**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**







**ý**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT
                OF
                1934**




**For
      the fiscal year ended December 31, 2006**




**OR**




** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the transition period from _______________ to
      _______________**





Commission
      File Number: 0-51852





**NORTHEAST
      COMMUNITY BANCORP, INC.**


(Exact
      name of registrant as specified in its charter)





**UNITED
                  STATES**
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              **06-1786701**
                (I.R.S.
                  Employer Identification No.)**325
                  Hamilton Avenue, White Plains, New York**
                (Address
                  of principal executive offices)
              **10601**
                (Zip
                  Code)





Registrant’s
      telephone number, including area code: (914) 684-2500




Securities
      registered pursuant to Section 12(b) of the Act:




Title
                  of each class
              Name
                  of each exchange on which registeredCommon
                  Stock, par value $0.01 per share
              The
                  Nasdaq Stock Market LLC




Securities
      registered pursuant to Section 12(g) of the Act:  None




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes  ̈          No  ý




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes  ̈          No  ý




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.  Yes   ý        No
 ̈




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. ý




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“large accelerated filer and accelerated filer” in Rule 12b-2 of the Exchange
      Act.




(Check
      one):                         Large
      Accelerated Filer  ̈                                                      Accelerated
      Filer  ̈                                           Non-accelerated
      Filer ý




Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Act). Yes   ̈         No     ý




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of June 30, 2006 was $0.00




The
      number of shares outstanding of the registrant’s common stock as of March 15,
      2007 was 13,225,000





**DOCUMENTS
      INCORPORATED BY REFERENCE**


**Portions
      of the Proxy Statement for the 2007 Annual Meeting of Stockholders are
      incorporated by reference in Part III of this Form
      10-K.**





**INDEX**




Part
                    IPageItem
                    1.
                Business
                
                1Item
                    1A.
                Risk
                    Factors
                
                15Item
                    1B.
                Unresolved
                    Staff Comments
                
                19Item
                    2.
                Properties
                
                19Item
                    3.
                Legal
                    Proceedings
                
                20Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                
                20Part
                    IIItem
                    5.
                Market
                    for Registrant’s Common Equity, Related Stockholder Matters and
                    IssuerPurchases
                    of Equity Securities
                
                20Item
                    6.
                Selected
                    Financial Data
                
                22Item
                    7.
                Management’s
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                
                24Item
                    7A.
                Quantitative
                    and Qualitative Disclosures About Market Risk
                
                45Item
                    8.
                Financial
                    Statements and Supplementary Data
                
                45Item
                    9.
                Changes
                    in and Disagreements With Accountants on Accounting and Financial
                    Disclosure
                
                77Item
                    9A.
                Controls
                    and Procedures
                
                77Item
                    9B.
                Other
                    Information
                
                77Part
                    IIIItem
                    10.
                Directors,
                    Executive Officers of the Registrant, and Corporate
                    Governance
                
                77Item
                    11.
                Executive
                    Compensation
                
                78Item
                    12.
                Security
                    Ownership of Certain Beneficial Owners and Management and
                    RelatedStockholder
                    Matters
                
                78Item
                    13.
                Certain
                    Relationships and Related Transactions and Director
                    Independence
                
                78Item
                    14.
                Principal
                    Accountant Fees and Services
                
                78Part
                    IVItem
                    15.
                Exhibits
                    and Financial Statement Schedules
                
                79SIGNATURES







*Index*


*This
      report contains certain
“forward-looking statements” within the meaning of the federal securities
      laws.  These statements are not historical facts; rather, they are
      statements based on Northeast Community Bancorp, Inc.’s current expectations
      regarding its business strategies, intended results and future
      performance.  Forward-looking statements are preceded by terms such as
“expects,” “believes,” “anticipates,” “intends” and similar
      expressions.*




*Management’s
      ability to predict
      results or the effect of future plans or strategies is inherently
      uncertain.  Factors which could affect actual results include interest
      rate trends, the general economic climate in the market area in which Northeast
      Community Bancorp, Inc. operates, as well as nationwide, Northeast Community
      Bancorp, Inc.’s ability to control costs and expenses, competitive products and
      pricing, loan delinquency rates and changes in federal and state legislation
      and
      regulation. For further discussion of factors that may affect our results,
      see
“Item 1A. Risk Factors” in this Annual Report on Form 10-K (“Form
      10-K”).  These factors should be considered in evaluating the
      forward-looking statements and undue reliance should not be placed on such
      statements.  Northeast Community Bancorp, Inc. assumes no obligation
      to update any forward-looking statements.*





**PART
      I**





**Item
      1.              BUSINESS**





**General**





Northeast
      Community Bancorp, Inc.
      (“Northeast Community Bancorp” or the “Company”) is a federally chartered stock
      holding company established on July 5, 2006 to be the holding company for
      Northeast Community Bank (the “Bank”).  Northeast Community Bancorp’s
      business activity is the ownership of the outstanding capital stock of the
      Bank.  Northeast Community Bancorp does not own or lease any property
      but instead uses the premises, equipment and other property of the Bank with
      the
      payment of appropriate rental fees, as required by applicable law and
      regulations, under the terms of an expense allocation agreement.





Northeast
      Community Bancorp, MHC (the
“MHC”) is the Company’s federally chartered mutual holding company
      parent.  As a mutual holding company, the MHC is a non-stock company
      that has as its members the depositors of Northeast Community
      Bank.  The MHC does not engage in any business activity other than
      owning a majority of the common stock of Northeast Community
      Bancorp.  So long as we remain in the mutual holding company form of
      organization, the MHC will own a majority of the outstanding shares of Northeast
      Community Bancorp.





Northeast
      Community Bank has been
      conducting business throughout the New York metropolitan area for more than
      70
      years.  Northeast Community Bank was originally chartered in
      1934.  In 2006, Northeast Community Bank changed its name from “Fourth
      Federal Savings Bank” to “Northeast Community Bank.”





We
      operate as a community-oriented
      financial institution offering traditional financial services to consumers
      and
      businesses in our market area and our lending territory.  We attract
      deposits from the general public and use those funds to originate multi-family
      residential, mixed-use and non-residential real estate and consumer loans,
      which
      we hold for investment.  We have been originating multi-family and
      mixed-use real estate loans in the New York metropolitan area for more than
      50
      years and recently expanded our lending territory to include all of New York,
      New Jersey, Connecticut, Massachusetts, Rhode Island, southern New Hampshire,
      southern Maine and Pennsylvania.  We generally do not offer one- to
      four-family residential loans.





In
      February 2007, we hired an
      additional lending officer with significant multi-family, mixed-use and
      non-residential lending experience and hired a treasurer with accounting and
      public company reporting experience.  In March 2007, we hired a senior
      lending officer with significant commercial bank lending
      experience.  We are in the process of developing new commercial credit
      policies and intend to begin originating commercial loans to individuals and
      businesses located in our primary market areas.





Our
      website address is
www.necommunitybank.com.  Information on our website should not
      be considered a part of this Form 10-K.


1
 *Index*





**Market
      Area**





We
      are headquartered in White Plains,
      New York, which is located in Westchester County and we operate five
      full-service branch offices in the New York City boroughs of Manhattan (New
      York
      County), Brooklyn (Kings County) and the Bronx (Bronx County), which we consider
      our primary market area.  On March 15, 2007 we notified the Office of
      Thrift Supervision of our intent to open a branch office at 325 Hamilton
      Avenue, White Plains, NY, our corporate headquarters location, which we expect
      will open in the second quarter of 2007.  We also operate a loan
      production office in Wellesley, Massachusetts.  We generate deposits
      through our five current branch offices and when opened, through our branch
      office at our corporate headquarters, which we are opening in conjunction with
      the commencement of our commercial business lending operations.  We
      conduct lending activities throughout the New York metropolitan area as well
      as
      in the Northeast and Midatlantic regions of the United States.  In
      addition to New York and Massachusetts, our lending territory includes New
      Jersey, Connecticut, southern New Hampshire, Rhode Island, southern Maine and
      Pennsylvania.





Our
      primary market area includes a
      population base with a broad cross section of wealth, employment and
      ethnicity.  We operate in markets that generally have experienced
      relatively slow demographic growth, a characteristic typical of mature urban
      markets located throughout the Northeast region.  Population and
      household growth rates for all four of the primary market area counties have
      been and are projected to remain below the comparable U.S.
      measures.  With the exception of Kings County, the counties within our
      primary market area matched or exceeded the comparable historical and projected
      growth rates for the state of New York.





New
      York County is a relatively
      affluent market, reflecting the influence of Wall Street along with the presence
      of a broad spectrum of Fortune 500 companies.  Comparatively, Kings
      County and Bronx County are home to a broad socioeconomic spectrum, with a
      significant portion of the respective populations employed in relatively low
      wage blue collar jobs.  Westchester County is also an affluent market,
      serving as a desired suburban location for commuting into New York City as
      well
      as reflecting growth of higher paying jobs in the county, particularly in White
      Plains.  Over the next five years, New York County and Westchester
      County are projected to sustain growth in household income that exceeds
      comparable New York and U.S. growth rates.  The more affluent nature
      of New York County and Westchester County is further implied by household income
      distribution measures, which show that, in comparison to Bronx County and Kings
      County, New York and Westchester Counties maintain a lower percentage of
      households with incomes of less than $25,000 and a much higher percentage of
      households with incomes in the upper income brackets.





Our
      lending territory also includes
      Massachusetts, New Jersey, Connecticut, Pennsylvania, southern New Hampshire,
      southern Maine and Rhode Island.  While each of these states has
      different economic characteristics, our customer base in these states tends
      to
      be similar to our customer base in New York and is comprised mostly of owners
      of
      low to moderate income apartment buildings or non-residential real estate in
      low
      to moderate income areas.  Outside the State of New York, our largest
      concentration of real estate loans is in Massachusetts, primarily in the suburbs
      of Boston, inside the I-495 loop.  This area is characterized by a
      large number of apartment buildings, condominiums and office
      buildings.  The greater Boston metropolitan area benefits from the
      presence of numerous institutions of higher learning, medical care and research
      centers and the corporate headquarters of several significant mutual fund
      investment companies.  Eastern Massachusetts also has many high
      technology companies employing personnel with specialized skills.  It
      should be noted, however, that Massachusetts has lost population two years
      in a
      row.  These factors affect the demand for residential homes,
      multi-family apartments, office buildings, shopping centers, industrial
      warehouses and other commercial properties.





**Competition**





We
      face significant competition for the
      attraction of deposits.  The New York metropolitan area has a
      significant concentration of financial institutions, including large money
      center and regional banks, community banks and credit unions.  Over
      the past 10 years, consolidation of the banking industry in the New York
      metropolitan area has continued, resulting in larger and increasingly efficient
      competitors.  We also face competition for investors’ funds from money
      market funds, mutual funds and other corporate and government
      securities.  At June 30, 2006, which is the most recent date for which
      data is available from the Federal Deposit Insurance Corporation, we held less
      than 0.7% of the deposits in each of Westchester, Kings and New York counties,
      New York, and approximately 0.7% of the deposits in Bronx County, New
      York.


2
 *Index*







We
      also face significant competition
      for the origination of loans.  Our competition for loans comes
      primarily from financial institutions in our lending territory, and, to a lesser
      extent, from other financial service providers such as insurance companies,
      hedge funds and mortgage companies.  As our lending territory is based
      around densely populated areas surrounding urban centers, we face significant
      competition from regional banks, savings banks and commercial banks in the
      New
      York metropolitan area as well as in the other seven states in which we
      originate real estate loans.  The competition for loans that we
      encounter, as well as the types of institutions with which we compete, varies
      from time to time depending upon certain factors, including the general
      availability of lendable funds and credit, general and local economic
      conditions, current interest rate levels, volatility in the mortgage markets
      and
      other factors which are not readily predictable.





We
      expect competition to increase in
      the future as a result of legislative, regulatory and technological changes
      and
      the continuing trend of consolidation in the financial services
      industry.  Technological advances, for example, have lowered the
      barriers to market entry, allowed banks and other lenders to expand their
      geographic reach by providing services over the Internet and made it possible
      for non-depository institutions to offer products and services that
      traditionally have been provided by banks.  Changes in federal law
      permit affiliation among banks, securities firms and insurance companies, which
      promotes a competitive environment in the financial services
      industry.  Competition for deposits and the origination of loans could
      limit our future growth.





**Lending
      Activities**





***General.***  We
      originate loans primarily for investment purposes.  The largest
      segment of our loan portfolio is multi-family residential real estate
      loans.  We also originate mixed-use real estate loans and
      non-residential real estate loans.  To a limited degree, we make
      consumer loans.  We intend to offer commercial loans.  We
      currently do not originate one- to four-family residential loans and have no
      present intention to do so in the future.  We consider our lending
      territory to include New York, New Jersey, Massachusetts, Connecticut, Rhode
      Island, southern New Hampshire, Pennsylvania and southern Maine.





***Multi-family
      and Mixed-use
      Real Estate Loans*****.**  We offer adjustable
      rate mortgage loans secured by multi-family and mixed-use real
      estate.  These loans are comprised primarily of loans on low to
      moderate income apartment buildings located in our lending territory and
      include, to a limited degree, loans on cooperative apartment buildings (in
      the
      New York area), loans for Section 8 multi-family housing and loans for single
      room occupancy (“SRO”) multi-family housing properties.  In New York,
      most of the apartment buildings that we lend on are
      rent-stabilized.  Mixed-use real estate loans are secured by
      properties that are intended for both residential and business
      use.  Until 2004, our policy had been to originate multi-family and
      mixed-use real estate loans primarily in the New York metropolitan
      area.  In January 2004, we opened a loan production office in
      Wellesley, Massachusetts and currently originate multi-family and mixed-use
      real
      estate loans in New York, Massachusetts, Connecticut, New Jersey, Pennsylvania,
      Rhode Island, southern New Hampshire and southern Maine.  For the year
      ended December 31, 2006, originations of multi-family real estate loans in
      states other than New York represented 55.7% of our total multi-family mortgage
      loan originations and originations of mixed-use real estate loans in states
      other than New York represented 39.3% of our total mixed-use mortgage loan
      originations.  For the year ended December 31, 2005, originations of
      multi-family real estate loans  in states other than New York
      represented 67.8% of our total multi-family mortgage loan originations and
      originations of mixed-use real estate loans in states other than New York
      represented 54.3% of our total mixed-use mortgage loan
      originations.  Of originations in states other than New York for 2006,
      13.8% of our total originations of multi-family loans and 33.5% of our mixed-use
      real estate loans were made in Massachusetts.  Of originations in
      states other than New York for 2005, 41.2% of our total originations of
      multi-family loans and 32.0% of our mixed-use real estate loans were made in
      Massachusetts.  We intend to continue to increase our originations of
      multi-family and mixed-use real estate loans in the eight states in which we
      are
      currently lending.





We
      originate a variety of
      adjustable-rate and balloon multi-family and mixed-use real estate
      loans.  The adjustable-rate loans have fixed rates for a period of up
      to five years and then adjust every three to five years thereafter, based on
      the
      terms of the loan.  Maturities on these loans can be up to 15 years,
      and typically they amortize over a 25 year period.  Interest rates on
      our adjustable-rate loans are adjusted to a rate that equals the applicable
      three-year or five-year constant maturity treasury index plus a
      margin.  The balloon loans have a maximum maturity of five
      years.  The lifetime interest rate cap is five percentage points over
      the initial interest rate


3
 *Index*


of
      the
      loan (four percentage points for loans with three-year terms).  For a
      mixed-use property with commercial space accounting for over 30% of the gross
      operating income of the building, competition permitting, the rate offered
      is
      generally based on the rate we offer for non-residential real estate
      loans.  Due to the nature of our borrowers and our lending niche, the
      typical multi-family or mixed-use real estate loan refinances within the first
      five-year period and, in doing so, generates prepayment penalties ranging from
      five points to one point of the initial loan balance.  Under our
      loan-refinancing program, borrowers who are current under the terms and
      conditions of their contractual obligations can apply to refinance their
      existing loans to the rates and terms then offered on new loans after the
      payment of their contractual prepayment penalties.





In
      making multi-family and mixed-use
      real estate loans, we primarily consider the net operating income generated
      by
      the real estate to support the debt service, the financial resources, income
      level and managerial expertise of the borrower, the marketability of the
      property and our lending experience with the borrower.  We do not
      typically require a personal guarantee of the borrower, but may do so depending
      on the location, building condition or credit profile.  We rate the
      property underlying the loan either Class A, B or C.  Our current
      policy is to require a minimum debt service coverage ratio (the ratio of
      earnings after subtracting all operating expenses to debt service payments) of
      1.25% or 1.35% depending on the rating of the underlying property.  On
      multi-family and mixed-use real estate loans, our current policy is to finance
      up to 75% of the lesser of appraised value or purchase price of the property
      securing the loan on purchases and refinances of Class A and B properties and
      up
      to 65% of the lesser of appraised value or purchase price for properties that
      are rated Class C.  In some markets within our lending territory, we
      will finance up to 80% of the lesser of appraised value or the purchase
      price.  Properties securing multi-family and mixed-use real estate
      loans are appraised by independent appraisers, inspected by us and generally
      require Phase 1 environmental surveys.  We have not had a loss on a
      multi-family or mixed-use real estate loan during the past five
      years.





While
      we have only recently expanded
      our lending territory beyond the New York metropolitan area, we have been
      originating multi-family and mixed-use real estate loans in the New York market
      area for more than 50 years.  In the New York market area, our ability
      to continue to grow our portfolio is dependent on the continuation of our
      relationships with mortgage brokers, as the multi-family and mixed-use real
      estate loan market is primarily broker driven.  We have longstanding
      relationships with mortgage brokers in the New York market area, who are
      familiar with our lending practices and our underwriting
      standards.  We have developed similar relationships with mortgage
      brokers in the other states within our lending territory and will continue
      to do
      so in order to grow our loan portfolio.





The
      majority of the multi-family real
      estate loans in our portfolio are secured by ten unit to one hundred unit
      apartment buildings.  At December 31, 2006, the majority of our
      mixed-use real estate loans are secured by properties that are at least 75%
      apartment buildings, but contain some commercial or office space.





On
      December 31, 2006, the largest
      outstanding multi-family real estate loan had a balance of  $3.8
      million.  This loan was performing according to its terms at December
      31, 2006.  Subsequent to December 31, 2006 this loan was
      satisfied.  Currently, the largest outstanding multi-family loan is
      $2.3 million and it is current.  This loan is secured by two rental
      apartment buildings containing 16 two bedroom apartments and one commercial
      space in the Beacon Hill neighborhood of Boston, Massachusetts.  As of
      December 31, 2006, the average loan balance in our multi-family and
      mixed-use  portfolio was approximately $533,000.





***Non-residential
      Real Estate
      Loans.***  We offer adjustable-rate mortgage loans secured
      by non-residential real estate in the same lending territory that we offer
      multi-family and mixed-use real estate loans.  Our non-residential
      real estate loans are generally secured by office buildings and retail shopping
      centers that are primarily located in low to moderate income areas within our
      lending territory.  We intend to continue to grow this segment of our
      loan portfolio.





Our
      non-residential real estate loans
      are structured in a manner similar to our multi-family and mixed-use real estate
      loans, typically at a fixed rate of interest for three to five years and then
      a
      rate that adjusts every three to five years over the term of the loan, which
      is
      typically 15 years.  Interest rates and payments on these loans
      generally are based on the three-year or five-year constant maturity treasury
      index plus a margin.  The lifetime interest rate cap is five
      percentage points over the initial interest rate of the loan (four percentage
      points for loans with three-year


4
 *Index*


terms).  Loans
      are secured by first mortgages that generally do not exceed 75% of the
      property’s appraised value.  Properties securing non-residential real
      estate loans are appraised by independent appraisers and inspected by
      us.





We
      also charge prepayment penalties,
      with five points of the initial loan balance generally being charged on loans
      that refinance in the first year of the mortgage, scaling down to one point
      on
      loans that refinance in year five.  These loans are typically repaid
      or the term extended before maturity, in which case a new rate is negotiated
      to
      meet market conditions and an extension of the loan is executed for a new term
      with a new amortization schedule.  Our non-residential real estate
      loans tend to refinance within the first five-year period.





Our
      assessment of credit risk and our
      underwriting standards and procedures for non-residential real estate loans
      are
      similar to those applicable to our multi-family and mixed-use real estate
      loans.  In reaching a decision on whether to make a non-residential
      real estate loan, we consider the net operating income of the property, the
      borrower’s expertise, credit history and profitability and the value of the
      underlying property.  In addition, with respect to rental properties,
      we will also consider the term of the lease and the credit quality of the
      tenants.  We have generally required that the properties securing
      non-residential real estate loans have debt service coverage ratios (the ratio
      of earnings after subtracting all operating expenses to debt service payments)
      of at least 1.30%.  Phase 1 environmental surveys and property
      inspections are required for all loans.





At
      December 31, 2006, we had $47.8
      million in non-residential real estate loans outstanding, or 23.7% of total
      loans.  Originations in states other than New York represented 28.3%
      of our total originations of non-residential real estate loans for the year
      ended December 31, 2006 and 26.1% for the year ended December 31,
      2005.  At December 31, 2006, the largest outstanding non-residential
      real estate loan had an outstanding balance of $3.6 million.  This
      loan is secured by a multi-tenant building located in Bronx, New York, and
      was
      performing according to its terms at December 31, 2006.  As of
      December 31, 2006, the average balance of loans in our non-residential loan
      portfolio was $822,000.





***Equity
      Lines of Credit on
      Real Estate Loans.***  Northeast Community Bank offers
      equity lines of credit on multi-family, mixed-use and non-residential real
      estate properties on which it holds the first mortgage.





For
      existing borrowers only, we offer
      an equity line of credit program secured by a second mortgage on the borrower’s
      multi-family, mixed-use or non-residential property.  All lines of
      credit are underwritten separately from the first mortgage and support debt
      service ratios and loan-to-value ratios that when combined with the first
      mortgage meet or exceed our current underwriting standards for multi-family,
      mixed-use and non-residential real estate loans.  Borrowers typically
      hold these lines in reserve and use them for ongoing property improvements
      or to
      purchase additional properties when the opportunity arises.





Our
      equity lines of credit are interest
      only for the first five years and then the remaining term of the line of credit
      is tied to the remaining term on the first mortgage on the multi-family,
      mixed-use or non-residential property.  After the first five years, a
      payment of both principal and interest is required.  Interest rates
      and payments on our equity lines of credit are indexed to the prime rate as
      published in *The Wall Street Journal* and adjusted as the prime rate
      changes.  Interest rate adjustments on equity lines of credit are
      limited to a specified maximum percentage over the initial interest
      rate.





***Commercial
      Loans*****.**  Continuing our plan to
      diversify our portfolio, both geographically and by product type, we plan to
      begin offering commercial loans during the second quarter of 2007.  To
      this end, we have hired a senior commercial banking and lending officer from
      a
      regional commercial bank to head this department.





Interest
      rates and payments on our
      commercial loans will typically be indexed to the prime rate as published in
      the
      Wall Street Journal and adjusted as the prime rate changes.





***Consumer
      Loans*****.**  We offer loans secured by
      savings accounts or certificates of deposit (share loans) and overdraft
      protection for checking accounts which is linked to statement savings accounts
      and has the ability to transfer funds from the statement savings account to
      the
      checking account when needed to cover overdrafts.  At December 31,
      2006, our portfolio of consumer loans was $419,000, or 0.2% of total
      loans.





5
 *Index*


**Loan
      Underwriting Risks**





***Adjustable-Rate
      Loans***. ****While we anticipate that
      adjustable-rate loans will better offset the adverse effects of an increase
      in
      interest rates as compared to fixed-rate loans, the increased payments required
      of adjustable-rate loan borrowers in a rising interest rate environment could
      cause an increase in delinquencies and defaults.  The marketability of
      the underlying property also may be adversely affected in a high interest rate
      environment.  In addition, although adjustable-rate loans help make
      our loan portfolio more responsive to changes in interest rates, the extent
      of
      this interest sensitivity is limited by the annual and lifetime interest rate
      adjustment limits.





***Multi-family,
      Mixed-use and
      Non-residential Real Estate Loans****.*Loans
      secured by multi-family, mixed-use and non-residential real estate generally
      have larger balances and involve a greater degree of risk than one- to
      four-family residential mortgage loans.  Of primary concern in
      multi-family, mixed-use and non-residential real estate lending is the
      borrower’s creditworthiness and the feasibility and cash flow potential of the
      project.  Payments on loans secured by income properties often depend
      on successful operation and management of the properties.  As a
      result, repayment of such loans may be subject to a greater extent than
      residential real estate loans to adverse conditions in the real estate market
      or
      the economy.  To monitor cash flows on income producing properties, we
      require borrowers to provide annual financial statements for all multi-family,
      mixed-use and non-residential real estate loans.  In reaching a
      decision on whether to make a multi-family, mixed-use or non-residential real
      estate loan, we consider the net operating income of the property, the
      borrower’s expertise, credit history and profitability and the value of the
      underlying property.  In addition, with respect to non-residential
      real estate properties, we also consider the term of the lease and the quality
      of the tenants.  An appraisal of the real estate used as collateral
      for the real estate loan is also obtained as part of the underwriting
      process.  We have generally required that the properties securing
      these real estate loans have debt service coverage ratios (the ratio of earnings
      after subtracting all operating expenses to debt service payments) of at least
      1.25%.  In underwriting these loans, we take into account projected
      increases in interest rates in determining whether a loan meets our debt service
      coverage ratios at the higher interest rate under the adjustable rate
      mortgage.  Environmental surveys and property inspections are utilized
      for all loans.





***Commercial
      Loans*****.** Unlike residential mortgage loans, which
      are generally made on the basis of a borrower’s ability to make repayment from
      his or her employment or other income and are secured by real property whose
      value tends to be more ascertainable, commercial loans are of higher risk and
      tend to be made on the basis of a borrower’s ability to make repayment from the
      cash flow of the borrower’s business.  As a result, the availability
      of funds for the repayment of commercial loans may depend substantially on
      the
      suceess of the business itself.  Further, any collateral securing such
      loans may depreciate over time, may be diffult to appriase and may flucture
      in
      value.





***Consumer
      Loans*****.**  Because the only consumer loans
      we offer are secured by passbook savings accounts,  certificates of
      deposit accounts or statement savings accounts, we do not believe these loans
      represent a risk of loss to the Bank.





***Loan
      Originations and
      Participations*****.**  Our loan originations
      come from a number of sources.  The primary source of loan
      originations are referrals from brokers, existing customers, advertising and
      personal contacts by our loan officers.  Over the years, we have
      developed working relationships with many mortgage brokers in our lending
      territory.  Under the terms of the agreements with such brokers, the
      brokers refer potential loans to us.  The loans are underwritten and
      approved by us utilizing our underwriting policies and standards.  The
      mortgage brokers typically receive a fee from the borrower upon the funding
      of
      the loans by us.  In some instances, we will originate a real estate
      loan based on premium pricing.  Historically, mortgage brokers have
      been the source of the majority of the multi-family, mixed-use and
      non-residential real estate loans originated by us.  We generally
      retain for our portfolio all of the loans that we originate.





In
      2006, we purchased a participation
      interest in a non-residential loan on a multi-tenant office building in
      Manhattan from another financial institution.   The outstanding
      balance of the participation interest purchased totaled $2.5 million at December
      31, 2006.  We perform our own underwriting analysis on each of our
      participation interests before purchasing such loans and therefore believe
      there
      is no greater risk of default on these obligations.  However, in a
      purchased participation loan, we do not service the loan and thus are subject
      to
      the policies and practices of the lead lender with regard to monitoring
      delinquencies, pursuing collections and instituting foreclosure proceedings,
      all
      of which are reviewed and approved in advance of any participation
      transaction.  We  review all of




6
 *Index*


the
      documentation relating to any loan in which we participate, including annual
      financial statements provided by a borrower.  Additionally, we receive
      monthly statements on the loan from the lead lender.





