Investments in Non-Performing Loan Portfolios and Foreclosed Real Estate

Investments in Non-Performing Loan Portfolios

In fiscal 2012, Gibraltar acquired 12 non-performing loans with an unpaid principal balance of approximately $56.6 million. The non-performing loans are secured primarily by commercial land and buildings in various stages of completion.

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



Contractually required payments, including interest	$	58,234
Non-accretable difference	(8,235		)
Cash flows expected to be collected	49,999
Accretable difference	(20,514		)
Non-performing loans carrying amount	$	29,485

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



	July 31, 2012			October 31, 2011
Unpaid principal balance	$	143,981		$	171,559
Discount on acquired loans	(83,732		)	(108,325		)
Carrying value	$	60,249		$	63,234

The activity in the accretable yield for the Company’s investment in the non-performing loan portfolios for the nine-month and three-month periods ended July 31, 2012 and 2011 was as follows (amounts in thousands):



	Nine months ended July 31,						Three Months Ended July 31,
	2012			2011			2012			2011
Balance, beginning of period	$	42,326					$	49,256		$	32,712
Additions	20,514			$	33,212
Accretion	(9,214		)	(2,229		)	(2,655		)	(1,729		)
Reductions from foreclosures and other dispositions	(24,090		)	(451		)	(14,141		)	(451		)
Transfer from non-accretable yield to accretable yield	4,123						1,297
Other	98
Balance, end of period	$	33,757		$	30,532		$	33,757		$	30,532

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 nine-month and three-month periods ended July 31, 2012 and 2011 is not necessarily indicative of expected future results.

Real Estate Owned (REO)

The following table presents the activity in REO for the nine-month and three-month periods ended July 31, 2012 and 2011(amounts in thousands):



	Nine months ended July 31,					Three months ended July 31,
	2012			2011		2012			2011
Balance, beginning of period	$	5,939				$	18,108
Additions	33,663			$	734	20,861			$	734
Sales	(1,346		)			(731		)
Impairments	(126		)			(126		)
Depreciation	(138		)			(120		)
Balance, end of period	$	37,992		$	734	$	37,992		$	734

As of July 31, 2012, approximately $1.8 million and $36.2 million of REO was classified as held-for-sale and held-and-used, respectively. For the nine-month period ended July 31, 2012, the Company recorded gains of $1.7 million from acquisitions of REO through foreclosure. For the three-month period ended July 31, 2012, the Company recorded an insignificant loss from REO acquisitions through foreclosures.

General

The Company’s earnings from Gibraltar's operations are included in Other Income - Net in its condensed consolidated statements of operations. In the nine-month and three-month periods ended July 31, 2012, the Company recognized $6.5 million and $0.6 million of earnings, respectively, from Gibraltar's operations. In the nine-month and three-month periods ended July 31, 2011, Gibraltar incurred a loss of $0.5 million and earnings of $0.6 million, respectively.