##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2011
 Commission File Number 000-25193
 EOS PREFERRED CORPORATION
  Massachusetts
 (State or other jurisdiction of incorporation or organization)
 04-3439366
 (I.R.S. Employer Identification Number)
 1271 Avenue of the Americas, 46thFloor, New York, New York
  10020
 (Zip Code)
 (212) 377-1503
 (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



EOS Preferred Corporation
Table of Contents
 PagePART I  Financial InformationItem 1. Condensed Financial Statements (Unaudited):Balance Sheets
    
    
    1Statements of Operations
    
    
    2Statements of Changes in Stockholders Equity
    
    
    3Statements of Cash Flows
    
    
    4Notes to Condensed Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Executive Level Overview
    
    
    15Application of Critical Accounting Policies and Estimates
    
    
    17Results of Operations for the Three Months Ended March 31, 2011 and 2010
    
    
    18Financial Condition
    
    
    20Cash Flows
    
    
    20Off-Balance Sheet Arrangements
    
    
    21Interest Rate Risk
    
    
    21Significant Concentration of Credit Risk
    
    
    21Liquidity Risk Management
    
    
    21Impact of Inflation and Changing Prices
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II Other InformationItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. (Removed and Reserved)
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    23Signatures
    
    
    24Exhibit Index
    
    
    25EX-31.1EX-31.2EX-32




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##### Table of Contents



PART I
 
 Item 1. Condensed Financial Statements
 EOS Preferred Corporation
 
 Balance Sheets
 (Unaudited)
 March 31,
    
    
    December 31,2011
    
    
    2010(In Thousands)ASSETSCash account with parent
    
    $
    
    
    
    $
    184Interest-bearing deposits with parent
    
    
    64,232
    
    
    
    62,385Total cash and cash equivalents
    
    
    64,232
    
    
    
    62,569Loans at fair value
    
    
    15,573
    
    
    
    16,505Loans at lower of accreted cost or market value
    
    
    7,203
    
    
    
    7,935Loans
    
    
    22,776
    
    
    
    24,440Accrued interest receivable
    
    
    203
    
    
    
    213Total assets
    
    $
    87,211
    
    
    $
    87,222LIABILITIES AND STOCKHOLDERS EQUITYAccrued expenses and other liabilities
    
    $
    151
    
    
    $
    957Accounts payable to parent
    
    
    333
    
    
    
    989Total liabilities
    
    
    484
    
    
    
    1,946Stockholders equity:Preferred stock, Series B, 8% cumulative, non-convertible;
$.01 par value; $1,000 liquidation value per share plus
accrued dividends; 1,000 shares authorized, 937 shares
issued and outstanding
    
    
    
    
    
    
    Preferred stock, Series D, 8.50% non-cumulative, exchangeable;
$.01 par value; $25 liquidation value per share; 1,725,000 shares
authorized, 1,500,000 shares issued and outstanding
    
    
    15
    
    
    
    15Common stock, $.01 par value, 100 shares authorized,
issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    95,320
    
    
    
    95,320Accumulated deficit
    
    
    (8,608
    )
    
    
    (10,059
    )Total stockholders equity
    
    
    86,727
    
    
    
    85,276Total liabilities and stockholders equity
    
    $
    87,211
    
    
    $
    87,222
  1




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##### Table of Contents



EOS Preferred Corporation
 
 Statements of Operations
 (Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010(In Thousands)Interest income:Interest and fees on loans
    
    $
    362
    
    
    $
    637Interest on interest-bearing deposits
    
    
    46
    
    
    
    39Total interest income
    
    
    408
    
    
    
    676Realized and unrealized gains on loans
    
    
    1,311
    
    
    
    1,764Revenue
    
    
    1,719
    
    
    
    2,440Operating expenses:Loan servicing and advisory services
    
    
    109
    
    
    
    132Other general and administrative
    
    
    159
    
    
    
    142Total operating expenses
    
    
    268
    
    
    
    274Net income
    
    
    1,451
    
    
    
    2,166Preferred stock dividends declared
    
    
    
    
    
