challenges, and the transition from LIBOR [Overview](index=49&type=section&id=Overview) The company resumed loan originations and restructured its capital following the 2020 ACRES acquisition while managing risks from the COVID-19 pandemic - The company is an externally managed REIT focused on originating, holding, and managing **CRE mortgage loans** and debt investments[215](index=215&type=chunk) - Resumed originating floating-rate CRE loans in November 2020, with **41 loans totaling $1.1 billion** in commitments originated during the nine months ended September 30, 2021[219](index=219&type=chunk) - Issued **4.6 million shares of 7.875% Series D Preferred Stock** for net proceeds of $110.5 million and **$150.0 million of 5.75% Senior Unsecured Notes** for net proceeds of $146.7 million[217](index=217&type=chunk)[218](index=218&type=chunk) - Redeemed **$50.0 million of 12.00% Senior Unsecured Notes** and partially repurchased **$55.7 million of 4.50% Convertible Senior Notes**, incurring a **$9.0 million loss on extinguishment**[218](index=218&type=chunk) - The company has **not paid common share distributions in 2020 or 2021** due to the impact of COVID-19 and resulting net operating loss carryforwards[216](index=216&type=chunk) [Impact of COVID-19](index=52&type=section&id=Impact%20of%20COVID-19) The COVID-19 pandemic continues to create significant uncertainty for the CRE business, requiring active liquidity and credit risk management - The COVID-19 pandemic continues to cause **uncertainty** on the U.S. and global economies, and the CRE business in particular[232](index=232&type=chunk) - The company actively manages corporate liquidity and operations, using legal and structural options like **forbearance and extension provisions** to manage credit risk[232](index=232&type=chunk) - The pandemic's impact has had, and may continue to have, a **long-term and material impact** on the company's results of operations, financial condition, and liquidity[232](index=232&type=chunk) [Impact of Reference Rate Reform](index=52&type=section&id=Impact%20of%20Reference%20Rate%20Reform) The phase-out of LIBOR presents risks, with the company transitioning some borrowings to SOFR, which may increase financing costs - The company's CRE whole loans and asset-specific borrowings are primarily benchmarked to **one-month LIBOR**[233](index=233&type=chunk) - The U.K. Financial Conduct Authority announced the phase-out of LIBOR by the end of 2021 for one-week and two-month USD LIBOR, and by **June 30, 2023**, for remaining tenors[233](index=233&type=chunk) - In June 2021, two securitizations (XAN 2020-RSO8 and XAN 2020-RSO9) replaced one-month LIBOR with **Compounded SOFR** plus a benchmark adjustment[234](index=234&type=chunk) - The transition from LIBOR to SOFR or other alternative rates may cause **financial market disruptions and increased financing costs**, adversely affecting the company's business[235](index=235&type=chunk) [Results of Operations](index=52&type=section&id=Results%20of%20Operations) A Q3 net loss was driven by debt extinguishment costs, while nine-month net income was boosted by credit loss reversals and new real estate income Operations Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net (Loss) Income Allocable to Common Shares | $(9,805) | $5,571 | $10,734 | $(229,525) | | Net (Loss) Income Per Common Share - Basic | $(1.03) | $0.51 | $1.09 | $(21.47) | [Net Interest Income](index=53&type=section&id=Net%20Interest%20Income) Net interest income decreased due to lower interest from paid-off investments and CMBS dispositions, partially offset by higher interest expense Net Interest Income Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $23,986 | $24,638 | $74,528 | $85,171 | | Total Interest Expense | $14,534 | $13,033 | $46,960 | $43,974 | | Net Interest Income | $9,452 | $11,605 | $27,568 | $41,197 | - Aggregate interest income decreased by **$652,000** for the three months and **$10.6 million** for the nine months ended September 30, 2021, primarily due to payoffs of preferred equity investments and disposition of the CMBS portfolio[242](index=242&type=chunk)[244](index=244&type=chunk) - Aggregate interest expense increased by **$1.5 million** for the three months and **$3.0 million** for the nine months ended September 30, 2021, mainly due to new securitizations and the issuance of 5.75% Senior Unsecured Notes[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) [Average Net Yield and Average Cost of Funds](index=56&type=section&id=Average%20Net%20Yield%20and%20Average%20Cost%20of%20Funds) The average net yield on interest-earning assets decreased for the quarter but increased for the nine-month period, while the cost of funds rose Yield and Cost of Funds | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total interest income/average net yield | 5.25% | 5.43% | 5.78% | 5.67% | | Total interest expense/average cost of funds | (3.67)% | (3.32)% | (4.25)% | (3.48)% | - The average net yield on interest-earning assets decreased from **5.43% to 5.25%** for the three months ended September 30, 2021, but increased from **5.67% to 5.78%** for the nine months[250](index=250&type=chunk)[252](index=252&type=chunk) - The average cost of funds increased from **(3.32)% to (3.67)%** for the three months and from **(3.48)% to (4.25)%** for the nine months ended September 30, 2021[250](index=250&type=chunk)[252](index=252&type=chunk) [Real Estate Income and Other Revenue](index=57&type=section&id=Real%20Estate%20Income%20and%20Other%20Revenue) Real estate income increased significantly due to sales revenue from a hotel property acquired in late 2020 and reopened in Q1 2021 Revenue Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Real estate income | $2,627 | $— | $7,013 | $— | | Other revenue | $17 | $19 | $49 | $62 | | Total | $2,644 | $19 | $7,062 | $62 | - Real estate income increased by **$2.6 million** for the three months and **$7.0 million** for the nine months ended September 30, 2021, attributable to sales revenue from a hotel property acquired in November 2020[255](index=255&type=chunk) - The hotel property reopened in Q1 2021, initially benefiting from a federal government contract and later from **increased occupancy** as the economy reopened[255](index=255&type=chunk) [Operating Expenses](index=58&type=section&id=Operating%20Expenses) Operating expenses rose for the quarter due to hotel operations but decreased for the nine-month period, driven by lower G&A and equity compensation Operating Expenses Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Management fees | $1,700 | $1,284 | $4,405 | $4,728 | | Equity compensation | $771 | $1,905 | $961 | $3,118 | | Real estate operating expenses | $2,401 | $— | $6,713 | $— | | General and administrative | $2,664 | $5,295 | $8,533 | $11,552 | | Provision for (reversal of) credit losses, net | $537 | $(8,172) | $(15,447) | $49,449 | | Total Operating Expenses | $8,089 | $324 | $5,240 | $68,881 | - Real estate operating expenses increased by **$2.4 million** for the three months and **$6.7 million** for the nine months ended September 30, 2021, due to the acquired hotel property[260](index=260&type=chunk) - Equity compensation decreased by **$1.1 million** for the three months and **$2.2 million** for the nine months, primarily due to the acceleration of unvested stock awards upon the ACRES acquisition[259](index=259&type=chunk) - General and administrative expenses decreased by **$2.6 million** for the three months and **$3.0 million** for the nine months, mainly due to lower professional services and rent/utilities post-ACRES acquisition[262](index=262&type=chunk) - A provision for credit losses of **$537,000** was recorded for the three months, while a reversal of **$15.4 million** was recorded for the nine months ended September 30, 2021, reflecting improved macroeconomic conditions[264](index=264&type=chunk) [Other Income (Expense)](index=60&type=section&id=Other%20Income%20(Expense)) A $9.0 million loss on debt extinguishment drove other expenses for the quarter, while nine-month results improved due to the absence of prior-year investment losses Other Income (Expense) Summary | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net realized and unrealized gain (loss) on investment securities available-for-sale and loans and derivatives | $— | $96 | $878 | $(186,243) | | Fair value and other adjustments on asset held for sale | $— | $(3,371) | $— | $(8,089) | | Loss on extinguishment of debt | $(9,006) | $— | $(9,006) | $— | | Total Other Income (Expense) | $(8,935) | $(3,141) | $(7,623) | $(194,140) | - A **$9.0 million loss on extinguishment of debt** was recorded for the three and nine months ended September 30, 2021, due to the redemption of 12.00% Senior Unsecured Notes and partial repurchase of 4.50% Convertible Senior Notes[268](index=268&type=chunk) - The nine-month period saw a **$187.1 million decrease in losses** from investment securities and derivatives compared to 2020, which included $180.3 million in losses from CMBS portfolio disposition[267](index=267&type=chunk) [Financial Condition](index=62&type=section&id=Financial%20Condition) Total assets grew to $2.1 billion, driven by an expanding CRE loan portfolio, while stockholders' equity increased due to a preferred stock issuance - Total assets increased to **$2.1 billion** at September 30, 2021, from $1.7 billion at December 31, 2020[269](index=269&type=chunk) - The leverage ratio (borrowings to stockholders' equity) decreased to **3.6 times** at September 30, 2021, from 3.9 times at December 31, 2020, primarily due to the Series D Preferred Stock issuance[365](index=365&type=chunk) - Common stock book value was **$22.68 per share** at September 30, 2021, an increase of $2.11 per share from December 31, 2020[230](index=230&type=chunk)[337](index=337&type=chunk) [Summary](index=62&type=section&id=Summary) The company's total assets increased to $2.1 billion at September 30, 2021, from $1.7 billion at December 31, 2020 - Total assets were **$2.1 billion** at September 30, 2021, compared to **$1.7 billion** at December 31, 2020[269](index=269&type=chunk) [Investment Portfolio](index=62&type=section&id=Investment%20Portfolio) The investment portfolio grew to $1.87 billion, driven by CRE whole loan originations, while preferred equity and CMBS holdings were fully divested Investment Portfolio Summary | Asset Type (in thousands) | Sep 30, 2021 (Net Carrying Amount) | Dec 31, 2020 (Net Carrying Amount) | | :--- | :--- | :--- | | CRE whole loans | $1,822,410 | $1,477,295 | | CRE mezzanine loan | $4,415 | $4,399 | | Preferred equity investments | $— | $25,988 | | Total investment portfolio | $1,866,670 | $1,555,704 | - The net carrying amount of the investment portfolio increased by approximately **$311.0 million (20.0%)** from December 31, 2020, to September 30, 2021[271](index=271&type=chunk) - During the nine months ended September 30, 2021, the company originated **$1.1 billion** in floating-rate CRE whole loan commitments and received **$670.6 million** from loan payoffs and paydowns[272](index=272&type=chunk) - Preferred equity investments paid off, generating **$28.8 million** in proceeds, and the remaining CMBS securities were sold in March 2021[276](index=276&type=chunk)[278](index=278&type=chunk) [Financing Receivables](index=65&type=section&id=Financing%20Receivables) The allowance for credit losses decreased significantly due to net reversals, reflecting improved macroeconomic conditions and loan performance Allowance for Credit Losses | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Allowance for credit losses at beginning of period | $34,310 | $1,460 | | (Reversal of) provision for credit losses | $(15,447) | $30,815 | | Allowance for credit losses at end of period | $18,863 | $34,310 | - A net