INVESTMENT SECURITIES

9 Months Ended

Jun. 30, 2011

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

NOTE 7 − INVESTMENT SECURITIES

Components of investment securities are as follows (in thousands):

	June 30,		September 30,
	2011		2010
Available-for-sale securities	$	18,023	$	21,530
Trading securities		612		828
Total investment securities, at fair value	$	18,635	$	22,358

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
June 30, 2011:
Equity securities	$	32,223	$	89	$	(16,638	)	$	15,674
CDO securities		1,089		1,260		−			2,349
Total	$	33,312	$	1,349	$	(16,638	)	$	18,023
September 30, 2010:
Equity securities	$	31,847	$	18	$	(16,558	)	$	15,307
CDO securities		5,515		1,047		(339	)		6,223
Total	$	37,362	$	1,065	$	(16,897	)	$	21,530

Equity Securities. The Company holds 2.4 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 have been pledged as collateral for one of the Company's secured corporate credit facilities.

       CDO Securities.  The CDO securities represent the Company's retained equity interests in three and four CDO issuers that it has sponsored and manages as of June 30, 2011 and September 30, 2010, respectively.  The investments held by the respective CDO issuers are sensitive to interest rate fluctuations and the credit quality of the underlying assets held by the CDO issuers, which, accordingly, has an impact on their fair value.

       Trading Securities.  The Company held an additional 58,594 and 123,719 shares of TBBK common stock valued at $612,000 and $828,000 as of June 30, 2011 and September 30, 2010, respectively, in a Rabbi Trust for the Supplemental Employment Retirement Plan (“SERP”) for its former Chief Executive Officer.  The Company sold 20,400 and 65,125 shares of TBBK in the plan during the three and nine months ended June 30, 2011, respectively, and recognized net gains of $57,000 and $153,000, respectively.  In addition, the Company had an unrealized trading gain of $19,000 and $220,000 for the three and nine months ended June 30, 2011, respectively, on the TBBK shares held in the plan.  There were no trading gains or losses on TBBK shares for the three and nine months ended June 30, 2010.

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
June 30, 2011:
Equity securities	$	−	$	−		−	$	15,476	$	(16,638	)		1
CDO securities		−		−		−		−		−			−
Total	$	−	$	−		−	$	15,476	$	(16,638	)		1
September 30, 2010:
Equity securities	$	−	$	−		−	$	15,181	$	(16,558	)		1
CDO securities		−		−		−		3,980		(339	)		1
Total	$	−	$	−		−	$	19,161	$	(16,897	)		2

The unrealized losses in the above table are considered to be temporarily impairments due to market factors and are not reflective of credit deterioration.  The Company has performed credit analyses in relation to these investments and believes the carrying value of these investments to be fully recoverable over their expected holding period.  The Company considers, among other factors, the expected cash flows to be received from investments, recent transactions in the public markets, portfolio quality and industry sector of the investees when determining impairment.  Specifically, with respect to its evaluation of its investment in RCC, the Company considers its role as the external manager 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 these investments, the Company does not consider these unrealized losses to be other-than-temporary impairments.  With respect to its CDO investments, 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 (99%) and (v) discount rate (20%).

       Other-than-Temporary Impairment Losses.  There were no other-than-temporary-impairment losses recorded during the three and nine months ended June 30, 2011 for the other-than-temporary impairment of its CDO investments. During the three months ended June 30, 2010, the Company recorded a $67,000 charge related to CDO investments in bank loans ($50,000 in European loans).  The $364,000 charge recorded for the nine months ended June 30, 2010 also reflected $297,000 related to CDO investments in securities of financial institutions.