We
      intend to continue to consider, on a
      case-by-case basis, additional participation purchases that conform to our
      underwriting standards.





We
      have
      not historically purchased any whole loans.  However, we would
      entertain doing so if a loan was presented to us that met our underwriting
      criteria and fit within our interest rate strategy.





***Loan
      Approval Procedures
      and Authority*****.**Our lending activities
      follow written, non-discriminatory, underwriting standards and loan origination
      procedures established by our board of directors and management.  The
      board has granted the Loan Origination Group (which is comprised of all our
      loan
      officers and our staff attorney) with loan approval authority for mortgage
      loans
      on income producing property in amounts of up to $1.0 million.





Loans
      in amounts between $1.0 million
      and $2.0 million, in addition to being approved by the Loan Origination Group,
      must be approved by the president, the chief financial officer and at least
      one
      non-employee director.





Loans
      in amounts greater than $2.0
      million, in addition to being approved by the Loan Origination Group, must
      be
      approved by the president, the chief financial officer and a majority of the
      non-employee directors.  At each monthly meeting of the board of
      directors, the board ratifies all commitments issued, regardless of
      size.





***Loans
      to One
      Borrower*****.**  The maximum amount that we
      may lend to one borrower and the borrower’s related entities generally is
      limited, by regulation, to 15% of our stated capital and reserves.  At
      December 31, 2006, our general regulatory limit on loans to one borrower was
      approximately $10.3 million.  On December 31, 2006, our largest
      lending relationship was a $3.8 million multi-tenant building located in Bronx,
      New York , which was comprised of one loan that was performing according to
      its
      terms at December 31, 2006.





***Loan
      Commitments*****.**  We issue commitments for
      adjustable-rate loans conditioned upon the occurrence of certain
      events.  Commitments to originate adjustable-rate loans are legally
      binding agreements to lend to our customers.  Generally, our
      adjustable-rate loan commitments expire after 60 days.





**Investment
      Activities**





We
      have legal authority to invest in
      various types of liquid assets, including U.S. Treasury obligations, securities
      of various federal agencies and municipal governments, deposits at the Federal
      Home Loan Bank of New York and certificates of deposit of federally insured
      institutions.  Within certain regulatory limits, we also may invest a
      portion of our assets in mutual funds.  While we have the authority
      under applicable law to invest in derivative securities, we had no investments
      in derivative securities at December 31, 2006.





At
      December 31, 2006, our securities
      and short-term investments totaled $62.3 million and consisted primarily of
      $33.8 million in interest-earning deposits with the Federal Home Loan Bank
      of
      New York, $19.9 million in U.S. Treasury securities, $4.8 million in
      mortgage-backed securities issued primarily by Fannie Mae, Freddie Mac and
      Ginnie Mae, $3.0 million in Government sponsored and agency securities, and
      $399,000 in Federal Home Loan Bank of New York stock.  At December 31,
      2006, we had no investments in callable securities.





Our
      securities and short-term
      investments are primarily viewed as a source of liquidity.  Our
      investment management policy is designed to provide adequate liquidity to meet
      any reasonable decline in deposits and any anticipated increase in the loan
      portfolio through conversion of secondary reserves to cash and to provide safety
      of principal and interest through investment in securities under limitations
      and
      restrictions prescribed in banking regulations.  Consistent with
      liquidity and safety requirements, our policy is designed to generate a
      significant amount of stable income and to provide collateral for advances
      and
      repurchase agreements.  The policy is also designed to serve as a
      counter-cyclical balance to earnings in that the investment portfolio will
      absorb funds when loan demand is low and will infuse funds when loan demand
      is
      high.





7
 *Index*


**Deposit
      Activities and Other Sources of Funds**





***General*****.**  Deposits,
      borrowings and loan repayments are the major sources of our funds for lending
      and other investment purposes.  Loan repayments are a relatively
      stable source of funds, while deposit inflows and outflows and loan prepayments
      are significantly influenced by general interest rates and money market
      conditions.





***Deposit
      Accounts*****.**  Substantially all of our
      depositors are residents of the State of New York.  We offer a variety
      of deposit accounts with a range of interest rates and terms.  Our
      deposits principally consist of  interest-bearing demand accounts
      (such as NOW and money market accounts), regular savings accounts,
      noninterest-bearing demand accounts (such as checking accounts) and certificates
      of deposit.  At December 31, 2006, we did not utilize brokered
      deposits.  Deposit account terms vary according to the minimum balance
      required, the time periods the funds must remain on deposit and the interest
      rate, among other factors.  In determining the terms of our deposit
      accounts, we consider the rates offered by our competition, our liquidity needs,
      profitability to us, matching deposit and loan products and customer preferences
      and concerns.  We generally review our deposit mix and pricing
      weekly.  Our current strategy is to offer competitive rates and to be
      in the middle of the market for rates on all types of deposit
      products.





Our
      deposits are typically obtained
      from customers residing in or working in the communities in which our branch
      offices are located, and we rely on our long-standing relationships with our
      customers to retain these deposits.  We use traditional means of
      advertising our deposit products, and we do not generally solicit deposits
      from
      outside the New York metropolitan area.  In the future, as we open new
      branches in other states we expect our deposits will also be obtained from
      those
      states.  We may also, in the future, utilize our website to attract
      deposits.  While we will accept certificates of deposit in excess of
      $100,000, we do not actively solicit such accounts nor do we offer special
      rates
      on jumbo certificates of deposit.





***Borrowings*****.**  We
      may utilize advances from the Federal Home Loan Bank of New York to supplement
      our supply of investable funds.  The Federal Home Loan Bank functions
      as a central reserve bank providing credit for its member financial
      institutions.  As a member, we are required to own capital stock in
      the Federal Home Loan Bank and are authorized to apply for advances on the
      security of such stock and certain of our whole first mortgage loans and other
      assets (principally securities which are obligations of, or guaranteed by,
      the
      United States), provided certain standards related to creditworthiness have
      been
      met.  Advances are made under several different programs, each having
      its own interest rate and range of maturities.  Depending on the
      program, limitations on the amount of advances are based either on a fixed
      percentage of an institution’s net worth or on the Federal Home Loan Bank’s
      assessment of the institution’s creditworthiness.





**Personnel**





As
      of December 31, 2006, we had 71
      full-time employees and two part-time employees, none of whom is represented
      by
      a collective bargaining unit.  We believe our relationship with our
      employees is good.





**Legal
      Proceedings**





From
      time to time, we may be party to
      various legal proceedings incident to our business.  At December 31,
      2006, we were not a party to any pending legal proceedings that we believe
      would
      have a material adverse effect on our financial condition, results of operations
      or cash flows.





**Subsidiaries**





Northeast
      Community Bancorp’s only
      subsidiary is Northeast Community Bank.





8
 *Index*


**REGULATION
      AND SUPERVISION**





**General**





Northeast
      Community Bank is subject to
      extensive regulation, examination and supervision by the Office of Thrift
      Supervision, as its primary federal regulator, and the Federal Deposit Insurance
      Corporation, as its deposits insurer.  Northeast Community Bank is a
      member of the Federal Home Loan Bank System and its deposit accounts are insured
      up to applicable limits by the Deposit Insurance Fund managed by the Federal
      Deposit Insurance Corporation.  Northeast Community Bank must file
      reports with the Office of Thrift Supervision and the Federal Deposit Insurance
      Corporation concerning its activities and financial condition in addition to
      obtaining regulatory approvals prior to entering into certain transactions
      such
      as mergers with, or acquisitions of, other financial
      institutions.  There are periodic examinations by the Office of Thrift
      Supervision and, under certain circumstances, the Federal Deposit Insurance
      Corporation to evaluate Northeast Community Bank’s safety and soundness and
      compliance with various regulatory requirements.  This regulation and
      supervision establishes a comprehensive framework of activities in which an
      institution can engage and is intended primarily for the protection of the
      insurance fund and depositors.  The regulatory structure also gives
      the regulatory authorities extensive discretion in connection with their
      supervisory and enforcement activities and examination policies, including
      policies with respect to the classification of assets and the establishment
      of
      adequate loan loss reserves for regulatory purposes.  Any change in
      such policies, whether by the Office of Thrift Supervision, the Federal Deposit
      Insurance Corporation or Congress, could have a material adverse impact on
      Northeast Community Bancorp, Northeast Community Bancorp, MHC and Northeast
      Community Bank and their operations.  Northeast Community Bancorp and
      Northeast Community Bancorp, MHC, as savings and loan holding companies, are
      required to file certain reports with, are subject to examination by, and
      otherwise must comply with the rules and regulations of the Office of Thrift
      Supervision.  Northeast Community Bancorp also is subject to the rules
      and regulations of the Securities and Exchange Commission under the federal
      securities laws.





Certain
      of the regulatory requirements
      that are applicable to Northeast Community Bank, Northeast Community Bancorp
      and
      Northeast Community Bancorp, MHC are described below.  This
      description of statutes and regulations is not intended to be a complete
      explanation of such statutes and regulations and their effects on Northeast
      Community Bank, Northeast Community Bancorp and Northeast Community Bancorp,
      MHC
      and is qualified in its entirety by reference to the actual statutes and
      regulations.





**Regulation
      of Federal Savings Institutions**





***Business
      Activities.***  Federal law and regulations govern the
      activities of federal savings banks, such as Northeast Community
      Bank.  These laws and regulations delineate the nature and extent of
      the activities in which federal savings banks may engage.  In
      particular, certain lending authority for federal savings banks, e.g.,
      commercial, non-residential real property loans and consumer loans, is limited
      to a specified percentage of the institution’s capital or assets.





***Capital
      Requirements.***The Office of Thrift Supervision’s
      capital regulations require federal savings institutions to meet three minimum
      capital standards:  a 1.5% tangible capital to total assets ratio, a
      4% leverage ratio (3% for institutions receiving the highest rating on the
      CAMELS examination rating system) and an 8% risk-based capital
      ratio.  In addition, the prompt corrective action standards discussed
      below also establish, in effect, a minimum 2% tangible capital standard, a
      4%
      leverage ratio (3% for institutions receiving the highest rating on the CAMELS
      system) and, together with the risk-based capital standard itself, a 4% Tier
      1
      risk-based capital standard.  The Office of Thrift Supervision
      regulations also require that, in meeting the tangible, leverage and risk-based
      capital standards, institutions must generally deduct investments in and loans
      to subsidiaries engaged in activities as principal that are not permissible
      for
      a national bank.





The
      risk-based capital standard
      requires federal savings institutions to maintain Tier 1 (core) and total
      capital (which is defined as core capital and supplementary capital) to
      risk-weighted assets of at least 4% and 8%, respectively.  In
      determining the amount of risk-weighted assets, all assets, including certain
      off-balance sheet assets, recourse obligations, residual interests and direct
      credit substitutes, are multiplied by a risk-weight factor of 0% to 100%,
      assigned by the Office of Thrift Supervision capital regulation based on the
      risks believed inherent in the type of asset.  Core (Tier 1) capital
      is generally defined as common stockholders’ equity (including
      retained


9
 *Index*


earnings),
      certain noncumulative perpetual preferred stock and related surplus and minority
      interests in equity accounts of consolidated subsidiaries, less intangibles
      other than certain mortgage servicing rights and credit card
      relationships.  The components of supplementary (Tier 2) capital
      currently include cumulative preferred stock, long-term perpetual preferred
      stock, mandatory convertible securities, subordinated debt and intermediate
      preferred stock, the allowance for loan and lease losses limited to a maximum
      of
      1.25% of risk-weighted assets and up to 45% of unrealized gains on
      available-for-sale equity securities with readily determinable fair market
      values.  Overall, the amount of supplementary capital included as part
      of total capital cannot exceed 100% of core capital.





The
      Office of Thrift Supervision also
      has authority to establish individual minimum capital requirements in
      appropriate cases upon a determination that an institution’s capital level is or
      may become inadequate in light of the particular circumstances.  At
      December 31, 2006, Northeast Community Bank met each of these capital
      requirements.





***Prompt
      Corrective
      Regulatory Action.***The Office of Thrift Supervision is required to
      take certain supervisory actions against undercapitalized institutions, the
      severity of which depends upon the institution’s degree of
      undercapitalization.  Generally, a savings institution that has a
      ratio of total capital to risk weighted assets of less than 8%, a ratio of
      Tier
      1 (core) capital to risk-weighted assets of less than 4% or a ratio of core
      capital to total assets of less than 4% (3% or less for institutions with the
      highest examination rating) is considered to be “undercapitalized.”  A
      savings institution that has a total risk-based capital ratio less than 6%,
      a
      Tier 1 capital ratio of less than 3% or a leverage ratio that is less than
      3% is
      considered to be “significantly undercapitalized” and a savings institution that
      has a tangible capital to assets ratio equal to or less than 2% is deemed to
      be
“critically undercapitalized.”  Subject to a narrow exception, the
      Office of Thrift Supervision is required to appoint a receiver or conservator
      within specified time frames for an institution that is “critically
      undercapitalized.”  An institution must file a capital restoration
      plan with the Office of Thrift Supervision within 45 days of the date it
      receives notice that it is “undercapitalized,” “significantly undercapitalized”
or “critically undercapitalized.”  Compliance with the plan must be
      guaranteed by any parent holding company.  In addition, numerous
      mandatory supervisory actions become immediately applicable to an
      undercapitalized institution, including, but not limited to, increased
      monitoring by regulators and restrictions on growth, capital distributions
      and
      expansion.  “Significantly undercapitalized” and “critically
      undercapitalized” institutions are subject to more extensive mandatory
      regulatory actions.  The Office of Thrift Supervision could also take
      any one of a number of discretionary supervisory actions, including the issuance
      of a capital directive and the replacement of senior executive officers and
      directors.





***Loans
      to One
      Borrower.***Federal law provides that savings
      institutions are generally subject to the limits on loans to one borrower
      applicable to national banks.  Subject to certain exceptions, savings
      institution may not make a loan or extend credit to a single or related group
      of
      borrowers in excess of 15% of its unimpaired capital and surplus.  An
      additional amount may be lent, equal to 10% of unimpaired capital and surplus,
      if secured by specified readily-marketable collateral.





***Standards
      for Safety and
      Soundness.***  The federal banking agencies have adopted
      Interagency Guidelines prescribing Standards for Safety and
      Soundness.  The guidelines set forth the safety and soundness
      standards that the federal banking agencies use to identify and address problems
      at insured depository institutions before capital becomes
      impaired.  If the Office of Thrift Supervision determines that a
      savings institution fails to meet any standard prescribed by the guidelines,
      the
      Office of Thrift Supervision may require the institution to submit an acceptable
      plan to achieve compliance with the standard.





***Limitation
      on Capital
      Distributions.***  Office of Thrift Supervision regulations
      impose limitations upon all capital distributions by a savings institution,
      including cash dividends, payments to repurchase its shares and payments to
      stockholders of another institution in a cash-out merger.  Under the
      regulations, an application to and the prior approval of the Office of Thrift
      Supervision is required before any capital distribution if the institution
      does
      not meet the criteria for “expedited treatment” of applications under Office of
      Thrift Supervision regulations (i.e., generally, examination and Community
      Reinvestment Act ratings in the two top categories), the total capital
      distributions for the calendar year exceed net income for that year plus the
      amount of retained net income for the preceding two years, the institution
      would
      be undercapitalized following the distribution or the distribution would
      otherwise be contrary to a statute, regulation or agreement with the Office
      of
      Thrift Supervision.  If an application is not required, the
      institution must still provide prior notice to the Office of Thrift Supervision
      of the capital distribution if, like Northeast Community Bank, it is a
      subsidiary of a holding company.  If Northeast
      Community


10
 *Index*


Bank’s
      capital were ever to fall below its regulatory requirements or the Office of
      Thrift Supervision notified it that it was in need of increased supervision,
      its
      ability to make capital distributions could be restricted.  In
      addition, the Office of Thrift Supervision could prohibit a proposed capital
      distribution that would otherwise be permitted by the regulation, if the agency
      determines that such distribution would constitute an unsafe or unsound
      practice.





***Qualified
      Thrift Lender
      Test.***Federal law requires savings institutions to meet a
      qualified thrift lender test.  Under the test, a savings association
      is required to either qualify as a “domestic building and loan association”
under the Internal Revenue Code or maintain at least 65% of its “portfolio
      assets” (total assets less: (i) specified liquid assets up to 20% of total
      assets; (ii) intangibles, including goodwill; and (iii) the value of property
      used to conduct business) in certain “qualified thrift investments” (primarily
      residential mortgages and related investments, including certain mortgage-backed
      securities) in at least 9 months out of each 12-month
      period.  Legislation has


expanded
      the extent to which education loans, credit card loans and small business loans
      may be considered “qualified thrift investments.”





A
      savings institution that fails the
      qualified thrift lender test is subject to certain operating restrictions and
      may be required to convert to a bank charter.  As of December 31,
      2006, Northeast Community Bank maintained 75.9% of its portfolio assets in
      qualified thrift investments and, therefore, met the qualified thrift lender
      test.





***Transactions
      with Related
      Parties*****.**  Federal law permits Northeast
      Community Bank to lend to, and engage in certain other transactions with
      (collectively, “covered transactions”), “affiliates” (i.e., generally, any
      company that controls or is under common control with an institution), including
      Northeast Community Bancorp and Northeast Community Bancorp, MHC and their
      non-savings institution subsidiaries.  The aggregate amount of covered
      transactions with any individual affiliate is limited to 10% of the capital
      and
      surplus of the savings institution.  The aggregate amount of covered
      transactions with all affiliates is limited to 20% of the savings institution’s
      capital and surplus.  Loans and other specified transactions with
      affiliates are required to be secured by collateral in an amount and of a type
      described in federal law.  The purchase of low quality assets from
      affiliates is generally prohibited.  Transactions with affiliates must
      be on terms and under circumstances that are at least as favorable to the
      institution as those prevailing at the time for comparable transactions with
      non-affiliated companies.  In addition, savings institutions are
      prohibited from lending to any affiliate that is engaged in activities that
      are
      not permissible for bank holding companies and no savings institution may
      purchase the securities of any affiliate other than a subsidiary.





The
      Sarbanes-Oxley Act generally
      prohibits loans by Northeast Community Bancorp to its executive officers and
      directors.  However, the Sarbanes-Oxley Act contains a specific
      exemption from such prohibition for loans by Northeast Community Bank to its
      executive officers and directors in compliance with federal banking
      regulations.  Federal regulations require that all loans or extensions
      of credit to executive officers and directors of insured institutions must
      be
      made on substantially the same terms, including interest rates and collateral,
      as those prevailing at the time for comparable transactions with other persons
      and must not involve more than the normal risk of repayment or present other
      unfavorable features.   Northeast Community Bank is therefore
      prohibited from making any new loans or extensions of credit to executive
      officers and directors at different rates or terms than those offered to the
      general public.  Notwithstanding this rule, federal regulations permit
      Northeast Community Bank to make loans to executive officers and directors
      at
      reduced interest rates if the loan is made under a benefit program generally
      available to all other employees and does not give preference to any executive
      officer or director over any other employee.





In
      addition, loans made to a director
      or executive officer in an amount that, when aggregated with the amount of
      all
      other loans to the person and his or her related interests, are in excess of
      the
      greater of $25,000 or 5% of Northeast Community Bank’s capital and surplus, up
      to a maximum of $500,000, must be approved in advance by a majority of the
      disinterested members of the board of directors.





***Enforcement.***The Office of Thrift Supervision has primary enforcement
      responsibility over federal savings institutions and has the authority to bring
      actions against the institution and all institution-affiliated parties,
      including stockholders, and any attorneys, appraisers and accountants who
      knowingly or recklessly participate in wrongful action likely to have an adverse
      effect on an insured institution.  Formal enforcement action may range
      from the issuance of a capital directive or cease and desist order to removal
      of
      officers and/or directors to institution of receivership, conservatorship or
      termination of deposit insurance.  Civil penalties cover a wide range
      of violations and can amount to $25,000 per day, or even $1 million per day
      in
      especially egregious cases.  The Federal Deposit


11
 *Index*


Insurance
      Corporation has authority to recommend to the Director of the Office of Thrift
      Supervision that enforcement action be taken with respect to a particular
      savings institution.  If action is not taken by the Director, the
      Federal Deposit Insurance Corporation has authority to take such action under
      certain circumstances.  Federal law also establishes criminal
      penalties for certain violations.





***Assessments.***Federal
      savings banks are required to pay assessments to the Office of Thrift
      Supervision to fund its operations.  The general assessments, paid on
      a semi-annual basis, are based upon the savings institution’s total assets,
      including consolidated subsidiaries, financial condition and complexity of
      its
      portfolio.  The Office of Thrift Supervision assessments paid by
      Northeast Community Bank for the year ended December 31, 2006 totaled
      $97,000.





***Insurance
      of Deposit
      Accounts.***Deposits of Northeast Community Bank are
      insured by the Deposit Insurance Fund of the Federal Deposit Insurance
      Corporation.  The FDIC determines insurance premiums based on a number
      of factors, primarily the risk of loss that insured institutions pose to the
      Deposit Insurance Fund.  Recent legislation eliminated the minimum
      1.25% reserve ratio for the insurance funds, the mandatory assessments when
      the
      ratio fall below 1.25% and the prohibition on assessing the highest quality
      banks when the ratio is above 1.25%.  The FDIC has the ability to
      adjust the new insurance fund’s reserve ratio between 1.15% and 1.5%, depending
      on projected losses, economic changes and assessment rates at the end of a
      calendar year.  The FDIC has adopted regulations that set assessment
      rates that took effect at the beginning of 2007.  The new assessment
      rates for most banks vary between five cents and seven cents for every $100
      of
      deposits.  A change in insurance premiums could have an adverse effect
      on the operating expenses and results of operations of Northeast Community
      Bank.  We cannot predict what insurance assessment rates will be in
      the future.  Assessment credits have been provided to institutions
      that were paying insurance premiums prior to December 31, 1996.  The
      assessment credit provided to Northeast Community Bank amounts to
      $307,703.  As a result, Northeast Community Bank will have credits
      that offset all of its premiums in 2007, 90% of the insurance premium for 2008,
      90% in 2009, 90% in 2010 and 100% in 2011 and beyond until the $307,703
      assessment credit is offset.





Insurance
      of deposits may be terminated
      by the FDIC upon a finding that the institution has engaged in unsafe or unsound
      practices, is in an unsafe or unsound condition to continue operations or has
      violated any applicable law, regulation, rule, order or condition imposed by
      the
      FDIC or the Office of Thrift Supervision.  We do not know of any
      practice, condition or violation that might lead to termination of deposit
      insurance.





In
      addition to the assessment for
      deposit insurance, institutions are required to make payments on bonds issued
      in
      the late 1980s by the Financing Corporation to recapitalize a predecessor
      deposit insurance fund.





***Federal
      Home Loan Bank
      System.***Northeast Community Bank is a member of the Federal Home
      Loan Bank System, which consists of 12 regional Federal Home Loan
      Banks.  The Federal Home Loan Bank provides a central credit facility
      primarily for member institutions.  Northeast Community Bank, as a
      member of the Federal Home Loan Bank of New York, is required to acquire and
      hold shares of capital stock in that Federal Home Loan
      Bank.  Northeast Community Bank was in compliance with this
      requirement with an investment in Federal Home Loan Bank stock at December
      31,
      2006 of $399,000.  Federal Home Loan Bank advances must be secured by
      specified types of collateral.





The
      Federal Home Loan Banks are
      required to provide funds for the resolution of insolvent thrifts in the late
      1980s and to contribute funds for affordable housing programs.  These
      requirements could reduce the amount of dividends that the Federal Home Loan
      Banks pay to their members and could also result in the Federal Home Loan Banks
      imposing a higher rate of interest on advances to their members.  If
      dividends were reduced, or interest on future Federal Home Loan Bank advances
      increased, our net interest income would likely also be reduced.





***Federal
      Reserve System.***The Federal Reserve Board regulations require savings institutions
      to maintain non-interest earning reserves against their transaction accounts
      (primarily Negotiable Order of Withdrawal (NOW) and regular checking
      accounts).  The regulations generally provide that reserves be
      maintained against aggregate transaction accounts as follows:  a 3%
      reserve ratio is assessed on net transaction accounts up to and including $45.8
      million; a 10% reserve ratio is applied above $45.8 million.  The
      first $8.5 million of otherwise reservable balances are exempted from the
      reserve requirements.  The amounts are adjusted
      annually.  Northeast Community Bank complies with the foregoing
      requirements.


12
 *Index*





**Holding
      Company Regulation**





***General.***Northeast
      Community Bancorp and Northeast Community Bancorp, MHC are savings and loan
      holding companies within the meaning of federal law.  As such, they
      are registered with the Office of Thrift Supervision and are subject to Office
      of Thrift Supervision regulations, examinations, supervision, reporting
      requirements and regulations concerning corporate governance and
      activities.  In addition, the Office of Thrift Supervision has
      enforcement authority over Northeast Community Bancorp and Northeast Community
      Bancorp, MHC and their non-savings institution subsidiaries.  Among
      other things, this authority permits the Office of Thrift Supervision to
      restrict or prohibit activities that are determined to be a serious risk to
      Northeast Community Bank.





***Restrictions
      Applicable to
      Mutual Holding Companies.***According to federal law and Office of
      Thrift Supervision regulations, a mutual holding company, such as Northeast
      Community Bancorp, MHC, may generally engage in the following
      activities:  (1) investing in the stock of a bank; (2) acquiring a
      mutual association through the merger of such association into a bank subsidiary
      of such holding company or an interim bank subsidiary of such holding company;
      (3) merging with or acquiring another holding company, one of whose subsidiaries
      is a bank; and (4) any activity approved by the Federal Reserve Board for a
      bank
      holding company or financial holding company or previously approved by Office
      of
      Thrift Supervision for multiple savings and loan holding
      companies.  In addition, mutual holding companies may engage in
      activities permitted for financial holding companies.  Financial
      holding companies may engage in a broad array of financial service activities
      including insurance and securities.





Federal
      law prohibits a savings and
      loan holding company, including a federal mutual holding company, from directly
      or indirectly, or through one or more subsidiaries, acquiring more than 5%
      of
      the voting stock of another savings association, or its holding company, without
      prior written approval of the Office of Thrift Supervision.  Federal
      law also prohibits a savings and loan holding company from acquiring more than
      5% of a company engaged in activities other than those authorized for savings
      and loan holding companies by federal law, or acquiring or retaining control
      of
      a depository institution that is not insured by the Federal Deposit Insurance
      Corporation.  In evaluating applications by holding companies to
      acquire savings associations, the Office of Thrift Supervision must consider
      the
      financial and managerial resources and future prospects of the company and
      institution involved, the effect of the acquisition on the risk to the insurance
      funds, the convenience and needs of the community and competitive
      factors.





The
      Office of Thrift Supervision is
      prohibited from approving any acquisition that would result in a multiple
      savings and loan holding company controlling savings associations in more than
      one state, except:  (1) the approval of interstate supervisory
      acquisitions by savings and loan holding companies, and (2) the acquisition
      of a
      savings association in another state if the laws of the state of the target
      savings institution specifically permit such acquisitions.  The states
      vary in the extent to which they permit interstate savings and loan holding
      company acquisitions.





If
      the savings association subsidiary
      of a savings and loan holding company fails to meet the qualified thrift lender
      test, the holding company must register with the Federal Reserve Board as a
      bank
      holding company within one year of the savings association’s failure to so
      qualify.





***Stock
      Holding Company
      Subsidiary Regulation.***The Office of Thrift Supervision has
      adopted regulations governing the two-tier mutual holding company form of
      organization and subsidiary stock holding companies that are controlled by
      mutual holding companies.  Northeast Community Bancorp is the stock
      holding company subsidiary of Northeast Community Bancorp,
      MHC.  Northeast Community Bancorp is permitted to engage in activities
      that are permitted for Northeast Community Bancorp, MHC subject to the same
      restrictions and conditions.





