10. INVESTMENTS AND VARIABLE INTEREST ENTITIES

Investments.

SWS has interests in four investment partnerships that it accounts for under the equity method, which approximates fair value as described in Note 1(x), Fair Value of Financial Instruments. One is a limited partnership venture capital fund in which SWS has invested $5,000,000. Based on a review of the fair value of this limited partnership interest, SWS determined that its share of the investments made by the limited partnership should be valued at $513,000 as of June 30, 2013 and $1,494,000 as of June 29, 2012. SWS recorded net losses on this investment for fiscal years 2013, 2012 and 2011 of $640,000, $620,000 and $180,000, respectively. In fiscal 2013, SWS received cash distributions of $341,000 from this investment. The limited partnership venture capital fund has entered into an agreement with the SBA for a self-liquidation plan.

Two investments are limited partnership equity funds to which the Bank has commitments of $3,000,000 and $2,000,000, respectively and are considered cost effective ways of meeting its obligations under the Community Reinvestment Act of 1977 ("CRA"). As of June 30, 2013 and 2012, the Bank’s recorded investments in these partnerships were $3,782,000 and $5,300,000, respectively. During fiscal years 2013, 2012 and 2011, the Bank recorded net gains of $882,000, $1,192,000 and $389,000, respectively, related to these investments. During fiscal years 2013, 2012 and 2011, the Bank received cash distributions of $2,400,000, $517,000 and $306,000, respectively, from these investments.

On January 28, 2009, the Bank executed a loan agreement with one of the partnerships for $4,500,000. The loan was amended on November 16, 2009 to increase the note amount to $5,000,000. The loan was renewed on September 26, 2012 with a maturity date of January 2, 2013. At December 31, 2012, the loan was paid in full. On December 31, 2012, the Bank executed a new loan agreement with one of the partnerships for $5,000,000 with a maturity date of December 31, 2015. At June 30, 2013, the outstanding balance was $2,549,000. The loan bears interest at a rate of 4.25% per annum and interest is due monthly. The Bank earned approximately $166,000, $243,000 and $250,000 in interest income in fiscal years 2013, 2012 and 2011, respectively, on these loans.

In April 2012, the Bank acquired an interest in a private investment fund to obtain additional credit for its obligations under the CRA. The Bank has committed to invest $3,000,000 in the fund and to date has invested $180,000 in the fund and recorded net losses of $118,000 during fiscal 2013.

The Company’s investments in and the Bank’s loan to these funds may be limited by a portion of the Dodd-Frank Act called the Volcker Rule, which has proposed implementing regulations. Management will monitor the final rules implementing the Volcker Rule once they are published to determine what impact, if any, the final rules would have on the Company’s investments and loan to these funds.

Variable Interest Entities.

VIE’s include partnerships, limited liability companies, trusts, or other legal entities that do not have sufficient equity to finance their activities without additional subordinated financial support from other parties, or whose investors lack one of three characteristics associated with owning a controlling financial interest. Those characteristics are: (1) the direct or indirect ability to make decisions about an entity’s activities through voting rights or similar rights; (2) the obligation to absorb the expected losses of an entity, if they occur and (3) the right to receive the expected residual returns of the entity, if they occur.

GAAP requires VIEs to be consolidated by the party that has both (1) the ability to direct the VIE’s activities that most significantly impact the entity’s economic performance and (2) who is exposed to a majority of the VIE’s expected losses and/or residual returns (i.e., meets the definition of the primary beneficiary).

The loans to commercial borrowers noted in the table below meet the definition of a VIE because the legal entities have a total equity investment at risk that is not sufficient to permit the entity to finance its activities without additional subordinated financial support; however, the Company is not the primary beneficiary of the legal entities. The Company has customary lender’s rights and remedies, as provided in the related promissory notes and loan agreements, but does not have the power to direct the activities of the legal entities that most significantly impact the borrowers’ economic performance. In addition, the Company has not provided the borrowers with any form of support outside of the contractual loan obligations. Accordingly, the entities are not consolidated in the Company’s financial statements.

The following table presents the carrying amount and maximum exposure to loss associated with the Company’s variable interests in unconsolidated VIEs as of June 30, 2013 and 2012 (dollars in thousands):



	June 30, 2013			June 30, 2012
	Number of VIEs	Carrying Amount of Assets	Maximum Exposure to Loss	Number of VIEs	Carrying Amount of Assets	Maximum Exposure to Loss

Loans to commercial
borrowers	17	$ 10,639	$ 9,072	5	$ 2,766	$ 1,339

The carrying amount of the Company’s recorded investment in these loans is included in loans, net of allowance for loan losses in the Consolidated Statements of Financial Condition. See additional discussion in Note 5, Loans and Allowance for Probable Loan Losses for information related to the loans modified in TDR’s.