EOS Preferred Corp

On March 12, 2012, the Board of Directors of EOS (the “Board of Directors”) approved a Plan of Liquidation and Dissolution and on March 13, 2012, the Board of Directors of Aurora Bank, the sole common shareholder of EOS, approved the Plan of Liquidation and Dissolution. Our Series D preferred stock, previously listed on the NASDAQ Stock Market, Inc. (“NASDAQ”) under the ticker symbol “EOSPN”, formally ceased trading on March 28, 2012. On April 9, 2012, the Series B and Series D shareholders were liquidated and were paid their liquidation preference. These shareholders no longer have any rights as against the Corporation. A notice to delist from the NASDAQ-OMX exchange was filed on March 29, 2012. That delisting was effective April 9, 2012. Management expects to file Articles of Dissolution with the Secretary of State of the Commonwealth of Massachusetts on April 16, 2012. Management is coordinating the sale of our remaining assets, the wind down of our corporate affairs and the liquidation of the common shares and expects to be concluded during 2012.

As of December 31, 2011, we performed a sensitivity analysis to determine the impact on interest income and asset value of our interest sensitive assets from various changes in interest rates. The analysis showed that the largest portion of the impact on a percentage basis was driven by our interest-bearing cash deposits. With our cash deposits, a change in the interest rate has a direct impact on the entire balance. Although there is no impact on the fair value itself, the impact on our interest income can be relatively large as every dollar of the holding is affected. As of December 31, 2011, our estimated interest income changed by approximately $68,000 or 33% for each change of 25 basis points in the interest rate.

On March 12, 2012, the Board of Directors of EOS (the “Board of Directors”) approved a Plan of Liquidation and Dissolution. Our Series D preferred stock, previously listed on the NASDAQ Stock Market, Inc. (“NASDAQ”) under the ticker symbol “EOSPN”, formally ceased trading on March 28, 2012. On April 9, 2012, the Series B and Series D shareholders were liquidated and were paid their liquidation preference. These shareholders no longer have any rights as against the Corporation. A notice to delist from the NASDAQ-OMX exchange was filed on March 29, 2012. That delisting was effective April 9, 2012. Management expects to file Articles of Dissolution with the Secretary of State of the Commonwealth of Massachusetts on April 16, 2012. Management is coordinating the sale of our remaining assets, the wind down of our corporate affairs and the liquidation of the common shares and expects to be concluded during 2012. Refer to the subsequent events section of Note 2.

Our principal business objective was to hold mortgage assets to generate net income for distribution to our stockholders. As of December 31, 2011, our mortgage assets included non-agency residential mortgage-backed securities (“MBS) and loans collateralized by residential, multi-family and commercial properties. Our mortgage assets were primarily collateralized by properties located in California. All mortgage assets in our investment portfolio at December 31, 2011 were acquired from Aurora Bank. All mortgage assets in our loan portfolio at December 31, 2011 were acquired from Capital Crossing Bank or Aurora Bank. Aurora Bank administers our day to-day activities in its roles as servicer under the Master Service Agreement (“MSA”) entered into between Aurora Bank and EOS and as advisor under the Advisory Agreement (“AA”) entered into between Aurora Bank and EOS. Both the AA and the MSA were amended effective as of January 1, 2010. The amended AA and the amended MSA change the fees paid by EOS. During 2010, the amended agreement, among other things, changed the management fee to $25,000 per month. The amended MSA changed the fees paid by EOS to reflect the fees payable to each sub-servicer. Through December 31, 2009, we paid Aurora Bank an annual servicing fee equal to 0.20%, payable monthly, and an annual advisory fee equal to 0.05%, also payable monthly, of the gross average unpaid principal balances of loans in the loan portfolio it services for the immediately preceding month.

Prior to February 5, 2009, our loan assets were considered held for investment and recorded at accreted cost which accounts for the amortization of any purchase discount and deferred fees less an allowance for loan losses. We reviewed acquired loans for differences between contractual cash flows and cash flows expected to be collected from our initial investment in the acquired loans to determine if those differences were attributable, at least in part, to credit quality. If those differences were attributable to credit quality, the loan’s contractually required payments receivable in excess of the amount of its cash flows expected at acquisition, or nonaccretable discount, was not accreted into income. The allowance for loan losses was increased or decreased through a provision for loan losses or a reduction in the allowance for loan losses included in earnings. Any remaining discount relating to our purchase of the loans is not amortized as interest income during the period the loans are classified as held for sale. Deferred income associated with loans held for sale is deferred until the related loan is paid in full or sold. There was judgment involved in estimating the amount of our future cash flows on acquired loans and the amount and timing of actual cash flows could differ materially from management’s estimates Subsequent to February 5, 2009, the loan assets were considered held for sale and were carried at fair value.