    
    Net income available to common stockholder
    
    $
    1,451
    
    
    $
    2,166
  2




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EOS Preferred Corporation
 
 Statements of Changes in Stockholders Equity
 (Unaudited)
 Three Months ended March 31, 2011RetainedPreferred Stock
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Earnings /
    
    
    TotalSeries B
    
    
    Series D
    
    
    Common Stock
    
    
    Paid-in
    
    
    (Accumulated
    
    

StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit)
    
    
    Equity(In Thousands)Balance at December 31, 2010
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    95,320
    
    
    $
    (10,059
    )
    
    $
    85,276Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,451
    
    
    
    1,451Cumulative dividends
declared on preferred
stock, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared on
preferred stock, Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2011
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    95,320
    
    
    $
    (8,608
    )
    
    $
    86,727
 Three Months ended March 31, 2010RetainedPreferred Stock
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Earnings /
    
    
    TotalSeries B
    
    
    Series D
    
    
    Common Stock
    
    
    Paid-in
    
    
    (Accumulated
    
    

StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Deficit)
    
    
    Amount
    
    
    Capital
    
    
    Deficit)
    
    
    Equity(In Thousands)Balance at December 31, 2009
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    95,320
    
    
    $
    (13,640
    )
    
    $
    81,695Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,166
    
    
    
    2,166Cumulative dividends
declared on preferred
stock, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends declared on
preferred stock, Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2010
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    95,320
    
    
    $
    (11,474
    )
    
    $
    83,861
  3




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EOS Preferred Corporation
 
 Statements of Cash Flows
 (Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010(In Thousands)Cash flows from operating activities:Net income
    
    $
    1,451
    
    
    $
    2,166Adjustments to reconcile net income to net cash provided by operating activities:Realized and unrealized gains on loans
    
    
    (1,311
    )
    
    
    (1,764
    )Decrease (increase) in accrued interest and other receivables
    
    
    10
    
    
    
    (1,636
    )Increase (decrease) in accrued expenses and other liabilities and accounts
payable to parent
    
    
    238
    
    
    
    (111
    )Loan repayments for loans at fair value
    
    
    1,968
    
    
    
    3,047Net cash provided by operating activities
    
    
    2,356
    
    
    
    1,702Cash flows from investing activities:Loan repayments from loans at lower of accreted cost or market value
    
    
    1,007
    
    
    
    379Cash provided by investing activities
    
    
    1,007
    
    
    
    379Cash flows from financing activities:Payment of common stock dividends (declared on December 31, 2010)
    
    
    (884
    )
    
    
    Payment of preferred stock dividends (declared on December 31, 2010)
    
    
    (816
    )
    
    
    Cash used in financing activities
    
    
    (1,700
    )
    
    
    Net change in cash and cash equivalents
    
    
    1,663
    
    
    
    2,081Cash and cash equivalents at beginning of period
    
    
    62,569
    
    
    
    51,823Cash and cash equivalents at end of period
    
    $
    64,232
    
    
    $
    53,904
  4




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EOS Preferred Corporation
 
 Notes to Condensed Financial Statements
 Three Months Ended March 31, 2011 and 2010
 NOTE 1. ORGANIZATION
       Business
  5




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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
  Use of estimates
  Cash and Cash Equivalents
  Loans
     6




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Revenue Recognition
  Taxes
   Significant Concentration of Credit Risk
    Subsequent Events
   Recent Accounting Pronouncements
  7




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8




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NOTE 3. BANKRUPTCY OF LBHI AND REGULATORY ACTIONS INVOLVING AURORA BANK
 Bankruptcy of Lehman Brothers Holding Inc.
      Regulatory Actions Involving Aurora Bank
       9




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Dividend Payments
        10




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NOTE 4. LOANS
   March 31, 2011
    
    
    December 31, 2010Unpaid Principal
    
    
    
    
    
    Unpaid PrincipalCarrying Value
    

    Balance
    
    
    Carrying Value
    
    
    Balance(In Thousands)Total mortgage loans:Commercial real estate at lower of accreted cost or market value (1)
    