***Waivers
      of Dividends by
      Northeast Community Bancorp, MHC.***  Office of Thrift
      Supervision regulations require Northeast Community Bancorp, MHC to notify
      the
      Office of Thrift Supervision if it proposes to waive receipt of dividends from
      Northeast Community Bancorp.  The Office of Thrift Supervision reviews
      dividend waiver notices on a case-by-case basis, and, in general, does not
      object to any such waiver if:  (i) the waiver would not be detrimental
      to the safe and sound operation of the savings association; and (ii) the mutual
      holding company’s


13
 *Index*


board
      of
      directors determines that such waiver is consistent with such directors’
fiduciary duties to the mutual holding company’s members.





***Conversion
      of Northeast
      Community Bancorp, MHC to Stock Form.***  Office of Thrift
      Supervision regulations permit Northeast Community Bancorp, MHC to convert
      from
      the mutual form of organization to the capital stock form of organization.
      There
      can be no assurance when, if ever, a conversion transaction will occur, and
      the
      board of directors has no current intention or plan to undertake a conversion
      transaction. In a conversion transaction, a new holding company would be formed
      as the successor to Northeast Community Bancorp, Northeast Community Bancorp,
      MHC’s corporate existence would end, and certain depositors of Northeast
      Community Bank would receive the right to subscribe for additional shares of
      the
      new holding company. In a conversion transaction, each share of common stock
      held by stockholders other than Northeast Community Bancorp, MHC would be
      automatically converted into a number of shares of common stock of the new
      holding company based on an exchange ratio determined at the time of conversion
      that ensures that stockholders other than Northeast Community Bancorp, MHC
      own
      the same percentage of common stock in the new holding company as they owned
      in
      Northeast Community Bancorp immediately before conversion.  The total
      number of shares held by stockholders other than Northeast Community Bancorp,
      MHC after a conversion transaction would be increased by any purchases by such
      stockholders in the stock offering conducted as part of the conversion
      transaction.





***Acquisition
      of Control.***Under the federal Change in Bank Control Act, a notice must be
      submitted to the Office of Thrift Supervision if any person (including a
      company), or group acting in concert, seeks to acquire “control” of a savings
      and loan holding company or savings association.  An acquisition of
“control” can occur upon the acquisition of 10% or more of the voting stock of a
      savings and loan holding company or savings institution or as otherwise defined
      by the Office of Thrift Supervision.  Under the Change in Bank Control
      Act, the Office of Thrift Supervision has 60 days from the filing of a complete
      notice to act, taking into consideration certain factors, including the
      financial and managerial resources of the acquirer and the anti-trust effects
      of
      the acquisition.  Any company that so acquires control would then be
      subject to regulation as a savings and loan holding company.





**Federal
      Securities Laws**





Northeast
      Community Bancorp’s common
      stock is registered with the Securities and Exchange Commission under the
      Securities Exchange Act of 1934.  Northeast Community Bancorp is
      subject to the information, proxy solicitation, insider trading restrictions
      and
      other requirements under the Securities Exchange Act of 1934.







**EXECUTIVE
      OFFICERS OF THE REGISTRANT**




The
      Board of Directors annually elects
      the executive officers of Northeast Community Bancorp, MHC, Northeast Community
      Bancorp and Northeast Community Bank, who serve at the Board’s
      discretion.  Our executive officers are:




**Name**
                
                
                **Position**Kenneth
                    A. Martinek
                
                President
                    and Chief Executive Officer of the MHC, the Company and the
                    BankSalvatore
                    Randazzo
                
                Executive
                    Vice President and Chief Financial Officer of the MHC, the Company
                    and the
                    BankSusan
                    Barile
                
                Senior
                    Vice President and Chief Mortgage Officer of the BankMichael
                    N. Gallina
                
                Senior
                    Vice President and Chief Commerical Banking Officer of the
                    Bank





14
 *Index*


Below
      is
      information regarding our executive officers who are not also
      directors.  Ages presented are as of December 31,
      2006.





*Susan
      Barile*has served as Senior Vice President and Chief Mortgage Officer of
      the Bank since October 2006.  Prior to serving in this position, Ms.
      Barile spent 11 years as a multi-family, mixed-use and non-residential loan
      officer at the Bank.  Age 41.





*Michael
      N. Gallina* was appointed Senior Vice President and Chief Commercial Banking
      Officer of the Bank in March 2007.  Most recently, Mr. Gallina served
      as Senior Vice President, Relationship Manager at North Fork Bank since
      2001.  Prior to serving with North Fork Bank, Mr. Gallina was Senior
      Vice President at Sterling National Bank.  Mr. Gallina has over 16
      years of experience as a banker.  Age 38.





**ITEM
      1A.**            **RISK
      FACTORS**





**Rising
      interest rates may hurt our earnings and asset value.**





Our
      primary source of income is net
      interest income, which is the difference between the interest income generated
      by our interest-earning assets (consisting primarily of loans and, to a lesser
      extent, securities) and the interest expense generated by our interest-bearing
      liabilities (consisting primarily of deposits).





Since
      June 30, 2004, the U.S.
      Federal Reserve has increased its target for the federal funds rate 17 times,
      from 1.0% to 5.25%.  While these short-term market interest rates
      (which we use as a guide to price our deposits) have increased,
      intermediate-term market interest rates (i.e., five-year) (which we use as
      a
      guide to price our loans) have not increased in a corresponding
      manner.  This “flattening” of the market yield curve (meaning that the
      levels of short-term interest rates and intermediate-term interest rates
      approximate each other) has had a negative impact on our interest rate spread
      and net interest margin.  For the year ended December 31, 2006, our
      net interest margin decreased by 31 basis points to 4.24% from 4.55% at December
      31, 2005.





By
      the
      end of 2005, the yield curve had inverted, meaning that the level of short-term
      interest rates exceeded the level of intermediate-term interest
      rates.  Should the inverted yield curve continue or become more
      pronounced, our net interest income could experience further contraction, which
      could have a material adverse effect on our net income and cash flows and the
      value of our assets.





Changes
      in interest rates also affect the value of our interest-earning
      assets.  Generally, the value of fixed-rate assets fluctuates
      inversely with changes in interest rates.  Unrealized gains and losses
      on securities available for sale are reported as a separate component of equity,
      net of tax.  Decreases in the fair value of securities available for
      sale resulting from increases in interest rates could have an adverse effect
      on
      stockholders’ equity.  For further discussion of how changes in
      interest rates could impact us, see “*Management’s Discussion and Analysis of
      Results of Operations and Financial Condition—Risk Management—Interest Rate Risk
      Management*.”





**Our
      emphasis on multi-family residential, mixed-use and non-residential real estate
      lending and our plans to expand into commercial lending could expose us to
      increased lending risks.**





Our
      primary business strategy centers on continuing our emphasis on multi-family,
      mixed-use and non-residential real estate loans.  We have grown our
      loan portfolio in recent years with respect to these types of loans and intend
      to continue to emphasize these types of lending.  At December 31,
      2006,******$200.8 million,
      or******99.6%, of our loan portfolio consisted of
      multi-family residential, mixed-use and non-residential real estate
      loans.  As a result, our credit risk profile will be higher than
      traditional thrift institutions that have higher concentrations of one- to
      four-family residential loans.





Loans
      secured by multi-family,
      mixed-use and non-residential real estate generally expose a lender to greater
      risk of non-payment and loss than one- to four-family residential mortgage
      loans
      because repayment of the loans often depends on the successful operation of
      the
      property and the income stream of the underlying property.  Such loans
      typically involve larger loan balances to single borrowers or groups of related
      borrowers compared to one- to four-family residential mortgage
      loans.  Accordingly, an adverse development with respect to one loan
      or one credit relationship can expose us to greater risk of loss compared to
      an
      adverse development with respect to a


15
 *Index*


one-
      to
      four-family residential mortgage loan.  We seek to minimize these
      risks through our underwriting policies, which require such loans to be
      qualified on the basis of the property’s net income and debt service ratio;
      however, there is no assurance that our underwriting policies will protect
      us
      from credit-related losses.





As
      with
      loans secured by multi-family, mixed-use and non-residential real estate,
      commercial loans tend to be of higher risk than one- to-four family residential
      mortgage loans.  We will seek to minimize the risks involved in
      commercial lending by underwriting such loans on the basis of the cash flows
      produced by the business; by requiring that such loans be collateralized by
      various business assets, including inventory, equipment, and accounts
      receivable, among others; and by requiring personal guarantees, whenever
      possible.  However, the capacity of a borrower to repay a commercial
      loan is substantially dependent on the degree to which his or her business
      is
      successful.  In addition, the collateral underlying such loans may
      depreciate over time, may not be conducive to appraisal, or may fluctuate in
      value, based upon the business’ results.





**Our
      recent expansion of our lending territory could expose us to increased lending
      risks.**





We
      recently expanded our lending
      territory beyond the New York metropolitan area to include all of New York,
      Massachusetts, Connecticut, Rhode Island, southern Maine, Pennsylvania, New
      Jersey and southern New Hampshire.  In January 2004, we opened a loan
      production office in Wellesley, Massachusetts.  In 2006, approximately
      44.0% of our total loan originations were outside the state of New York, with
      approximately 12.4% of our 2006 originations made in
      Massachusetts.  In 2005, approximately 48.8% of our total loan
      originations were outside the state of New York, with approximately 26.2% of
      our
      total originations in Massachusetts.  While we have over fifty years
      of experience in multi-family and mixed-use real estate lending in the New
      York
      metropolitan area and have significant expertise in non-residential real estate
      lending, our experience in our expanded lending territory is more
      limited.  We have experienced loan officers throughout our lending
      area and we apply the same underwriting standards to all of our loans,
      regardless of their location.  As a result, we have had no losses on
      our multi-family, mixed-use and non-residential loans over the past five
      years.   However, there is no assurance that our loss experience
      in the New York metropolitan area will be the same in our expanded lending
      territory.  Because we only recently increased the number of
      out-of-state real estate loans in our portfolio, the lack of delinquencies
      and
      defaults in our loan portfolio over the past five years might not be
      representative of the level of delinquencies and defaults that could occur
      as we
      continue to expand our real estate loan originations outside of the New York
      metropolitan area.





**We
      may not be able to successfully implement our plans for
      growth.**





We
      currently operate out of five full-service branch offices in the New York
      metropolitan area.  Recently, our management began to implement a
      growth strategy that expands our presence in other select markets in the
      Northeast and Midatlantic regions.  In January 2004, we opened a loan
      production office in Wellesley, Massachusetts and we are exploring the
      possibility of opening a retail branch office in that market area.  We
      also intend to open two additional retail branch offices, one in Pennsylvania,
      and one in a location yet to be determined.  At this time, we are not
      able to estimate the costs associated with or the timing of the opening of
      new
      branch offices.  We are in the process of determining locations for
      the possible branches and anticipate that we will incur approximately $50,000
      in
      expenses relating to our search for possible locations.  In addition,
      we intend to open two additional loan production offices in the next two years,
      one in Pennsylvania and one in a location yet to be determined.  We
      anticipate that the estimated setup and operating expenses of the loan
      production office in Pennsylvania will be approximately $265,000 in the first
      twelve months of operations.  The estimate includes the expense of
      office space, equipment, communications, marketing and personnel for the loan
      production office.  We intend to continue to pursue opportunities to
      expand our branch network and our lending operations.  In connection
      with the expansion of our branch network and lending operations, we would need
      to hire new lending, real estate investment and other employees to support
      our
      expanded infrastructure.  There is no assurance that we will be
      successful in implementing our expansion plans or that we will be able to hire
      the employees necessary to implement our plans.





16
 *Index*


**If
      we do not achieve profitability on new branches and loan production offices,
      the
      new branches and loan production offices may hurt our
      earnings.**





As
      we expand our branch and lending
      network, there is no assurance that our expansion strategy will be accretive
      to
      our earnings.  Numerous factors will affect our expansion strategy,
      such as our ability to select suitable locations for branches and loan
      production offices, real estate acquisition costs, competition, interest rates,
      managerial resources, our ability to hire and retain qualified personnel, the
      effectiveness of our marketing strategy and our ability to attract
      deposits.  We can provide no assurance that we will be successful in
      increasing the volume of our loans and deposits by expanding our branch and
      lending network.  Building and staffing new branch offices and loan
      production offices will increase our operating expenses.  We can
      provide no assurance that we will be able to manage the costs and implementation
      risks associated with this strategy so that expansion of our branch and lending
      network will be profitable.





**We
      are expanding our branch and lending network into geographic markets in which
      we
      have limited experience.**





Prior
      to January 2004, our business was
      primarily focused in the New York metropolitan area.  A key component
      of our strategy to grow and enhance profitability is to expand into additional
      markets in Northeast and Midatlantic regions that are also in densely populated
      areas surrounding urban centers.  As a result, in January 2004 we
      opened a loan production office in Wellesley, Massachusetts.  We
      intend to pursue further expansion in this market, as well as in Pennsylvania
      and other market areas in future years.  In Massachusetts, we have
      hired employees with significant lending experience in the local
      market.  Our ability to operate successfully in new markets will be
      dependent, in part, on our ability to identify and retain personnel familiar
      with the new markets.  We can provide no assurance that we will be
      successful in attracting deposits or originating loans in these new geographic
      markets.





**Strong
      competition within our primary market area and our lending territory could
      hurt
      our profits and slow growth.**





We
      face intense competition both in
      making loans in our lending territory and attracting deposits in our primary
      market area.  This competition has made it more difficult for us to
      make new loans and at times has forced us to offer higher deposit
      rates.  Price competition for loans and deposits might result in us
      earning less on our loans and paying more on our deposits, which would reduce
      net interest income.  Competition also makes it more difficult to grow
      loans and deposits.  As of June 30, 2006, the most recent date for
      which information is available from the Federal Deposit Insurance Corporation,
      we held less than 0.7% of the deposits in each of Westchester, Kings and New
      York counties, New York, and approximately 0.7% of the deposits in Bronx County,
      New York.  Competition also makes it more difficult to hire and retain
      experienced employees.  Some of the institutions with which we compete
      have substantially greater resources and lending limits than we have and may
      offer services that we do not provide.  We expect competition to
      increase in the future as a result of legislative, regulatory and technological
      changes and the continuing trend of consolidation in the financial services
      industry.  Our profitability depends upon our continued ability to
      compete successfully in our primary market area and our lending
      territory.





**Changes
      in economic conditions could cause an increase in delinquencies and
      non-performing assets, including loan charge-offs, which could hurt our income
      and growth.**





Our
      loan portfolio includes primarily
      real estate secured loans, demand for which may decrease during economic
      downturns as a result of, among other things, an increase in unemployment,
      a
      decrease in real estate values or increases in interest rates.  These
      factors could depress our earnings and consequently our financial condition
      because customers may not want or need our products and services; borrowers
      may
      not be able to repay their loans;  the value of the collateral
      securing our loans to borrowers may decline; and the quality of our loan
      portfolio may decline.





Any
      of the latter three scenarios could
      cause an increase in delinquencies and non-performing assets or require us
      to
“charge-off” a percentage of our loans and/or increase our provisions for loan
      losses, which would reduce our earnings.





17
 *Index*


**The
      loss of our President and Chief Executive Officer could hurt our
      operations.**





We
      rely heavily on our President and
      Chief Executive Officer, Kenneth A. Martinek.  The loss of Mr.
      Martinek could have an adverse effect on us because, as a small community bank,
      Mr. Martinek has more responsibility than would be typical at a larger financial
      institution with more employees.  In addition, as a small community
      bank, we have fewer management-level personnel who are in position to succeed
      and assume the responsibilities of Mr. Martinek.





**We
      operate in a highly regulated environment and we may be adversely affected
      by
      changes in laws and regulations.**





We
      are subject to extensive regulation,
      supervision and examination by the Office of Thrift Supervision, our primary
      federal regulator, and by the Federal Deposit Insurance Corporation, as insurer
      of our deposits.  Northeast Community Bancorp, MHC, Northeast
      Community Bancorp and Northeast Community Bank are all subject to regulation
      and
      supervision by the Office of Thrift Supervision.  Such regulation and
      supervision governs the activities in which an institution and its holding
      company may engage, and are intended primarily for the protection of the
      insurance fund and the depositors and borrowers of Northeast Community Bank
      rather than for holders of Northeast Community Bancorp common
      stock.  Regulatory authorities have extensive discretion in their
      supervisory and enforcement activities, including the imposition of restrictions
      on our operations, the classification of our assets and determination of the
      level of our allowance for loan losses.  Any change in such regulation
      and oversight, whether in the form of regulatory policy, regulations,
      legislation or supervisory action, may have a material impact on our
      operations.





**Northeast
      Community Bancorp, MHC’s majority control of our common stock will enable it to
      exercise voting control over most matters put to a vote of stockholders and
      will
      prevent stockholders from forcing a sale or a second-step conversion transaction
      you may like.**





Northeast
      Community Bancorp, MHC, owns
      a majority of Northeast Community Bancorp’s common stock and, through its board
      of directors, will be able to exercise voting control over most matters put
      to a
      vote of stockholders.  The same directors and officers who manage
      Northeast Community Bancorp and Northeast Community Bank also manage Northeast
      Community Bancorp, MHC.  As a federally chartered mutual holding
      company, the board of directors of Northeast Community Bancorp, MHC must ensure
      that the interests of depositors of Northeast Community Bank are represented
      and
      considered in matters put to a vote of stockholders of Northeast Community
      Bancorp.  Therefore, the votes cast by Northeast Community Bancorp,
      MHC may not be in your personal best interests as a stockholder.  For
      example, Northeast Community Bancorp, MHC may exercise its voting control to
      defeat a stockholder nominee for election to the board of directors of Northeast
      Community Bancorp.  In addition, stockholders will not be able to
      force a merger or second-step conversion transaction without the consent of
      Northeast Community Bancorp, MHC.  Some stockholders may desire a sale
      or merger transaction, since stockholders typically receive a premium for their
      shares, or a second-step conversion transaction, since fully converted
      institutions tend to trade at higher multiples than mutual holding
      companies.





**The
      Office of Thrift Supervision policy on remutualization transactions could
      prohibit acquisition of Northeast Community Bancorp, which may adversely affect
      our stock price.**





Current
      Office of Thrift Supervision
      regulations permit a mutual holding company to be acquired by a mutual
      institution in a remutualization transaction.  However, the Office of
      Thrift Supervision has issued a policy statement indicating that it views
      remutualization transactions as raising significant issues concerning disparate
      treatment of minority stockholders and mutual members of the target entity
      and
      raising issues concerning the effect on the mutual members of the acquiring
      entity.  Under certain circumstances, the Office of Thrift Supervision
      intends to give these issues special scrutiny and reject applications providing
      for the remutualization of a mutual holding company unless the applicant can
      clearly demonstrate that the Office of Thrift Supervision’s concerns are not
      warranted in the particular case.  Should the Office of Thrift
      Supervision prohibit or otherwise restrict these transactions in the future,
      our
      per share stock price may be adversely affected.  In addition, Office
      of Thrift Supervision regulations prohibit, for three years following completion
      of our initial public offering in July 2006, the acquisition of more than 10%
      of
      any class of equity security issued by us without the prior approval of the
      Office of Thrift Supervision.


18
 *Index*





**ITEM1B.                   UNRESOLVED
      STAFF COMMENTS**





None.





**ITEM
      2.                      PROPERTIES**





We
      conduct our business through our
      main office and branch offices.  The following table sets forth
      certain information relating to these facilities as of December 31,
      2006.







**Location**
                                  
                                  **Year**
                                    **Opened**
                                  
                                  **Square**
                                    **Footage**
                                  
                                  **Date
                                      of Lease**
                                    **Expiration**
                                  
                                  **Owned/**
                                    **Leased**
                                  
                                  **Net
                                      Book Value****(Dollars
                                      in thousands)****Corporate
                                      Headquarters:**325
                                      Hamilton Avenue
                                    White
                                      Plains, New York 10601
                                  
                                  1994
                                  
                                  
                                  
                                  N/A
                                  
                                  Owned
                                  
                                  $
                                  1,142**Branch
                                      Offices:**1470
                                      First Avenue
                                    New
                                      York, NY 10021(1)
                                  
                                  2006
                                  
                                  
                                  
                                  04/30/2011
                                  
                                  Leased
                                  
                                  
                                  2731355
                                      First Avenue
                                    New
                                      York, NY 10021(2)
                                  
                                  1946
                                  
                                  
                                  
                                  N/A
                                  
                                  Owned
                                  
                                  
                                  6,182590
                                      East 187th Street
                                    Bronx,
                                      New York 10458
                                  
                                  1972
                                  
                                  
                                  
                                  N/A
                                  
                                  Owned
                                  
                                  
                                  5702047
                                      86th Street
                                    Brooklyn,
                                      New York 11214
                                  
                                  1988
                                  
                                  
                                  
                                  N/A
                                  
                                  Owned
                                  
                                  
                                  998242
                                      West 23rd Street
                                    New
                                      York, NY 10011
                                  
                                  1996
                                  
                                  
                                  
                                  N/A
                                  
                                  Owned/Leased(3)
                                  
                                  
                                  1,0671751
                                      Second Avenue
                                    New
                                      York, NY 10128
                                  
                                  1978
                                  
                                  
                                  
                                  09/30/2015
                                  
                                  Leased
                                  
                                  
                                  40**Other
                                      Properties:**300
                                      Hamilton Avenue
                                    White
                                      Plains, New York 10601
                                  
                                  2000
                                  
                                  
                                  
                                  05/31/2010
                                  
                                  Leased
                                  
                                  
                                  6840
                                      Grove Street
                                    Wellesley,
                                      Massachusetts 02482
                                  
                                  2004
                                  
                                  
                                  
                                  02/28/2009
                                  
                                  Leased
                                  
                                  
                                  2





(1)
            The
                Bank has temporarily relocated its branch office at 1355 First Avenue
                to
                this property in anticipation of the sale and renovation of the building
                located at 1355 First Avenue.  See footnote 2
                below.


(2)
            The
                Bank has entered into an agreement for the sale of this building
                and has
                closed the branch at this location and temporarily relocated it to
                1470
                First Avenue, New York, New York.  Under the terms of the
                agreement, the Bank will enter into a 99 year lease for office space
                on
                the first floor of the building so that the Bank may continue to
                operate a
                branch office at this location after the building has been sold and
                renovated.  The due diligence period for the sale of the
                building expired on March 30, 2007, and the Bank expects that the
                sale of the building at 1355 First Avenue will be completed in the
                second
                quarter of 2007.


(3)
            This
                property is owned by us, but is subject to a 99 year ground lease,
                the
                term of which expires in 2084.





19
 *Index*


**ITEM
      3.                  LEGAL
      PROCEEDINGS**





**Legal
      Proceedings**





From
      time to time, we may be party to
      various legal proceedings incident to our business.  At December 31,
      2006, we were not a party to any pending legal proceedings that we believe
      would
      have a material adverse effect on our financial condition, results of operations
      or cash flows.





**ITEM
      4.         
        SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS**





None.




**PARTII**





**ITEM
                5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**





The
      Company’s common stock is listed on
      the Nasdaq Stock Market LLC (“NASDAQ”) under the trading symbol
“NECB.”  The Company completed its initial public offering on July 5,
      2006 and commenced trading on July 6, 2006.  The following table sets
      forth the high and low sales prices of the common stock for the year ended
      December 31, 2006, as reported by NASDAQ.  The Company has not paid
      any dividends to its shareholders to date.  See Item 1,
*“Business—Regulation and Supervision—Regulation of Federal Savings
      Institutions—Limitation on Capital Distributions”* and Note 2 in the Notes
      to the Consolidated Financial Statements for more information relating to
      restrictions on dividends.




**Dividends**
                    
                    **High**
                    
                    **Low**2006:First
                        Quarter
                    N/A
                    
                    N/A
                    
                    
                    N/ASecond
                        Quarter
                    N/A
                    
                    N/A
                    
                    
                    N/AThird
                        Quarter
                    N/A
                    
                    $
                    11.45
                    
                    
                    $
                    10.75Fourth
                        Quarter
                    N/A
                    
                    
                    12.35
                    
                    
                    
                    11.25





As
      of March 12, 2007, there were
      approximately 427 holders of record of the Company’s common stock.





The
      Company did not repurchase any of
      its common stock during the fourth quarter of 2006 and at December 31, 2006,
      we
      had no publicly announced repurchase plans or programs.





20
 *Index*


**Stock
      Performance Graph**




The
      following graph compares the
      cumulative total stockholder return on the Company’s common stock with the
      cumulative total return on the Nasdaq Composite the SNL Thrift Index and the
      SNL
      MHCs Thrift Index. The graph assumes $100 was invested at the close of business
      on July 6, 2006, the initial day of trading of the Company’s common
      stock.









**Period
                        Ending****Index**
                    
                    **7/6/06**
                    
                    
                    **8/31/06**
                    
                    
                    **9/30/06**
                    
                    
                    **10/31/06**
                    
                    
                    **11/30/06**
                    
                    
                    **12/31/06**Northeast
                        Community Bancorp, Inc.
                    
                    
                    100.00
                    
                    
                    
                    102.55
                    
                    
                    
                    103.18
                    
                    
                    
                    103.18
                    
                    
                    
                    102.27
                    
                    
                    
                    111.73NASDAQ
                        Composite
                    
                    
                    100.00
                    
                    
                    
                    101.54
                    
                    
                    
                    104.97
                    
                    
                    
                    109.89
                    
                    
                    
                    113.18
                    
                    
                    
                    113.88SNL
                        Thrift Index
                    
                    
                    100.00
                    
                    
                    
                    98.49
                    
                    
                    
                    101.07
                    
                    
                    
                    102.95
                    
                    
                    
                    105.51
                    
                    
                    
                    107.94SNL
                        MHCs Thrift Index
                    
                    
                    100.00
                    
                    
                    
                    105.31
                    
                    
                    
                    110.15
                    
                    
                    
                    114.75
                    
                    
                    
                    120.58
                    
                    
                    
                    121.76












21
 *Index*


**ITEM6.                   SELECTED
      FINANCIAL DATA**









**At
                      or For the Years Ended December 31,****2006**
                  
                  
                  **2005**
                  
                  
                  **2004**
                  
                  
                  **2003**
                  
                  
                  **2002****(Dollars
                      in thousands, except per share data)****Financial
                      Condition Data:**Total
                      assets
                  
                  $
                  288,417
                  
                  
                  $
                  238,821
                  
                  
                  $
                  237,300
                  
                  
                  $
                  231,788
                  
                  
                  $
                  234,331Cash
                      and cash equilavents
                  
                  
                  36,749
                  
                  
                  
                  27,389
                  
                  
                  
                  48,555
                  
                  
                  
                  57,824
                  
                  
                  
                  46,017Securities
                      held to maturity
                  
                  
                  27,455
                  
                  
                  
                  12,228
                  
                  
                  
                  11,395
                  
                  
                  
                  9,452
                  
                  
                  
                  8,555Securities
                      available for sale
                  
                  
                  355
                  
                  
                  
                  362
                  
                  
                  
                  473
                  
                  
                  
                  649
                  
                  
                  
                  975Loans
                      receivable, net
                  
                  
                  201,306
                  
                  
                  
                  190,896
                  
                  
                  
                  167,690
                  
                  
                  
                  154,546
                  
                  
                  
                  168,069Bank
                      owned life insurance
                  
                  
                  8,154
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Deposits
                  
                  
                  188,592
                  
                  
                  
                  193,314
                  
                  
                  
                  193,617
                  
                  
                  
                  190,037
                  
                  
                  
                  193,401Advances
                      from Federal Home Loan Bank
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  900Total
                      stockholders’ equity
                  
                  
                  96,751
                  
                  
                  
                  43,120
                  
                  
                  
                  41,146
                  
                  
                  
                  39,589
                  
                  
                  
                  37,192




**Operating
                        Data:**Interest
                        income
                    
                    $
                    15,348
                    
                    
                    $
                    13,652
                    
                    
                    $
                    12,885
                    
                    
                    $
                    14,513
                    
                    
                    $
                    16,540Interest
                        expense
                    
                    
                    4,493
                    
                    
                    
                    3,110
                    
                    
                    
                    2,494
                    
                    
                    
                    2,620
                    
                    
                    
                    4,236Net
                        interest
                        income
                    
                    
                    10,855
                    
                    
                    
                    10,542
                    
                    
                    
                    10,391
                    
                    
                    
                    11,893
                    
                    
                    
                    12,304Provision
                        for loan
                        losses
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    294Net
                        interest income after provision forloan
                        losses
                    
                    
                    10,855
                    
                    
                    
                    10,542
                    
                    
                    
                    10,391
                    
                    
                    
                    11,893
                    
                    
                    
                    12,010Other
                        income
                    
                    
                    619
                    
                    
                    
                    534
                    
                    
                    
                    423
                    
                    
                    
                    491
                    
                    
                    
                    1,463Other
                        expenses
                    
                    
                    8,870
                    
                    
                    
                    7,515
                    
                    
                    
                    8,078
                    
                    
                    
                    7,400
                    
                    
                    
                    7,449Income
                        before income
                        taxes
                    
                    
                    2,604
                    
                    
                    
                    3,561
                    
                    
                    
                    2,736
                    
                    
                    
                    4,984
                    
                    
                    
                    6,024Provision
                        for income
                        taxes
                    
                    
                    1,046
                    
                    
                    
                    1,571
                    
                    
                    
                    1,173
                    
                    
                    
                    2,592
                    
                    
                    
                    2,723Net
                        income
                    
                    $
                    1,558
                    
                    
                    $
                    1,990
                    
                    
                    $
                    1,563
                    
                    
                    $
                    2,392
                    
                    
                    $
                    3,301Net
                        income per share – basic and diluted (1)
                    
                    $
                    0.06
                    
                    
                    N/A
                    
                    
                    N/A
                    
                    
                    N/A
                    
                    
                    N/A








(1)           The
      Company completed its initial public stock offering on July 5,
      2006.