reversal of expected credit losses of **$15.4 million** was recorded for the nine months ended September 30, 2021, due to improved macroeconomic conditions and loan performance[281](index=281&type=chunk) - At September 30, 2021, **$39.8 million** of whole loans were past due greater than 90 days, an increase from $11.4 million at December 31, 2020[295](index=295&type=chunk) - **No TDRs** occurred during the nine months ended September 30, 2021, but 13 loans received term extensions with a weighted average of 11 months[297](index=297&type=chunk) [Restricted Cash](index=68&type=section&id=Restricted%20Cash) Restricted cash decreased by $6.0 million, primarily due to paydowns on CRE securitization senior notes and a securitization liquidation - Restricted cash decreased by **$6.0 million** from $38.4 million at December 31, 2020, to **$32.4 million** at September 30, 2021[298](index=298&type=chunk) - The decrease was mainly attributable to paydowns on CRE securitization senior notes and the liquidation of XAN 2019-RSO7[298](index=298&type=chunk) [Accrued Interest Receivable](index=69&type=section&id=Accrued%20Interest%20Receivable) Accrued interest receivable decreased due to lower coupon rates on floating-rate loans and the sale of remaining CMBS securities Accrued Interest Receivable Summary | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Accrued interest receivable from loans | $6,643 | $7,310 | | Accrued interest receivable from securities | $— | $56 | | Total | $6,678 | $7,372 | - Accrued interest receivable decreased by **$694,000**, primarily due to declines in coupon rates of CRE floating-rate loans and the sale of remaining CMBS[301](index=301&type=chunk) [Other Assets](index=69&type=section&id=Other%20Assets) Other assets decreased due to the sale of fixed-rate CRE whole loans, partially offset by increased receivables related to the acquired hotel Other Assets Summary | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Tax receivables and prepaid taxes | $2,120 | $2,244 | | Other receivables | $1,133 | $804 | | Other prepaid expenses | $2,305 | $568 | | CRE fixed-rate whole loans, held for sale | $— | $4,809 | | Total | $5,835 | $8,783 | - Other assets decreased by **$2.9 million**, primarily due to the sale of two fixed-rate CRE whole loans for **$4.8 million**[303](index=303&type=chunk) - This decrease was partially offset by a **$329,000** increase in other receivables and a **$1.7 million** increase in other prepaid expenses related to the acquired hotel property[303](index=303&type=chunk) [Core and Non-Core Asset Classes](index=69&type=section&id=Core%20and%20Non-Core%20Asset%20Classes) The company's strategy targets core CRE assets while exiting legacy non-core asset classes like residential real estate and commercial finance - Core asset classes include **first mortgage loans (whole loans)**, A notes, B notes, mezzanine debt, preferred equity investments, and CRE equity investments[305](index=305&type=chunk) - A strategic plan approved in November 2016 focused on CRE debt investments, disposing of legacy CRE debt, and **exiting non-core asset classes**[305](index=305&type=chunk) - Non-core asset classes historically included residential real estate-related assets (mortgage loans, MBS) and commercial finance assets (secured corporate loans, ABS, CDOs, structured notes)[306](index=306&type=chunk)[307](index=307&type=chunk) [Derivative Instruments](index=70&type=section&id=Derivative%20Instruments) All interest rate swaps associated with the prior CMBS portfolio were terminated in 2020, with remaining unrealized losses being amortized - The company historically used interest rate swaps to hedge interest rate risk, classifying them as cash flow hedges[308](index=308&type=chunk) - All interest rate swap positions associated with the CMBS portfolio were terminated in April 2020, realizing an **$11.8 million loss**[309](index=309&type=chunk) - At September 30, 2021, a **$9.0 million loss** from terminated hedges was recorded in accumulated other comprehensive (loss) income, amortized into earnings over the remaining debt life[309](index=309&type=chunk) [Senior Secured Financing Facility and Term Warehouse Financing Facilities](index=71&type=section&id=Senior%20Secured%20Financing%20Facility%20and%20Term%20Warehouse%20Financing%20Facilities) The company utilizes senior secured and term warehouse financing facilities, with borrowings increasing significantly and a new facility added Financing Facilities Summary | Facility (in thousands) | Sep 30, 2021 (Outstanding Borrowings) | Dec 31, 2020 (Outstanding Borrowings) | | :--- | :--- | :--- | | Senior Secured Financing Facility | $37,596 | $29,314 | | CRE - Term Warehouse Financing Facilities | $320,465 | $12,258 | - Outstanding borrowings under term warehouse financing facilities increased significantly from **$12.3 million** at December 31, 2020, to **$320.5 million** at September 30, 2021[314](index=314&type=chunk) - The JPMorgan Chase Facility's maturity was extended to October 2024, and a new **$250.0 million Morgan Stanley Facility** was entered into in November 2021[318](index=318&type=chunk)[319](index=319&type=chunk) - The Morgan Stanley Facility includes margin call provisions and financial covenants, with the company guaranteeing payment up to **25% of the unpaid aggregate repurchase price**[320](index=320&type=chunk)[321](index=321&type=chunk) [Securitizations](index=72&type=section&id=Securitizations) The company retains equity in six securitizations, recently closing a new $802.6 million CRE debt securitization and transitioning two others to SOFR - The company retains equity in **six securitization entities**, three of which are substantially liquidated[323](index=323&type=chunk) - XAN 2019-RSO7 was optionally redeemed in May 2021 in conjunction with the closing of ACR 2021-FL1[324](index=324&type=chunk) - ACR 2021-FL1, a new **$802.6 million CRE debt securitization**, includes a reinvestment period ending May 2023[327](index=327&type=chunk) - XAN 2020-RSO8 and XAN 2020-RSO9 transitioned their senior notes' benchmark rate from one-month LIBOR to **Compounded SOFR** plus a benchmark adjustment in June 2021[325](index=325&type=chunk)[326](index=326&type=chunk) [Corporate Debt](index=72&type=section&id=Corporate%20Debt) The company repurchased convertible notes, issued new senior unsecured notes, and fully redeemed its 12.00% senior unsecured notes - Repurchased **$55.7 million** of 4.50% Convertible Senior Notes during the three months ended September 30, 2021, resulting in a **$1.5 million charge to earnings**[330](index=330&type=chunk) - Issued **$150.0 million** of 5.75% Senior Unsecured Notes in August 2021, which are redeemable at the company's option with a make-whole premium prior to May 15, 2026[331](index=331&type=chunk) - Fully redeemed the 12.00% Senior Unsecured Notes for **$55.3 million** in August 2021, incurring an **$8.0 million charge to earnings**, including a $5.0 million make-whole amount[334](index=334&type=chunk) [Stockholders' Equity](index=75&type=section&id=Stockholders'%20Equity) Total stockholders' equity increased to $443.3 million, driven by proceeds from the Series D Preferred Stock offering and retained earnings - Total stockholders' equity was **$443.3 million** at September 30, 2021, up from $334.4 million at December 31, 2020[335](index=335&type=chunk) - The increase was primarily attributable to **$110.5 million in net proceeds** from the Series D Preferred Stock offering and an increase in retained earnings, offset by common stock repurchases[335](index=335&type=chunk) [Balance Sheet - Book Value Reconciliation](index=75&type=section&id=Balance%20Sheet%20-%20Book%20Value%20Reconciliation) Common stock book value per share increased to $22.68, primarily due to net income and changes in other comprehensive income Book Value Reconciliation | Metric | 9 Months Ended Sep 30, 2021 (Total Amount in thousands) | 9 Months Ended Sep 30, 2021 (Per Share Amount) | | :--- | :--- | :--- | | Common stock book value at beginning of period | $218,427 | $20.57 | | Net (loss) income allocable to common shares | $10,734 | $1.12 | | Change in other comprehensive income on derivatives | $1,384 | $0.15 | | Repurchase of common stock | $(14,725) | $0.77 | | Common stock book value at end of period | $216,765 | $22.68 | - Common stock book value increased by **$2.11 per share**, from $20.57 at December 31, 2020, to **$22.68** at September 30, 2021[337](index=337&type=chunk) [Management Agreement Equity](index=75&type=section&id=Management%20Agreement%20Equity) The monthly base management fee is calculated based on the company's equity, which was $447.2 million at September 30, 2021 - The monthly base management fee is the greater of 1/12 of the company's equity multiplied by **1.50%** or **$442,000** through July 31, 2022[338](index=338&type=chunk) Management Agreement Equity Calculation | Metric (in thousands) | Amount | | :--- | :--- | | Proceeds from capital stock issuances, net | $1,330,524 | | Retained earnings, net | $(656,225) | | Payments for repurchases of capital stock, net | $(227,103) | | Total Equity (as defined in Management Agreement) | $447,196 | [Core Earnings](index=75&type=section&id=Core%20Earnings) Core Earnings, a non-GAAP measure, improved significantly from the prior year, though still showing a slight loss for the nine-month period - **Core Earnings** is a non-GAAP financial measure used to evaluate operating performance, excluding non-cash equity compensation, unrealized gains/losses, non-cash credit loss provisions, and income/loss from non-core assets[340](index=340&type=chunk)[341](index=341&type=chunk) Core Earnings Reconciliation | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net (loss) income allocable to common shares - GAAP | $(9,805) (in thousands) | $10,734 (in thousands) | | Core Earnings allocable to common shares | $(3,396) (in thousands) | $(2,546) (in thousands) | | Core Earnings per common share - diluted | $(0.36) | $(0.26) | - For the nine months ended September 30, 2021, Core Earnings allocable to common shares was **$(2.5) million**, a substantial improvement from **$(162.3) million** in the prior year[343](index=343&type=chunk) [Incentive Compensation Hurdle](index=78&type=section&id=Incentive%20Compensation%20Hurdle) Core Earnings for the quarter did not exceed the defined hurdle, resulting in no incentive compensation payable to the Manager - Incentive compensation is earned when Core Earnings per common share (as defined in the Management Agreement) exceeds a specific **Incentive Compensation Hurdle**[346](index=346&type=chunk) - For the three months ended September 30, 2021, Core Earnings **did not exceed the Incentive Compensation Hurdle**, so no incentive compensation was payable[345](index=345&type=chunk)[347](index=347&type=chunk) - A new incentive compensation calculation methodology will be effective starting with the quarter ending December 31, 2022, based on **20% of Core Earnings exceeding 7% per annum of book value equity**[347](index=347&type=chunk) [Liquidity and Capital Resources](index=78&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by warehouse financing, debt issuances, and preferred stock offerings, while the company explores utilizing significant tax assets - Principal liquidity sources for the nine months ended September 30, 2021, included **$591.2 million** from warehouse financing, **$147.0 million** from 5.75% Senior Unsecured Notes, and **$110.5 million** from Series D Preferred Stock offering[349](index=349&type=chunk) - At October 31, 2021, liquidity consisted of **$117.9 million in unrestricted cash**, **$47.9 million in unlevered financeable CRE loans**, and **$75.0 million in availability** under the Oaktree and MassMutual 12.00% Senior Unsecured Notes[364](index=364&type=chunk) - The