FAIR VALUE

3 Months Ended

Dec. 31, 2011

FAIR VALUE [Abstract]

FAIR VALUE

NOTE 18 – FAIR VALUE

Assets and liabilities are categorized into one of three levels based on the assumptions (inputs) used in valuing the asset or liability.  Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment.  The three levels are defined as follows:

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

Level 2 − Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

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

As of December 31, 2011, the fair value of the Company's asset recorded at fair value on a recurring basis was as follows (in thousands):

	Level 1		Level 2		Level 3		Total
Asset:
Investment securities	$	14,349	$	−	$	2,981	$	17,330

As of September 30, 2011, the fair values of the Company's assets and liability recorded at fair value on a recurring basis were as follows (in thousands):

	Level 1		Level 2		Level 3		Total
Assets:
Investment securities	$	12,768	$	−	$	2,356	$	15,124
Retained financial interest – commercial finance		−		−		22		22
Total	$	12,768	$	−	$	2,378	$	15,146
Liability:
Interest rate swap	$	−	$	404	$	−	$	404

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

				Retained
	Investment			Financial
	Securities			Interest
For the Three Months Ended December 31, 2011:
Balance, beginning of year	$	2,356		$	22
Purchases		600			−
Income accreted		193			−
Payments and distributions received		(239	)		−
Deconsolidation of LEAF		−			(22	)
Change in unrealized losses - included in accumulated other comprehensive loss		71			−
Balance, end of period	$	2,981		$	−
For the Fiscal Year Ended September 30, 2011:
Balance, beginning of year	$	6,223		$	273
Purchases, sales, issuances and settlements, net		(2,946	)		−
Loss on sale of investment securities, net		(1,470	)		−
Income accreted		948			−
Payment and distributions received		(861	)		(251	)
Change in unrealized losses - included in accumulated other comprehensive loss		462			−
Balance, end of year	$	2,356		$	22

The following is a discussion of the assets and liabilities that are recorded at fair value on a recurring and non-recurring basis as well as the valuation techniques applied to each fair value measurement:

Receivables from managed entities.  The Company recorded a discount on certain of its receivable balances due from its real estate and commercial finance managed entities due to the extended term of the repayment to the Company.  The discount was computed based on estimated inputs, including the repayment term (Level 3).

Investment securities.  The Company uses quoted market prices (Level 1) to value its investments in RCC and TBBK common stock.  The fair value of CDO investments is based primarily on internally generated expected cash flow models that require significant management judgments and estimates due to the lack of market activity and unobservable pricing inputs.  Unobservable inputs into these models include default, recovery, discount and deferral rates, prepayment speeds and reinvestment interest spreads (Level 3).

Investment in LEAF.  The Company's investment in LEAF was valued at $1.7 million based on a third-party valuation in conjunction with the November 16, 2011 deconsolidation of LEAF (see Note 1).

The following items are included in the Company's fair value disclosures at September 30, 2011; however, due to the LEAF transaction, they are no longer included in the consolidated financial statements.

Retained interest - commercial finance.  During fiscal 2010, the Company sold leases and loans to third-parties in which portions of the proceeds were retained by the purchasers.  The purchasers have the right to return leases and loans that default within periods ranging from approximately six to forty-eight months after the date of sale and to deduct the applicable percentage from the retained proceeds.  The Company determines the fair value of these retained interests by calculating the present value of future expected cash flows using key assumptions for credit losses and discount rates based on historical experience and repayment terms (Level 3).

Interest rate swaps.  These instruments are valued by a third-party pricing agent using an income approach and utilizing models that use as their primary basis readily observable market parameters.  This valuation process considers factors including interest rate yield curves, time value, credit factors and volatility factors.  Although the Company determined that the majority of the inputs used to value its derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.  However, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of these derivative positions and  determined that the credit valuation adjustments were not significant to the overall valuation of these derivatives.  As a result, the Company determined that these derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

Guggenheim - secured revolving facility.  The proceeds from this loan were allocated to the revolving facility and the warrants issued to the lender based on their relative fair values, as determined by an independent third-party appraiser.  The appraiser determined the fair value of the debt based primarily on the interest rates of similarly rated notes with similar terms.  The appraiser assessed the fair value of the equity of LEAF in making its determination of the fair value of the warrants.

Impaired loans and leases - commercial finance.  Leases and loans are considered impaired when they are 90 or more days past due and are placed on non-accrual status.  The Company records an allowance for the impaired loans and leases based upon historical experience (Level 3).

The Company recognized the following changes in carrying value of the assets and liabilities measured at fair value on a non-recurring basis, as follows (in thousands):

	Level 1		Level 2		Level 3		Total
For the Three Months Ended December 31, 2011:
Assets:
Receivables from managed entities – commercial finance and real estate	$	−	$	−	$	30,331	$	30,331
Investment in LEAF		−		−		1,749		1,749
Total	$	−	$	−	$	32,080	$	32,080
For the Fiscal Year Ended September 30, 2011:
Assets:
Investments in commercial finance – impaired loans and leases	$	−	$	−	$	310	$	310
Receivables from managed entities		−		−		18,941		18,941
Total	$	−	$	−	$	19,251	$	19,251
Liabilities:
Guggenheim – secured revolving credit facility	$	−	$	−	$	49,266	$	49,266
Total	$	−	$	−	$	49,266	$	49,266

For cash, receivables and payables, the carrying amounts approximate fair value because of the short-term maturity of these instruments.

The fair value of financial instruments is as follows (in thousands):

	December 31, 2011				September 30, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Receivables from managed entities (1)	$	54,348	$	49,135	$	54,815	$	39,224
Investments in commercial finance – loans held for investment		−		−		19,640		19,550
	$	54,348	$	49,135	$	74,455	$	58,774
Borrowings:(2)
Corporate secured credit facilities and note	$	5,303	$	5,303	$	8,743	$	8,743
Real estate debt		10,660		10,660		10,700		10,700
Senior Notes		10,000		10,210		16,263		17,438
Other debt		2,508		2,084		3,807		2,909
Commercial finance debt		−		−		183,146		183,146
	$	28,471	$	28,257	$	222,659	$	222,936

(1) Certain of the receivables from managed entities at December 31, 2011 and September 30, 2011 have been valued using a present value discounted cash flow where market prices were not available.  The discount rate used in these calculations is the estimated current market rate, as adjusted for liquidity risk.

(2) The carrying value of the Company's corporate secured revolving credit facilities and term note approximates their fair values because of their variable interest rates.  The carrying value of the Company's real estate debt approximates fair value due to its recent issuance.  The Company estimated the fair value of the Senior Notes by applying the percentage appreciation in a high-yield fund with approximately similar quality and risk attributed as the Senior Notes.  The carrying value of the Company's other debt was estimated using current interest for similar loans at December 31, 2011 and September 30, 2011.  The carrying value of the Company's commercial finance debt approximated its fair value due to its recent issuance at September 30, 2011 and was deconsolidated during the Company's first quarter ended December 31, 2011.  This disclosure excludes instruments valued on a recurring basis.