22
 *Index*







**At
                    or For the Years Ended December 31,****2006**
                
                
                **2005**
                
                
                **2004**
                
                
                **2003**
                
                
                **2002****Performance
                    Ratios:**Return
                    on average assets
                
                
                0.57
                %
                
                
                0.83
                %
                
                
                0.66
                %
                
                
                1.02
                %
                
                
                1.32
                %Return
                    on average equity
                
                
                2.24
                
                
                
                4.69
                
                
                
                3.80
                
                
                
                6.13
                
                
                
                9.18Interest
                    rate spread (1)
                
                
                3.65
                
                
                
                4.27
                
                
                
                4.36
                
                
                
                5.07
                
                
                
                4.81Net
                    interest margin (2)
                
                
                4.24
                
                
                
                4.55
                
                
                
                4.58
                
                
                
                5.30
                
                
                
                5.10Noninterest
                    expense to average assets
                
                
                3.26
                
                
                
                3.13
                
                
                
                3.42
                
                
                
                3.16
                
                
                
                2.97Efficiency
                    ratio (3)
                
                
                77.31
                
                
                
                67.85
                
                
                
                74.70
                
                
                
                59.75
                
                
                
                54.11Average
                    interest-earning assets toaverage
                    interest-bearing liabilities
                
                
                133.99
                
                
                
                120.33
                
                
                
                119.73
                
                
                
                118.82
                
                
                
                116.66Average
                    equity to average assets
                
                
                25.57
                
                
                
                17.65
                
                
                
                17.45
                
                
                
                16.66
                
                
                
                14.35**Capital
                    Ratios - Bank:**Tangible
                    capital
                
                
                25.46
                
                
                
                17.92
                
                
                
                17.05
                
                
                
                16.92
                
                
                
                15.72Core
                    capital
                
                
                25.46
                
                
                
                17.92
                
                
                
                17.05
                
                
                
                16.92
                
                
                
                15.72Total
                    risk-based capital
                
                
                44.58
                
                
                
                33.08
                
                
                
                35.71
                
                
                
                36.33
                
                
                
                33.60**Asset
                    Quality Ratios:**Allowance
                    for loan losses as a percent of
                  total
                    loans
                
                
                0.60
                
                
                
                0.63
                
                
                
                0.71
                
                
                
                0.77
                
                
                
                0.72Allowance
                    for loan losses as a percent ofnonperforming
                    loans
                
                N/M
                
                
                N/M
                
                
                N/M
                
                
                N/M
                
                
                
                4,353.57Net
                    charge-offs (recoveries) to averageoutstanding
                    loans during the period
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.01
                
                
                
                0.00Non-performing
                    loans as a percentof
                    total loans
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.00
                
                
                
                0.02**Other
                    Data:**Number
                    of:Real
                    estate loans outstanding
                
                
                400
                
                
                
                399
                
                
                
                364
                
                
                
                381
                
                
                
                444Deposit
                    accounts
                
                
                15,898
                
                
                
                17,243
                
                
                
                18,251
                
                
                
                19,528
                
                
                
                20,755Offices
                    (4)
                
                
                8
                
                
                
                8
                
                
                
                7
                
                
                
                7
                
                
                
                6


____________________________________




(1)
            Represents
                the difference between the weighted average yield on average
                interest-earning assets and the weighted average cost of interest-bearing
                liabilities.


(2)
            Represents
                net interest income as a percent of average interest-earning
                assets.


(3)
            Represents
                noninterest expense divided by the sum of net interest income and
                noninterest income.


(4)
            Includes
                our corporate headquarters, five full service branches, one loan
                production office and an office that houses our processing
                center.


N/M
–
not
      meaningful as non-performing loans as of these dates.


23
 *Index*


**ITEM
                7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**







**Overview**





***Income.*****
      Our primary source of pre-tax income is net interest income.  Net
      interest income is the difference between interest income, which is the income
      that we earn on our loans and investments, and interest expense, which is the
      interest that we pay on our deposits and borrowings.  Other
      significant sources of pre-tax income are prepayment penalties on multi-family,
      mixed-use and non-residential real estate loans and service charges – mostly
      from service charges on deposit accounts – and fees for various
      services.





***Allowance
      for Loan
      Losses.***** The allowance for loan losses is a
      valuation allowance for losses inherent in the loan portfolio.  We
      evaluate the need to establish allowances against losses on loans on a quarterly
      basis.  When additional allowances are necessary, a provision for loan
      losses is charged to earnings.





***Expenses.*****The
      noninterest expenses we incur in operating our business consist of salary and
      employee benefits expenses, occupancy and equipment expenses, advertising
      expenses, federal insurance premiums and other miscellaneous
      expenses.





Salary
      and employee benefits consist
      primarily of the salaries and wages paid to our employees, payroll taxes and
      expenses for health insurance, retirement plans and other employee
      benefits.





Occupancy
      and equipment expenses, which
      are the fixed and variable costs of buildings and equipment, consist primarily
      of depreciation charges, ATM and data processing expenses, furniture and
      equipment expenses, maintenance, real estate taxes and costs of
      utilities.  Depreciation of premises and equipment is computed using
      the straight-line method based on the useful lives of the related assets, which
      range from three to 40 years.  Leasehold improvements are amortized
      over the shorter of the useful life of the asset or term of the
      lease.





Advertising
      expenses include expenses
      for print, promotions, third-party marketing services and premium
      items.





Federal
      insurance premiums are payments
      we make to the Federal Deposit Insurance Corporation for insurance of our
      deposit accounts.





Other
      expenses include expenses for
      professional services, office supplies, postage, telephone, insurance,
      charitable contributions, regulatory assessments and other miscellaneous
      operating expenses.





**Critical
      Accounting Policies**





We
      consider accounting policies
      involving significant judgments and assumptions by management that have, or
      could have, a material impact on the carrying value of certain assets or on
      income to be critical accounting policies.  We consider the following
      to be our critical accounting policies:  allowance for loan losses and
      deferred income taxes.





***Allowance
      for Loan
      Losses.******* The allowance for loan losses is
      the amount estimated by management as necessary to cover probable credit losses
      in the loan portfolio at the statement of financial condition
      date.  The allowance is established through the provision for loan
      losses, which is charged to income.  Determining the amount of the
      allowance for loan losses necessarily involves a high degree of
      judgment.  Among the material estimates required to establish the
      allowance are:  loss exposure at default; the amount and timing of
      future cash flows on impacted loans; value of collateral; and determination
      of
      loss factors to be applied to the various elements of the
      portfolio.  All of these estimates are susceptible to significant
      change.  Management reviews the level of the allowance on a quarterly
      basis and establishes the provision for loan losses based upon an evaluation
      of
      the portfolio, past loss experience, current economic conditions and other
      factors related to the collectibility of the loan portfolio.  Although
      we believe that we use the best information available to establish the allowance
      for loan losses, future adjustments to the allowance may be necessary if
      economic conditions differ substantially from the assumptions used in making
      the
      evaluation.  In addition, the Office of Thrift Supervision, as an
      integral part of its


24
 *Index*


examination
      process, periodically reviews our allowance for loan losses.  The
      Office of Thrift Supervision could require us to recognize adjustments to the
      allowance based on its judgments about information available to it at the time
      of its examination.  A large loss could deplete the allowance and
      require increased provisions to replenish the allowance, which would negatively
      affect earnings.  For additional discussion, see note 1 of the notes
      to the consolidated financial statements included elsewhere in this
      filing.





**Deferred
      Income
      Taxes.**  We use the asset and liability method of accounting
      for income taxes as prescribed in Statement of Financial Accounting Standards
      No. 109, “Accounting for Income Taxes.”  Under this method, deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases.  If
      current available information raises doubt as to the realization of the deferred
      tax assets, a valuation allowance is established.  Deferred tax assets
      and liabilities are measured using enacted tax rates expected to apply to
      taxable income in the years in which those temporary differences are expected
      to
      be recovered or settled.  We exercise significant judgment in
      evaluating the amount and timing of recognition of the resulting tax liabilities
      and assets.  These judgments require us to make projections of future
      taxable income.  The judgments and estimates we make in determining
      our deferred tax assets, which are inherently subjective, are reviewed on a
      continual basis as regulatory and business factors change.  Any
      reduction in estimated future taxable income may require us to record a
      valuation allowance against our deferred tax assets.  A valuation
      allowance would result in additional income tax expense in the period, which
      would negatively affect earnings.





**Expected
      Sale of Our New York City Branch Office**





On
      December 13, 2006, the Bank entered
      into an agreement to sell the Bank’s branch office building located at 1353-1355
      First Avenue, New York, New York.  The purchase price for the building
      is $28 million.  Under the terms of the agreement, the Bank will
      receive $10 million in cash at closing and the remaining $18 million will be
      paid in two equal installments of $9 million on each of the first and second
      anniversary of the date of the closing pursuant to a promissory note secured
      by
      a purchase money real estate mortgage, assignment and security
      agreement.  The agreement to sell the building is subject to numerous
      customary undertakings, covenants, obligations and
      conditions.  Concurrently with the execution of the agreement, the
      purchaser deposited $200,000 with an escrow agent.  On March 30, 2007,
      the purchaser’s due diligence period expired, at which time the purchaser
      delivered an additional $800,000 with the escrow agent.  The sale of
      the building is expected to be completed in the second quarter of
      2007.





In
      connection with the sale of the
      branch office building, the Bank will enter into a 99 year lease to enable
      the
      Bank to retain a branch office at 1355 First Avenue.  In anticipation
      of the sale, and the renovation of the building by its new owner, the Bank
      has
      closed its branch office at this location and temporarily relocated its branch
      office to 1470 First Avenue, New York, New York.





**Balance
      Sheet Analysis**





***Loans.***Our
      primary lending activity is the origination of loans secured by real
      estate.  We originate real estate loans secured by multi-family
      residential real estate, mixed-use real estate and non-residential real
      estate.  To a much lesser extent, we originate consumer loans.
****At December 31, 2006 real estate loans totaled $201.2
      million, or 99.8% of total loans, compared to $191.1 million, or 99.8% of total
      loans, at December 31, 2005.  The increase in outstanding real
      estate loan balances of $10.1 million was due primarily to lower prepayments
      in
      2006 versus 2005 and new loan originations.





The
      largest segment of our real estate
      loans is multi-family residential loans.  As of December 31, 2006 our
      real estate loan portfolio consisted of $110.4 million, or 54.8%, in
      multi-family residential real estate loans, $42.6 million, or 21.1%, in
      mixed-use real estate loans, $47.8 million, or 23.7%, in non-residential real
      estate loans and $405,000, or 0.2%, in one- to four-family residential real
      estate loans.  At December 31, 2005 our real estate loan portfolio
      consisted of $100.4 million, or 52.4%, in multi-family real estate loans, $43.9
      million, or 22.9%, in mixed-use real estate loans, $46.2 million , or 24.1%,
      in
      non-residential real estate loans and $587,000, or 0.3%, in one-to four-family
      residential loans.


25
 *Index*


During
      2006 the multi-family
      residential portion of our portfolio increased by $10.0 million, the mixed-use
      portion decreased by $1.3 million, the non-residential portion increased by
      $1.6
      million and the one-to-four family portion decreased by $182,000





We
      also originate several types of
      consumer loans secured by savings accounts or certificates of deposit (share
      loans) and overdraft protection for checking accounts which is linked to
      statement savings accounts and has the ability to transfer funds from the
      statement savings account to the checking account when needed to cover
      overdrafts.   Consumer loans totaled $419,000 and represented
      0.2% of total loans at December 31, 2006, compared to $351,000, or 0.2%, of
      total loans at December 31, 2005.





26
 *Index*








The
      following table sets forth the
      composition of our loan portfolio at the dates indicated.





**At
                                December 31,****2006**
                            
                            
                            **2005**
                            
                            
                            **2004**
                            
                            
                            **2003**
                            
                            
                            **2002****Amount**
                            
                            
                            **Percent**
                            
                            
                            **Amount**
                            
                            
                            **Percent**
                            
                            
                            **Amount**
                            
                            
                            **Percent**
                            
                            
                            **Amount**
                            
                            
                            **Percent**
                            
                            
                            **Amount**
                            
                            
                            **Percent****(Dollars
                                in thousands)**Real
                                estate:One-
                                to four-family
                            
                            $
                            405
                            
                            
                            
                            0.20
                            %
                            
                            $
                            587
                            
                            
                            
                            0.31
                            %
                            
                            $
                            837
                            
                            
                            
                            0.49
                            %
                            
                            $
                            985
                            
                            
                            
                            0.63
                            %
                            
                            $
                            1,569
                            
                            
                            
                            0.93
                            %Multi-family
                                (1)
                            
                            
                            110,389
                            
                            
                            
                            54.76
                            
                            
                            
                            100,360
                            
                            
                            
                            52.43
                            
                            
                            
                            99,400
                            
                            
                            
                            58.93
                            
                            
                            
                            86,000
                            
                            
                            
                            55.29
                            
                            
                            
                            95,449
                            
                            
                            
                            56.30Mixed-use
                                (1)
                            
                            
                            42,576
                            
                            
                            
                            21.12
                            
                            
                            
                            43,919
                            
                            
                            
                            22.94
                            
                            
                            
                            38,287
                            
                            
                            
                            22.70
                            
                            
                            
                            40,457
                            
                            
                            
                            26.01
                            
                            
                            
                            50,814
                            
                            
                            
                            29.98Total
                                residential real estate
                              loans
                            
                            
                            153,370
                            
                            
                            
                            76.08
                            
                            
                            
                            144,866
                            
                            
                            
                            75.68
                            
                            
                            
                            138,524
                            
                            
                            
                            82.12
                            
                            
                            
                            127,442
                            
                            
                            
                            81.93
                            
                            
                            
                            147,832
                            
                            
                            
                            87.21Non-residential
                                real estate (1)
                            
                            
                            47,802
                            
                            
                            
                            23.71
                            
                            
                            
                            46,219
                            
                            
                            
                            24.14
                            
                            
                            
                            29,785
                            
                            
                            
                            17.66
                            
                            
                            
                            27,795
                            
                            
                            
                            17.87
                            
                            
                            
                            21,414
                            
                            
                            
                            12.63Total
                                real estate
                            
                            
                            201,172
                            
                            
                            
                            99.79
                            
                            
                            
                            191,085
                            
                            
                            
                            99.82
                            
                            
                            
                            168,309
                            
                            
                            
                            99.78
                            
                            
                            
                            155,237
                            
                            
                            
                            99.80
                            
                            
                            
                            169,246
                            
                            
                            
                            99.84Consumer:Overdraft
                                lines of credit
                            
                            
                            71
                            
                            
                            
                            .04
                            
                            
                            
                            83
                            
                            
                            
                            0.04
                            
                            
                            
                            96
                            
                            
                            
                            0.06
                            
                            
                            
                            113
                            
                            
                            
                            0.07
                            
                            
                            
                            142
                            
                            
                            
                            0.08Passbook
                                loans
                            
                            
                            348
                            
                            
                            
                            .17
                            
                            
                            
                            268
                            
                            
                            
                            0.14
                            
                            
                            
                            270
                            
                            
                            
                            0.16
                            
                            
                            
                            207
                            
                            
                            
                            0.13
                            
                            
                            
                            136
                            
                            
                            
                            0.08Total
                                consumer loans
                            
                            
                            419
                            
                            
                            
                            .21
                            
                            
                            
                            351
                            
                            
                            
                            0.18
                            
                            
                            
                            366
                            
                            
                            
                            0.22
                            
                            
                            
                            320
                            
                            
                            
                            0.20
                            
                            
                            
                            278
                            
                            
                            
                            0.16Total
                                loans
                            
                            
                            201,591
                            
                            
                            
                            100.00
                            %
                            
                            
                            191,436
                            
                            
                            
                            100.00
                            %
                            
                            
                            168,675
                            
                            
                            
                            100.00
                            %
                            
                            
                            155,557
                            
                            
                            
                            100.00
                            %
                            
                            
                            169,524
                            
                            
                            
                            100.00
                            %Net
                                deferred loan costs (fees)
                            
                            
                            915
                            
                            
                            
                            
                            
                            
                            
                            660
                            
                            
                            
                            
                            
                            
                            
                            215
                            
                            
                            
                            
                            
                            
                            
                            189
                            
                            
                            
                            
                            
                            
                            
                            (236
                            )Allowance
                                for losses
                            
                            
                            (1,200
                            )
                            
                            
                            
                            
                            
                            
                            (1,200
                            )
                            
                            
                            
                            
                            
                            
                            (1,200
                            )
                            
                            
                            
                            
                            
                            
                            (1,200
                            )
                            
                            
                            
                            
                            
                            
                            (1,219
                            )Loans,
                                net
                            
                            $
                            201,306
                            
                            
                            
                            
                            
                            
                            $
                            190,896
                            
                            
                            
                            
                            
                            
                            $
                            167,690
                            
                            
                            
                            
                            
                            
                            $
                            154,546
                            
                            
                            
                            
                            
                            
                            $
                            168,069








(1)
            Includes
                equity lines of credit that we originate on properties on which we
                hold
                the first mortgage.


The
      following table sets forth certain information at December 31, 2006 regarding
      the dollar amount of loan principal repayments coming due during the periods
      indicated.  The table does not include any estimate of prepayments,
      which significantly shorten the average life of all loans and may cause our
      actual repayment experience to differ from that shown below.








27
 *Index*


The
      following table sets forth the dollar amount of all loans at December 31, 2006
      that are due after December 31, 2007 and have either fixed or adjustable
      interest rates.





**Fixed**
                    **Rates**
                  
                  
                  **Adjustable**
                    **Rates**
                  
                  
                  **Total****(In
                      thousands)**Residential
                      real estate:One-
                      to
                      four-family
                  
                  $
                  73
                  
                  
                  $
                  327
                  
                  
                  $
                  400Multi-family
                  
                  
                  -
                  
                  
                  
                  106,343
                  
                  
                  
                  106,343Mixed-use
                  
                  
                  320
                  
                  
                  
                  41,437
                  
                  
                  
                  41,757Non-residential
                      real
                      estate
                  
                  
                  450
                  
                  
                  
                  46,608
                  
                  
                  
                  47,058Consumer
                      and other
                      loans
                  
                  
                  –
                  
                  
                  
                  71
                  
                  
                  
                  71Total
                  
                  $
                  843
                  
                  
                  $
                  194,786
                  
                  
                  $
                  195,629





The
      following table shows loan
      origination, purchase and sale activity during the periods
      indicated.





**2006**
                
                
                **2005**
                
                
                **2004**
                
                
                **2003**
                
                
                **2002****(In
                    thousands)**Total
                    loans at beginningof
                    period
                
                $
                191,436
                
                
                $
                168,675
                
                
                $
                155,557
                
                
                $
                169,524
                
                
                $
                181,967Loans
                    originated:Residential
                    real estate:One-
                    to four-family
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Multi-family
                
                
                19,409
                
                
                
                24,551
                
                
                
                34,939
                
                
                
                23,114
                
                
                
                21,828Mixed-use
                
                
                7,304
                
                
                
                9,794
                
                
                
                11,801
                
                
                
                5,945
                
                
                
                8,679Non-residential
                    real estate
                
                
                9,010
                
                
                
                23,831
                
                
                
                6,957
                
                
                
                12,006
                
                
                
                4,073Consumer
                    and other loans
                
                
                80
                
                
                
                –
                
                
                
                63
                
                
                
                71
                
                
                
                –Total
                    loans originated
                
                
                35,803
                
                
                
                58,176
                
                
                
                53,760
                
                
                
                41,136
                
                
                
                34,580Deduct:Loan
                    principal repayments
                
                
                25,648
                
                
                
                35,415
                
                
                
                40,642
                
                
                
                52,006
                
                
                
                47,023Loan
                    sales
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                3,097
                
                
                
                –Total
                    deductions
                
                
                25,648
                
                
                
                35,415
                
                
                
                40,642
                
                
                
                55,103
                
                
                
                47,023Total
                    loans at end of period
                
                $
                201,591
                
                
                $
                191,436
                
                
                $
                168,675
                
                
                $
                155,557
                
                
                $
                169,524





***Securities.*******Our
      securities portfolio consists primarily of U.S. Treasury securities, U.S.
      Government agency securities, and mortgage-backed
      securities.  Securities increased $15.2 million, or 124.5%, in the
      year ended December 31, 2006 and $722,000, or 6.1%, in the year ended December
      31, 2005 due to purchases of additional securities for the
      portfolio.





The
      following table sets forth the amortized cost and fair values of our securities
      portfolio at the dates indicated.


**At
                          December 31,****2006**
                      
                      
                      **2005**
                      
                      
                      **2004****Amortized**
                        **Cost**
                      
                      
                      **Fair**
                        **Value**
                      
                      
                      **Amortized**
                        **Cost**
                      
                      
                      **Fair**
                        **Value**
                      
                      
                      **Amortized**
                        **Cost**
                      
                      
                      **Fair**
                        **Value****(In
                          thousands)**Securities
                          available for sale:Fannie
                          Mae common
                          stock
                      
                      $
                      4
                      
                      
                      $
                      72
                      
                      
                      $
                      4
                      
                      
                      $
                      58
                      
                      
                      $
                      4
                      
                      
                      $
                      86Mortgage-backed
                          securities
                      
                      
                      281
                      
                      
                      
                      283
                      
                      
                      
                      302
                      
                      
                      
                      304
                      
                      
                      
                      381
                      
                      
                      
                      387Total
                      
                      $
                      285
                      
                      
                      $
                      355
                      
                      
                      $
                      306
                      
                      
                      $
                      362
                      
                      
                      $
                      385
                      
                      
                      $
                      473Securities
                          held to maturity:U.S.
                          Government and agency securities
                      
                      $
                      22,904
                      
                      
                      $
                      22,904
                      
                      
                      $
                      4,999
                      
                      
                      $
                      4,950
                      
                      
                      $
                      2,000
                      
                      
                      $
                      1,993Mortgage-backed
                          securities
                      
                      
                      4,551
                      
                      
                      
                      4,564
                      
                      
                      
                      7,229
                      
                      
                      
                      7,232
                      
                      
                      
                      9,395
                      
                      
                      
                      9,463Total
                      
                      $
                      27,455
                      
                      
                      $
                      27,468
                      
                      
                      $
                      12,228
                      
                      
                      $
                      12,182
                      
                      
                      $
                      11,395
                      
                      
                      $
                      11,456





28
 *Index*


At
      December 31, 2006, we had no
      investments in a single company or entity (other than the U.S. Government or
      an
      agency of the U.S. Government) that had an aggregate book value in excess of
      10%
      of our equity.











29
 *Index*





The
      following table sets forth the stated maturities and weighted average yields
      of
      debt securities at December 31, 2006.  Certain mortgage-backed
      securities have adjustable interest rates and will reprice annually within
      the
      various maturity ranges.  These repricing schedules are not reflected
      in the table below.  At December 31, 2006, mortgage-backed securities
      with adjustable rates totaled $4.5 million.  Weighted average yields
      are on a tax-equivalent basis.





**One
                      Year**
                    **or
                      Less**
                  
                  
                  **More
                      than**
                    **One
                      Year to**
                    **Five
                      Years**
                  
                  
                  **More
                      than**
                    **Five
                      Years to**
                    **Ten
                      Years**
                  
                  
                  **More
                      than**
                    **Ten
                      Years**
                  
                  
                  **Total****Carrying**
                    **Value**
                  
                  
                  **Weighted**
                    **Average**
                    **Yield**
                  
                  
                  **Carrying**
                    **Value**
                  
                  
                  **Weighted**
                    **Average**
                    **Yield**
                  
                  
                  **Carrying**
                    **Value**
                  
                  
                  **Weighted**
                    **Average**
                    **Yield**
                  
                  
                  **Carrying**
                    **Value**
                  
                  
                  **Weighted**
                    **Average**
                    **Yield**
                  
                  
                  **Carrying**
                    **Value**
                  
                  
                  **Weighted**
                    **Average**
                    **Yield****(Dollars
                      in thousands)**Securities
                      available for sale:Fannie
                      Mae common stock
                  
                  $
                  72
                  
                  
                  
                  0.00
                  %
                  
                  $
                  –
                  
                  
                  
                  -
                  
                  
                  $
                  –
                  
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  72
                  
                  
                  
                  -Mortgage-backed
                      securities
                  
                  
                  –
                  
                  
                  
                  -
                  
                  
                  
                  4
                  
                  
                  
                  6.50
                  %
                  
                  
                  –
                  
                  
                  
                  -
                  
                  
                  
                  279
                  
                  
                  
                  5.59
                  %
                  
                  
                  283
                  
                  
                  
                  5.61
                  %Total
                      securities available for sale
                  
                  $
                  72
                  
                  
                  
                  0.00
                  
                  
                  $
                  4
                  
                  
                  
                  6.50
                  %
                  
                  
                  –
                  
                  
                  
                  -
                  
                  
                  $
                  279
                  
                  
                  
                  5.59
                  %
                  
                  $
                  355
                  
                  
                  
                  4.47
                  %Securities
                      held to maturity:U.S.
                      Government and agency
                    securities
                  
                  $
                  21,904
                  
                  
                  
                  4.92
                  %
                  
                  $
                  1,000
                  
                  
                  
                  4.00
                  %
                  
                  $
                  –
                  
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  22,904
                  
                  
                  
                  4.88
                  %Mortgage-backed
                      securities
                  
                  
                  –
                  
                  
                  
                  -
                  
                  
                  
                  258
                  
                  
                  
                  6.53
                  %
                  
                  
                  95
                  
                  
                  
                  6.51
                  %
                  
                  
                  4,198
                  
                  
                  
                  5.33
                  %
                  
                  
                  4,551
                  
                  
                  
                  5.43
                  %Total
                      securities held to maturity
                  
                  $
                  21,904
                  
                  
                  
                  4.92
                  %
                  
                  $
                  1,258
                  
                  
                  
                  4.52
                  %
                  
                  $
                  95
                  
                  
                  
                  6.51
                  %
                  
                  $
                  4,198
                  
                  
                  
                  5.33
                  %
                  
                  $
                  27,455
                  
                  
                  
                  4.97
                  %










30
 *Index*


***Deposits*****.**  Our
      primary source of funds is retail deposit accounts which are comprised of
      savings accounts, demand deposits and certificates of deposit held primarily
      by
      individuals and businesses within our primary market area.