company had approximately **$47.7 million of NOL carryforwards** and an estimated **$136.9 million of net capital losses** as of December 31, 2020, and is exploring investments to utilize these tax assets[366](index=366&type=chunk)[367](index=367&type=chunk) - The company uses senior secured financing facilities, term warehouse financing facilities, and securitizations for financing, and was in **compliance with all covenants** at September 30, 2021[351](index=351&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk) [Off-Balance Sheet Arrangements](index=83&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements but has significant unfunded commitments on CRE loans totaling $140.6 million - The company does not maintain relationships with unconsolidated entities for off-balance sheet arrangements[372](index=372&type=chunk) - Unfunded commitments on originated CRE loans totaled **$140.6 million** at September 30, 2021, subject to borrowers meeting specified criteria[374](index=374&type=chunk) - The company provides guarantees and indemnifications in the ordinary course of business, such as an indemnification agreement for up to **$536,000** on a mezzanine loan (extinguished in October 2020)[375](index=375&type=chunk)[376](index=376&type=chunk) [Guarantees and Indemnifications](index=84&type=section&id=Guarantees%20and%20Indemnifications) The company provides guarantees and indemnifications in the ordinary course of business, which contingently obligate it to make payments - The company provides guarantees and indemnifications that contingently obligate it to make payments based on changes in asset value or another entity's failure to perform[375](index=375&type=chunk) - A previous indemnification agreement for up to **$4.3 million** (reduced to $536,000) on a mezzanine loan was extinguished in October 2020 upon the loan's payoff[376](index=376&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=84&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to credit, counterparty, financing, and interest rate risks, which are exacerbated by the COVID-19 pandemic and LIBOR transition - Primary market risks include **credit risk, counterparty risk, financing risk, and interest rate risk**[377](index=377&type=chunk) - The company manages interest rate risk by monitoring and adjusting the reset index and interest rate of borrowings, and historically used interest rate swaps[386](index=386&type=chunk) - The COVID-19 pandemic has significantly impacted CRE markets, causing reduced occupancy and potential borrower non-compliance, particularly affecting **multifamily, hotel, and retail properties**[379](index=379&type=chunk) [Credit Risks](index=84&type=section&id=Credit%20Risks) The company's loans are subject to credit risk from collateral performance and market conditions, exacerbated by the COVID-19 pandemic - Loans and investments are subject to credit risk, dependent on sponsors' ability to operate collateral properties to generate adequate cash flows[378](index=378&type=chunk) - The COVID-19 pandemic has significantly impacted CRE markets, causing reduced occupancy, rent deferral requests, and construction delays, particularly affecting **multifamily (66.2% of portfolio)**, **hotel (9.9%)**, and **retail (2.6%)** properties[379](index=379&type=chunk) - The company mitigates credit risk through **underwriting, asset management processes**, and proactive engagement with borrowers, especially those with near-term maturities[378](index=378&type=chunk)[381](index=381&type=chunk) [Counterparty Risk](index=85&type=section&id=Counterparty%20Risk) Counterparty risk from financial institutions is mitigated by engaging with high credit-quality institutions for cash holdings and financing - The company is exposed to counterparty risk from financial institutions that hold its cash and provide financing[382](index=382&type=chunk) - This risk is mitigated by depositing cash and entering into financing agreements with **high credit-quality institutions**[382](index=382&type=chunk) [Financing Risk](index=85&type=section&id=Financing%20Risk) The company relies on various financing facilities, and market volatility, exacerbated by COVID-19, could increase financing costs or reduce availability - The company finances target assets using **CRE debt securitizations, a senior secured financing facility, and warehouse financing facilities**[383](index=383&type=chunk) - Weakness or volatility in financial markets, including the impact of COVID-19, could adversely affect lenders, potentially **increasing financing costs or decreasing available financing**[383](index=383&type=chunk) [Interest Rate Risk](index=85&type=section&id=Interest%20Rate%20Risk) The company's floating-rate loan portfolio is sensitive to interest rate changes, with rising rates generally increasing net income - Rising interest rates generally increase net income, while declining rates decrease it, subject to interest rate floors[384](index=384&type=chunk) - At September 30, 2021, **98.6% of the CRE loan portfolio** earned a floating rate of interest, with a weighted-average one-month LIBOR floor of **1.03%**; all interest rate floors were in the money[384](index=384&type=chunk) Interest Rate Sensitivity Analysis | Metric (in thousands) | 100 Basis Point Decrease | 100 Basis Point Increase | | :--- | :--- | :--- | | Increase (Decrease) to Net Interest Income | $261 | $(1,130) | | Increase (Decrease) to Net Interest Income per Share | $0.03 | $(0.11) | - Two securitizations transitioned from LIBOR to **compounded SOFR** plus a benchmark adjustment in June 2021[385](index=385&type=chunk) [Risk Management](index=85&type=section&id=Risk%20Management) The company manages interest rate risk by monitoring and adjusting the reset index and interest rate of its borrowings - The company manages interest rate risk exposure by monitoring and adjusting the reset index and interest rate related to its borrowings[386](index=386&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=86&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are **effective at the reasonable assurance level** as of September 30, 2021[388](index=388&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter ended September 30, 2021[389](index=389&type=chunk) PART II [ITEM 1. LEGAL PROCEEDINGS](index=87&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) A subsidiary is subject to potential litigation for loan repurchases, with reserves of $1.4 million maintained at September 30, 2021 - PCM is subject to potential litigation related to claims for repurchases or indemnifications on loans sold to third parties[392](index=392&type=chunk) - Reserves for such litigation demands totaled **$1.4 million** at September 30, 2021[392](index=392&type=chunk) - **No pending litigation matters** or general litigation reserve existed at September 30, 2021, or December 31, 2020[393](index=393&type=chunk) [ITEM 1A. RISK FACTORS](index=87&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company updated risk factors to highlight the adverse effects of the LIBOR transition, which may increase financing costs - The company updated its risk factor regarding changes in LIBOR determination or its replacement, which may **adversely affect the value of loans, investments, and borrowings**[394](index=394&type=chunk) - The U.K. FCA announced the phase-out of LIBOR by the end of 2021 and June 30, 2023, with **SOFR** identified as a preferred alternative rate[395](index=395&type=chunk) - The transition from LIBOR to SOFR or other alternative rates may result in financial market disruptions and **significant increases in benchmark rates**, leading to increased financing costs[395](index=395&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=87&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company completed a $20.0 million common stock repurchase program in July 2021 and authorized a new one in November 2021 - The company completed its **$20.0 million common stock repurchase program** in July 2021, repurchasing 1,607,382 shares[144](index=144&type=chunk)[396](index=396&type=chunk) - The Board authorized a new **$20.0 million common stock repurchase program** in November 2021[396](index=396&type=chunk) Share Repurchase Summary | Period | Total Number of Shares Purchased | Average Price Paid per Share (in thousands) | | :--- | :--- | :--- | | Jan 4, 2021 - Jan 29, 2021 | 283,374 | $12.30 | | Feb 1, 2021 - Feb 26, 2021 | 281,912 | $12.21 | | Mar 1, 2021 - Mar 31, 2021 | 179,379 | $14.44 | | Apr 1, 2021 - Apr 30, 2021 | 140,260 | $15.41 | | May 3, 2021 - May 12, 2021 | 47,820 | $15.51 | | Jun 2, 2021 - Jun 30, 2021 | 85,709 | $16.52 | | Jul 1, 2021 - Jul 9, 2021 | 53,443 | $16.64 | [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=88&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities during the period - **No defaults** upon senior securities occurred during the period[400](index=400&type=chunk) [ITEM 5. OTHER INFORMATION](index=88&type=section&id=ITEM%205.%20OTHER%20INFORMATION) A subsidiary entered into a new $250.0 million Master Repurchase Agreement to finance its core CRE lending business - In November 2021, the company's subsidiary entered into a new **$250.0 million Master Repurchase and Securities Contract Agreement (Morgan Stanley Facility)** to finance its core commercial real estate lending business[400](index=400&type=chunk) - The Morgan Stanley Facility matures in November 2022 with two one-year automatic extensions and includes **margin call provisions**[400](index=400&type=chunk)[401](index=401&type=chunk) - The company guaranteed the subsidiary's payment and performance under the facility, subject to a **25% limit** of the unpaid aggregate repurchase price, and the guaranty includes financial covenants[402](index=402&type=chunk) [ITEM 6. EXHIBITS](index=88&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the report, including key corporate documents, agreements, and officer certifications - The exhibits include key corporate documents such as Amended and Restated Articles of Incorporation, Bylaws, and various Articles Supplementary for preferred stock[404](index=404&type=chunk)[405](index=405&type=chunk) - Significant agreements filed include the Fourth Amended and Restated Management Agreement, Loan and Servicing Agreements, and the new Master Repurchase and Securities Contract Agreement with Morgan Stanley[405](index=405&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/Rule 15d-14(a) and 18 U.S.C. Section 1350) are included[408](index=408&type=chunk) [SIGNATURES](index=97&type=section&id=SIGNATURES) The report is certified by the registrant's authorized officers as of November 8, 2021 - The report is signed by Mark Fogel (President & Chief Executive Officer), David J. Bryant (Senior Vice President, Chief Financial Officer and Treasurer), and Eldron C. Blackwell (Vice President)[416](index=416&type=chunk) - All signatures are dated **November 8, 2021**[416](index=416&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 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 EXANTAS CAPITAL CORP. (Exact name of registrant as specified in its charter) Maryland 20-2287134 ( ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 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 EXANTAS CAPITAL CORP. (Exact name of registrant as specified in its charter) Maryland 20-2287134 (State ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 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 EXANTAS CAPITAL CORP. (Exact name of registrant as specified in its charter) | --- | --- | --- | |---- ...

