INVESTMENT SECURITIES

3 Months Ended

Dec. 31, 2011

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

NOTE 6 − INVESTMENT SECURITIES

Components of the Company's investment securities are as follows (in thousands):

	December 31,		September 30,
	2011		2011
Available-for-sale securities	$	17,280	$	14,884
Trading securities		50		240
Total investment securities, at fair value	$	17,330	$	15,124

Available-for-sale securities.  The following table discloses the pre-tax unrealized gains (losses) relating to the Company's investments in equity and collateralized debt obligation (“CDO”) securities (in thousands):

	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2011:
Equity securities	$	32,653	$	28	$	(18,382	)	$	14,299
CDO securities		1,593		1,388		−			2,981
Total	$	34,246	$	1,416	$	(18,382	)	$	17,280
September 30, 2011:
Equity securities	$	32,411	$	27	$	(19,910	)	$	12,528
CDO securities		1,039		1,317		−			2,356
Total	$	33,450	$	1,344	$	(19,910	)	$	14,884

Equity Securities.  The Company holds 2.5 million shares of RCC common stock as well as options to acquire an additional 2,166 shares (exercise price of $15.00 per share; expire in March 2015).  The Company also holds 18,972 shares of The Bancorp, Inc. (“TBBK”) (NASDAQ: TBBK) common stock.  A portion of these investments are pledged as collateral for one of the Company's secured corporate credit facilities.

CDO securities.  The CDO securities represent the Company's retained equity interest in three CDO issuers that it has sponsored and manages.  The fair value of these retained interests is impacted by the fair value of the investments held by the respective CDO issuers, which are sensitive to interest rate fluctuations and credit quality determinations. The primary inputs used in producing the internally generated expected cash flows models to determine the fair value are as follows:  (i) constant default rate (2%); (ii) loss recovery percentage (70%); (iii) constant prepayment rate (20%); (iv) reinvestment price on collateral (98% for the first year, 99% for years thereafter); and (v) discount rate (20%).

Trading Securities.  The Company held an additional 6,992 and 33,509 shares of TBBK common stock valued at $50,000 and $240,000 as of December 31, 2011 and September 30, 2011, respectively, in a Rabbi Trust for the Supplemental Employment Retirement Plan (“SERP”) for its former Chief Executive Officer.  The Company sold 26,517 and 20,225 of shares held in the Trust during the three months ended December 31, 2011 and 2010, respectively, and recognized gains of $17,000 and $9,000, respectively.  For the three months ended December 31, 2010, the Company also recorded an unrealized trading gain of $374,000.

Unrealized losses along with the related fair value, aggregated by the length of time the investments were in a continuous unrealized loss position, are as follows (in thousands, except number of securities):

	Less than 12 Months						More than 12 Months
	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses			Number of Securities
December 31, 2011:
Equity securities	$	−	$	−		−	$	14,162	$	(18,382	)		1
CDO securities		−		−		−		−		−			−
Total	$	−	$	−		−	$	14,162	$	(18,382	)		1
September 30, 2011:
Equity securities	$	−	$	−		−	$	12,393	$	(19,910	)		1
CDO securities		−		−		−		−		−			−
Total	$	−	$	−		−	$	12,393	$	(19,910	)		1

The unrealized losses in the above table are considered to be temporary impairments due to market factors and not reflective of credit deterioration.  The Company considers its role as the external manager of RCC and the value of its management contract, which includes a substantial fee for termination of the manager.  Further, because of its intent and ability to hold its investment in RCC, the Company does not consider the unrealized losses to be other-than-temporary impairments.