4. Investments in Non-Performing Loan Portfolios and Foreclosed Real Estate

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 which 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. Since the acquisition of the loan portfolio, the Company sold its interest in one loan to a third party resulting in a gain of approximately $0.6 million. In fiscal 2011, the Company acquired an interest in four properties through foreclosure or obtaining deeds in lieu of foreclosure related to this loan portfolio. At October 31, 2011, the Company’s pro-rata share of the carrying value of these properties was $5.9 million.

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

The Company’s earnings from the portfolios and management fees earned are included in interest and other income in its consolidated statements of operations. In fiscal 2011, the Company recognized $1.5 million of earnings from its investments in the loan portfolios.

The following summarizes the accretable yield and the nonaccretable difference on our investments in non-performing loans portfolios as of their acquisition dates (amounts in thousands):


Contractually required payments, including interest	$	200,047
Nonaccretable difference		(81,723	)

Cash flows expected to be collected		118,324
Accretable difference		(51,462	)

Non-performing loans carrying amount	$	66,862

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


Unpaid principal balance	$	171,559
Discount on acquired loans		(108,325	)

Carrying value	$	63,234

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


Balance at November 1, 2010	$	—
Additions		51,462
Accretion		(4,480	)
Reductions from foreclosures and other dispositions		(4,599	)
Other		(57	)

Balance at October 31, 2011	$	42,326

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 year ended October 31, 2011 is not necessarily indicative of expected future results.