```markdown PART I [Item 1: Business](index=4&type=section&id=Item%201%3A%20Business) Exantas Capital Corp. is a REIT focused on originating and managing commercial real estate mortgage loans and debt, externally managed by C-III Capital Partners - The company's investment strategy focuses on originating, holding, and managing commercial real estate (CRE) mortgage loans and related debt investments[9](index=9&type=chunk) 2019 Loan and CMBS Activity | Activity | Type | Commitments/Face Value | | :--- | :--- | :--- | | Acquired | CRE Loans | $210.8 million | | Originated | CRE Loans | $731.2 million | | Acquired | CMBS | $147.2 million | Portfolio Composition at December 31, 2019 | Asset Class | Net Carrying Amount (in thousands) | Percent of Portfolio | | :--- | :--- | :--- | | **Core Assets** | **$2,299,195** | **98.80%** | | CRE whole loans | $1,747,633 | 75.10% | | CRE mezzanine loan & preferred equity | $30,848 | 1.33% | | CMBS, fixed-rate | $138,039 | 5.93% | | CMBS, floating-rate | $382,675 | 16.44% | | **Non-Core Assets** | **$28,004** | **1.20%** | | Legacy CRE assets | $28,004 | 1.20% | | **Total Portfolio** | **$2,327,199** | **100.00%** | - The CRE loan portfolio is geographically concentrated in Mountain, Southwest, and Southeast regions, primarily collateralized by multifamily properties[33](index=33&type=chunk) - The company is externally managed under an agreement that includes a monthly base management fee calculated at **1.50% of equity annually** and potential incentive compensation based on Core Earnings performance[40](index=40&type=chunk)[41](index=41&type=chunk) - The company operates its business to be excluded from regulation under the Investment Company Act, primarily relying on the Section 3(c)(5)(C) exclusion for its main subsidiary, which requires at least **55% of assets** to be Qualifying Interests (mortgages and real estate interests)[50](index=50&type=chunk)[51](index=51&type=chunk) [Item 1A: Risk Factors](index=12&type=section&id=Item%201A%3A%20Risk%20Factors) The company faces significant risks including leverage dependence, interest rate volatility, reliance on its external manager, illiquid investments, real estate market declines, and REIT qualification challenges - Significant financing risks include reliance on leverage, potential margin calls from lenders if asset values decline, and the risk of losses from defaults on repurchase agreements[67](index=67&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) - CRE debt securitizations, a key financing tool, carry risks of cash flow and income elimination if performance tests are failed[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - The planned phase-out of LIBOR by **end of 2021** creates uncertainty and risk, as the company's loans, borrowings, and derivatives are benchmarked to it; a transition to a new rate like SOFR could cause market disruptions or interest rate mismatches[125](index=125&type=chunk)[126](index=126&type=chunk) - High dependence on external manager C-III creates potential conflicts of interest and makes agreement termination difficult and costly[143](index=143&type=chunk)[145](index=145&type=chunk)[150](index=150&type=chunk) - Maintaining REIT qualification is critical, requiring adherence to strict income, asset, and distribution tests, and failure would result in significant corporate-level taxes[187](index=187&type=chunk)[196](index=196&type=chunk) - Adoption of the new Current Expected Credit Loss (CECL) accounting standard is expected to materially increase and add volatility to the allowance for loan losses[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) [Item 1B: Unresolved Staff Comments](index=33&type=section&id=Item%201B%3A%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the Securities and Exchange Commission staff - None[224](index=224&type=chunk) [Item 2: Properties](index=33&type=section&id=Item%202%3A%20Properties) The company does not own principal real property, maintaining leased office spaces in New York and Philadelphia - The company's principal office is located in leased space at 717 Fifth Avenue, New York, New York 10022[225](index=225&type=chunk) [Item 3: Legal Proceedings](index=33&type=section&id=Item%203%3A%20Legal%20Proceedings) The company faces potential litigation from loan repurchase claims, maintaining a **$1.7 million** reserve, while prior shareholder derivative actions were settled or dismissed - A reserve of **$1.7 million** was maintained at December 31, 2019, for potential litigation demands related to mortgage repurchases and indemnifications from its subsidiary, PCM[227](index=227&type=chunk) - Multiple shareholder derivative suits, including Federal Actions and New York State Actions, were settled or dismissed during 2019[228](index=228&type=chunk)[229](index=229&type=chunk) [Item 4: Mine Safety Disclosures](index=34&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This item is not applicable to the company's business - Not applicable[232](index=232&type=chunk) PART II [Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%205%3A%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common and Series C Preferred Stock are publicly traded, with **$44.9 million** remaining for securities repurchase at year-end 2019 - The company's common stock and Series C Preferred Stock are listed on the New York Stock Exchange under symbols **XAN** and **XANPrC**[233](index=233&type=chunk)[235](index=235&type=chunk) - As of December 31, 2019, **$44.9 million** remained available under the securities repurchase program, with no shares repurchased during the year[236](index=236&type=chunk) [Item 6: Selected Financial Data](index=37&type=section&id=Item%206%3A%20Selected%20Financial%20Data) This section summarizes five-year financial data, showing **$61.0 million** net interest income and **$36.2 million** net income from continuing operations in 2019 Selected Financial Data (2015-2019, in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Net interest income** | $61,049 | $55,163 | $41,661 | $58,871 | $65,388 | | **Net income (loss) from continuing ops** | $36,217 | $27,306 | $47,457 | $(11,334) | $11,079 | | **Total assets** | $2,454,326 | $2,130,913 | $1,912,075 | $2,053,543 | $2,765,562 | | **Total stockholders' equity** | $556,398 | $553,819 | $671,476 | $704,299 | $818,863 | [Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion analyzes financial performance, highlighting increased net income to common shares, asset growth, strategic plan completion, and the expected impact of CECL - The company substantially completed its 2016 strategic plan, with core CRE debt investments representing **95% of equity allocation** at year-end 2019[255](index=255&type=chunk) Net Income Comparison (in millions, except per share) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Income Allocable to Common Shares | $25.6 | $7.0 | | Per Share - Basic | $0.82 | $0.22 | | Per Share - Diluted | $0.81 | $0.22 | - Net interest income increased by **$5.9 million** year-over-year, primarily from a **$14.1 million** increase in CRE whole loan interest income due to higher balances[263](index=263&type=chunk) - Total assets increased to **$2.5 billion** at year-end 2019 from **$2.1 billion** in 2018, driven by CRE loan and CMBS origination and acquisition[287](index=287&type=chunk) - The company's leverage ratio increased to **3.4x** at year-end 2019 from **2.8x** at year-end 2018, due to increased borrowings for asset growth[383](index=383&type=chunk) - Upon CECL adoption on January 1, 2020, the company expects an initial CECL reserve of approximately **$4.5 million**, with a **$3.0 million** charge to retained earnings[413](index=413&type=chunk) [Item 7A: Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%207A%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk through asset-liability matching and derivatives; a **100 basis point** rate rise would decrease investments by **$5.6 million** and increase hedges by **$5.5 million** Interest Rate Sensitivity Analysis at Dec 31, 2019 (in thousands) | Item | 100 bps Rate Fall (Change in Fair Value) | 100 bps Rate Rise (Change in Fair Value) | | :--- | :--- | :--- | | Interest rate-sensitive investments | +$7,520 | -$5,583 | | Interest rate-sensitive hedging instruments | -$5,887 | +$5,469 | [Item 8: Financial Statements and Supplementary Data](index=72&type=section&id=Item%208%3A%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2019, including an unqualified opinion from Grant Thornton LLP - The report includes an unqualified opinion from independent registered public accounting firm Grant Thornton LLP on the consolidated financial statements[423](index=423&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $2,454,326 | $2,130,913 | | CRE loans, net | $1,789,985 | $1,551,967 | | Total Liabilities | $1,897,928 | $1,577,094 | | Total Stockholders' Equity | $556,398 | $553,819 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Net Interest Income | $61,049 | $55,163 | | Total Operating Expenses | $21,663 | $24,049 | | Net Income from Continuing Operations | $36,217 | $27,306 | | Net Income Allocable to Common Shares | $25,616 | $6,973 | [Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=131&type=section&id=Item%209%3A%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - None[702](index=702&type=chunk) [Item 9A: Controls and Procedures](index=131&type=section&id=Item%209A%3A%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with an unqualified auditor opinion - Management concluded that disclosure controls and procedures are effective at a reasonable assurance level as of December 31, 2019[704](index=704&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[706](index=706&type=chunk) - The independent registered public accounting firm, Grant Thornton LLP, issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2019[709](index=709&type=chunk) [Item 9B: Other Information](index=133&type=section&id=Item%209B%3A%20Other%20Information) Effective March 6, 2020, the board approved amended bylaws granting stockholders power to alter or repeal bylaws by majority vote - On March 6, 2020, the company amended its bylaws to allow stockholders to alter or repeal bylaws with a majority vote[716](index=716&type=chunk) PART III [Item 10: Directors, Executive Officers and Corporate Governance](index=134&type=section&id=Item%2010%3A%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 annual meeting[719](index=719&type=chunk) [Item 11: Executive Compensation](index=134&type=section&id=Item%2011%3A%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the company's 2020 annual meeting proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 annual meeting[720](index=720&type=chunk) [Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=134&type=section&id=Item%2012%3A%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership by beneficial owners and management is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 annual meeting[720](index=720&type=chunk) [Item 13: Certain Relationships and Related Transaction and Director Independence](index=134&type=section&id=Item%2013%3A%20Certain%20Relationships%20and%20Related%20Transaction%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 annual meeting[720](index=720&type=chunk) [Item 14: Principal Accountant Fees and Services](index=134&type=section&id=Item%2014%3A%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's 2020 annual meeting proxy statement - Information is incorporated by reference from the registrant's definitive proxy statement for the 2020 annual meeting[721](index=721&type=chunk) PART IV [Item 15: Exhibits, Financial Statement Schedules](index=135&type=section&id=Item%2015%3A%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K, including governance and material contracts - This item lists the financial statements and exhibits filed with the 10-K, including governance documents, material contracts, and certifications[724](index=724&type=chunk)[725](index=725&type=chunk) [Item 16: Form 10-K Summary](index=138&type=section&id=Item%2016%3A%20Form%2010-K%20Summary) The company has not provided a summary for its Form 10-K - None[730](index=730&type=chunk) ```