    $
    6,174
    
    
    $
    8,530
    
    
    $
    6,866
    
    
    $
    9,504Multi-family residential at lower of accreted cost or market value (1)
    
    
    827
    
    
    
    1,006
    
    
    
    850
    
    
    
    1,034One-to-four family residential at lower of accreted cost or market
value (1)
    
    
    202
    
    
    
    248
    
    
    
    219
    
    
    
    272Total loans at lower of accreted cost or market value
    
    
    7,203
    
    
    
    9,784
    
    
    
    7,935
    
    
    
    10,810One-to-four family residential at fair value
    
    
    15,573
    
    
    
    20,082
    
    
    
    16,505
    
    
    
    22,048Total
    
    
    22,776
    
    
    
    29,866
    
    
    
    24,440
    
    
    
    32,858
 
 (1)
    
    Though the table compares the carrying value of these loans against UPB, these loans are
carried at the lower of accreted cost or market value and the carrying value cannot exceed
the cost of these loans which for all loans is less than UPB.  March 31, 2011
    
    
    December 31, 2010Unpaid Principal
    
    
    
    
    
    Unpaid PrincipalCarrying Value
    

    Balance
    
    
    Carrying Value
    
    
    Balance(In Thousands)Mortgage loans on non-accrual status:Commercial real estate
    
    $
    597
    
    
    $
    666
    
    
    $
    692
    
    
    $
    802Multi-family residential
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    One-to-four family residential
    
    
    218
    
    
    
    337
    
    
    
    224
    
    
    
    337Total loans on non-accrual status
    
    $
    815
    
    
    $
    1,003
    
    
    $
    916
    
    
    $
    1,139
 Three Months Ended March 31,2011
    
    
    2010(In Thousands)Average carrying value of non-accrual loans
    
    $
    865
    
    
    $
    448
  11




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NOTE 5. FAIR VALUE MEASUREMENTS
 Fair Value Measurements
          12




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Balance
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Transfers
    
    
    
    
    
    
    March 31,2010
    
    
    Payments
    
    
    In / Out(1)
    
    
    Net Gains(2)
    
    
    2011(In Thousands)Loans:Commercial real estate
    
    $
    6,866
    
    
    $
    (954
    )
    
    $
    
    
    
    $
    262
    
    
    $
    6,174Multi-family residential
    
    
    850
    
    
    
    (28
    )
    
    
    
    
    
    
    5
    
    
    
    827One-to-four family
residential
    
    
    16,724
    
    
    
    (1,993
    )
    
    
    
    
    
    
    1,044
    
    
    
    15,775Total
    
    $
    24,440
    
    
    $
    (2,975
    )
    
    $
    
    
    
    $
    1,311
    
    
    $
    22,776
 Balance
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Transfers
    
    
    
    
    
    
    March 31,2009
    
    
    Payments
    
    
    In / Out(1)
    
    
    Net Gains(2)
    
    
    2010(In Thousands)Loans:Commercial real estate
    
    $
    6,380
    
    
    $
    (349
    )
    
    $
    
    
    
    $
    885
    
    
    $
    6,916Multi-family residential
    
    
    693
    
    
    
    (19
    )
    
    
    
    
    
    
    69
    
    
    
    743One-to-four family
residential
    
    
    22,750
    
    
    
    (3,058
    )
    
    
    
    
    
    
    810
    
    
    
    20,502Total
    
    $
    29,823
    
    
    $
    (3,426
    )
    
    $
    
    
    
    $
    1,764
    
    
    $
    28,161
 
 (1)
    
    Transfers are recognized on the actual date of the event or change in circumstances
that caused the transfer.(2)
    
    Net Gains are included in Realized and unrealized gains on
loans on the Statements of
Operations. The current period gains and losses from changes in values of Level 3 loans
represent gains/losses on loans and reflect changes in values of those loans only for the
period(s) in which the loans were classified as Level 3. Fair Value of Financial Instruments
    Cash and cash equivalents:
 Accrued interest receivable:
  March 31, 2011
    
    
    December 31, 2010Fair
    
    
    
    
    
