Investments in Non-performing Loan Portfolios and Foreclosed Real Estate

The Company’s investment in non-performing loan portfolios consisted of the following at October 31, 2012 and 2011 (amounts in thousands):



	2012			2011
Unpaid principal balance	$	99,693		$	171,559
Discount on acquired loans	(62,524		)	(108,325		)
Carrying value	$	37,169		$	63,234

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

In September 2011, Gibraltar acquired 38 non-performing loans with an unpaid principal balance of approximately $71.4 million. The purchase included residential acquisition, development and construction loans secured by properties at various stages of completion.

In March 2011, the Company, through Gibraltar, acquired a 60% participation in a portfolio of non-performing loans. The portfolio of 83 loans, with an unpaid principal balance of approximately $200.3 million consisted primarily of residential acquisition, development and construction loans secured by properties at various stages of completion. The Company oversees the day-to-day management of the portfolio in accordance with the business plans that are jointly approved by the Company and the co-participant. The Company receives a management fee for such services. The Company recognizes income from the loan portfolio based upon its participation interest until such time as the portfolio meets certain internal rates of return as stipulated in the participation agreement. Upon reaching the stipulated internal rates of return, the Company will be entitled to receive additional income above its participation percentage from the portfolio.

The following table summarizes, for the portfolios acquired in fiscal 2012 and 2011, the accretable yield and the non-accretable difference on the Company's investment in the non-performing loan portfolios as of their acquisition date (amounts in thousands).



	2012			2011
Contractually required payments, including interest	$	58,234		$	200,047
Non-accretable difference	(8,235		)	(81,723		)
Cash flows expected to be collected	49,999			118,324
Accretable difference	(20,514		)	(51,462		)
Non-performing loans carrying amount	$	29,485		$	66,862

The activity in the accretable yield for the Company’s investments in the non-performing loan portfolios for the years ended October 31, 2012 and 2011 was as follows (amounts in thousands):



	2012			2011
Balance, beginning of period	$	42,326		$	—
Loans acquired	20,514			51,462
Additions	5,539
Deletions	(40,227		)	(4,656		)
Accretion	(10,956		)	(4,480		)
Balance, end of period	$	17,196		$	42,326

Additions primarily represent reclassifications from nonaccretable yield to accretable yield and the impact of impairments. 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 gather additional information regarding the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded in the years ended October 31, 2012 and 2011 is not necessarily indicative of expected future results. Deletions primarily represent disposal of loans, which includes foreclosure of the underlying collateral and result in the removal of the loans from the accretable yield portfolios.

Real Estate Owned

The following table presents the activity in REO at October 31, 2012 and 2011 (amounts in thousands):



	2012			2011
Balance, beginning of period	$	5,939		$	—
Additions	54,174			5,939
Sales	(1,353		)
Impairments	(126		)
Depreciation	(281		)
Balance, end of period	$	58,353		$	5,939

As of October 31, 2012, approximately $5.9 million and $52.4 million of REO was classified as held-for-sale and held-and-used, respectively. At October 31, 2011, all REO was classified as held-and-used.

General

The Company’s earnings from its Gibraltar's operations, excluding its equity earnings from its investment in the Structured Asset Joint Venture, are included in other income - net in its Consolidated Statements of Operations. In the years ended October 31, 2012 and 2011, the Company recognized $4.5 million and $1.5 million of earnings, respectively, from Gibraltar's operations.