PART I This section presents the company's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the reporting period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Exantas Capital Corp. and its subsidiaries, including the balance sheets, statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, along with detailed notes to these financial statements for the periods ended September 30, 2019, and December 31, 2018 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | |:-----------------------------|:-------------|:-------------| | Total Assets | $2,472,193 | $2,130,913 | | CRE loans, net | $1,795,310 | $1,551,967 | | Investment securities AFS | $471,848 | $418,998 | | Total Liabilities | $1,912,167 | $1,577,094 | | Borrowings | $1,887,426 | $1,554,223 | | Total Stockholders' Equity | $560,026 | $553,819 | | Consolidated VIEs Assets | $1,117,051 | $742,031 | | Consolidated VIEs Liabilities| $883,700 | $501,829 | - Total assets increased by **$341,280 thousand (16.0%)** from December 31, 2018, to September 30, 2019, primarily driven by growth in CRE loans and investment securities available-for-sale[5](index=5&type=chunk)[6](index=6&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section outlines the company's revenues, expenses, and net income over specific reporting periods Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Net Income | $12,557 | $8,624 | $29,581 | $17,473 | | Net Income Allocable to Common Shares | $9,969 | $6,036 | $21,818 | $(394) | | Total Revenues | $16,605 | $14,539 | $46,751 | $39,670 | | Total Operating Expenses | $4,037 | $5,481 | $15,764 | $17,572 | | Basic EPS | $0.32 | $0.19 | $0.69 | $(0.01) | - Net income allocable to common shares significantly increased for both the three and nine months ended September 30, 2019, compared to the prior year, with a notable turnaround from a net loss in the nine-month period of 2018[10](index=10&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents the company's comprehensive income or loss, including net income and other comprehensive income items Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Comprehensive Income Allocable to Common Shares | $9,448 | $8,449 | $26,031 | $3,938 | | Total Other Comprehensive (Loss) Income | $(521) | $2,413 | $4,213 | $4,332 | - Comprehensive income allocable to common shares saw substantial growth for the nine months ended September 30, 2019, reaching **$26,031 thousand**, a significant increase from $3,938 thousand in the prior year[13](index=13&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section details the changes in the company's equity accounts, reflecting net income, distributions, and other adjustments Changes in Stockholders' Equity (in thousands) | Metric | Jan 1, 2019 Balance | Sep 30, 2019 Balance | |:--------------------------------------------------|:--------------------|:---------------------| | Total Stockholders' Equity | $553,819 | $560,026 | | Net Income (9 months ended Sep 30, 2019) | N/A | $29,581 | | Distributions on Common Stock (9 months ended Sep 30, 2019) | N/A | $(21,512) | | Securities AFS, fair value adjustment, net (9 months ended Sep 30, 2019) | N/A | $10,579 | | Designated derivatives, fair value adjustment (9 months ended Sep 30, 2019) | N/A | $(6,366) | - Total stockholders' equity increased from **$553,819 thousand** at January 1, 2019, to **$560,026 thousand** at September 30, 2019, primarily driven by net income and fair value adjustments on available-for-sale securities, partially offset by distributions[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section categorizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, in thousands) | Metric | 2019 | 2018 |\n|:--------------------------------------------------|:------------|:------------|\n| Net Cash Provided by Operating Activities | $28,443 | $31,238 |\n| Net Cash Used in Investing Activities | $(353,500) | $(248,547) |\n| Net Cash Provided by Financing Activities | $297,483 | $67,578 |\n| Net Decrease in Cash and Cash Equivalents and Restricted Cash | $(27,574) | $(149,731) |\n| Cash and Cash Equivalents and Restricted Cash at End of Period | $67,900 | $54,633 | - The company experienced a significant increase in **net cash provided by financing activities** in 2019, primarily from proceeds from borrowings, which helped offset increased cash used in investing activities and resulted in a smaller net decrease in cash compared to 2018[16](index=16&type=chunk)[17](index=17&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the consolidated financial statements, covering the company's organization, significant accounting policies, variable interest entities, loan portfolio, investment securities, borrowings, share-based compensation, earnings per share, related party transactions, distributions, fair value measurements, market risk, and commitments and contingencies [Note 1 - Organization](index=12&type=section&id=NOTE%201%20-%20ORGANIZATION) This note describes Exantas Capital Corp.'s structure as a REIT, its management, and its strategic focus on CRE debt investments - Exantas Capital Corp. operates as a REIT, primarily focusing on originating, holding, and managing commercial real estate (CRE) mortgage loans and other CRE-related debt investments[19](index=19&type=chunk) - The company is externally managed by Exantas Capital Manager Inc., a subsidiary of C-III Capital Partners LLC[19](index=19&type=chunk) - A strategic plan approved in November 2016 to focus on CRE debt investments and dispose of non-core assets is substantially complete[21](index=21&type=chunk) [Note 2 - Summary of Significant Accounting Policies](index=12&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the key accounting principles and policies applied in preparing the consolidated financial statements - The consolidated financial statements adhere to GAAP and include majority-owned/controlled subsidiaries and Variable Interest Entities (VIEs) where the Company is the primary beneficiary[23](index=23&type=chunk) - Restricted cash primarily consists of required account balance minimums for CRE collateralized debt obligation (CDO) securitizations and derivative instruments[26](index=26&type=chunk) - A full valuation allowance of **$53.0 million** was recorded against net deferred tax assets at September 30, 2019, due to historical losses and uncertainty of future taxable income[28](index=28&type=chunk) - Effective January 1, 2019, share-based compensation for unvested restricted stock and options is no longer remeasured after the initial grant date, simplifying accounting[29](index=29&type=chunk) - The adoption of new FASB guidance on credit losses (CECL) in future periods is expected to increase the allowance for credit losses and accelerate the recognition of provisions, impacting retained earnings at adoption[37](index=37&type=chunk) [Note 3 - Variable Interest Entities (VIEs)](index=15&type=section&id=NOTE%203%20-%20VARIABLE%20INTEREST%20ENTITIES) This note details the company's involvement with consolidated and unconsolidated variable interest entities and associated exposures - The Company was the primary beneficiary of five consolidated VIEs (CRE securitizations, CDOs, and collateralized loan obligations) at September 30, 2019, and December 31, 2018, which are used to invest in real estate-related securities and are financed by debt issuance[40](index=40&type=chunk)[41](index=41&type=chunk) - The Company holds variable interests but is not the primary beneficiary in several unconsolidated VIEs, including Resource Capital Trust I & II, Wells Fargo Commercial Mortgage Trust 2017-C40, Prospect Hackensack JV LLC, and WC Newhall MM, LLC[45](index=45&type=chunk)[46](index=46&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) Maximum Exposure to Loss for Unconsolidated VIEs (Sep 30, 2019, in thousands) | Asset Category | Total Assets | Maximum Exposure to Loss | |:-----------------------------------------|:-------------|:-------------------------| | Accrued interest receivable | $302 | $0 | | CRE loans | $25,776 | $25,776 | | Investment securities available-for-sale | $22,620 | $21,912 | | Investments in unconsolidated entities | $1,548 | $1,548 | | **Total** | **$50,246** | **$49,236** | [Note 4 - Supplemental Cash Flow Information](index=18&type=section&id=NOTE%204%20-%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) This note provides additional details on non-cash financing and investing activities affecting cash flows Non-Cash Continuing Financing Activities (Nine Months Ended Sep 30, in thousands) | Metric | 2019 | 2018 | |:----------------------------------------|:--------|:--------| | Distributions on common stock accrued but not paid | $7,967 | $4,749 | | Distributions on preferred stock accrued but not paid | $1,725 | $1,725 | - Accrued but unpaid distributions on common stock increased significantly in 2019, reflecting higher dividend declarations[53](index=53&type=chunk) [Note 5 - Loans](index=19&type=section&id=NOTE%205%20-%20LOANS) This note provides a detailed breakdown of the company's commercial real estate loan portfolio, including types and commitments Summary of CRE Loans Held for Investment (in thousands) | Loan Type | Sep 30, 2019 Carrying Value | Dec 31, 2018 Carrying Value | |:-------------------------------|:----------------------------|:----------------------------| | Whole loans | $1,764,834 | $1,527,712 | | Mezzanine loan | $4,700 | $4,700 | | Preferred equity investments | $25,776 | $19,555 | | **Total CRE loans held for investment** | **$1,795,310** | **$1,551,967** | - Total CRE loans held for investment increased by **$243,343 thousand (15.7%)** from December 31, 2018, to September 30, 2019[57](index=57&type=chunk) - Unfunded loan commitments for whole loans were **$109.9 million** at September 30, 2019, and preferred equity investments had **$3.1 million** in unfunded commitments[57](index=57&type=chunk) - The CRE loan portfolio showed concentrations in the Mountain (**22.1%**), Southwest (**19.7%**), and Southeast (**16.4%**) regions at September 30, 2019[58](index=58&type=chunk) - Principal paydowns receivable significantly increased to **$105.5 million** at September 30, 2019, from $32.1 million at December 31, 2018, all of which was subsequently received in cash[59](index=59&type=chunk) [Note 6 - Financing Receivables](index=20&type=section&id=NOTE%206%20-%20FINANCING%20RECEIVABLES) This note details the allowance for loan losses and the credit risk profiles of the company's financing receivables Allowance for Loan Losses (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------------------|:-------------|:-------------| | Allowance for loan losses at end of period| $1,460 | $1,401 | | Provision for (recovery of) loan losses, net (9 months ended Sep 30) | $59 | $(1,595) | - The allowance for loan losses increased slightly to **$1,460 thousand** at September 30, 2019, and the company recorded a provision for loan losses of **$59 thousand** for the nine months ended September 30, 2019, compared to a recovery in the prior year[60](index=60&type=chunk) - CRE loans are assessed for credit quality on a scale from 1 (highest) to 5 (lowest), based on collateral performance, occupancy, loan structure, and exit plan[62](index=62&type=chunk)[64](index=64&type=chunk) Credit Risk Profiles of CRE Loans (Sep 30, 2019, in thousands) | Risk Rating | Whole loans | Mezzanine loan | Preferred equity investments | Legacy CRE loans held for sale | |:------------|:------------|:---------------|:-----------------------------|:-------------------------------| | Rating 1 | $0 | $0 | $0 | $0 | | Rating 2 | $1,678,152 | $4,700 | $25,776 | $0 | | Rating 3 | $84,300 | $0 | $0 | $0 | | Rating 4 | $3,842 | $0 | $0 | $0 | | Rating 5 | $0 | $0 | $0 | $0 | | Held for Sale | $0 | $0 | $0 | $17,141 | - No impaired loans or troubled-debt restructurings were reported at September 30, 2019, or December 31, 2018[71](index=71&type=chunk)[72](index=72&type=chunk) [Note 7 - Investment Securities Available-for-Sale](index=23&type=section&id=NOTE%207%20-%20INVESTMENT%20SECURITIES%20AVAILABLE-FOR-SALE) This note provides information on the company's investment securities available-for-sale, including fair values and unrealized gains/losses Investment Securities Available-for-Sale (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------------------|:-------------|:-------------| | Total Investment Securities AFS (Fair Value) | $471,848 | $418,998 | | CMBS, fixed rate | $125,198 | $119,739 | | CMBS, floating rate | $346,650 | $299,259 | | Gross Unrealized Gains | $8,608 | $812 | | Gross Unrealized Losses | $(1,649) | $(4,433) | | Weighted Average Coupon | 4.54% | 4.76% | - The fair value of investment securities available-for-sale increased by **$52,850 thousand (12.6%)** from December 31, 2018, to September 30, 2019, primarily in floating-rate CMBS[73](index=73&type=chunk) - Unrealized losses of **$1,649 thousand** at September 30, 2019, are considered temporary due to market factors, not credit deterioration[78](index=78&type=chunk) - For the nine months ended September 30, 2019, the company sold one CMBS position for **$638 thousand**, realizing a gain of **$4 thousand**[79](index=79&type=chunk) [Note 8 - Investments in Unconsolidated Entities](index=25&type=section&id=NOTE%208%20-%20INVESTMENTS%20IN%20UNCONSOLIDATED%20ENTITIES) This note details the company's equity investments in unconsolidated entities and their impact on earnings Investments in Unconsolidated Entities (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------------------|:-------------|:-------------| | Total Investments in Unconsolidated Entities | $1,548 | $1,548 | | Equity in Earnings (9 months ended Sep 30) | $76 | $302 | - Equity in earnings from unconsolidated entities decreased significantly for the nine months ended September 30, 2019, compared to the prior year, primarily due to the liquidation of Pelium Capital and RCM Global LLC in 2018[81](index=81&type=chunk) [Note 9 - Borrowings](index=26&type=section&id=NOTE%209%20-%20BORROWINGS) This note provides a comprehensive overview of the company's outstanding borrowings, rates, maturities, and collateral Summary of Borrowings (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------------------|:-------------|:-------------| | Total Outstanding Borrowings | $1,887,426 | $1,554,223 | | Weighted Average Borrowing Rate | 3.69% | 4.21% | | Weighted Average Remaining Maturity | 8.6 years | 6.9 years | | Value of Collateral | $2,181,468 | $1,953,119 | - Total outstanding borrowings increased by **$333,203 thousand (21.4%)** from December 31, 2018, to September 30, 2019, while the weighted average borrowing rate decreased[84](index=84&type=chunk) - Key components of borrowings include securitized notes (XAN 2018-RSO6, XAN 2019-RSO7), unsecured junior subordinated debentures, convertible senior notes, and repurchase agreements[84](index=84&type=chunk) Contractual Maturity Dates of Borrowings (Sep 30, 2019, in thousands) | Maturity Period | Total | |:--------------------------|:------------| | Less than 1 Year (2019) | $364,397 | | 1 - 3 Years (2020-2021) | $459,614 | | 3 - 5 Years (2022) | $143,750 | | More than 5 Years | $942,269 | | **Total** | **$1,910,030**| [Note 10 - Share Issuance and Repurchase](index=30&type=section&id=NOTE%2010%20-%20SHARE%20ISSUANCE%20AND%20REPURCHASE) This note details transactions related to the company's common and preferred stock, including redemptions and repurchase programs - All Series B Preferred Stock was redeemed in March 2018 for **$115.3 million**, resulting in a **$7.5 million** redemption charge[99](index=99&type=chunk) - At September 30, 2019, **4.8 million shares** of 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock were outstanding, redeemable at **$25.00 per share** on or after July 30, 2024[100](index=100&type=chunk)[101](index=101&type=chunk) - No shares of common or preferred stock were repurchased during the three and nine months ended September 30, 2019, or 2018, with **$44.9 million** remaining available under the repurchase program[102](index=102&type=chunk) [Note 11 - Share-Based Compensation](index=31&type=section&id=NOTE%2011%20-%20SHARE-BASED%20COMPENSATION) This note outlines the company's equity compensation plan, restricted stock transactions, and related expenses - Shareholders approved the Exantas Capital Corp. Second Amended and Restated Omnibus Equity Compensation Plan in June 2019, increasing authorized shares to **4,775,000** and extending the expiration to June 2029[103](index=103&type=chunk) Unvested Restricted Common Stock Transactions (Shares) | Metric | Jan 1, 2019 | Issued | Vested | Forfeited | Sep 30, 2019 | |:------------------------------------------|:------------|:--------|:--------|:----------|:-------------| | Unvested shares | 422,671 | 223,926 | (208,295)| (14,138) | 424,164 | - Total unrecognized restricted common stock expense for non-employees was **$1.6 million** at September 30, 2019, with a weighted average amortization period of **2.0 years**[105](index=105&type=chunk) Equity Compensation Expense (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Total Equity Compensation Expense | $552 | $757 | $1,647 | $2,383 | | Incentive compensation payable to Manager | $441 | $0 | $606 | $0 | - Equity compensation expense decreased due to the adoption of updated GAAP guidance discontinuing remeasurement of unvested restricted stock and options after the initial grant date[109](index=109&type=chunk)[215](index=215&type=chunk) [Note 12 - Earnings Per Share](index=32&type=section&id=NOTE%2012%20-%20EARNINGS%20PER%20SHARE) This note presents the calculation of basic and diluted earnings per share for common stockholders Net Income (Loss) Allocable to Common Shares and EPS (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Net Income (Loss) Allocable to Common Shares | $9,969 | $6,036 | $21,818 | $(394) | | Basic EPS | $0.32 | $0.19 | $0.69 | $(0.01) | | Diluted EPS | $0.31 | $0.19 | $0.69 | $(0.01) | - The average market price of the company's common stock did not exceed the conversion price of the Convertible Senior Notes, thus they were excluded from the diluted EPS calculation for the periods presented[112](index=112&type=chunk) [Note 13 - Accumulated Other Comprehensive Income (Loss)](index=33&type=section&id=NOTE%2013%20-%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME%20(LOSS)) This note details the components and changes in accumulated other comprehensive income or loss, including unrealized gains and losses Changes in Accumulated Other Comprehensive Income (Loss) (Nine Months Ended Sep 30, 2019, in thousands) | Component | Balance Jan 1, 2019 | Other Comprehensive (Loss) Income before Reclassifications | Amounts Reclassified | Balance Sep 30, 2019 | |:------------------------------------------|:--------------------|:-----------------------------------------------------------|:---------------------|:---------------------| | Net Unrealized (Loss) Gain on Derivatives | $563 | $(6,298) | $(68) | $(5,803) | | Net Unrealized Gain on Investment Securities Available-for-Sale | $(3,620) | $10,583 | $(4) | $6,959 | | **Total** | **$(3,057)** | **$4,285** | **$(72)** | **$1,156** | - Accumulated other comprehensive income (loss) shifted from a net loss of **$(3,057) thousand** at January 1, 2019, to a net income of **$1,156 thousand** at September 30, 2019, primarily due to unrealized gains on investment securities available-for-sale, partially offset by unrealized losses on derivatives[113](index=113&type=chunk) [Note 14 - Related Party Transactions](index=33&type=section&id=NOTE%2014%20-%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions and balances with related parties, including management fees and expense reimbursements - C-III Capital Partners LLC indirectly beneficially owned **2.4%** of the Company's outstanding common stock at September 30, 2019[114](index=114&type=chunk) Management Fees and Expense Reimbursements (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Base Management Fees | $2,100 | $2,800 | $6,300 | $8,400 | | Incentive Compensation | $441 | $0 | $606 | $0 | | Expense Reimbursements | $1,000 | $1,200 | $3,200 | $4,000 | - C3AM, a related party, earned servicing fees of **$424 thousand** for the nine months ended September 30, 2019, an increase from $217 thousand in the prior year[123](index=123&type=chunk) [Note 15 - Distributions](index=35&type=section&id=NOTE%2015%20-%20DISTRIBUTIONS) This note outlines the company's dividend declarations and payments on common and preferred stock, and REIT distribution requirements - The company declared and paid common stock dividends of **$0.25 per share** for the quarter ended September 30, 2019, an increase from $0.15 per share in the same period of 2018[124](index=124&type=chunk)[127](index=127&type=chunk) - To qualify as a REIT, the company must distribute at least **90%** of its taxable income annually[125](index=125&type=chunk) - Dividends on Series C Preferred Stock were **$0.539063 per share** for each quarter in 2019 and 2018[128](index=128&type=chunk) [Note 16 - Fair Value of Financial Instruments](index=37&type=section&id=NOTE%2016%20-%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) This note provides fair value measurements for financial instruments, categorized by valuation input levels Financial Instruments Carried at Fair Value (Sep 30, 2019, in thousands) | Instrument | Level 1 | Level 2 | Level 3 | Total | |:------------------------------------------|:--------|:--------|:--------|:--------| | Investment securities available-for-sale | $0 | $0 | $471,848| $471,848| | Derivatives (Liabilities) | $0 | $6,355 | $0 | $6,355 | - A legacy CRE loan held for sale incurred losses of **$55 thousand** and **$1.5 million** for the three and nine months ended September 30, 2019, respectively, due to fair value adjustments[133](index=133&type=chunk) Fair Value of Financial Instruments Not Reported at Fair Value (Sep 30, 2019, in thousands) | Instrument | Carrying Value | Fair Value | |:------------------------------------------|:---------------|:-----------| | CRE whole loans held for investment | $1,764,834 | $1,773,119 | | CRE mezzanine loan | $4,700 | $4,700 | | CRE preferred equity investments | $25,776 | $25,899 | | Legacy CRE loans held for sale | $17,141 | $17,141 | | Senior notes in CRE securitizations | $882,510 | $893,185 | | Junior subordinated notes | $51,548 | $26,667 | | Convertible notes | $153,855 | $164,932 | | Repurchase agreements | $799,513 | $802,829 | [Note 17 - Market Risk and Derivative Instruments](index=39&type=section&id=NOTE%2017%20-%20MARKET%20RISK%20AND%20DERIVATIVE%20INSTRUMENTS) This note describes the company's exposure to market risks, primarily interest rate risk, and its use of derivative instruments for hedging - The primary market risk managed by the company through derivative instruments is interest rate risk, mitigated by matching adjustable-rate assets with variable-rate borrowings and using hedging agreements[143](index=143&type=chunk)[145](index=145&type=chunk) - At September 30, 2019, the company had **18 interest rate swap contracts** outstanding with an aggregate notional amount of **$87.6 million**, paying a weighted average fixed rate of **2.50%** and receiving one-month LIBOR[147](index=147&type=chunk) Fair Value of Derivative Instruments (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------------------|:-------------|:-------------| | Interest rate swap contracts (Liability) | $6,355 | $1,043 | | Interest rate swap contracts (Asset) | $0 | $985 | | Aggregate Unrealized Losses (Liability) | $5,803 | $0 | | Aggregate Unrealized Gains (Asset) | $0 | $563 | - The company posts collateral (initial and variation margin) for centrally cleared interest rate swap transactions[150](index=150&type=chunk) [Note 18 - Offsetting of Financial Assets and Liabilities](index=41&type=section&id=NOTE%2018%20-%20OFFSETTING%20OF%20FINANCIAL%20ASSETS%20AND%20LIABILITIES) This note details the offsetting of financial assets and liabilities on the balance sheet, including collateral arrangements Offsetting of Financial Liabilities (Sep 30, 2019, in thousands) | Instrument | Gross Recognized Liabilities | Gross Offset | Net Amounts Included on Consolidated Balance Sheets | Cash Collateral Pledged | Net Amount | |:------------------------------------------|:-----------------------------|:-------------|:----------------------------------------------------|:------------------------|:-----------| | Derivatives, at fair value | $6,355 | $0 | $6,355 | $0 | $6,355 | | Repurchase agreements and term facilities | $799,513 | $0 | $799,513 | $798,682 | $831 | - The combined fair value of securities and loans pledged against the company's repurchase agreements and term facilities was **$1.1 billion** at September 30, 2019[155](index=155&type=chunk) [Note 19 - Commitments and Contingencies](index=42&type=section&id=NOTE%2019%20-%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses the company's various commitments and contingent liabilities, including litigation and unfunded loan commitments - Primary Capital Mortgage, LLC (PCM) is subject to litigation for loan repurchases or indemnifications, with reserves totaling **$1.7 million** at September 30, 2019, and December 31, 2018[158](index=158&type=chunk) - Several shareholder derivative actions (Federal Actions, New York State Actions, Hafkey Action, Canoles Action) were settled or dismissed in 2019, with the Federal Actions settlement including corporate governance changes and **$550,000** in attorney fees funded by insurers[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - A contingent liability of **$703 thousand** was outstanding at September 30, 2019, as a reserve for probable losses on a **$4.3 million** mezzanine loan indemnification agreement[166](index=166&type=chunk) - Unfunded commitments on CRE loans totaled **$109.9 million** for whole loans and **$3.1 million** for preferred equity investments at September 30, 2019[168](index=168&type=chunk) [Note 20 - Discontinued Operations and Assets and Liabilities Held for Sale](index=44&type=section&id=NOTE%2020%20-%20DISCONTINUED%20OPERATIONS%20AND%20ASSETS%20AND%20LIABILITIES%20HELD%20FOR%20SALE) This note provides information on the company's discontinued operations and assets/liabilities classified as held for sale - The company has substantially completed its strategic plan to dispose of non-core asset classes (residential mortgage and middle market lending segments) and certain legacy CRE loans, with operations classified as discontinued[169](index=169&type=chunk) Net (Loss) Income from Discontinued Operations (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Total (Loss) Income from Discontinued Operations | $(63) | $364 | $(212) | $161 | Assets and Liabilities Held for Sale (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------------------|:-------------|:-------------| | Loans held for sale | $17,141 | $17,000 | | Other assets | $266 | $645 | | Total Assets Held for Sale | $17,407 | $17,645 | | Accounts payable and other liabilities | $1,766 | $1,820 | | Total Liabilities Held for Sale | $1,766 | $1,820 | - At September 30, 2019, assets held for sale included one legacy CRE loan with a carrying value of **$17,141 thousand** and one mezzanine loan with no carrying value[174](index=174&type=chunk) [Note 21 - Subsequent Events](index=46&type=section&id=NOTE%2021%20-%20SUBSEQUENT%20EVENTS) This note reports on events occurring after the balance sheet date that may require disclosure or adjustment - No subsequent events requiring adjustments to or disclosures in the consolidated financial statements were identified through the filing date of the report[175](index=175&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, investment strategies, and financial trends for the periods ended September 30, 2019, and December 31, 2018. It also discusses the company's strategic focus on CRE debt investments and the completion of its disposition plan for non-core assets [Overview](index=47&type=section&id=Overview) This section provides an executive summary of the company's business, investment strategy, and key operational highlights - Exantas Capital Corp. is a REIT focused on originating, holding, and managing CRE mortgage loans and other CRE-related debt investments, with an objective to provide stockholders with total returns through distributions and capital appreciation[178](index=178&type=chunk) - The investment strategy targets various CRE credit investments, including first mortgage loans (whole loans, A-notes, B-notes), mezzanine debt, preferred equity, and CMBS[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) - The company uses leverage and derivative financial instruments (e.g., interest rate swaps) to enhance returns and mitigate interest rate risk, with **93%** of the core investment portfolio match-funded at September 30, 2019[185](index=185&type=chunk)[186](index=186&type=chunk) - The strategic plan to focus on CRE debt investments and dispose of non-core assets is substantially complete, with **95%** of equity allocated to core assets at September 30, 2019[188](index=188&type=chunk)[189](index=189&type=chunk) - For the three months ended September 30, 2019, nine CRE loans with total commitments of **$105.1 million** were originated, and the CRE loan portfolio comprised approximately **$1.8 billion** in floating rate CRE whole loans[190](index=190&type=chunk) - The company anticipates **$850.0 million to $1.0 billion** in CRE loan originations and other CRE-related investments for both 2019 and 2020[191](index=191&type=chunk) Book Value per Share (Sep 30, 2019) | Metric | Per Share |\n|:------------------------------------------|:----------|\n| Common Stock Book Value | $14.12 |\n| Non-cash convertible senior notes' unamortized discounts | $(0.28) |\n| Series C Preferred Stock redemption value in excess of carrying value | $(0.13) |\n| **Economic Book Value (Non-GAAP)** | **$13.71**| [Results of Operations](index=49&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenues, expenses, and net income trends Net Income Allocable to Common Shares and EPS (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Net Income Allocable to Common Shares | $10,000 | $6,000 | $21,800 | $(394) | | Basic EPS | $0.32 | $0.19 | $0.69 | $(0.01) | Net Interest Income Change Analysis (Nine Months Ended Sep 30, in thousands) | Component | Net Change (2019 vs 2018) | Due to Volume | Due to Rate | |:------------------------------------------|:--------------------------|:--------------|:------------| | Total Interest Income | $22,909 | $23,925 | $(1,016) | | Total Interest Expense | $15,823 | $13,087 | $2,736 | | **Net Increase in Net Interest Income** | **$7,086** | **$10,838** | **$(3,752)**| - Interest income increased primarily due to higher weighted-average outstanding balances of CRE whole loans and acquisitions of CMBS, partially offset by declines in coupon rates[200](index=200&type=chunk)[204](index=204&type=chunk) - Interest expense increased mainly due to new securitized borrowings (XAN 2018-RSO6 and XAN 2019-RSO7) and increased utilization of CRE term repurchase facilities, partially offset by liquidations of older securitizations and redemption of convertible senior notes[205](index=205&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) Operating Expenses (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Total Operating Expenses | $4,037 | $5,481 | $15,764 | $17,572 | | Management fees | $2,528 | $2,813 | $6,862 | $8,438 | | Equity compensation | $552 | $757 | $1,647 | $2,383 | | General and administrative | $2,086 | $2,336 | $7,158 | $7,943 | | (Recovery of) provision for loan losses, net | $(1,137) | $(461) | $58 | $(1,260) | - Operating expenses decreased for both periods, driven by lower base management fees (due to a change in calculation methodology), reduced equity compensation expense (due to accounting guidance changes), and decreased general and administrative costs (lower wages/benefits and legal fees)[214](index=214&type=chunk)[215](index=215&type=chunk)[218](index=218&type=chunk) Other Income (Expense) (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Total Other Income (Expense) | $52 | $(798) | $(1,194) | $(4,817) | | Fair value adjustments on financial assets held for sale | $(55) | $(1,588) | $(1,457) | $(6,244) | - Other expense decreased significantly, primarily due to lower fair value adjustments on the remaining legacy CRE loan held for sale compared to the prior year[225](index=225&type=chunk) Net (Loss) Income from Discontinued Operations (in thousands) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Total (Loss) Income from Discontinued Operations | $(63) | $364 | $(212) | $161 | - Discontinued operations reported a net loss for the nine months ended September 30, 2019, mainly due to wind-down expenses in the residential mortgage lending segment, contrasting with net income in the prior year from middle market loan sales[230](index=230&type=chunk) [Financial Condition](index=57&type=section&id=Financial%20Condition) This section discusses the company's balance sheet items, investment portfolio, and overall financial health - Total assets increased to **$2.5 billion** at September 30, 2019, from **$2.1 billion** at December 31, 2018, driven by the origination and acquisition of CRE loans and CMBS[231](index=231&type=chunk) Investment Portfolio (Net Carrying Amount, in thousands) | Asset Type | Sep 30, 2019 | Dec 31, 2018 | |:------------------------------------------|:-------------|:-------------| | Total Investment Portfolio | $2,285,847 | $1,989,513 | | CRE whole loans | $1,764,834 | $1,527,712 | | CMBS | $471,848 | $418,998 | - CRE loan activity for the nine months ended September 30, 2019, included **$528.3 million** in originations, **$210.8 million** in acquisitions, and **$478.0 million** in payoffs and paydowns[233](index=233&type=chunk) - Restricted cash increased to **$16.6 million** at September 30, 2019, from $12.7 million at December 31, 2018, primarily due to increased initial margin requirements on interest rate swaps[261](index=261&type=chunk) - Accrued interest receivable increased to **$8,647 thousand** at September 30, 2019, from $8,198 thousand at December 31, 2018, mainly due to new loan production[262](index=262&type=chunk) - Core assets comprised **98.75%** of the total investment portfolio at September 30, 2019, reflecting the company's strategic focus on CRE-related investments[267](index=267&type=chunk) - The company utilizes interest rate swaps as cash flow hedges to manage interest rate risk, with **18 swap contracts** outstanding at September 30, 2019, having a total notional value of **$87.6 million** and a fair value liability of **$6.4 million**[270](index=270&type=chunk)[272](index=272&type=chunk)[275](index=275&type=chunk) - Stockholders' equity increased to **$560.0 million** at September 30, 2019, reflecting net unrealized gains on the available-for-sale portfolio and net unrealized losses on cash flow hedges[290](index=290&type=chunk) [Balance Sheet - Book Value Reconciliation](index=71&type=section&id=Balance%20Sheet%20-%20Book%20Value%20Reconciliation) This section reconciles common stock book value to economic book value per share, a non-GAAP