Deposits****decreased
      $4.7
      million, or 2.4%, in the year ended December 31, 2006.  The decrease
      in deposits is primarily attributable to withdrawals made by depositors for
      the
      purchase of stock during the initial public offering and to a lesser degree,
      due
      to the continuing intense rate competition in all markets in which we operate
      and our strategy of offering rates on our deposit accounts that are in the
      middle of the market.





The
      following table sets forth the
      balances of our deposit products at the dates indicated.





**At
                        December 31,****2006**
                    
                    
                    **2005**
                    
                    
                    **2004****Amount**
                    
                    
                    **Percent**
                    
                    
                    **Amount**
                    
                    
                    **Percent**
                    
                    
                    **Amount**
                    
                    
                    **Percent****(Dollars
                        in thousands)**Now
                        and money market deposit accounts
                    
                    $
                    21,137
                    
                    
                    
                    11.2
                    %
                    
                    $
                    22,731
                    
                    
                    
                    11.8
                    %
                    
                    $
                    24,099
                    
                    
                    
                    12.4
                    %Savings
                        accounts
                    
                    
                    60,755
                    
                    
                    
                    32.2
                    
                    
                    
                    73,133
                    
                    
                    
                    37.8
                    
                    
                    
                    77,466
                    
                    
                    
                    40.0Noninterest
                        bearing demand deposits
                    
                    
                    1,439
                    
                    
                    
                    0.8
                    
                    
                    
                    1,499
                    
                    
                    
                    0.8
                    
                    
                    
                    2,055
                    
                    
                    
                    1.1Certificates
                        of
                        deposit
                    
                    
                    105,261
                    
                    
                    
                    55.8
                    
                    
                    
                    95,951
                    
                    
                    
                    49.6
                    
                    
                    
                    89,997
                    
                    
                    
                    46.5Total
                    
                    $
                    188,592
                    
                    
                    
                    100.0
                    %
                    
                    $
                    193,314
                    
                    
                    
                    100.0
                    %
                    
                    $
                    193,617
                    
                    
                    
                    100.0
                    %





The
      following table indicates the amount of certificates of deposit with balances
      of
      $100,000 or greater by time remaining until maturity as of December 31,
      2006.  We do not solicit jumbo certificates of deposit nor do we offer
      special rates for jumbo certificates.  The minimum deposit to open a
      certificate of deposit ranges from $500 to $2,500.


**Maturity
                          Period**
                      
                      **Certificates**
                        **of
                          Deposit****(In
                          thousands)**Three
                          months or less
                      
                      $
                      3,945Over
                          three through six months
                      
                      
                      6,153Over
                          six through twelve months
                      
                      
                      6,217Over
                          twelve months
                      
                      
                      9,453Total
                      
                      $
                      25,768





The
      following table sets forth time deposits classified by rates at the dates
      indicated.





**At
                                                              December 31,****2006**
                                                          
                                                          
                                                          **2005**
                                                          
                                                          
                                                          **2004****(In
                                                              thousands)**0.00-1.00%
                                                          
                                                          $
                                                          32
                                                          
                                                          
                                                          $
                                                          567
                                                          
                                                          
                                                          $
                                                          4,2331.01-2.00%
                                                          
                                                          
                                                          329
                                                          
                                                          
                                                          
                                                          10,350
                                                          
                                                          
                                                          
                                                          38,4572.01-3.00%
                                                          
                                                          
                                                          9,407
                                                          
                                                          
                                                          
                                                          33,683
                                                          
                                                          
                                                          
                                                          18,6373.01-4.00%
                                                          
                                                          
                                                          26,025
                                                          
                                                          
                                                          
                                                          28,680
                                                          
                                                          
                                                          
                                                          13,7394.01-5.00%
                                                          
                                                          
                                                          47,212
                                                          
                                                          
                                                          
                                                          22,284
                                                          
                                                          
                                                          
                                                          11,6545.01-6.00%
                                                          
                                                          
                                                          22,249
                                                          
                                                          
                                                          
                                                          338
                                                          
                                                          
                                                          
                                                          2,083Over
                                                              6.00%
                                                          
                                                          
                                                          
                                                          7
                                                          
                                                          
                                                          
                                                          49
                                                          
                                                          
                                                          
                                                          1,194Total
                                                          
                                                          
                                                          $
                                                          105,261
                                                          
                                                          
                                                          $
                                                          95,951
                                                          
                                                          
                                                          $
                                                          89,997





31
 *Index*


The
      following table sets forth the amount and maturities of time deposits at
      December 31, 2006.





**Amount
                              Due****Less
                              Than**
                            **One
                              Year**
                          
                          
                          **More
                              Than**
                            **One
                              Year to**
                            **Two
                              Years**
                          
                          
                          **More
                              Than**
                            **Two
                              Years to**
                            **Three
                              Years**
                          
                          
                          **More
                              Than**
                            **Three
                              Years**
                            **to
                              Four Years**
                          
                          
                          **More**
                            **Than**
                            **Four**
                            **Years
                              to**
                            **Five
                              Years**
                          
                          
                          **Total**
                          
                          
                          **Percent
                              of**
                            **Total**
                            **Certificate**
                            **Accounts****(Dollars
                              in thousands)**0.00–1.00%
                          
                          $
                          32
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          –
                          
                          
                          $
                          32
                          
                          
                          
                          0.03
                          %1.01–2.00%
                          
                          
                          329
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          -
                          
                          
                          
                          –
                          
                          
                          
                          329
                          
                          
                          
                          0.312.01–3.00%
                          
                          
                          8,242
                          
                          
                          
                          1,117
                          
                          
                          
                          48
                          
                          
                          
                          -
                          
                          
                          
                          –
                          
                          
                          
                          9,407
                          
                          
                          
                          8.943.01–4.00%
                          
                          
                          15,800
                          
                          
                          
                          7,183
                          
                          
                          
                          3,008
                          
                          
                          
                          34
                          
                          
                          
                          –
                          
                          
                          
                          26,025
                          
                          
                          
                          24.724.01–5.00%
                          
                          
                          28,480
                          
                          
                          
                          1,667
                          
                          
                          
                          6,574
                          
                          
                          
                          9,191
                          
                          
                          
                          1,300
                          
                          
                          
                          47,212
                          
                          
                          
                          44.855.01–6.00%
                          
                          
                          15,143
                          
                          
                          
                          3,570
                          
                          
                          
                          –
                          
                          
                          
                          114
                          
                          
                          
                          3,422
                          
                          
                          
                          22,249
                          
                          
                          
                          21.14Over
                              6.00%
                          
                          
                          
                          7
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          7
                          
                          
                          
                          0.01Total
                          
                          
                          $
                          68,033
                          
                          
                          $
                          13,537
                          
                          
                          $
                          9,630
                          
                          
                          $
                          9,339
                          
                          
                          $
                          4,722
                          
                          
                          $
                          105,261
                          
                          
                          
                          100.0
                          %





***Borrowings*****.**We
      may utilize borrowings from a variety of sources to supplement our supply of
      funds for loans and investments and to meet deposit withdrawal
      requirements.  However, we had no borrowings as of or during the years
      ended December 31, 2006, 2005 and 2004.





**Results
      of Operations for the Years Ended December 31, 2006, 2005 and
      2004**





***Overview.***


**2006**
                  
                  
                  **2005**
                  
                  
                  **2004**
                  
                  
                  **%
                      Change**
                    **2006/2005**
                  
                  
                  **%
                      Change**
                    **2005/2004****(Dollars
                      in thousands)**Net
                      income
                  
                  $
                  1,558
                  
                  
                  $
                  1,990
                  
                  
                  $
                  1,563
                  
                  
                  
                  (21.7
                  )%
                  
                  
                  27.3
                  %Return
                      on average assets
                  
                  
                  0.57
                  %
                  
                  
                  0.83
                  %
                  
                  
                  0.66
                  %
                  
                  
                  (31.3
                  )
                  
                  
                  25.8Return
                      on average equity
                  
                  
                  2.24
                  
                  
                  
                  4.69
                  
                  
                  
                  3.80
                  
                  
                  
                  (52.2
                  )
                  
                  
                  23.4Average
                      equity to average assets
                  
                  
                  25.57
                  
                  
                  
                  17.65
                  
                  
                  
                  17.45
                  
                  
                  
                  44.9
                  
                  
                  
                  1.1





***2006
      vs.
      2005.***Net income decreased by $432,000 or 21.7% for the
      year ended December 31, 2006 as compared to the year ended December 31,
      2005.  Net interest income increased by $313,000, or 3.0%, for 2006 as
      increases in interest income on loans, securities and interest earning deposits
      were sufficient to offset increases in interest expense on
      deposits.  Noninterest income increased by $85,000, or 15.9%, due to
      an increase of $147,000 in other non-interest income partially offset by a
      $76,000 decrease in service charges.  Included in other non-interest
      income was $154,000 in income on the bank-owned life insurance that we purchased
      in 2006.  Noninterest expense increased by $1.4 million, or 18.0%, due
      to expenses associated with the Company’s name change prior to the initial
      public offering, expenses related to the relocation and pending sale of our
      1355
      First Avenue office, the implementation**of the Company’s ESOP and
      other retirement plans, and the additional expenses of being a public
      company.





***2005
      vs.
      2004.***  Net income increased $427,000, or 27.3%, for the
      year ended December 31, 2005 as compared to the year ended December 31,
      2004.  Net interest income increased $151,000, or 1.5%, for 2005 as
      interest income on loans increased due to increased loan originations partly
      offset by a decreased yield resulting from refinancing activity that resulted
      in
      the origination of lower yielding real estate loans.  Noninterest
      income increased $111,000, or 26.2%, due primarily to a decrease in net loss
      from dispositions of premises and equipment.  Noninterest expense
      decreased by $563,000, or 7.0%, due to ongoing cost containment
      efforts.





32
 *Index*


***Net
      Interest Income.***





***2006
      vs.
      2005.***Net interest income increased by $313,000, or
      3.0%, to 10.9 million for 2006 due to a $784,000 increase in interest earned
      on
      the loan portfolio, an increase of $568,000 in interest earned on securities,
      and an increase of $344,000 in interest earned on other interest-earning
      assets.  These increases offset an increase of $1.4 million in
      interest paid on deposits.





Total
      interest income increased by $1.7
      million, or 12.4%, to $15.3 million for 2006.  Interest income on
      loans increased by $784,000, or 6.5%, as the average balance of the loan
      portfolio grew by  $21.6 million, or 12.0%, while the average yield on
      the loan portfolio decreased by 33 basis points to 6.36%.  The decline
      in the average yield was the result of the prevailing low interest rate
      environment for loans in 2006.  This has resulted in the origination
      of loans at lower rates and the refinancing of higher rate loans to lower
      interest rates.





Interest
      income on securities increased by $568,000, or 114.5%, as the average balance
      of
      the securities portfolio grew by $9.1 million, or 66.5 %, to $22.9 million
      and
      the average yield increased by 104 basis points to 4.64% as a result of the
      deployment of the stock conversion proceeds to higher interest yielding
      securities.  Interest income on other interest-earning assets
      increased by $344,000, or 29.4%, as the average yield increased by 165 basis
      points to 4.67% due to higher interest rates on overnight deposits at the
      Federal Home Loan Bank.  The increase in yield offset a decline of
      $6.3 million, or 16.3%, in the average balance of other interest-earning
      assets.





Total
      interest expense increased by $1.4 million, or 44.5%, to $4.5 million for 2006
      due to an increase in the average deposit cost, despite a $1.4 million, or
      0.7%
      decrease in the average balance of interest-bearing
      deposits.   The average interest rate paid on deposits increased
      by 73 basis points to 2.35% as a result of the rising interest rate environment
      for deposits.   The increase in the average deposit cost was also
      due to an increase of $8.7 million, or 9.3%, to $101.7 million in the average
      balance of certificates of deposit, our highest cost product, and an increase
      of
      97 basis points to 3.85% in the average interest cost of certificates of
      deposit.  As a result of these two factors, the interest cost of
      certificates of deposit increased by $1.2 million, or 46.3%, to $3.9
      million.  The increase in certificate balances represents a shift from
      other deposit balances.  In the aggregate, interest expense on our
      other deposit products increased $145,000, or 33.3%, as an increase in average
      cost of 21 basis points to 0.65% more than offset a $10.1 million, or 10.2%,
      decrease in average balance to $89.3 million.





***2005
      vs.
      2004*****.**Net interest income increased
      $151,000, or 1.5%, to $10.5 million for 2005 primarily due to increases in
      interest income of $102,000 on the loan portfolio, $124,000 on securities,
      and
      $541,000 on other interest-earning assets, all of which more than offset an
      increase of $616,000 in interest paid on deposits.





Total
      interest income increased
      $767,000, or 6.0%, to $13.7 million for 2005.  Interest income on
      loans increased $102,000, or 0.9%, for 2005 as the average balance of the loan
      portfolio grew $17.2 million, or 10.6%, while the average yield on the loan
      portfolio declined 65 basis points to 6.69%.  The decrease in the
      average yield was the result of the prevailing low interest rate environment
      in
      2005.  New loans were originated at lower rates and many higher rate
      loans refinanced at lower rates.





Interest
      income on securities increased
      $124,000, or 33.3%, in 2005 as the average balance of the
      securities  portfolio grew $1.7 million, or 13.8%, in 2005, and the
      average yield increased 53 basis points to 3.60% as a result of higher interest
      rates.  Interest income on other interest-earning assets increased
      $541,000, or 86.1%.  The average balance of other interest earning
      assets decreased by $14.0 million, or 26.5%, in 2005, but this was more than
      offset by an increase in the average yield of 183 basis points to 3.02% as
      a
      result of higher interest rates on overnight deposits at the Federal Home Loan
      Bank.





Total
      interest expense increased
      $616,000, or 24.7%, to $3.1 million for 2005 due to a 30 basis point increase
      in
      average deposit costs to 1.62%.  The average balance of
      interest-bearing deposits increased $3.1 million, or 1.7%, in
      2005.  The average interest rate paid on deposits increased as a
      result of the rising interest rate environment and the growth in certificates
      of
      deposit.  Additionally, deposits shifted from lower cost savings
      deposits to higher cost certificates of deposits.





33
 *Index*


***Average
      Balances and
      Yields*****.**  The following table presents
      information regarding average balances of assets and liabilities, the total
      dollar amounts of interest income and dividends from average interest-earning
      assets, the total dollar amounts of interest expense on average interest-bearing
      liabilities, and the resulting annualized average yields and
      costs.  The yields and costs for the periods indicated are derived by
      dividing income or expense by the average balances of assets or liabilities,
      respectively, for the periods presented.  For purposes of this table,
      average balances have been calculated using average daily
      balances.  Loan fees are included in interest income on
      loans.  Interest income on loans and investment securities has not
      been calculated on a tax equivalent basis because the impact would be
      insignificant.





**Average**
                          **Balance**
                        
                        
                        **Interest**
                          **and**
                          **Dividends**
                        
                        
                        **Yield/**
                          **Cost**
                        
                        
                        **Average**
                          **Balance**
                        
                        
                        **Interest**
                          **and**
                          **Dividends**
                        
                        
                        **Yield/**
                          **Cost**
                        
                        
                        **Average**
                          **Balance**
                        
                        
                        **Interest**
                          **and**
                          **Dividends**
                        
                        
                        **Yield/**
                          **Cost****(Dollars
                            in Thousands)****Assets:**Interest-earning
                            assets:Loans
                        
                        $
                        200,683
                        
                        
                        $
                        12,771
                        
                        
                        
                        6.36
                        %
                        
                        $
                        179,129
                        
                        
                        $
                        11,987
                        
                        
                        
                        6.69
                        %
                        
                        $
                        161,908
                        
                        
                        $
                        11,885
                        
                        
                        
                        7.34
                        %Securities
                        
                        
                        22,913
                        
                        
                        
                        1,064
                        
                        
                        
                        4.64
                        
                        
                        
                        13,764
                        
                        
                        
                        496
                        
                        
                        
                        3.60
                        
                        
                        
                        12,100
                        
                        
                        
                        372
                        
                        
                        
                        3.07Other
                            interest-earning assets
                        
                        
                        32,390
                        
                        
                        
                        1,513
                        
                        
                        
                        4.67
                        
                        
                        
                        38,707
                        
                        
                        
                        1,169
                        
                        
                        
                        3.02
                        
                        
                        
                        52,689
                        
                        
                        
                        628
                        
                        
                        
                        1.19Total
                            interest-earning assets
                        
                        
                        255,986
                        
                        
                        
                        15,348
                        
                        
                        
                        6.00
                        
                        
                        
                        231,600
                        
                        
                        
                        13,652
                        
                        
                        
                        5.89
                        
                        
                        
                        226,697
                        
                        
                        
                        12,885
                        
                        
                        
                        5.68Allowance
                            for loan losses
                        
                        
                        (1,200
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,200
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (1,200
                        )Noninterest-earning
                            assets
                        
                        
                        17,145
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        9,879
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        10,450Total
                            assets
                        
                        $
                        271,931
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        240,279
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        235,947**Liabilities
                            and equity:**Interest-bearing
                            liabilities:Interest-bearing
                            demand
                        
                        $
                        22,363
                        
                        
                        $
                        111
                        
                        
                        
                        0.50
                        %
                        
                        $
                        22,825
                        
                        
                        
                        62
                        
                        
                        
                        0.27
                        
                        
                        $
                        23,769
                        
                        
                        
                        61
                        
                        
                        
                        0.26Savings
                            and club accounts
                        
                        
                        66,951
                        
                        
                        
                        469
                        
                        
                        
                        0.70
                        
                        
                        
                        76,607
                        
                        
                        
                        373
                        
                        
                        
                        0.49
                        
                        
                        
                        81,032
                        
                        
                        
                        393
                        
                        
                        
                        0.48Certificates
                            of deposit
                        
                        
                        101,732
                        
                        
                        
                        3,913
                        
                        
                        
                        3.85
                        
                        
                        
                        93,039
                        
                        
                        
                        2,675
                        
                        
                        
                        2.88
                        
                        
                        
                        84,541
                        
                        
                        
                        2,040
                        
                        
                        
                        2.41Total
                            interest-bearing deposits
                        
                        
                        191,046
                        
                        
                        
                        4,493
                        
                        
                        
                        2.35
                        
                        
                        
                        192,471
                        
                        
                        
                        3,110
                        
                        
                        
                        1.62
                        
                        
                        
                        189,342
                        
                        
                        
                        2,494
                        
                        
                        
                        1.32Borrowings
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        0.00
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        0.00
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        0.00Total
                            interest-bearing liabilities
                        
                        
                        191,046
                        
                        
                        
                        4,493
                        
                        
                        
                        2.35
                        
                        
                        
                        192,471
                        
                        
                        
                        3,110
                        
                        
                        
                        1.62
                        
                        
                        
                        189,342
                        
                        
                        
                        2,494
                        
                        
                        
                        1.32Noninterest-bearing
                            demand
                        
                        
                        7,806
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,663
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,008Other
                            liabilities
                        
                        
                        3,559
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,735
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,421Total
                            liabilities
                        
                        
                        202,411
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        197,869
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        194,771Stockholders’
                            equity
                        
                        
                        69,520
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        42,410
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        41,176Total
                            liabilities and
                          Stockholders’
                            equity
                        
                        $
                        271,931
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        240,279
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        235,947Net
                            interest income
                        
                        
                        
                        
                        
                        $
                        10,855
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        10,542
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        10,391Interest
                            rate spread
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3.65
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4.27
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4.36Net
                            interest margin
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4.24
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4.55
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4.58Net
                            interest-earning assets
                        
                        $
                        64,940
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        39,129
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        37,355Interest-earning
                            assets to interest-
                          bearing
                            liabilities
                        
                        
                        133.99
                        %
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        120.33
                        %
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        119.73
                        %





34
 *Index*


***Rate/Volume
      Analysis*****.**  The following table sets
      forth the effects of changing rates and volumes on our net interest
      income.  The rate column shows the effects attributable to changes in
      rate (changes in rate multiplied by prior volume).  The volume column
      shows the effects attributable to changes in volume (changes in volume
      multiplied by prior rate).  The net column represents the sum of the
      prior columns.  For purposes of this table, changes attributable to
      changes in both rate and volume that cannot be segregated have been allocated
      proportionately based on the changes due to rate and the changes due to
      volume.





**2006
                    Compared to 2005**
                
                
                **2005
                    Compared to 2004****Increase
                    (Decrease)**
                  **Due
                    to**
                
                
                
                
                
                **Increase
                    (Decrease)**
                  **Due
                    to****Volume**
                
                
                **Rate**
                
                
                **Net**
                
                
                **Volume**
                
                
                **Rate**
                
                
                **Net****(In
                    thousands)**Interest
                    and dividend income:Loans
                    receivable
                
                $
                1,392
                
                
                $
                (608
                )
                
                $
                784
                
                
                $
                1,203
                
                
                $
                (1,101
                )
                
                $
                102Investment
                    securities
                
                
                396
                
                
                
                172
                
                
                
                568
                
                
                
                55
                
                
                
                69
                
                
                
                124Other
                    interest-earning
                    assets
                
                
                (215
                )
                
                
                559
                
                
                
                344
                
                
                
                (204
                )
                
                
                745
                
                
                
                541Total
                    interest-earning
                    assets
                
                
                1,573
                
                
                
                123
                
                
                
                1,696
                
                
                
                1,054
                
                
                
                (287
                )
                
                
                767Interest
                    expense:Interest-bearing
                    demand deposits
                
                
                (1
                )
                
                
                50
                
                
                
                49
                
                
                
                (2
                )
                
                
                3
                
                
                
                1Savings
                    accounts
                
                
                (52
                )
                
                
                148
                
                
                
                96
                
                
                
                (22
                )
                
                
                2
                
                
                
                (20
                )Certificates
                    of
                    deposit
                
                
                268
                
                
                
                970
                
                
                
                1,238
                
                
                
                219
                
                
                
                416
                
                
                
                635Borrowings
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Total
                    interest-bearing liabilities
                
                
                215
                
                
                
                1,168
                
                
                
                1,383
                
                
                
                195
                
                
                
                421
                
                
                
                616Net
                    change in interest
                    income
                
                $
                1,358
                
                
                $
                (1,045
                )
                
                $
                313
                
                
                $
                773
                
                
                $
                (446
                )
                
                $
                327





***Provision
      for Loan
      Losses.***





***2006
      vs.
      2005.***The allowance for loan losses was $1.2 million at
      December 31, 2006 and 2005.  There were no provisions for loan losses
      added and there were no charge-offs or recoveries during 2006 or
      2005.





***2005
      vs.
      2004.*********The allowance for loan
      losses was $1.2 million at December 31, 2005 and 2004.  There were no
      provisions for loan losses added and there were no charge-offs or recoveries
      during 2005 or 2004.





***Noninterest
      Income.***  The following table shows the components of
      noninterest income for the years ended December 31, 2006, 2005 and
      2004.





**2006**
                
                
                **2005**
                
                
                **2004**
                
                
                **%
                    Change**
                  **2006/2005**
                
                
                **%
                    Change**
                  **2005/2004**Service
                    charges
                
                $
                443
                
                
                $
                519
                
                
                $
                526
                
                
                
                (14.6
                %)
                
                
                (1.3
                %)Net
                    loss from fixed assets
                
                
                (5
                )
                
                
                (19
                )
                
                
                (136
                )
                
                
                73.7
                
                
                
                86.0Other
                
                
                181
                
                
                
                34
                
                
                
                33
                
                
                
                432.4
                
                
                
                3.0Total
                
                $
                619
                
                
                $
                534
                
                
                $
                423
                
                
                
                15.9
                %
                
                
                26.2
                %





***2006
      vs.
      2005.***For the year ended December 31, 2006, noninterest
      income increased by $85,000, or 15.9%, due to an increase of $147,000, or
      432.4%, in other noninterest income that offset a decrease of $76,000, or 14.6%,
      in service charges.  The increase in non-interest income was primarily
      due to income of $154,000 earned on bank-owned life insurance that we purchased
      in 2006.





***2005
      vs. 2004.***** During the year ended December 31, 2005,
      noninterest income increased by $111,000, or 26.2%, due primarily to a decrease
      of $117,000, or 86.0%, in net loss from dispositions of premises and
      equipment.





35
 *Index*


***Noninterest
      Expense.***The following table shows the components of noninterest expense
      and the percentage changes for the years ended December 31, 2006, 2005 and
      2004.





**Year
                      Ended December 31,****2006**
                  
                  
                  **2005**
                  
                  
                  **2004**
                  
                  
                  **%
                      Change**
                    **2006/2005**
                  
                  
                  **%
                      Change**
                    **2005/2004****(Dollars
                      in thousands)**Salaries
                      and employee benefits
                  
                  $
                  4,604
                  
                  
                  $
                  4,136
                  
                  
                  $
                  4,201
                  
                  
                  
                  11.3
                  %
                  
                  
                  (1.5
                  )%Net
                      occupancy expense of premises
                  
                  
                  1,072
                  
                  
                  
                  817
                  
                  
                  
                  917
                  
                  
                  
                  31.2
                  
                  
                  
                  (10.9
                  )Equipment
                  
                  
                  480
                  
                  
                  
                  390
                  
                  
                  
                  525
                  
                  
                  
                  23.1
                  
                  
                  
                  (25.7
                  )Outside
                      data
                      processing
                  
                  
                  608
                  
                  
                  
                  556
                  
                  
                  
                  523
                  
                  
                  
                  9.4
                  
                  
                  
                  6.3Advertising
                  
                  
                  135
                  
                  
                  
                  82
                  
                  
                  
                  85
                  
                  
                  
                  64.6
                  
                  
                  
                  (3.5
                  )Service
                      contracts
                  
                  
                  191
                  
                  
                  
                  171
                  
                  
                  
                  215
                  
                  
                  
                  11.7
                  
                  
                  
                  (20.5
                  )Insurance
                  
                  
                  162
                  
                  
                  
                  166
                  
                  
                  
                  186
                  
                  
                  
                  (2.4
                  )
                  
                  
                  (10.8
                  )Audit
                      and
                      accounting
                  
                  
                  208
                  
                  
                  
                  153
                  
                  
                  
                  188
                  
                  
                  
                  35.9
                  
                  
                  
                  (18.6
                  )Directors
                      compensation
                  
                  
                  214
                  
                  
                  
                  66
                  
                  
                  
                  46
                  
                  
                  
                  224.2
                  
                  
                  
                  43.5Telephone
                  
                  
                  161
                  
                  
                  
                  145
                  
                  
                  
                  154
                  
                  
                  
                  11.0
                  
                  
                  
                  (5.8
                  )Office
                      supplies and stationary
                  
                  
                  252
                  
                  
                  
                  145
                  
                  
                  
                  156
                  
                  
                  
                  73.8
                  
                  
                  
                  (7.1
                  )Director,
                      officer and employee expenses
                  
                  
                  158
                  
                  
                  
                  155
                  
                  
                  
                  182
                  
                  
                  
                  1.9
                  
                  
                  
                  (14.8
                  )Legal
                      fees
                  
                  
                  185
                  
                  
                  
                  48
                  
                  
                  
                  174
                  
                  
                  
                  285.4
                  
                  
                  
                  (72.4
                  )Other
                  
                  
                  440
                  
                  
                  
                  485
                  
                  
                  
                  526
                  
                  
                  
                  (9.3
                  )
                  
                  
                  (7.8
                  )Total
                      noninterest
                      expenses
                  
                  $
                  8,870
                  
                  
                  $
                  7,515
                  
                  
                  $
                  8,078
                  
                  
                  
                  18.0
                  %
                  
                  
                  (7.0
                  )%




_________________________


N/M  Not
      meaningful.