    
    FairCarrying Value
    
    
    Value
    
    
    Carrying Value
    
    
    Value(In Thousands)Cash and cash equivalents
    
    $
    64,232
    
    
    $
    64,232
    
    
    $
    62,569
    
    
    $
    62,569Loans
    
    
    22,776
    
    
    
    22,776
    
    
    
    24,440
    
    
    
    24,440Accrued interest receivable
    
    
    203
    
    
    
    203
    
    
    
    213
    
    
    
    213
 13




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NOTE 6. RELATED PARTY TRANSACTIONS
      Three Months Ended March 31,2011
    
    
    2010(Dollars In Thousands)Common stock dividends paid to parent
    
    $
    884
    
    
    $
    Series B preferred stock dividends paid to parent
    
    
    18
    
    
    
    
 14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
 Executive Level Overview
    15




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
    
    A decrease in the realized and unrealized gains on loans of $0.5 million. In the first
quarter of 2011 there were realized and unrealized gains on loans of $1.3 million as
compared to realized and unrealized gains of $1.8 million in the first quarter of 2010.
    
    A decrease in interest income of $268,000 resulting mainly from a decrease in average
loan balance and a decrease in the yield of loans.
 Impact of Economic Recession
   Bankruptcy of Lehman Brothers Holdings Inc.
   16




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Regulatory Actions Involving Aurora Bank
        
 Application of Critical Accounting Policies and Estimates
  17




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Results of Operations for the Three Months Ended March 31, 2011 and 2010
 Interest income
  Three Months Ended March 31,2011
    
    
    2010Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield
    
    
    Balance
    
    
    Interest
    
    
    Yield(In Thousands)
    
    
    
    
    
    

    (In Thousands)Loans, net (1)
    
    $
    29,979
    
    
    $
    362
    
    
    
    4.82
    %
    
    $
    43,256
    
    
    $
    637
    
    
    
    5.89
    %Interest-bearing deposits
    
    
    63,058
    
    
    
    46
    
    
    
    0.29
    
    
    
    52,237
    
    
    
    39
    
    
    
    0.30Total interest-earning assets
    
    $
    93,037
    
    
    $
    408
    
    
    
    1.75
    %
    
    $
    95,493
    
    
    $
    676
    
    
    
    2.83
    %
 
 (1)
    
    For purposes of providing a meaningful yield comparison, the foregoing table reflects
the UPB for loans and not the fair value of the loan portfolio. Non-accrual loans are
excluded from average balance calculations.     Three Months Ended March 31,2011
    
    
    2010Interest
    
    
    
    
    
    
    InterestIncome
    
    
    Yield
    
    
    Income
    
    
    Yield(In Thousands)Regularly scheduled interest and accretion income
    
    $
    342
    
    
    
    4.56
    %
    
    $
    517
    
    
    
    4.78
    %Interest and fee income recognized on loan pay-offs:Accretable discount
    
    
    20
    
    
    
    0.26
    
    
    
    112
    
    
    
    1.04Other interest and fee income
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    0.0720
    
    
    
    0.26
    
    
    
    120
    
    
    
    1.11Total interest from loans
    
    $
    362
    
    
    
    4.82
    %
    
    $
    637
    
    
    
    5.89
    %
  18




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Operating expenses
   Dividend Payments
        19




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Financial Condition
 Interest-bearing Deposits with Parent
  Loan Portfolio
  March 31, 2011
    
    
    December 31, 2010Carrying
    
    
    Percentage
    
    
    Carrying
    
    
    PercentageValue
    
    
    of Total
    
    
    Value
    
    
    of Total(In Thousands)Mortgage loans:Commercial real estate
    
    $
    6,174
    
    
    
    27.1
    %
    
    $
    6,866
    
    
    
    28.1
    %Multi-family residential
    
    
    827
    
    
    
    3.6
    
    
    
    850
    
    
    
    3.5One-to-four family residential
    
    
    15,775
    
    
    
    69.3
    
    
    
    16,724
    
    
    
    68.4Total
    
    $
    22,776
    
    
    
    100.0
    %
    
    $
    24,440
    
    
    