measure Common Stock and Economic Book Value per Share (Sep 30, 2019) | Metric | Total Amount (in thousands) | Per Share |\n|:------------------------------------------|:----------------------------|:----------|\n| Common Stock Book Value | $444,070 | $14.12 |\n| Non-cash convertible senior notes' unamortized discounts | $(8,833) | $(0.28) |\n| Series C Preferred Stock redemption value in excess of carrying value | $(4,045) | $(0.13) |\n| **Economic Book Value (Non-GAAP)** | **$431,151** | **$13.71**| - Economic book value, a non-GAAP measure, was **$13.71 per share** at September 30, 2019, after adjustments for convertible senior notes' unamortized discounts and the preferred stock redemption value[195](index=195&type=chunk)[292](index=292&type=chunk) [Management Agreement Equity](index=71&type=section&id=Management%20Agreement%20Equity) This section details the calculation of equity as defined in the management agreement, used for base management fee determination Equity Calculation (as defined in Management Agreement, Sep 30, 2019, in thousands) | Component | Amount |\n|:------------------------------------------|:------------|\n| Proceeds from capital stock issuances, net| $1,219,936 |\n| Retained earnings, net | $(452,434) |\n| Payments for repurchases of capital stock, net | $(207,011) |\n| **Total Equity** | **$560,491**| - The base management fee is calculated as **1/12** of the company's equity (as defined in the Management Agreement) multiplied by **1.50%**[293](index=293&type=chunk) [Core Earnings (Non-GAAP)](index=71&type=section&id=Core%20Earnings%20(Non-GAAP)) This section presents Core Earnings, a non-GAAP measure, to evaluate the company's operating performance excluding certain non-cash items - Core Earnings is a non-GAAP financial measure used to evaluate operating performance, excluding non-cash equity compensation, unrealized gains/losses, non-cash loan loss provisions, and income/loss from non-core assets and discontinued operations[295](index=295&type=chunk) Core Earnings Allocable to Common Shares (in thousands, except per share data) | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:------------------------------------------|:----------------------------|:----------------------------| | Core Earnings Allocable to Common Shares | $26,614 | $2,884 | | Diluted EPS (Core Earnings) | $0.84 | $0.10 | | Core Earnings Adjusted Allocable to Common Shares | $26,614 | $14,865 | | Diluted EPS (Core Earnings Adjusted) | $0.84 | $0.48 | - Core Earnings per common share (as defined in the Management Agreement) for the three months ended September 30, 2019, was **$0.33**, exceeding the Incentive Compensation Hurdle of **$0.26**[301](index=301&type=chunk)[303](index=303&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources and uses of cash, capital structure, and ability to meet financial obligations - Principal sources of liquidity for the nine months ended September 30, 2019, included **$616.8 million** from repurchase facilities, **$61.0 million** from net loan repayments, and **$31.5 million** from the XAN 2019-RSO7 securitization close[307](index=307&type=chunk) - At October 30, 2019, liquidity consisted of **$56.6 million** in unrestricted cash and cash equivalents, and approximately **$126.6 million** from available financing of unlevered CRE and CMBS positions[317](index=317&type=chunk) - The leverage ratio (borrowings to stockholders' equity) increased to **3.4 times** at September 30, 2019, from 2.8 times at December 31, 2018, primarily due to a net increase in borrowings[318](index=318&type=chunk) - The company intends to continue regular quarterly distributions to maintain its REIT status, requiring distribution of at least **90%** of its taxable income annually[319](index=319&type=chunk) Contractual Obligations and Commitments (Sep 30, 2019, in thousands) | Type of Obligation | Total | Less than 1 Year | 1 - 3 Years | 3 - 5 Years | More than 5 Years | |:------------------------------------------|:------------|:-----------------|:------------|:------------|:------------------| | CRE securitizations | $890,721 | $0 | $0 | $0 | $890,721 | | Unsecured junior subordinated debentures | $51,548 | $0 | $0 | $0 | $51,548 | | 4.50% Convertible Senior Notes | $143,750 | $0 | $143,750 | $0 | $0 | | 8.00% Convertible Senior Notes | $21,182 | $21,182 | $0 | $0 | $0 | | Repurchase and credit facilities | $802,829 | $567,186 | $235,643 | $0 | $0 | | Unfunded commitments on CRE loans | $113,046 | $26,599 | $86,447 | $0 | $0 | | Base management fees | $8,407 | $8,407 | $0 | $0 | $0 | | **Total** | **$2,031,483**| **$623,374** | **$465,840**| **$0** | **$942,269** | - Unfunded commitments on CRE loans totaled **$109.9 million** for whole loans and **$3.1 million** for preferred equity investments at September 30, 2019[324](index=324&type=chunk) - A contingent liability of **$703 thousand** was recorded at September 30, 2019, for a mezzanine loan indemnification agreement[326](index=326&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=74&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, primarily interest rate risk, and its strategies for managing these risks, including the use of hedging instruments and sensitivity analysis on fair value [Effect on Fair Value](index=78&type=section&id=Effect%20on%20Fair%20Value) This section analyzes the potential impact of interest rate changes on the fair value of the company's financial instruments - The primary market risk is interest rate risk, which can affect the fair value of assets and liabilities, and the company assesses this risk by estimating the duration of its financial instruments[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk) Sensitivity Analysis on Fair Value (Sep 30, 2019, in thousands) | Scenario | Fair Value of Interest Rate-Sensitive Investment Securities | Change in Fair Value of Investment Securities | Change in Fair Value of Hedging Instruments | |:------------------------------------------|:------------------------------------------------------------|:----------------------------------------------|:--------------------------------------------| | Interest Rates Fall 100 Basis Points | $124,210 | $5,154 (4% increase) | $(6,060) | | Interest Rates Rise 100 Basis Points | $111,602 | $(7,454) (6% decrease) | $5,618 | - The impact of changing interest rates on fair value can significantly increase when rates change beyond **100 basis points** from current levels, and other factors like yield curve shape and market expectations also influence fair value[333](index=333&type=chunk) [Risk Management](index=80&type=section&id=Risk%20Management) This section describes the company's strategies and tools used to identify, assess, and mitigate market risks, particularly interest rate risk - The company manages interest rate risk by monitoring and adjusting borrowing rates, structuring borrowing agreements with diverse maturities and terms, and utilizing derivatives like interest rate swaps[334](index=334&type=chunk) [Item 4. Controls and Procedures](index=75&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended September 30, 2019 [Disclosure Controls and Procedures](index=80&type=section&id=Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as assessed by management - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2019[336](index=336&type=chunk) [Changes in Internal Control over Financial Reporting](index=80&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes to the company's internal control over financial reporting during the quarter - There were no changes in internal control over financial reporting during the quarter ended September 30, 2019, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[337](index=337&type=chunk) PART II This section addresses legal proceedings, updates to risk factors, a list of exhibits, and official signatures for the report [Item 1. Legal Proceedings](index=76&type=section&id=Item%201.%20Legal%20Proceedings) This section outlines ongoing and settled legal proceedings, primarily related to litigation claims against Primary Capital Mortgage, LLC (PCM) and various shareholder derivative actions, noting the substantial completion of PCM's business disposition and the dismissal of several shareholder suits [General Litigation](index=76&type=section&id=General%20Litigation) This section details ongoing litigation, primarily concerning loan repurchase claims against Primary Capital Mortgage, LLC - Primary Capital Mortgage, LLC (PCM) is subject to litigation related to claims for repurchases or indemnifications on loans, with reserves totaling **$1.7 million** at September 30, 2019, and December 31, 2018. The disposition of PCM's business is substantially complete[340](index=340&type=chunk) [Settled and Dismissed Litigation Matters](index=81&type=section&id=Settled%20and%20Dismissed%20Litigation%20Matters) This section reports on shareholder derivative actions that have been settled or dismissed during the reporting period - No general litigation reserve was held at September 30, 2019, or December 31, 2018[341](index=341&type=chunk) - Two consolidated shareholder derivative actions (Federal Actions) were settled in May 2019, involving corporate governance changes and **$550,000** in plaintiffs' attorneys' fees funded by insurers[342](index=342&type=chunk) - Six separate shareholder derivative suits (New York State Actions) were dismissed in June, July, and October 2019[343](index=343&type=chunk) - Other shareholder derivative actions (Hafkey Action and Canoles Action) were voluntarily dismissed in May and July 2019, respectively, in light of the Federal Actions settlement[344](index=344&type=chunk)[345](index=345&type=chunk) [Item 1A. Risk Factors](index=77&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K, but acknowledges that future filings may include updates or additional factors [Updates to Risk Factors](index=82&type=section&id=Updates%20to%20Risk%20Factors) This section confirms no material changes to previously disclosed risk factors and notes potential future updates - As of the report date, there have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K[346](index=346&type=chunk) - The company may disclose changes to such factors or additional factors in future filings with the SEC[346](index=346&type=chunk) [Item 6. Exhibits](index=77&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of exhibits filed with the Form 10-Q, including various agreements, certificates, indentures, and certifications, along with their respective filing references [Exhibit List](index=82&type=section&id=Exhibit%20List) This section provides a comprehensive listing of all documents filed as exhibits to the Form 10-Q report - The exhibits include various corporate documents such as the Asset Purchase Agreement, Restated Certificate of Incorporation, Bylaws, Forms of Certificates for Common and Preferred Stock, Junior Subordinated Indentures, Master Repurchase and Securities Contracts, Management Agreement, Omnibus Equity Compensation Plan, and certifications from the CEO and CFO[347](index=347&type=chunk)[348](index=348&type=chunk) [SIGNATURES](index=80&type=section&id=SIGNATURES) This section contains the official signatures of the company's authorized officers, including the Chief Executive Officer, Chief Financial Officer and Treasurer, and Vice President, certifying the filing of the quarterly report on Form 10-Q [Authorized Signatories](index=86&type=section&id=Authorized%20Signatories) This section lists the names and titles of the company's officers who officially signed the quarterly report - The report was signed on November 6, 2019, by Robert C. Lieber (Chief Executive Officer), David J. Bryant (Senior Vice President, Chief Financial Officer and Treasurer), and Eldron C. Blackwell (Vice President)[353](index=353&type=chunk)