***2006  vs.
      2005.***  Noninterest expenses increased by $1.4 million,
      or 18.0%, due to expenses associated with the Company’s name change prior to the
      initial public offering, expenses related to the relocation and pending sale
      of
      our 1355 First Avenue office, including legal expenses, $461,000 in expenses
      related to the Company’s ESOP and other retirement plans, which were implemented
      in 2006, and the additional expenses of being a public company.  The
      increase in director’s compensation for 2006 is due to an increase in directors
      fees in 2006 and the expenses associated with our outside directors retirement
      plan, which was implemented in 2006.





***2005
      vs.
      2004.***********In
      2005, noninterest expenses decreased by $563,000, or 7.0%, due primarily to
      on-going cost containment efforts to improve our efficiency ratio, the absence
      of various non-recurring charges from 2004 and the absence of loan production
      office setup costs and sign-on bonuses for additional loan
      officers.  Material decreases in expenses in 2005 included legal
      expenses, equipment and service contracts.





**Income
      Taxes.**





***2006
      vs.
      2005.***   Income tax expense for 2006 was $1.0
      million compared to $1.6 million for 2005.  Income taxes decreased due
      to a decrease in pre-tax net income in 2006 as compared to 2005 as well as
      the
      addition in 2006 of tax-exempt income from bank-owned life
      insurance.





***2005
      vs. 2004.*** Income tax expense for the year ended December 31, 2005
      was $1.6 million compared to $1.2 million  for the year ended December
      31, 2004.  Income taxes increased due to an increase in pre-tax income
      in 2005 as compared to 2004.





**Risk
      Management**





***Overview.***  Managing
      risk is an essential part of successfully managing a financial
      institution.  Our most prominent risk exposures are credit risk,
      interest rate risk and operational risk.  Credit risk is the risk of
      not collecting the interest and/or the principal balance of a loan or investment
      when it is due.  Interest rate risk is the potential reduction of net
      interest income as a result of changes in interest rates.  Operational
      risks include risks related to fraud, regulatory compliance, processing errors,
      technology and disaster recovery.  Other risks that we face are market
      risk, liquidity risk and reputation risk.  Market risk arises from
      fluctuations in interest rates that may


36
 *Index*


result
      in
      changes in the values of financial instruments, such as available-for-sale
      securities, that are accounted for on a mark-to-market
      basis.  Liquidity risk is the possible inability to fund obligations
      to depositors, lenders or borrowers.  Reputation risk is the risk that
      negative publicity or press, whether true or not, could cause a decline in
      our
      customer base or revenue.





***Credit
      Risk
      Management.***  Our strategy for credit risk management
      focuses on having well-defined credit policies and uniform underwriting criteria
      and providing prompt attention to potential problem loans.  We
      underwrite each mortgage loan application on its merits, applying risk factors
      to insure that each transaction is considered on an equitable
      basis.





When
      a borrower fails to make a
      required loan payment, we take a number of steps to attempt to have the borrower
      cure the delinquency and restore the loan to current status.  When the
      ten day grace period expires and the payment has not been received, a late
      payment notice is mailed and telephone contact is
      initiated.  Throughout the rest of the month that payment is due, the
      borrower is called several times.  If the payment has not been
      received by the end of the month, the borrower is informed that the loan will
      be
      placed in foreclosure within two weeks.  On the 45th day after
      payment
      is due, the loan is forwarded to the problem  loan officer who will
      review the file and authorize an acceleration letter.  Once a
      foreclosure action has been instituted, a written agreement between the Bank
      and
      the debtor will be required to discontinue the foreclosure action.  We
      may consider loan workout arrangements with certain borrowers under certain
      circumstances.  If no satisfactory resolution to the delinquency is
      forthcoming, the note and mortgage may be sold prior to a foreclosure sale
      or  the real property securing the loan would be sold at
      foreclosure.





Management
      reports to the board of
      directors monthly regarding the amount of loans delinquent more than 30
      days.





***Analysis
      of Nonperforming
      and Classified Assets.*******We generally consider
      repossessed assets and loans that are 90 days or more past due to be
      nonperforming assets.  It is generally our policy to discontinue
      accruing interest on all loans that are contractually 90 days or more past
      due
      and when, in the opinion of management, the collectibility of the loan is
      doubtful.  When a loan is placed on nonaccrual status, the accrual of
      interest ceases and the allowance for any uncollectible accrued interest is
      established and charged against operations.  Typically, payments
      received on a nonaccrual loan are applied in the following order to late
      charges, interest, escrow and outstanding principal.





Real
      estate that we acquire as a result
      of foreclosure action or by deed-in-lieu of foreclosure is classified as
      foreclosed real estate until it is sold.  When property is acquired,
      it is initially recorded at fair market value at the date of
      foreclosure.  Holding costs and declines in fair value after
      acquisition of the property result in charges against income.





37
 *Index*


The
      following table provides
      information with respect to our nonperforming assets at the dates
      indicated.  We did not have any troubled debt restructurings at the
      dates presented.





**At
                      December 31,****2006**
                  
                  
                  **2005**
                  
                  
                  **2004**
                  
                  
                  **2003**
                  
                  
                  **2002****(Dollars
                      in thousands)**Nonaccrual
                      loans:Residential
                      real
                      estate:One-
                      to
                      four-family
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –Multi-family
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Mixed-use
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Non-residential
                      real
                      estate
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Consumer
                      and other
                      loans
                  
                  
                  -
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Total
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –Accruing
                      loans past due 90 days or more:Residential
                      real estate:One-
                      to
                      four-family
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  28Multi-family
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Mixed-use
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Non-residential
                      real
                      estate
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Consumer
                      and other
                      loans
                  
                  
                  2
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Total
                  
                  
                  2
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  28Total
                      of nonaccrual and 90 days ormore
                      past due
                      loans
                  
                  
                  2
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  28Foreclosed
                      real
                      estate
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Other
                      nonperforming
                      assets
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Total
                      nonperforming assets
                  
                  
                  2
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  28Troubled
                      debt
                      restructurings
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Troubled
                      debt restructurings andtotal
                      nonperforming asset
                  
                  $
                  2
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  28Total
                      nonperforming loans to total loans
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.02
                  %Total
                      nonperforming loans to total assets
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.01
                  %Total
                      nonperforming assets and troubleddebt
                      restructurings to total assets
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.01
                  %





Federal
      regulations require us to
      review and classify our assets on a regular basis.  In addition, the
      Office of Thrift Supervision has the authority to identify problem assets and,
      if appropriate, require them to be classified.  There are three
      classifications for problem assets:  substandard, doubtful and
      loss.  “Substandard assets” must have one or more defined weaknesses
      and are characterized by the distinct possibility that we will sustain some
      loss
      if the deficiencies are not corrected.  “Doubtful assets” have the
      weaknesses of substandard assets with the additional characteristic that the
      weaknesses make collection or liquidation in full on the basis of currently
      existing facts, conditions and values questionable, and there is a high
      possibility of loss.  An asset classified “loss” is considered
      uncollectible and of such little value that continuance as an asset of the
      institution is not warranted.  The regulations also provide for a
“special mention” category, described as assets which do not currently expose us
      to a sufficient degree of risk to warrant classification but do possess credit
      deficiencies or potential weaknesses deserving our close
      attention.  We recognize a loss as soon as a reasonable determination
      of that loss can be made.  We directly charge, against earnings, that
      portion of the asset that is determined to be uncollectible.  If an
      accurate determination of the loss is impossible, for any reason, we will
      establish an allowance in an amount sufficient to absorb the most probable
      loss
      expected.  In cases where a reasonable determination of a loss cannot
      be made, we will adjust our allowance to reflect a potential loss until a more
      accurate determination can be made.


38
 *Index*





We
      had no classified assets at December
      31, 2006 or December 31, 2005 and there are no loans at December 31, 2006 that
      management has serious doubts about the ability of the borrowers to comply
      with
      the present loan repayment terms.




***Delinquencies*****.**  The
      following table provides information about delinquencies in our loan portfolio
      at the dates indicated.





**At
                      December 31,****2006**
                  
                  
                  **2005**
                  
                  
                  **2004****30-59**
                    **Days**
                    **Past
                      Due**
                  
                  
                  **60-89**
                    **Days**
                    **Past
                      Due**
                  
                  
                  **30-59**
                    **Days**
                    **Past
                      Due**
                  
                  
                  **60-89**
                    **Days**
                    **Past
                      Due**
                  
                  
                  **30-59**
                    **Days**
                    **Past
                      Due**
                  
                  
                  **60-89**
                    **Days**
                    **Past
                      Due****(In
                      thousands)**Residential
                      real estate:
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –One-
                      to
                      four-family
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Multi-family
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Mixed-use
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Non-residential
                      real estate
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Consumer
                      and other loans
                  
                  
                  –
                  
                  
                  
                  2
                  
                  
                  
                  1
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Total
                  
                  $
                  –
                  
                  
                  $
                  2
                  
                  
                  $
                  1
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –





***Analysis
      and Determination
      of the Allowance for Loan Losses*****.**  The
      allowance for loan losses is a valuation allowance for probable credit losses
      in
      the loan portfolio.  We evaluate the need to establish allowances
      against losses on loans on a quarterly basis.  When additional
      allowances are necessary, a provision for loan losses is charged to
      earnings.  The recommendations for increases or decreases to the
      allowance are presented by management to the board of directors.





Our
      methodology for assessing the
      appropriateness of the allowance for loan losses consists of:  (1) a
      specific allowance on identified problem loans; and (2) a general valuation
      allowance on the remainder of the loan portfolio.  Although we
      determine the amount of each element of the allowance separately, the entire
      allowance for loan losses is available for the entire portfolio.





***Specific
      Allowance Required
      for Identified Problem Loans.***  We establish an allowance
      on certain identified problem loans when the loan balance exceeds the fair
      market value, when collection of the full amount outstanding becomes improbable
      and when an accurate estimate of the loss can be documented.





***General
      Valuation Allowance
      on the Remainder of the Loan
      Portfolio*****.**  We establish a general
      allowance for loans that are not delinquent to recognize the inherent losses
      associated with lending activities.  This general valuation allowance
      is determined by segregating the loans by loan category and assigning
      percentages to each category.  The percentages are adjusted for
      significant factors that, in management’s judgment, affect the collectibility of
      the portfolio as of the evaluation date.  These significant factors
      may include changes in existing general economic and business conditions
      affecting our primary lending areas and the national economy, staff lending
      experience, recent loss experience in particular segments of the portfolio,
      collateral value, loan volumes and concentration, specific reserve and
      classified asset trends, delinquency trends and risk rating
      trends.  These loss factors are subject to ongoing evaluation to
      ensure their relevance in the current economic environment.





We
      also establish a general allowance
      for loans identified by the internal loan review process and loans not
      performing according to contractual terms.  These loans typically do
      not pose significant risk of loss, but do demonstrate a higher level of risk
      than the average loan in our portfolio.  These could include loans 30
      days or more past due, properties with vacant apartments or commercial spaces
      temporarily vacant due to tenant turnover or renovation, or the death of the
      obligator causing delinquency until a court appointed executor takes control
      of
      the property.  We separate these loans by property type and assign a
      risk factor to each category based on its risk


39
 *Index*


potential
      as compared to the other categories and the portfolio as a
      whole.  Loans classified special mention or substandard would
      typically be candidates for treatment under this category.





We
      also identify loans that may need to
      be charged off as a loss by reviewing all delinquent loans, classified loans
      and
      other loans that management may have concerns about
      collectibility.  For individually reviewed loans, the borrower’s
      inability to make payments under the terms of the loan or a shortfall in
      collateral value would result in our allocating a portion of the allowance
      to
      the loan that was impaired or to an addition to the general valuation allowance
      to reflect the higher risk associated with the identified loan.





At
      December 31, 2006, our allowance for
      loan losses was $1.2 million and represented 0.60% of total gross
      loans.





At
      December 31, 2005, our allowance for
      loan losses was $1.2 million and represented 0.63% of total gross
      loans.  The allowance for loan losses did not change from
      2004.





The
      following table sets forth the
      breakdown of the allowance for loan losses by loan category at the dates
      indicated.




**At
                      December 31,****2006**
                  
                  
                  **2005**
                  
                  
                  **2004****Amount**
                  
                  
                  **%
                      of**
                    **Allowance**
                    **to
                      Total**
                    **Allowance**
                  
                  
                  **%
                      of**
                    **Loans
                      in**
                    **Category**
                    **to
                      Total**
                    **Loans**
                  
                  
                  **Amount**
                  
                  
                  **%
                      of**
                    **Allowance**
                    **to
                      Total**
                    **Allowance**
                  
                  
                  **%
                      of**
                    **Loans
                      in**
                    **Category**
                    **to
                      Total**
                    **Loans**
                  
                  
                  **Amount**
                  
                  
                  **%
                      of**
                    **Allowance**
                    **to
                      Total**
                    **Allowance**
                  
                  
                  **%
                      of**
                    **Loans
                      in**
                    **Category**
                    **to
                      Total**
                    **Loans****(Dollars
                      in thousands)**Residential
                      real estate:One-
                      to four-family
                  
                  $
                  -
                  
                  
                  
                  0.0
                  %
                  
                  
                  0.2
                  %
                  
                  $
                  –
                  
                  
                  
                  0.0
                  %
                  
                  
                  0.3
                  %
                  
                  $
                  2
                  
                  
                  
                  0.2
                  %
                  
                  
                  0.5
                  %Multi-family
                  
                  
                  395
                  
                  
                  
                  32.9
                  
                  
                  
                  54.8
                  
                  
                  
                  443
                  
                  
                  
                  36.9
                  
                  
                  
                  52.4
                  
                  
                  
                  520
                  
                  
                  
                  43.3
                  
                  
                  
                  58.9Mixed-use
                  
                  
                  251
                  
                  
                  
                  20.9
                  
                  
                  
                  21.1
                  
                  
                  
                  277
                  
                  
                  
                  23.1
                  
                  
                  
                  22.9
                  
                  
                  
                  290
                  
                  
                  
                  24.2
                  
                  
                  
                  22.7Non-residential
                      real estate
                  
                  
                  554
                  
                  
                  
                  46.2
                  
                  
                  
                  23.7
                  
                  
                  
                  480
                  
                  
                  
                  40.0
                  
                  
                  
                  24.2
                  
                  
                  
                  388
                  
                  
                  
                  32.3
                  
                  
                  
                  17.7Consumer
                      and other loans
                  
                  
                  -
                  
                  
                  
                  0.0
                  
                  
                  
                  0.2
                  
                  
                  
                  *–*
                  
                  
                  
                  0.0
                  
                  
                  
                  0.2
                  
                  
                  
                  –
                  
                  
                  
                  0.0
                  
                  
                  
                  0.2Total
                      allowance for loan losses
                  
                  $
                  1,200
                  
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  $
                  1,200
                  
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  $
                  1,200
                  
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
 
 **At
                          December 31,****2003**
                      
                      
                      **2002****Amount**
                      
                      
                      **%
                          of**
                        **Allowance**
                        **to
                          Total**
                        **Allowance**
                      
                      
                      **%
                          of**
                        **Loans
                          in**
                        **Category**
                        **to
                          Total**
                        **Loans**
                      
                      
                      **Amount**
                      
                      
                      **%
                          of**
                        **Allowance**
                        **to
                          Total**
                        **Allowance**
                      
                      
                      **%
                          of**
                        **Loans
                          in**
                        **Category**
                        **to
                          Total**
                        **Loans****(Dollars
                          in thousands)**Residential
                          real estate:One-
                          to
                          four-family
                      
                      $
                      3
                      
                      
                      
                      0.3
                      %
                      
                      
                      0.6
                      %
                      
                      $
                      24
                      
                      
                      
                      2.0
                      %
                      
                      
                      0.9
                      %Multi-family
                      
                      
                      497
                      
                      
                      
                      41.4
                      
                      
                      
                      55.3
                      
                      
                      
                      522
                      
                      
                      
                      42.8
                      
                      
                      
                      56.3Mixed-use
                      
                      
                      329
                      
                      
                      
                      27.4
                      
                      
                      
                      26.0
                      
                      
                      
                      388
                      
                      
                      
                      31.8
                      
                      
                      
                      30.0Non-residential
                          real estate
                      
                      
                      371
                      
                      
                      
                      30.9
                      
                      
                      
                      17.9
                      
                      
                      
                      285
                      
                      
                      
                      23.4
                      
                      
                      
                      12.6Consumer
                          and other loans
                      
                      
                      –
                      
                      
                      
                      0.0
                      
                      
                      
                      0.2
                      
                      
                      
                      –
                      
                      
                      
                      0.0
                      
                      
                      
                      0.2Total
                          allowance for loan losses
                      
                      $
                      1,200
                      
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      $
                      1,219
                      
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %





Although
      we believe that we use the
      best information available to establish the allowance for loan losses, future
      adjustments to the allowance for loan losses may be necessary and our results
      of
      operations could be adversely affected if circumstances differ substantially
      from the assumptions used in making the determinations.  Furthermore,
      while we believe we have established our allowance for loan losses in conformity
      with U.S. generally accepted accounting principles, there can be no assurance
      that the Office of Thrift Supervision, in reviewing our loan portfolio, will
      not
      request us to increase our allowance for loan losses.  The Office of
      Thrift Supervision may require us to increase our allowance for loan losses
      based on judgments different from ours.  In addition, because future
      events affecting borrowers and collateral cannot be predicted with certainty,
      there can be no assurance that increases will not be necessary should the
      quality of any loans deteriorate as a result of the factors discussed
      above.  Any material increase in the allowance for loan losses may
      adversely affect our financial condition and results of
      operations.


40
 *Index*





***Analysis
      of Loan Loss Experience.***  The following table sets forth
      an analysis of the allowance for loan losses for the periods
      indicated.





**Year
                        Ended December 31,****2006**
                    
                    
                    **2005**
                    
                    
                    **2004**
                    
                    
                    **2003**
                    
                    
                    **2002****(Dollars
                        in thousands)**Allowance
                        at beginning of period
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,219
                    
                    
                    $
                    919Provision
                        for loan losses
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    294Charge
                        offs:Residential
                        real estate:One-
                        to four-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (19
                    )
                    
                    
                    –Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Mixed-use
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Non-residential
                        real estate
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Consumer
                        and other loans
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
                        charge-offs
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (19
                    )
                    
                    
                    –Recoveries:Residential
                        real estate:One-
                        to four-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    6Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Mixed-use
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Non-residential
                        real estate
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Consumer
                        and other loans
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
                        recoveries
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    6Net
                        charge-offs
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (19
                    )
                    
                    
                    6Allowance
                        at end of period
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,219Allowance
                        to nonperforming loans
                    
                    N/M
                    
                    
                    N/M
                    
                    
                    N/M
                    
                    
                    N/M
                    
                    
                    
                    4,353.57Allowance
                        to total loans outstandingat
                        the end of the period
                    
                    
                    0.60
                    %
                    
                    
                    0.63
                    %
                    
                    
                    0.71
                    %
                    
                    
                    0.77
                    %
                    
                    
                    0.72
                    %Net
                        charge-offs (recoveries) to averageloans
                        outstanding during the period
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.01
                    %
                    
                    
                    0.00
                    %





In
      the past five years, we have had no
      real estate loan charge-offs, other than one charge-off for a one- to
      four-family residential loan.





***Interest
      Rate Risk
      Management.***  We manage the interest rate sensitivity of
      our interest-bearing liabilities and interest-earning assets in an effort to
      minimize the adverse effects of changes in the interest rate
      environment.  Deposit accounts typically react more quickly to changes
      in market interest rates than mortgage loans because of the shorter maturities
      of deposits.  As a result, sharp increases in interest rates may
      adversely affect our earnings while decreases in interest rates may beneficially
      affect our earnings.  To reduce the potential volatility of our
      earnings, we have sought to improve the match between asset and liability
      maturities and rates, while maintaining an acceptable interest rate
      spread.  Our strategy for managing interest rate risk
      emphasizes:  originating mortgage real estate loans that reprice to
      market interest rates in three to five years; purchasing securities that
      typically reprice within a three year time frame to limit exposure to market
      fluctuations; and, where appropriate, offering higher rates on long term
      certificates of deposit to lengthen the repricing time frame of our
      liabilities.  We currently do not participate in hedging programs,
      interest rate swaps or other activities involving the use of derivative
      financial instruments.





We
      have an Asset/Liability Committee,
      comprised of our chief executive officer, chief financial officer, chief
      mortgage officer, and treasurer, whose function is to communicate, coordinate
      and control all aspects involving asset/liability management.  The
      committee establishes and monitors the volume, maturities, pricing and mix
      of
      assets and funding sources with the objective of managing assets and funding
      sources to provide results that are consistent with liquidity, growth, risk
      limits and profitability goals.


41
 *Index*


Our
      goal is to manage asset and
      liability positions to moderate the effects of interest rate fluctuations on
      net
      interest income and net income.





***Net
      Portfolio Value
      Analysis.******* We use a net portfolio value
      analysis prepared by the Office of Thrift Supervision to review our level of
      interest rate risk.  This analysis measures interest rate risk by
      computing changes in net portfolio value of our cash flows from assets,
      liabilities and off-balance sheet items in the event of a range of assumed
      changes in market interest rates.  Net portfolio value represents the
      market value of portfolio equity and is equal to the market value of assets
      minus the market value of liabilities, with adjustments made for off-balance
      sheet items.  These analyses assess the risk of loss in market
      risk-sensitive instruments in the event of a sudden and sustained 100 to 300
      basis point increase or 100 and 200 basis point decrease in market interest
      rates with no effect given to any steps that we might take to counter the effect
      of that interest rate movement.





The
      following table presents the change
      in our net portfolio value at December 31, 2006 that would occur in the event
      of
      an immediate change in interest rates based on the Office of Thrift Supervision
      assumptions, with no effect given to any steps that we might take to counteract
      that change.





**Net
                        Portfolio Value**
                      **(Dollars
                        in thousands)**
                    
                    
                    **Net
                        Portfolio Value**
                      **as
                        % of**
                      **Portfolio
                        Value of Assets****Basis
                        Point (“bp”)**
                      **Change
                        in Rates**
                    
                    **$**
                      **Amount**
                    
                    
                    **$**
                      **Change**
                    
                    
                    **%**
                      **Change**
                    
                    
                    **NPV**
                      **Ratio**
                    
                    
                    **Change**300
                    
                    $
                    69,424
                    
                    
                    $
                    (5,122
                    )
                    
                    
                    (7
                    )%
                    
                    
                    26.62
                    %
                    
                    (105)
                        bp200
                    
                    
                    71,083
                    
                    
                    
                    (3,463
                    )
                    
                    
                    (5
                    )%
                    
                    
                    26.97
                    %
                    
                    (70)
                        bp100
                    
                    
                    72,789
                    
                    
                    
                    (1,757
                    )
                    
                    
                    (2
                    )%
                    
                    
                    27.32
                    %
                    
                    (35)
                        bp0
                    
                    
                    74,546
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    27.67
                    %(100)
                    
                    
                    76,135
                    
                    
                    
                    1,589
                    
                    
                    
                    2
                    %
                    
                    
                    27.96
                    %
                    
                    29
                        bp(200)
                    
                    
                    77,541
                    
                    
                    
                    2,996
                    
                    
                    
                    4
                    %
                    
                    
                    28.20
                    %
                    
                    53
                        bp





We
      and the Office of Thrift Supervision
      use various assumptions in assessing interest rate risk.  These
      assumptions relate to interest rates, loan prepayment rates, deposit decay
      rates
      and the market values of certain assets under differing interest rate scenarios,
      among others.  As with any method of measuring interest rate risk,
      certain shortcomings are inherent in the methods of analyses presented in the
      foregoing tables.  For example, although certain assets and
      liabilities may have similar maturities or periods to repricing, they may react
      in different degrees to changes in market interest rates.  Also, the
      interest rates on certain types of assets and liabilities may fluctuate in
      advance of changes in market interest rates, while interest rates on other
      types
      may lag behind changes in market rates.  Additionally, certain assets,
      such as adjustable-rate mortgage loans, have features that restrict changes
      in
      interest rates on a short-term basis and over the life of the
      asset.  Further, in the event of a change in interest rates, expected
      rates of prepayments on loans and early withdrawals from certificates could
      deviate significantly from those assumed in calculating the
      table.  Prepayment rates can have a significant impact on interest
      income.  Because of the large percentage of loans we hold, rising or
      falling interest rates have a significant impact on the prepayment speeds of
      our
      earning assets that in turn affect the rate sensitivity
      position.  When interest rates rise, prepayments tend to
      slow.  When interest rates fall, prepayments tend to
      rise.  Our asset sensitivity would be reduced if prepayments slow and
      vice versa.  While we believe these assumptions to be reasonable,
      there can be no assurance that assumed prepayment rates will approximate actual
      future loan repayment activity.





***Liquidity
      Management*****.**  Liquidity is the ability
      to meet current and future financial obligations of a short-term
      nature.  Our primary sources of funds consist of deposit inflows, loan
      repayments, maturities and sales of securities and borrowings from the Federal
      Home Loan Bank of New York.  While maturities and scheduled
      amortization of loans and securities are predictable sources of funds, deposit
      flows and loan prepayments are greatly influenced by general interest rates,
      economic conditions and competition.





We
      regularly adjust our investments in
      liquid assets based upon our assessment of:  (1) expected loan demand;
      (2) expected deposit flows; (3) yields available on interest-earning deposits
      and securities; and (4) the objectives of our asset/liability management
      policy.


42
 *Index*





Our
      most liquid assets are cash and
      cash equivalents.  The levels of these assets depend on our operating,
      financing, lending and investing activities during any given
      period.  Cash and cash equivalents totaled $36.7 million at December
      31, 2006 and consist primarily of deposits at other
      financial  institutions and miscellaneous cash
      items.  Securities classified as available-for-sale and whose market
      value exceeds our cost provide an additional source of
      liquidity.  Total securities classified as available-for-sale were
      $355,000 at December 31, 2006 and $362,000 at December 31, 2005.





At
      December 31, 2006, we had $7.8
      million in loan commitments outstanding.  At December 31, 2006, this
      consisted of $3.9 million of real estate loan origination commitments, $3.7
      million in unused real estate equity lines of credit and $210,000 in unused
      consumer lines of credit.  Certificates of deposit due within one year
      of December 31, 2006 totaled $68.0 million.  This represented 64.6% of
      certificates of deposit at December 31, 2006.  We believe the large
      percentage of certificates of deposit that mature within one year reflects
      customers’ hesitancy to invest their funds for long periods in the current low
      interest rate environment.  If these maturing deposits do not remain
      with us, we will be required to seek other sources of funds, including other
      certificates of deposit and borrowings.  Depending on market
      conditions, we may be required to pay higher rates on such deposits or other
      borrowings than we currently pay on the certificates of deposit due on or before
      December 31, 2007.  We believe, however, based on past experience,
      that a significant portion of our certificates of deposit will remain with
      us.  We have the ability to attract and retain deposits by adjusting
      the interest rates offered.





The
      following table presents certain of
      our contractual obligations as of December 31, 2006.





**Payments
                    due by period****Contractual
                    Obligations**
                
                **Total**
                
                
                **Less
                    than**
                  **One
                    Year**
                
                
                **One
                    to**
                  **Three
                    Years**
                
                
                **Three
                    to**
                  **Five
                    Years**
                
                
                **More
                    Than**
                  **5
                    Years****(In
                    thousands)**Operating
                    lease
                    obligations
                
                $
                2,432
                
                
                $
                277
                
                
                $
                568
                
                
                $
                409
                
                
                $
                1,178Certificates
                    of
                    deposit
                
                
                105,261
                
                
                
                68,033
                
                
                
                23,167
                
                
                
                14,061
                
                
                
                –Total
                
                $
                107,693
                
                
                $
                68,310
                
                
                $
                23,735
                
                
                $
                14,470
                
                
                $
                1,178


__________________________





Our
      primary investing activities are
      the origination of loans and the purchase of securities.  Our primary
      financing activities consist of activity in deposit accounts.  At
      December 31, 2006, we had the ability to borrow $12.0 million from the Federal
      Home Loan Bank of New York, which included two available overnight lines of
      credit of $6.0 million each.  At December 31, 2006, we had no
      overnight advances outstanding.  Deposit flows are affected by the
      overall level of interest rates, the interest rates and products offered by
      us
      and our local competitors and other factors.  We generally manage the
      pricing of our deposits to be competitive and to maintain or increase our core
      deposit relationships depending on our level of real estate loan commitments
      outstanding.  Occasionally, we offer promotional rates on certain
      deposit products to attract deposits or to lengthen repricing time
      frames.





