8. Related Party Transactions

12 Months Ended

Dec. 31, 2011

8. Related Party Transactions

Loan Servicing

Our loan portfolio is serviced by Aurora Bank and sub-serviced at their direction pursuant to the terms of the MSA.

The MSA requires Aurora Bank to service, or direct sub-servicing of, the loan portfolio in a manner substantially the same as for similar work performed by Aurora Bank for transactions on its own behalf. Aurora Bank collects and remits principal and interest payments on at least a monthly basis; maintains perfected collateral positions; submits and pursues insurance claims; and initiates and supervises foreclosure proceedings on the loan portfolio it services. Aurora Bank also provides accounting and reporting services for the loan portfolio as required by EOS. We may also direct Aurora Bank to dispose of any loans placed on non-accrual status, or modified due to financial deterioration of the borrower. Aurora Bank may facilitate loan modifications and short sales where circumstances are so warranted. Aurora Bank may institute foreclosure proceedings and foreclose, manage and protect the mortgaged premises, including exercising any power of sale contained in any mortgage or deed of trust, obtaining a deed-in-lieu-of-foreclosure, or otherwise acquiring title to a mortgaged property underlying a mortgage loan by operation of law or otherwise in accordance with the terms of the MSA.

The MSA may be terminated on ninety days notice and other criteria pursuant to the agreement.

When any mortgaged property underlying a mortgage loan is conveyed by a mortgagor, Aurora Bank generally, upon notice of the conveyance, will enforce any due-on-sale clause contained in the mortgage loan, to the extent permitted under applicable law and governmental regulations. The terms of a particular mortgage loan or applicable law, however, may prohibit Aurora Bank from exercising the due-on-sale clause under certain circumstances related to the collateral underlying the mortgage loan and the borrowers’ ability to fulfill the obligations under the related mortgage note.

Advisory Services

EOS has entered into the AA pursuant to which Aurora Bank administers our day-to-day operations. As advisor, Aurora Bank is responsible for:

•		monitoring the credit quality of our investment and loan portfolio;

•		advising us with respect to the acquisition, management, financing, and disposition of our investments, loans and other assets; and

•		maintaining our corporate and shareholder records.

Aurora Bank may, from time to time, subcontract all or a portion of its obligations under the AA to one or more of its affiliates involved in the business of managing mortgage assets or, with the approval of a majority of Board of Directors as well as a majority of its independent directors, subcontract all or a portion of its obligations under the AA to unrelated third parties. Aurora Bank will not, in connection with the subcontracting of any of its obligations under the AA, be discharged or relieved in any respect from its obligations under the AA.

The AA has a term of one year, renewable annually for an additional one-year period unless EOS delivers notice of nonrenewal to Aurora Bank. We may terminate the AA at any time upon ninety days’ prior notice. Other than the servicing fee and the advisory fee, Aurora Bank is not entitled to a fee for providing advisory and management services to EOS.

Servicing and advisory fees for the years ended December 31, 2011, 2010, and 2009, totaled $421,000, $470,000, and $127,000, respectively, and were recorded in Loan Servicing and advisory services in the Statements of Operations. Amounts due to Aurora Bank as of December 31, 2011 and 2010 were $63,000 and $87,000, respectively and were recorded in Accounts payable to parent on the balance sheets.

Our investment portfolio was purchased from Aurora Bank in July 2011 at the then current fair value (and the carrying value of Aurora Bank) of $46.9 million with cash that was in our account with Aurora Bank. The fair value of the investment portfolio was $41.5 million at December 31, 2011.

All of the mortgage assets in our loan portfolio at December 31, 2011 were purchased from Capital Crossing or Aurora Bank. See November Asset Exchange in Note 2 for the transaction to exchange commercial and multi-family loans for residential loans during 2009. No loans were purchased or contributed from Aurora Bank in 2011 or 2010.

The following table summarizes capital transactions between us and Aurora Bank, our sole common shareholder and parent:

	Years Ended December 31,
	2011		2010		2009
	(In Thousands)
Common stock dividends paid to parent	$	884	$	1,467	$	—
Series B preferred stock dividends paid to parent		54		108		18
Contribution of capital in the form of loans (“November Asset Exchange”)		—		—		199

Additionally, dividends were declared on December 31, 2011. Dividends to Aurora Bank included $38,000 for the Series B preferred stock and are included in Dividends payable to parent as of December 31, 2011.

Our cash and cash equivalents balances of $27.2 million and $62.6 million at December 31, 2011 and 2010, respectively, consist entirely of deposits with Aurora Bank.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

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-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39622-107864

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

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-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 57

-Paragraph 1-4

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

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-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39603-107864

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 850

-SubTopic 10

-Section 50

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-URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39678-107864

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

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Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 08

-Paragraph k

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+ Details

EOS Preferred Corp 10-K