    100.0
    %
   
 Cash Flows
 Three Months Ended March 31,2011
    
    
    2010(Dollars In Thousands)Net cash provided by operating activities
    
    $
    2,356
    
    
    $
    1,702Net cash provided by investing activities
    
    
    1,007
    
    
    
    379Net cash used in financing activities
    
    
    (1,700
    )
    
    
    Net change in cash and cash equivalents
    
    $
    1,663
    
    
    $
    2,081
    20




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Off-Balance Sheet Arrangements
  
 Interest Rate Risk
  
 Significant Concentration of Credit Risk
   
 Liquidity Risk Management
    
 Impact of Inflation and Changing Prices
  21




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
     March 31, 2011Over One
    
    
    Over Two
    
    
    Over Three
    
    
    Over FourWithin
    
    
    to Two
    
    
    to Three
    
    
    to Four
    
    
    to Five
    
    
    Over FiveOvernight
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total
    
    
    Fair Value(In Thousands)Interest-bearing deposits
    
    $
    64,232
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    64,232
    
    
    $
    64,2320.30
    %Fixed-rate loans (1)
    
    
    
    
    
    
    1,066
    
    
    
    973
    
    
    
    882
    
    
    
    350
    
    
    
    712
    
    
    
    4,740
    
    
    
    8,723
    
    
    
    6,3114.64
    %
    
    
    4.41
    %
    
    
    4.67
    %
    
    
    5.72
    %
    
    
    4.57
    %
    
    
    4.40
    %Adjustable-rate loans (1)
    
    
    
    
    
    
    20,140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,140
    
    
    
    15,6504.95
    %Total rate-sensitive assets
    
    $
    64,232
    
    
    $
    21,206
    
    
    $
    973
    
    
    $
    882
    
    
    $
    350
    
    
    $
    712
    
    
    $
    4,740
    
    
    $
    93,095
    
    
    $
    86,192
 
 (1)
    
    Loans are presented at UPB and exclude non-accrual loans.  
 Item 4. Controls and Procedures
   22




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 A number of risk factors, including, without limitation, the risk factors found in Item 1A of
our Annual Report on Form 10-K for the annual period ended December 31, 2010, may cause our actual
results to differ materially from anticipated future results, performance or achievements expressed
or implied in any forward-looking statements contained in this Quarterly Report on Form 10-Q or any
other report filed by us with the SEC. All of these factors should be carefully reviewed, and the
reader of this Quarterly Report on Form 10-Q should be aware that there may be other factors that
could cause difference in future results, performance or achievements.
 
 Item 2. Unregistered Sales of Equity Securities
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
 
 Item 5. Other Information
   
 Item 6. Exhibits
 3.1
    
    Restated Articles of Organization of EOS Preferred Corporation*3.2
    
    Amended and Restated By-Laws of EOS Preferred Corporation*31.1
    
    Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) of the President.31.2
    
    Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) of the Chief Financial Officer.32
    
    Certification pursuant to 18 U.S.C. Section 1350 of the President and Chief Financial Officer.
 
 *
    
    Incorporated by herein from the exhibit of the same description filed on August
13, 2010 on Form 10-Q. 23




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##### Table of Contents



SIGNATURES
  EOS PREFERRED CORPORATION
 Date: May 13, 2011
    By:

/s/ Thomas OSullivanThomas OSullivanPresident (Principal Executive Officer)Date: May 13, 2011
    By:
    /s/ Robert J. Leist, Jr.Robert J. Leist, Jr.Chief Financial Officer (Principal Financial Officer) 24




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Item3.1
    
    Restated Articles of Organization of EOS
Preferred Corporation *3.2
    
    Amended and Restated By-Laws of EOS
Preferred Corporation *31.1
    
    Certification pursuant to Exchange Act Rules
13a-15(e) and 15d-15(e) of the President.31.2
    
    Certification pursuant to Exchange Act Rules
13a-15(e) and 15d-15(e) of the Chief
Financial Officer.32
    
    Certification pursuant to 18 U.S.C. Section
1350 of the President and Chief Financial
Officer.
 
 *
    
    Incorporated by herein from the exhibit of the same description filed on August
13, 2010 on Form 10-Q. 25