43
 *Index*


The
      following table presents our
      primary investing and financing activities during the periods
      indicated.





**Year
                      Ended December 31,****2006**
                  
                  
                  **2005**
                  
                  
                  **2004****(In
                      thousands)**Investing
                      activities:Loans
                      disbursed or
                      closed
                  
                  $
                  (35,803
                  )
                  
                  $
                  (58,176
                  )
                  
                  $
                  (53,760
                  )Loan
                      principal
                      repayments
                  
                  
                  25,648
                  
                  
                  
                  35,415
                  
                  
                  
                  40,642Proceeds
                      from maturities and principalrepayments
                      of
                      securities
                  
                  
                  35,682
                  
                  
                  
                  3,107
                  
                  
                  
                  3,025Purchases
                      of
                      securities
                  
                  
                  (50,335
                  )
                  
                  
                  (3,874
                  )
                  
                  
                  (4,807
                  )Purchase
                      of bank owned life insurance
                  
                  
                  (8,000
                  )
                  
                  
                  –
                  
                  
                  
                  –Purchases
                      of premises and equipment (1)
                  
                  
                  (6,726
                  )
                  
                  
                  (156
                  )
                  
                  
                  (314
                  )Financing
                      activities:Increase
                      (decrease) in deposits
                  
                  
                  (4,727
                  )
                  
                  
                  (302
                  )
                  
                  
                  3,584Initial
                      stock offering, net of ESOP shares
                  
                  
                  52,444
                  
                  
                  
                  –
                  
                  
                  
                  –








(1)
            Includes
                the purchase of approximately 29,152 square feet of excess air rights
                from
                the abuting under-improved property adjacent to our 1355 First Avenue
                property.  See “Expected Sale of Our New York City Branch
                Office” earlier in this Item 7.





***Capital
      Management.***  We are subject to various regulatory
      capital requirements administered by the Office
      of
      Thrift Supervision, including a risk-based capital measure.  The
      risk-based capital guidelines include both a definition of capital and a
      framework for calculating risk-weighted assets by assigning balance sheet assets
      and off-balance sheet items to broad risk categories.  At December 31,
      2006, we exceeded all of our regulatory capital requirements.  We are
      considered “well capitalized” under regulatory guidelines.





The
      capital from our initial public
      offering increased our liquidity and capital resources.  In addition,
      the expected sale of our First Avenue branch office building in the second
      quarter of 2007, pursuant to an agreement of sale we entered into on December
      13, 2006, would further increase our capital.  Over time, the initial
      level of liquidity will be reduced as net proceeds from the stock offering
      and
      the expected sale of the branch office building are used for general corporate
      purposes, including the funding of lending activities.  Our financial
      condition has been enhanced by the capital from the offering, resulting in
      increased net interest-earning assets.  However, the large increase in
      equity resulting from the capital raised in the offering and the expected branch
      office building sale will, initially, have an adverse impact on our return
      on
      equity.  We may consider capital management tools such as cash
      dividends and common stock repurchases.  However, under Office of
      Thrift Supervision regulations, we are not allowed to repurchase any shares
      during the first year following our initial public offering, unless
      extraordinary circumstances exist and we receive regulatory
      approval.





***Off-Balance
      Sheet
      Arrangements.***  In the normal course of operations, we
      engage in a variety of financial transactions that, in accordance with U.S.
      generally accepted accounting principles, are not recorded in our financial
      statements.  These transactions involve, to varying degrees, elements
      of credit, interest rate and liquidity risk.  Such transactions are
      used primarily to manage customers’ requests for funding and take the form of
      loan commitments and lines of credit.  For information about our loan
      commitments and unused lines of credit, see Note 3 of the Notes to the
      Consolidated Financial Statements.  We currently have no plans to
      engage in hedging activities in the future.





For
      the years ended December 31, 2006
      and December 31, 2005, we engaged in no off-balance sheet transactions
      reasonably likely to have a material effect on our financial condition, results
      of operations or cash flows.





44
 *Index*


**Effect
      of Inflation and Changing Prices**





The
      financial statements and related
      financial data presented in this Form 10-K have been prepared in accordance
      with
      U.S. generally accepted accounting principles, which require the measurement
      of
      financial position and operating results in terms of historical dollars without
      considering the change in the relative purchasing power of money over time
      due
      to inflation.  The primary impact of inflation on our operations is
      reflected in increased operating costs.  Unlike most industrial
      companies, virtually all the assets and liabilities of a financial institution
      are monetary in nature.  As a result, interest rates generally have a
      more significant impact on a financial institution’s performance than do general
      levels of inflation.  Interest rates do not necessarily move in the
      same direction or to the same extent as the prices of goods and
      services.





**ITEM
      7A.               QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      information required by this item
      is incorporated herein by reference to Part II, Item
      7,  “*Management’s Discussion and Analysis of Financial Condition
      and Results of Operation*.”





**ITEM
      8.             
     FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Page**Report
                of Independent Registered Public Accounting Firm
            46Consolidated
                Statements of Financial Condition as of December 31, 2006 and
                2005
            47Consolidated
                Statements of Income for the Years Ended December 31, 2006, 2005
                and
                2004
            48Consolidated
                  Statements of Stockholders’ Equity for the Years Ended December 31, 2006,2005 and 2004
            49Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2006, 2005
                and
                2004
            50Notes
                to Consolidated Financial Statements
            51







45
 *Index*










**Report
      of Independent Registered Public Accounting Firm**




To
      the
      Board of Directors and Stockholders




Northeast
      Community Bancorp, Inc. and Subsidiary




White
      Plains, New York




We
      have
      audited the accompanying consolidated statements of financial condition of
      Northeast Community Bancorp, Inc. and Subsidiary (the “Company”) as of
      December 31, 2006 and 2005, and the related consolidated statements of
      income, stockholders’ equity, and cash flows for each of the years in the
      three-year period ended December 31, 2006.  These consolidated
      financial statements are the responsibility of the Company’s
      management.  Our responsibility is to express an opinion on these
      consolidated financial statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the consolidated financial statements are free of material
      misstatement.  The Company is not required to have, nor were we
      engaged to perform, an audit of its internal control over financial
      reporting.  Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting.  Accordingly, we express no such opinion.  An
      audit includes examining, on a test basis, evidence supporting the amounts
      and
      disclosures in the consolidated financial statements.  An audit also
      includes assessing the accounting principles used and significant estimates
      made
      by management, as well as evaluating the overall consolidated financial
      statement presentation.  We believe that our audits provide a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Northeast
      Community Bancorp, Inc. and Subsidiary as of December 31, 2006 and 2005,
      and the consolidated results of their operations and their cash flows for each
      of the years in the three-year period ended December 31, 2006, in
      conformity with accounting principles generally accepted in the United States
      of
      America.














Beard
      Miller Company LLP


Pine
      Brook, New Jersey


March
      15,
      2007




46
 *Index*


**Northeast
      Community Bancorp, Inc.** 
 Notes
        to
        Consolidated Financial Statements
   Consolidated
        Statements of Financial Condition


**December
                          31,****2006**
                    
                    **2005****(In
                        thousands,**
                      **except
                        share and per share
                        data)**


**Assets**




Cash
                    and amounts due from depository institutions
                
                $
                2,650
                
                
                $
                2,929Interest-bearing
                    deposits
                
                
                34,099
                
                
                
                24,460Cash
                    and cash equivalents
                
                
                36,749
                
                
                
                27,389Securities
                    available for sale
                
                
                355
                
                
                
                362Securities
                    held to maturity
                
                
                27,455
                
                
                
                12,228Loans
                    receivable, net of allowance for loan losses $1,200 and
                    $1,200
                
                
                201,306
                
                
                
                190,896Bank
                    owned life insurance
                
                
                8,154
                
                
                
                -Premises
                    and equipment, net
                
                
                11,117
                
                
                
                5,002Federal
                    Home Loan Bank of New York stock, at cost
                
                
                399
                
                
                
                357Accrued
                    interest receivable
                
                
                1,101
                
                
                
                1,003Other
                    assets
                
                
                1,781
                
                
                
                1,584**Total
                    Assets**
                
                $
                288,417
                
                
                $
                238,821





**Liabilities
      and Stockholders’ Equity**


**Liabilities**


Deposits:Non-interest
                    bearing
                
                $
                1,439
                
                
                $
                1,499Interest
                    bearing
                
                
                187,153
                
                
                
                191,815Total
                    deposits
                
                
                188,592
                
                
                
                193,314Advance
                    payments by borrowers for taxes and insurance
                
                
                1,929
                
                
                
                1,703Accounts
                    payable and accrued expenses
                
                
                1,145
                
                
                
                684**Total
                    Liabilities**
                
                
                191,666
                
                
                
                195,701







**Commitments
                    and Contingencies**
                
                ****
                **-**
                
                
                
                -**Stockholders’
                    Equity**Preferred
                    stock, $0.01 par value; 1,000,000 shares authorized, none
                    issued
                
                
                -
                
                
                
                -Common
                    stock, $0.01 par value; 19,000,000 shares authorized; issued
                    and
                    outstanding: 13,225,000 (2006) and none (2005)
                
                
                132
                
                
                
                -Additional
                    paid-in capital
                
                
                57,513
                
                
                
                -Unearned
                    Employee Stock Ownership Plan (“ESOP”) shares
                
                
                (4,925
                )
                
                
                -Retained
                    earnings
                
                
                44,147
                
                
                
                43,089Accumulated
                    comprehensive income (loss)
                
                
                (116
                )
                
                
                31**Total
                    Stockholders’ Equity**
                
                
                96,751
                
                
                
                43,120**Total
                    Liabilities and Stockholders’ Equity**
                
                $
                288,417
                
                
                $
                238,821







*See
      notes to consolidated financial statements.*




47
 *Index*


**Northeast
      Community Bancorp, Inc.** 
 Notes
        to
        Consolidated Financial
        Statements






**Consolidated
      Statements of Income**




**Years
                              Ended December 31,****2006**
                          
                          **2005**
                          
                          **2004****(In
                              thousands, except share and per share data)**


**Interest
                      Income**




Loans
                
                $
                12,771
                
                
                $
                11,987
                
                
                $
                11,885Interest-earning
                    deposits
                
                
                1,513
                
                
                
                1,169
                
                
                
                628Securities
                    - taxable
                
                
                1,064
                
                
                
                496
                
                
                
                372**Total
                    Interest Income**
                
                
                15,348
                
                
                
                13,652
                
                
                
                12,885





**Interest
                  Expense**




Deposits
                
                
                4,493
                
                
                
                3,110
                
                
                
                2,494**Total
                    Interest Expense**
                
                
                4,493
                
                
                
                3,110
                
                
                
                2,494**Net
                    Interest Income**
                
                
                10,855
                
                
                
                10,542
                
                
                
                10,391**Provision
                    for Loan Losses**
                
                
                -
                
                
                
                -
                
                
                
                -**Net
                    Interest Income after Provision for Loan Losses**
                
                
                10,855
                
                
                
                10,542
                
                
                
                10,391**Non-Interest
                    Income**Other
                    loan fees and service charges
                
                
                443
                
                
                
                519
                
                
                
                526Net
                    loss from dispositions of premises and equipment
                
                
                (5
                )
                
                
                (19
                )
                
                
                (136
                )Earnings
                    on bank owned life insurance
                
                
                154
                
                
                
                -
                
                
                
                -Other
                
                
                27
                
                
                
                34
                
                
                
                33**Total
                    Non-Interest Income**
                
                
                619
                
                
                
                534
                
                
                
                423





**Non-Interest
                  Expenses**




Salaries
                      and employee benefits
                  
                  
                  4,604
                  
                  
                  
                  4,136
                  
                  
                  
                  4,201Net
                      occupancy expense
                  
                  
                  1,072
                  
                  
                  
                  817
                  
                  
                  
                  917Equipment
                  
                  
                  480
                  
                  
                  
                  390
                  
                  
                  
                  525Outside
                      data processing
                  
                  
                  608
                  
                  
                  
                  556
                  
                  
                  
                  523Advertising
                  
                  
                  135
                  
                  
                  
                  82
                  
                  
                  
                  85Other
                  
                  
                  1,971
                  
                  
                  
                  1,534
                  
                  
                  
                  1,827**Total
                      Non-Interest Expenses**
                  
                  
                  8,870
                  
                  
                  
                  7,515
                  
                  
                  
                  8,078**Income
                      before Income Taxes**
                  
                  
                  2,604
                  
                  
                  
                  3,561
                  
                  
                  
                  2,736**Income
                      Taxes**
                  
                  
                  1,046
                  
                  
                  
                  1,571
                  
                  
                  
                  1,173**Net
                      Income**
                  
                  $
                  1,558
                  
                  
                  $
                  1,990
                  
                  
                  $
                  1,563**Net
                      Income per Common Share – Basic and Diluted**
                  
                  $
                  0.06
                      (A)
                  
                  
                  N/A
                  
                  
                  N/A**Weighted
                      Average Number of Common Shares Outstanding – Basic and
                      Diluted**
                  
                  12,726
                      (A)
                  
                  
                  N/A
                  
                  
                  N/A**(A)The
                      Company completed its initial public stock offering**
                    **on
                      July 5, 2006.**





*See
      notes to consolidated financial statements.*


48
 *Index*




**Northeast
        Community Bancorp, Inc.** 
 Notes
          to
          Consolidated Financial
          Statements






**Consolidated
      Statements of Stockholders’ Equity**


**Years
      Ended December 31, 2006, 2005 and 2004**




**Common**
                                  **Stock**
                              
                              **Additional**
                                  **Paid-
                                    in**
                                  **Capital**
                              
                              **Unearned**
                                  **ESOP**
                                  **Shares**
                              
                              **Retained**
                                  **Earnings**
                              
                              **Accumu-**
                                  **lated**
                                  **Other**
                                  **Compre-**
                                  **hensive**
                                  **Income
                                    (Loss)**
                              
                              **Total****(In
                                  thousands)**




**Balance
                        - December 31, 2003**
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    39,536
                    
                    
                    $
                    53
                    
                    
                    $
                    39,589Comprehensive
                        income:Net
                        income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,563
                    
                    
                    
                    -
                    
                    
                    
                    1,563Unrealized
                        loss on securities
                      available
                        for sale, net of deferred
                      income
                        taxes of $2
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (6
                    )
                    
                    
                    (6
                    )**Total
                        Comprehensive Income**
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,557**Balance
                        - December 31, 2004**
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    41,099
                    
                    
                    
                    47
                    
                    
                    
                    41,146Comprehensive
                        income:Net
                        income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,990
                    
                    
                    
                    -
                    
                    
                    
                    1,990Unrealized
                        loss on securities
                      available
                        for sale, net of deferred
                      income
                        taxes of $14
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (16
                    )
                    
                    
                    (16
                    )**Total
                        Comprehensive Income**
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,974**Balance
                        - December 31, 2005**
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    43,089
                    
                    
                    
                    31
                    
                    
                    
                    43,120Comprehensive
                        income:Net
                        income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,558
                    
                    
                    
                    -
                    
                    
                    
                    1,558Unrealized
                        gain on securities
                      available
                        for sale, net of deferred
                      income
                        taxes of $(3)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    11
                    
                    
                    
                    11**Total
                        Comprehensive Income**
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,569Adjustment
                        to initially apply SFAS
                      158,
                        net of deferred income taxes
                      of
                        $129
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (158
                    )
                    
                    
                    (158
                    )ESOP
                        shares earned
                    
                    
                    -
                    
                    
                    
                    17
                    
                    
                    
                    259
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    276Capitalization
                        of Mutual Holding
                      Company
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (500
                    )
                    
                    
                    -
                    
                    
                    
                    (500
                    )Issuance
                        of common stock
                    
                    
                    132
                    
                    
                    
                    57,496
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    57,628Common
                        stock acquired by ESOP
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (5,184
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (5,184
                    )**Balance
                        - December 31, 2006**
                    
                    $
                    132
                    
                    
                    $
                    57,513
                    
                    
                    $
                    (4,925
                    )
                    
                    $
                    44,147
                    
                    
                    $
                    (116
                    )
                    
                    $
                    96,751







*See
      notes to consolidated financial statements.*




49
 *Index*


**Northeast
        Community Bancorp, Inc.** 
 Notes
          to
          Consolidated Financial
          Statements






**Consolidated
      Statements of Cash Flows**


**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(In
                thousands)**


**Cash
                  Flows from Operating
                  Activities**




Net
                    income
                
                $
                1,558
                
                
                $
                1,990
                
                
                $
                1,563Adjustments
                    to reconcile net income to net cash provided by operating
                    activities:Amortization
                    of securities
                    premiums and (discounts), net
                
                
                (553
                )
                
                
                13
                
                
                
                9Provision
                    for
                    depreciation
                
                
                589
                
                
                
                574
                
                
                
                621Amortization
                    of deferred loan
                    discounts, fees and costs, net
                
                
                76
                
                
                
                77
                
                
                
                28Deferred
                    income tax expense
                    (benefit)
                
                
                (214
                )
                
                
                (37
                )
                
                
                (264
                )Loss
                    from dispositions of
                    premises and equipment
                
                
                5
                
                
                
                19
                
                
                
                136Earrings
                    on bank owned life
                    insurance
                
                
                (154
                )
                
                
                -
                
                
                
                -(Increase)
                    decrease in accrued
                    interest receivable
                
                
                (98
                )
                
                
                (125
                )
                
                
                2(Increase)
                    decrease in other
                    assets
                
                
                143
                
                
                
                (66
                )
                
                
                (240
                )Increase
                    (decrease) in accrued
                    interest payable
                
                
                5
                
                
                
                (1
                )
                
                
                (4
                )Increase
                    (decrease) in other
                    liabilities
                
                
                174
                
                
                
                (53
                )
                
                
                (138
                )ESOP
                    shares
                    earned
                
                
                276
                
                
                
                -
                
                
                
                -**Net
                    Cash Provided by Operating Activities**
                
                
                1,807
                
                
                
                2,391
                
                
                
                1,713





**Cash
                  Flows from Investing
                  Activities**




Net
                    (increase) decrease in loans
                
                
                (10,486
                )
                
                
                (23,283
                )
                
                
                (13,172
                )Purchase
                    of securities held to maturity
                
                
                (50,335
                )
                
                
                (3,874
                )
                
                
                (4,807
                )Principal
                    repayments on securities available for sale
                
                
                21
                
                
                
                79
                
                
                
                170Principal
                    repayments on securities held to maturity
                
                
                35,661
                
                
                
                3,028
                
                
                
                2,855Purchase
                    of Federal Home Loan of New York stock
                
                
                (42
                )
                
                
                (123
                )
                
                
                -Redemptions
                    of Federal Home Loan Bank of New York stock
                
                
                -
                
                
                
                1,122
                
                
                
                182Purchases
                    of premises and equipment
                
                
                (6,726
                )
                
                
                (156
                )
                
                
                (314
                )Proceeds
                    from sale of premises and equipment
                
                
                17
                
                
                
                49
                
                
                
                7Purchase
                    of bank owned life insurance
                
                
                (8,000
                )
                
                
                -
                
                
                
                -**Net
                    Cash Provided by (Used in) Investing Activities**
                
                
                (39,890
                )
                
                
                (23,158
                )
                
                
                (15,079
                )





**Cash
                  Flows from Financing
                  Activities**




Net
                    increase (decrease) in deposits
                
                
                (4,727
                )
                
                
                (302
                )
                
                
                3,584Increase
                    (decrease) in advance payments by borrowers for taxes and
                    insurance
                
                
                226
                
                
                
                (97
                )
                
                
                513Net
                    proceeds of initial public stock offering
                
                
                57,628
                
                
                
                -
                
                
                
                -Common
                    stock acquired by the ESOP
                
                
                (5,184
                )
                
                
                -
                
                
                
                -Initial
                    capitalization of mutual holding company
                
                
                (500
                )
                
                
                -
                
                
                
                -**Net
                    Cash Provided by (Used in) Financing Activities**
                
                
                47,443
                
                
                
                (399
                )
                
                
                4,097**Net
                    Increase (Decrease) in Cash and Cash Equivalents**
                
                
                9,360
                
                
                
                (21,166
                )
                
                
                (9,269
                )**Cash
                    and Cash Equivalents - Beginning**
                
                
                27,389
                
                
                
                48,555
                
                
                
                57,824**Cash
                    and Cash Equivalents - Ending**
                
                $
                36,749
                
                
                $
                27,389
                
                
                $
                48,555







**Supplementary
                  Cash Flows
                  Information**




Income
                    taxes paid
                
                $
                1,093
                
                
                $
                1,436
                
                
                $
                1,657Interest
                    paid
                
                $
                4,488
                
                
                $
                3,111
                
                
                $
                2,498





*See
      notes to consolidated financial statements.*




50
 *Index*


**Northeast
        Community Bancorp, Inc.** 
 Notes
          to
          Consolidated Financial Statements




**Notes
      to Consolidated Financial Statements**




**Note
      1 - Summary of Significant Accounting Policies**




The
      following is a description of our business and significant accounting and
      reporting policies:




**Nature
      of Business and Significant Estimates**




Northeast
      Community Bancorp, Inc. (the “Company”) is a Federally-chartered corporation
      that was organized to be a mid-tier holding company for Northeast Community
      Bank
      (the “Bank”) in conjunction with the Bank’s reorganization from a mutual savings
      bank to a mutual holding company structure on July 5, 2006. The Company’s
      primary activity is the ownership and operation of the Bank.




The
      Bank
      is principally engaged in the business of attracting deposits and investing
      those funds into mortgage loans.  When demand for loans is low, the
      Bank invests in debt securities.  Currently, the Bank conducts banking
      operations in the New York City area.  The Bank also has a Loan
      Production Office in the Boston, Massachusetts area.  Prior to a name
      change effective February 15, 2006, the Bank was known as Fourth Federal
      Savings Bank.  The change in name had no effect on the operations of
      the Bank.




The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiary, the Bank, and have been prepared in conformity with
      accounting principles generally accepted in the United States of
      America.  All significant intercompany accounts and transactions have
      been eliminated in consolidation.




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect certain recorded amounts and disclosures.  Accordingly, actual
      results could differ from those estimates.




The
      most
      significant estimate pertains to the allowance for loan losses.  The
      borrowers ability to meet contractual obligations and collateral value are
      the
      most significant assumptions used to arrive at the estimate.  The
      risks associated with such estimates arise when unforeseen conditions affect
      the
      borrowers ability to meet the contractual obligations of the loan and result
      in
      a decline in the value of the supporting collateral.  Such unforeseen
      changes may have an adverse effect on the consolidated results of operations
      and
      financial position of the Company.




In
      addition, various regulatory agencies, as an integral part of their examination
      process, periodically review the Bank’s allowance for loan
      losses.  Such agencies may require the Bank to recognize additions to
      the allowance based on their judgments about information available to them
      at
      the time of their examination.




Additionally,
      we are exposed to significant changes in market interest rates.  Such
      changes could have an adverse effect on our earning capacity and consolidated
      financial position, particularly in those situations in which the maturities
      or
      repricing of assets are different than the maturities or repricing of the
      supporting liabilities.




**Cash
      and Cash Equivalents**




Cash
      and
      cash equivalents include cash and amounts due from depository institutions
      and
      interest-bearing deposits in other banks, all with original maturities of three
      months or less.




51
 *Index*






Northeast
      Community Bancorp,
      Inc.





Notes
      to Consolidated Financial
      Statements





****Note
      1 - Summary of Significant Accounting Policies
      (Continued)****




**Securities**




Statement
      of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain
      Investments in Debt and Equity Securities” requires financial institutions to
      classify their securities among three categories:  held to maturity,
      trading, and available for sale.  Management determines the
      appropriate classification at the time of purchase.  Held to maturity
      securities are those debt securities which management has the intent and the
      Bank has the ability to hold to maturity and are reported at amortized cost
      (unless value is permanently impaired).  Trading securities are those
      debt and equity securities which are bought and held principally for the purpose
      of selling them in the near term and are reported at fair value, with unrealized
      gains and losses included in earnings.  Available for sale securities
      are those debt and equity securities which are neither held to maturity
      securities nor trading securities and are reported at fair value, with
      unrealized gains and losses, net of the related income tax effect, excluded
      from
      earnings and reported in a separate component of stockholders’
equity.  The Company does not have trading securities in its
      portfolio.




Individual
      securities are considered impaired when fair value is less than amortized
      cost.  Management evaluates on a monthly basis whether any securities
      are other-than-temporarily impaired.  In making this determination, we
      consider the extent and duration of the impairment, the nature and financial
      health of the issuer, other factors relevant to specific securities, and our
      ability and intent to hold securities for a period of time sufficient to allow
      for any anticipated recovery in market value.  If a security is
      determined to be other-than-temporarily impaired, an impairment loss is charged
      to operations.




Premiums
      and discounts on all securities are amortized/accreted to maturity by use of
      the
      level-yield method.  Gain or loss on sales of securities is based on
      the specific identification method.




**Loans
      and Allowance for Loan Losses**




An
      allowance for loan losses is maintained at a level that represents management’s
      best estimate of losses known and inherent in the loan portfolio that are both
      probable and reasonable to estimate.  The allowance is decreased by
      loan charge-offs, increased by subsequent recoveries of loans previously charged
      off, and then adjusted, via either a charge or credit to operations, to an
      amount determined by management to be necessary.  Loans or portions
      thereof, are charged off when, after collection efforts are exhausted, they
      are
      determined to be uncollectible.  Management of the Bank, in
      determining the allowance for loan losses, considers the losses inherent in
      its
      loan portfolio and changes in the nature and volume inherent in its loan
      activities, along with the general economic and real estate market
      conditions.  The Bank utilizes a two tier approach:  (1)
      identification of impaired loans and establishment of specific loss allowances
      on such loans; and (2) establishment of general valuation allowances on the
      remainder of its loan portfolio.  The Bank maintains a loan review
      system, which allows for a periodic review of its loan portfolio and the early
      identification of potential impaired loans.  Such system takes into
      consideration, among other things, delinquency status, size of loans, type
      of
      collateral and financial condition of the borrowers.  Specific loan
      loss allowances are established for identified loans based on a review of such
      information and/or appraisals of the underlying collateral.  General
      loan losses are based upon a combination of factors including, but not limited
      to, actual loan loss experience, composition of the loan portfolio, current
      economic conditions and management’s judgment.  Although management
      believes that specific and general loan losses are established in accordance
      with management’s best estimate, actual losses are dependent upon future events
      and, as such, further additions to the level of loan loss allowances may be
      necessary.




A
      loan
      evaluated for impairment is deemed to be impaired when, based on current
      information and events, it is probable that the Bank will be unable to collect
      all amounts due according to the contractual terms of the loan
      agreement.  All loans identified as impaired are evaluated
      independently.  The Bank does not aggregate such loans for evaluation
      purposes.  Payments received on impaired loans are applied first to
      interest receivable and then to principal.




52
 *Index*


Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial
        Statements




**Note
      1 - Summary of Significant Accounting Policies (Continued)**




**Loan
      Origination Fees and Costs**




Net
      loan
      origination fees and costs are deferred and amortized into income over the
      contractual lives of the related loans by use of the level yield
      method.




**Loan
      Interest and the Allowance for Uncollected Interest**




Interest
      on loans receivable is recorded on the accrual basis.  An allowance
      for uncollected interest is established on loans where management has determined
      that the borrowers may be unable to meet contractual principal and/or interest
      obligations or where interest or principal is 90 days or more past due, unless
      the loans are well secured and in the process of collection.  When a
      loan is placed on nonaccrual, an allowance for uncollected interest is
      established and charged against current income.  Thereafter, interest
      income is not recognized unless the financial condition and payment record
      of
      the borrower warrant the recognition of interest income.  Interest on
      loans that have been restructured is accrued according to the renegotiated
      terms.




