INVESTMENT SECURITIES

12 Months Ended

Sep. 30, 2011

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

NOTE 7 − INVESTMENT SECURITIES

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

	September 30,
	2011		2010
Available-for-sale securities	$	14,884	$	21,530
Trading securities		240		828
Total investment securities, at fair value	$	15,124	$	22,358

Available-for-sale securities.  The following table discloses the pre-tax unrealized gains (losses) relating to the Company's investments in available-for-sale securities (in thousands):

	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2011:
CDO securities	$	1,039	$	1,317	$	−		$	2,356
Equity securities		32,411		27		(19,910	)		12,528
Total	$	33,450	$	1,344	$	(19,910	)	$	14,884
September 30, 2010:
CDO securities	$	5,515	$	1,047	$	(339	)	$	6,223
Equity securities		31,847		18		(16,558	)		15,307
Total	$	37,362	$	1,065	$	(16,897	)	$	21,530

Equity securities.  The Company holds approximately 2.5 million shares of RCC common stock (together with options to acquire 2,166 shares at an exercise price of $15.00 per share expiring 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 on the Company's secured corporate credit facility and term note.

CDO securities.  The CDO securities represent the Company's retained equity interest in three and four CDO issuers that it has sponsored and manages at September 30, 2011 and 2010, respectively.  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.

Trading securities.  The Company held an additional 33,509 and 123,719 shares of TBBK common stock valued at $240,000 and $828,000 as of September 30, 2011 and 2010, respectively, in a Rabbi Trust for the Supplemental Employment Retirement Plan (“SERP”) for its former Chief Executive Officer in addition to the shares held for investment purposes.  The Company sold 90,210 TBBK shares in the plan during fiscal 2011, and recognized a net gain of $186,000.  In addition, the Company had an unrealized trading gain of $16,000 for fiscal 2011 on the TBBK shares held in the plan.  There were no sales of TBBK stock during fiscal 2010.

Unrealized losses along with the related fair value and 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
September 30, 2011:
CDO securities	$	−	$	−		−	$	−	$	−			−
Equity securities		−		−		−		12,393		(19,910	)		1
Total	$	−	$	−		−	$	12,393	$	(19,910	)		1
September 30, 2010:
CDO securities	$	−	$	−		−	$	3,980	$	(339	)		1
Equity securities		−		−		−		15,181		(16,558	)		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 (98% for the first year, 99% for years thereafter) and (v) discount rate (20%).

Other-than-temporary impairment losses.  The Company has not recorded charges for the other-than-temporary impairment of certain of its investment securities in fiscal 2011.  In fiscal 2010 and 2009, the Company recorded charges of $480,000 and $8.5 million, respectively, for the other-than-temporary impairment of certain of its investments in CDOs, primarily those with investments in bank loans, financial institutions, and real estate ABS (which includes RMBS and CMBS).  Additionally, in fiscal 2010, the Company recorded a $329,000 charge for the other-than-temporary impairment of its investment in TBBK common stock held for the SERP as the Company intended to begin to sell these securities during fiscal 2011.  In fiscal 2009, the Company recorded a charge of $73,000 for the other-than-temporary impairment of its investment in TBBK, formerly held for investment purposes, as management no longer had the intent to hold the security to recovery.