Investments in Non-Performing Loan Portfolios and Foreclosed Real Estate

Investments in Non-Performing Loan Portfolios

In December 2011, Gibraltar acquired a portfolio of non-performing loans consisting of 11 loans with an unpaid principal balance of approximately $51.4 million. The portfolio includes non-performing loans secured primarily by commercial land and buildings in various stages of completion.

The following table summarizes for the portfolio acquired in fiscal 2012, the accretable yield and the nonaccretable difference on our investment in the non-performing loan portfolio as of its acquisition date (amounts in thousands).



Contractually required payments, including interest	$	52,524
Nonaccretable difference	(5,125		)
Cash flows expected to be collected	47,399
Accretable difference	(20,514		)
Non-performing loans carrying amount	$	26,885

The Company’s investment in non-performing loan portfolios consisted of the following as of the dates indicated (amounts in thousands):



	April 30, 2012			October 31, 2011
Unpaid principal balance	$	186,031		$	171,559
Discount on acquired loans	(108,269		)	(108,325		)
Carrying value	$	77,762		$	63,234

The activity in the accretable yield for the Company’s investment in the non-performing loan portfolios for the six-month and three-month periods ended April 30, 2012 and 2011 was as follows (amounts in thousands):



	Six months ended April 30,						Three months ended April 30,
	2012			2011			2012			2011
Balance, beginning of period	$	42,326					$	57,844
Additions	20,514			$	33,212					$	33,212
Accretion	(6,559		)	(500		)	(3,331		)	(500		)
Reductions from foreclosures and other dispositions	(9,949		)				(8,300		)
Transfer from nonaccretable yield to accretable yield	2,826						3,010
Other	98						33
Balance, end of period	$	49,256		$	32,712		$	49,256		$	32,712

The additions to accretable yield and the accretion of interest income are based on various estimates regarding loan performance and the value of the underlying real estate securing the loans. As the Company continues to obtain updated information regarding the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded in the six and three months ended April 30, 2012 is not necessarily indicative of expected future results.

Real Estate Owned (REO)

The following table presents the activity in REO for the six and three months ended April 30, 2012 (amounts in thousands):



	Six months ended April 30, 2012			Three months ended April 30, 2012
Balance, beginning of period	$	5,939		$	6,488
Additions	12,802			11,638
Sales	(615		)
Depreciation	(18		)	(18		)
Balance, end of period	$	18,108		$	18,108

As of April 30, 2012, approximately $1.2 million and $16.9 million of REO was classified as held-for-sale and held-and-used, respectively.

General

The Company’s earnings from Gibraltar's operations are included in other income - net in its condensed consolidated statements of operations. In the six-month and three-month periods ended April 30, 2012, the Company recognized $5.9 million and $3.7 million of earnings, respectively, from Gibraltar's operations. In the six-month and three-month periods ended April 30, 2011, Gibraltar incurred a loss of $0.1 million and earnings of $0.3 million, respectively.