**Concentration
      of Risk**




The
      Bank’s lending activity is concentrated in loans secured by multi-family and
      commercial real estate located primarily in the Northeast and Mid-Atlantic
      regions of the United States.  The Bank also had deposits in excess of
      the FDIC insurance limit at other financial institutions.  At
      December 31, 2006, such deposits totaled $34.1 million, of which $33.8
      million was held by the Federal Home Loan Bank of New
      York.  Generally, deposits in excess of $100,000 are not insured by
      the FDIC.




**Premises
      and Equipment**




Land
      is
      stated at cost.  Buildings and improvements, leasehold improvements
      and furnishings and equipment are stated at cost less accumulated depreciation
      and amortization computed on the straight-line method over the following useful
      lives:




**Years**Buildings
                  
                  30
                      - 50Building
                      improvements
                  
                  10
                      - 50Leasehold
                      improvements
                  
                  1
                      -
                      15Furnishings
                      and equipment
                  
                  3
                      -
                      50







Maintenance
      and repairs are charged to operations in the years incurred.




**Bank
      Owned Life Insurance (“BOLI”)**




During
      2006, we purchased $8,000,000 in BOLI, which is recorded at its cash surrender
      value. The change in cash surrender value is included in non-interest income
      and
      is exempt from federal, state and city income taxes. Our BOLI is invested in
      a
      General Account Portfolio and a Yield Portfolio account and is managed by an
      independent investment firm.




**Federal
      Home Loan Bank of New York Stock**




Federal
      law requires a member institution of the Federal Home Loan Bank (“FHLB”) system
      to hold stock of its district FHLB according to a predetermined formula. The
      stock carried at cost.




**Income
      Taxes**




The
      Company and the Bank file a consolidated federal income tax
      return.  Income taxes are allocated to the Company and Bank based upon
      their respective income or loss included in the consolidated income tax
      return.  The Company and the Bank file separate state and city income
      tax returns.




53
 *Index*






Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial
        Statements




**Note
      1 - Summary of Significant Accounting Policies (Continued)**




Income
      Taxes (Continued)




Federal,
      state and city income tax expense has been provided on the basis of reported
      income.  The amounts reflected on the tax returns differ from these
      provisions due principally to temporary differences in the reporting of certain
      items for financial reporting and income tax reporting purposes. The tax effect
      of these temporary differences is accounted for as deferred taxes applicable
      to
      future periods.  Deferred income tax expense or (benefit) is
      determined by recognizing deferred tax assets and liabilities for the estimated
      future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases.  Deferred tax assets and liabilities are
      measured using enacted tax rates expected to apply to taxable income in the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in earnings in the period that includes the enactment date.
      The realization of deferred tax assets is assessed and a valuation allowance
      provided, when necessary, for that portion of the asset, which is not more
      likely than not to be realized.




**Advertising
      Costs**




Advertising
      costs are expensed as incurred.  The direct response advertising
      conducted by the Bank is immaterial and has not been
      capitalized.  Advertising costs are included in “non-interest
      expenses” on the Statements of Income.




**Other
      Comprehensive Income**




The
      Company records in accumulated other comprehensive income, net of related
      deferred income taxes, unrealized gains and losses on available for sale
      securities and the prior service cost of the Outside Directors Retirement Plan
      (“DRP”) that has not yet been recognized in expense.  Realized gains
      and losses, if any, are reclassified to non-interest income upon the sale of
      the
      related securities or upon the recognition of a security impairment
      loss.  A portion of the prior service cost of the DRP is recorded in
      expense annually. At December 31, 2006, Accumulated Other Comprehensive Loss
      totaled $(116,000) and included $70,000 of net gains on available for sale
      securities less $(28,000) of related deferred income taxes and $(287,000) in
      prior service cost of the DRP less $129,000 of related deferred income taxes.
      At
      December 31, 2005, Accumulated Other Comprehensive Income totaled $31,000 and
      included solely net gains of $56,000 on available for sale securities net of
      $(25,000) of related deferred income taxes. The Company has elected to report
      the effects of other comprehensive income in the consolidated statements of
      stockholders’ equity.




**Net
      Income Per Common Share**




Basic
      net
      income per common share is calculated by dividing the net income available
      to
      common stockholders by the weighted-average number of common shares outstanding
      during the period.  Basic net income per common share data for the
      year ended December 31, 2006, are calculated by utilizing net income for the
      period July 5, 2006, the date the Company completed its initial public stock
      offering, through December 31, 2006 ($749,000), and the weighted-average common
      shares outstanding during that same period. Diluted net income per common share
      is computed in a manner similar to basic net income per common share except
      that
      the weighted average number of common shares outstanding is increased to include
      the incremental common shares (as computed using the treasury stock method)
      that
      would have been outstanding if all potentially dilutive common stock equivalents
      were issued during the period.  Common stock equivalents may include
      restricted stock awards and stock options.  The Company has not
      granted any restricted stock awards or stock options and, during the year ended
      December 31, 2006, had no potentially dilutive common stock
      equivalents.  Unallocated common shares held by the Employee Stock
      Ownership Plan ("ESOP") are not included in the weighted-average number of
      common shares outstanding for purposes of calculating both basic and diluted
      net
      income per common share until they are committed to be released. Net income
      per
      common share data is not presented for the years ended December 31, 2005 and
      2004, as the Company had no publicly held shares outstanding prior to the
      Company's initial public offering on July 5, 2006.




54
 *Index*




Northeast
          Community Bancorp,
          Inc.
 
 Notes
          to Consolidated Financial
          Statements
  **Note
        1 - Summary of Significant Accounting Policies (Continued)**


**Interest
      Rate Risk**




The
      Bank
      is principally engaged in the business of attracting deposits from the general
      public and using these deposits, together with other funds, to purchase
      securities and to make loans secured by real estate. The potential for
      interest-rate risk exists as a result of the generally shorter duration of
      interest-sensitive liabilities compared to the generally longer duration of
      interest-sensitive assets.  In a rising rate environment, liabilities
      will reprice faster than assets, thereby reducing net interest
      income.  For this reason, management regularly monitors the maturity
      structure of the Bank’s assets and liabilities in order to measure its level of
      interest-rate risk and to plan for future volatility.




**Off-Balance-Sheet
      Financial Instruments**




In
      the
      ordinary course of business, we enter into off-balance-sheet financial
      instruments consisting of commitments to extend credit. Such financial
      instruments are recorded in the consolidated statement of financial condition
      when funded.




**Reclassification**




Certain
      amounts for prior periods have been reclassified to conform to the current
      year’s presentation.  Such reclassifications had no effect on net
      income.




**Note
        2 – Mutual Holding Company Reorganization and Regulatory
        Matters**




On
      July
      5, 2006, the Company reorganized from a mutual savings bank to a mutual holding
      company structure. In the reorganization, the Company sold 5,951,250 shares
      of
      its common stock to the public and issued 7,273,750 shares of its common stock
      to Northeast Community Bancorp, MHC (“MHC”). The net proceeds received from the
      common stock offering were $57.6 million. Costs incurred in connection with
      the
      common stock offering were recorded as a reduction of gross proceeds from the
      offering and totaled approximately $1.9 million. The Company also provided
      a
      term loan to the Bank’s Employee Stock Ownership Plan to enable it to purchase
      518,420 shares of Company common stock at $10.00 per share as part of the
      reorganization.




The
      MHC,
      which owned 55.0% of the Company’s common stock as of December 31, 2006, must
      hold at least 50.1% of the Company’s stock so long as the MHC exists. In
      addition to owning shares of the Company’s common stock, the MHC was capitalized
      with $500,000 in cash from the Bank.




All
      depositors who had membership or liquidation rights with respect to the Bank
      as
      of the effective date of the reorganization will continue to have such rights
      solely with respect to the MHC as long as they continue to hold deposit accounts
      with the Bank. In addition, all persons who become depositors of the Bank
      subsequent to the date of the transaction will have such membership and
      liquidation rights with respect to the MHC.  Borrowers of the Bank as
      of the date of the transaction will have the same membership rights in the
      MHC
      that they had in the Bank immediately prior to the date of the transaction
      as
      long as their existing borrowings remain outstanding.




Office
      of
      Thrift Supervision (“OTS”) regulations impose limitations upon all capital
      distributions, including cash dividends, by savings institutions such as the
      Bank. Under these regulations, an application to and a prior approval of the
      OTS
      are required before any capital distribution if (1) the institution does not
      meet the criteria for “expedited treatment” of applications under OTS
      regulations; (2) total capital distributions for the calendar year exceed net
      income for that year plus the amount of retained net income for the preceding
      two years; (3) the institution would be undercapitalized following the
      distribution; or (4) the distribution would otherwise be contrary to statute,
      regulation or agreement with the OTS. If an application is not required, the
      Bank would still be required to provide the OTS with prior notification. The
      Company’s ability to pay dividends, should any be declared, may depend on the
      ability of the Bank to pay dividends to the Company.




55
 *Index*


Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements
   **Note
          2 – Mutual Holding Company Reorganization and Regulatory Matters
          (continued)**




OTS
      regulations require the MHC to notify the OTS if it proposes to waive the
      receipt of dividends declared by the Company. The OTS reviews dividend waiver
      requests on a case-by-case basis and, generally, has not objected to such
      waivers if (1) the waiver would not be detrimental to the safe and sound
      operation of the institution; (2) the MHC’s board of directors has determined
      that such waiver is consistent with such directors’ fiduciary duties to MHC’s
      members; and (3) the MHC certifies that the dividends declared (distributed
      and
      waived) for the current year plus prior two calendar quarters does not exceed
      cumulative net income during that period. We anticipate that the MHC will waive
      dividends, if any, that the Company may declare.




The
      Bank
      is required to maintain certain levels of capital in accordance with the
      Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and OTS
      regulations.  Under these capital adequacy guidelines and the
      regulatory framework for prompt corrective action, the Bank must meet specific
      capital guidelines that involve quantitative measures of the Bank’s assets,
      liabilities, and certain off-balance-sheet items as calculated under regulatory
      accounting practices.  The Bank’s capital amounts and classification
      are also subject to qualitative judgments by the regulators about components,
      risk-weightings and other factors.




Under
      the
      OTS regulations, the Bank must have:  (1) tangible capital equal to
      1.5% of tangible assets, (2) core capital equal to 3% of tangible assets, and
      (3) total (risk-based) capital equal to 8% of risk-weighted
      assets.  Tangible capital consists generally of stockholders’ equity
      less most intangible assets.  Core capital consists of tangible
      capital plus certain intangible assets such as qualifying purchased mortgage
      servicing rights.  Risk-based capital consists of core capital plus
      the general allowance for loan losses.




Under
      the
      prompt corrective action rule issued by the federal banking authorities, an
      institution must have a leverage ratio of 4% or greater, a tier 1 capital ratio
      of 4% or greater and a total risk-based capital ratio of 8% or greater in order
      to be considered adequately capitalized.  The Bank is in compliance
      with these requirements at December 31, 2006.




The
      following tables present a reconciliation of capital per generally accepted
      accounting principles (“GAAP”) and regulatory capital and information about the
      Bank’s capital levels at the dates presented:




**December
                            31,****2006**
                      
                      **2005****(In
                          Thousands)**




GAAP
                    capital
                
                $
                67,662
                
                
                $
                43,120Less:  Unrealized
                    gain on securities available for sale
                
                
                (42
                )
                
                
                (31
                )Disallowed
                    deferred tax assets
                
                
                (667
                )
                
                
                (467
                )**Core
                    and Tangible Capital**
                
                
                66,953
                
                
                
                42,622Add:  General
                    valuation allowances
                
                
                1,200
                
                
                
                1,200**Total
                    Capital**
                
                $
                68,153
                
                
                $
                43,822







56
 *Index*


Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements




**Note
      2 - Mutual Holding Company Reorganization and Regulatory Matters
      (Continued)**







**Actual**
                    
                    
                    **For
                          Capital Adequacy**
                        **Purposes**
                    
                    
                    **To
                          be Well Capitalized**
                        **under
                          Prompt**
                        **Corrective
                          Action**
                        **Provisions****Amount**
                    
                    
                    **Ratio**
                    
                    
                    **Amount**
                    
                    
                    **Ratio**
                    
                    
                    **Amount**
                    
                    
                    **Ratio****(Dollars
                        in Thousands)****As
                        of December 31, 2006:**Total
                        capital (to risk-weighted
                        assets)
                    
                    $
                    68,153
                    
                    
                    
                    44.58
                    %
                    
                    $
                    312,229
                    
                    
                    
                    38.00
                    %
                    
                    $
                    315,286
                    
                    
                    
                    310.00
                    %Tier
                        1 capital (to risk-weighted
                        assets)
                    
                    
                    66,953
                    
                    
                    
                    43.80
                    
                    
                    
                    3 -
                    
                    
                    
                    3 -
                    
                    
                    
                    39,172
                    
                    
                    
                    3 6.00Core
                        (Tier 1) capital (to
                        adjusted total assets
                    
                    
                    66,953
                    
                    
                    
                    25.46
                    
                    
                    
                    310,520
                    
                    
                    
                    34.00
                    
                    
                    
                    313,150
                    
                    
                    
                    3 5.00Tangible
                        capital (to adjusted
                        total assets)
                    
                    
                    66,953
                    
                    
                    
                    25.46
                    
                    
                    
                    33,945
                    
                    
                    
                    31.50
                    
                    
                    
                    3 -
                    
                    
                    
                    3 -**As
                        of December 31, 2005:**Total
                        capital (to risk-weighted
                        assets)
                    
                    $
                    43,822
                    
                    
                    
                    33.08
                    %
                    
                    $
                    310,597
                    
                    
                    
                    38.00
                    %
                    
                    $
                    313,247
                    
                    
                    
                    310.00
                    %Tier
                        1 capital (to risk-weighted
                        assets)
                    
                    
                    42,622
                    
                    
                    
                    32.18
                    
                    
                    
                    3 -
                    
                    
                    
                    3 -
                    
                    
                    
                    3 7,948
                    
                    
                    
                    3 6.00Core
                        (Tier 1) capital (to
                        adjusted total assets
                    
                    
                    42,622
                    
                    
                    
                    17.92
                    
                    
                    
                    3 9,512
                    
                    
                    
                    34.00
                    
                    
                    
                    311,890
                    
                    
                    
                    3 5.00Tangible
                        capital (to adjusted
                        total assets)
                    
                    
                    42,622
                    
                    
                    
                    17.92
                    
                    
                    
                    3 3,567
                    
                    
                    
                    31.50
                    
                    
                    
                    3 -
                    
                    
                    
                    3 -







Based
      on
      the most recent notification by the OTS, the Bank was categorized as well
      capitalized under the regulatory framework for prompt corrective
      action.  There have been no conditions or events that have occurred
      since notification that management believes have changed the Bank’s
      category.




The
      Bank’s management believes that, with respect to regulations under FIRREA, the
      Bank will continue to meet its minimum capital requirements in the foreseeable
      future.  However, events beyond the control of the Bank, such as
      increased interest rates or a downturn in the economy in areas where the Bank
      has most of its loans, could adversely affect future earnings and, consequently,
      the ability of the Bank to meet its future minimum capital
      requirements.




**Note
        3 - Financial Instruments with Off-Balance Sheet
        Risk**




The
      Bank
      is a party to financial instruments with off-balance-sheet risk in the normal
      course of business to meet the financing needs of its
      customers.  These financial instruments are commitments to extend
      credit.  Those instruments involve, to varying degrees, elements of
      credit and interest rate risk in excess of the amount recognized in the
      statements of financial condition.




The
      Bank’s exposure to credit loss in the event of nonperformance by the other party
      to the financial instrument for commitments to extend credit is represented
      by
      the contractual notional amount of those instruments.  The Bank uses
      the same credit policies in making commitments and conditional obligations
      as it
      does for on-balance-sheet instruments.




57
 *Index*




Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements
   Note
        3 - Financial Instruments with Off-Balance Sheet Risk
        (Continued)




**December
                          31,****2006**
                    
                    
                    **2005****(In
                        Thousands)**Financial
                        instruments whose contract amounts represent credit risk:Commitments
                        to extend
                        credit
                    
                    $
                    3,933
                    
                    
                    $
                    13,221Commitments
                        to fund unused lines
                        of credit:Commercial
                        lines
                    
                    
                    3,651
                    
                    
                    
                    3,537Consumer
                        lines
                    
                    
                    210
                    
                    
                    
                    246$
                    7,794
                    
                    
                    $
                    17,004







At
      December 31, 2006, all of the financial instruments noted above carry
      adjustable or floating interest rates.  Commitments to extend credit
      are legally binding agreements to lend to a customer as long as there is no
      violation of any condition established in the contract.  Commitments
      generally have fixed expiration dates or other termination clauses and may
      require payment of a fee.  The amount of collateral obtained, if
      deemed necessary by the Bank, is based on management’s credit evaluation of the
      borrower.




**Note
        4 - Securities Available for Sale**




**December
                        31, 2006****Amortized**
                      **Cost**
                  
                  
                  **Gross**
                      **Unrealized**
                      **Gains**
                  
                  
                  **Gross**
                      **Unrealized**
                      **Losses**
                  
                  
                  **Fair
                        Value****(In
                      Thousands)**Federal
                      National Mortgage Association common stock
                  
                  $
                  4
                  
                  
                  $
                  68
                  
                  
                  $
                  -
                  
                  
                  $
                  72Mortgage-backed
                      securities:Federal
                      Home Loan MortgageCorporation
                  
                  
                  193
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  195Federal
                      National Mortgage Association
                  
                  
                  84
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  84Collateralized
                      Mortgage Obligations
                  
                  
                  4
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4281
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  283$
                  285
                  
                  
                  $
                  70
                  
                  
                  $
                  -
                  
                  
                  $
                  355







58
 *Index*






Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements
   **Note
          4 - Securities Available for Sale (Continued)**


**December
                        31, 2005****Amortized**
                      **Cost**
                  
                  
                  **Gross**
                      **Unrealized**
                      **Gains**
                  
                  
                  **Gross**
                      **Unrealized**
                      **Losses**
                  
                  
                  **Fair
                        Value****(In
                      Thousands)**Federal
                      National Mortgage Association common stock
                  
                  $
                  4
                  
                  
                  $
                  54
                  
                  
                  $
                  -
                  
                  
                  $
                  58Mortgage-backed
                      securities:Federal
                      Home Loan MortgageCorporation
                  
                  
                  208
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  210Federal
                      National Mortgage Association
                  
                  
                  88
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  88Collateralized
                      Mortgage Obligations
                  
                  
                  6
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6302
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  304$
                  306
                  
                  
                  $
                  56
                  
                  
                  $
                  -
                  
                  
                  $
                  362




There
      were no sales of securities available for sale during the years ended
      December 31, 2006, 2005 and 2004.




Contractual
      maturities of mortgage-backed securities were as follows:




**December
                        31,****2006**
                  
                  
                  **2005****Amortized**
                      **Cost**
                  
                  
                  **Fair**
                      **Value**
                  
                  
                  **Amortized**
                      **Cost**
                  
                  
                  **Fair**
                      **Value****(In
                      Thousands)**Due
                      after one but within five years
                  
                  $
                  4
                  
                  
                  $
                  4
                  
                  
                  $
                  6
                  
                  
                  $
                  6Due
                      after ten years
                  
                  
                  277
                  
                  
                  
                  279
                  
                  
                  
                  296
                  
                  
                  
                  298$
                  281
                  
                  
                  $
                  283
                  
                  
                  $
                  302
                  
                  
                  $
                  304







The
      maturities shown above are based upon contractual maturity.  Actual
      maturities will differ from contractual maturities due to scheduled monthly
      repayments and due to the underlying borrowers having the right to prepay their
      obligations.









59
 *Index*






Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements
  **Note
        5 - Securities Held to Maturity**






**December
                          31, 2006****Amortized**
                        **Cost**
                    
                    
                    **Gross**
                        **Unrealized**
                        **Gains**
                    
                    
                    **Gross**
                        **Unrealized**
                        **Losses**
                    
                    
                    **Fair
                          Value****(In
                        Thousands)**U.S.
                        Government (including Agencies) maturing:Within
                        one year
                    
                    $
                    21,904
                    
                    
                    $
                    11
                    
                    
                    $
                    2
                    
                    
                    $
                    21,913After
                        one but within five
                        years
                    
                    
                    1,000
                    
                    
                    
                    -
                    
                    
                    
                    9
                    
                    
                    
                    99122,904
                    
                    
                    
                    11
                    
                    
                    
                    11
                    
                    
                    
                    22,904Mortgage-backed
                        securities:Government
                        National MortgageAssociation
                    
                    
                    2,190
                    
                    
                    
                    6
                    
                    
                    
                    13
                    
                    
                    
                    2,183Federal
                        Home Loan MortgageCorporation
                    
                    
                    1,135
                    
                    
                    
                    12
                    
                    
                    
                    3
                    
                    
                    
                    1,144Federal
                        National Mortgage
                        Association
                    
                    
                    995
                    
                    
                    
                    12
                    
                    
                    
                    2
                    
                    
                    
                    1,005Collateralized
                        Mortgage
                        Obligations
                    
                    
                    222
                    
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    223Private
                        Pass-through
                        Securities
                    
                    
                    9
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    94,551
                    
                    
                    
                    31
                    
                    
                    
                    18
                    
                    
                    
                    4,564$
                    27,455
                    
                    
                    $
                    42
                    
                    
                    $
                    29
                    
                    
                    $
                    27,468











60
 *Index*




Northeast
      Community Bancorp,
      Inc.





Notes
      to Consolidated Financial Statements




**Note
        5 - Securities Held to Maturity (Continued)**






**December
                        31, 2005****Amortized**
                      **Cost**
                  
                  
                  **Gross**
                      **Unrealized**
                      **Gains**
                  
                  
                  **Gross**
                      **Unrealized**
                      **Losses**
                  
                  
                  **Fair
                        Value****(In
                      Thousands)**U.S.
                      Government (including Agencies) maturing:Within
                      one year
                  
                  $
                  3,000
                  
                  
                  $
                  -
                  
                  
                  $
                  23
                  
                  
                  $
                  2,977After
                      one but within five
                      years
                  
                  
                  1,999
                  
                  
                  
                  -
                  
                  
                  
                  26
                  
                  
                  
                  1,9734,999
                  
                  
                  
                  -
                  
                  
                  
                  49
                  
                  
                  
                  4,950Mortgage-backed
                      securities:Government
                      National MortgageAssociation
                  
                  
                  3,389
                  
                  
                  
                  7
                  
                  
                  
                  35
                  
                  
                  
                  3,361Federal
                      Home Loan MortgageCorporation
                  
                  
                  1,928
                  
                  
                  
                  20
                  
                  
                  
                  2
                  
                  
                  
                  1,946Federal
                      National Mortgage Association
                  
                  
                  1,522
                  
                  
                  
                  17
                  
                  
                  
                  5
                  
                  
                  
                  1,534Collateralized
                      Mortgage Obligations
                  
                  
                  373
                  
                  
                  
                  3
                  
                  
                  
                  2
                  
                  
                  
                  374Private
                      Pass-through Securities
                  
                  
                  17
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  177,229
                  
                  
                  
                  47
                  
                  
                  
                  44
                  
                  
                  
                  7,232$
                  12,228
                  
                  
                  $
                  47
                  
                  
                  $
                  93
                  
                  
                  $
                  12,182




There
      were no sales of securities held to maturity during the years ended
      December 31, 2006, 2005 and 2004.




Contractual
      maturities of mortgage-backed securities were as follows:




**December
                        31,****2006**
                  
                  
                  **2005****Amortized**
                      **Cost**
                  
                  
                  **Fair
                        Value**
                  
                  
                  **Amortized**
                      **Cost**
                  
                  
                  **Fair
                        Value****(In
                      Thousands)**Due
                      within one year
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  5
                  
                  
                  $
                  5Due
                      after one but within five years
                  
                  
                  258
                  
                  
                  
                  260
                  
                  
                  
                  478
                  
                  
                  
                  484Due
                      after five but within ten years
                  
                  
                  95
                  
                  
                  
                  95
                  
                  
                  
                  59
                  
                  
                  
                  60Due
                      after ten years
                  
                  
                  4,198
                  
                  
                  
                  4,209
                  
                  
                  
                  6,687
                  
                  
                  
                  6,683$
                  4,551
                  
                  
                  $
                  4,564
                  
                  
                  $
                  7,229
                  
                  
                  $
                  7,232


The
      maturities shown above are based upon contractual maturity.  Actual
      maturities will differ from contractual maturities due to scheduled monthly
      repayments and due to the underlying borrowers having the right to prepay their
      obligations.




61
 *Index*




Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements
   **Note
          5 - Securities Held to Maturity (Continued)**
 The
          age
          of unrealized losses and the fair value of related securities held to maturity
          were as follows:




**Less
                          than 12 Months**
                    
                    
                    **12
                          Months or More**
                    
                    
                    **Total****Fair**
                        **Value**
                    
                    
                    **Gross**
                        **Unrealized**
                        **Losses**
                    
                    
                    **Fair**
                        **Value**
                    
                    
                    **Gross**
                        **Unrealized**
                        **Losses**
                    
                    
                    **Fair**
                        **Value**
                    
                    
                    **Gross**
                        **Unrealized**
                        **Losses****(In
                        Thousands)****December
                        31, 2006:**U.
                        S. Government
                      (including
                        agencies)
                    
                    $
                    997
                    
                    
                    $
                    2
                    
                    
                    $
                    991
                    
                    
                    $
                    9
                    
                    
                    $
                    1,988
                    
                    
                    $
                    11Mortgage-backed
                        securities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,372
                    
                    
                    
                    18
                    
                    
                    
                    2,372
                    
                    
                    
                    18$
                    997
                    
                    
                    $
                    2
                    
                    
                    $
                    3,363
                    
                    
                    $
                    27
                    
                    
                    $
                    4,360
                    
                    
                    $
                    29**December
                        31, 2005:**U.
                        S. Government
                      (including
                        agencies)
                    
                    $
                    2,980
                    
                    
                    $
                    19
                    
                    
                    $
                    1,970
                    
                    
                    $
                    30
                    
                    
                    $
                    4,950
                    
                    
                    $
                    49Mortgage-backed
                        securities
                    
                    
                    1,993
                    
                    
                    
                    17
                    
                    
                    
                    1,708
                    
                    
                    
                    27
                    
                    
                    
                    3,701
                    
                    
                    
                    44$
                    4,973
                    
                    
                    $
                    36
                    
                    
                    $
                    3,678
                    
                    
                    $
                    57
                    
                    
                    $
                    8,651
                    
                    
                    $
                    93







At
      December 31, 2006, two U. S. Government Agency Securities and 32
      mortgage-backed securities had unrealized losses.  As of
      December 31, 2006 and 2005, management concluded that the unrealized losses
      reflected above were temporary in nature since they were primarily related
      to
      market interest rates and not related to the underlying credit quality of the
      issuers of the securities.  Additionally, the Bank has the ability and
      intent to hold these securities for the time necessary to recover the amortized
      cost.









62
 *Index*




Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial
        Statements
  **Note
        6 - Loans Receivable, Net**






**December
                              31,****2006**
                        
                        
                        **2005****(In
                            Thousands)**Real
                            estate mortgage:One-to-four
                            family
                        
                        $
                        405
                        
                        
                        $
                        587Multi-family
                        
                        
                        110,389
                        
                        
                        
                        100,360Mixed
                            use
                        
                        
                        42,576
                        
                        
                        
                        43,919Commercial
                        
                        
                        47,802
                        
                        
                        
                        46,219201,172
                        
                        
                        
                        191,085Consumer:Line
                            of credit
                        
                        
                        71
                        
                        
                        
                        83Passbook
                            or
                            certificate
                        
                        
                        348
                        
                        
                        
                        268419
                        
                        
                        
                        351**Total
                            Loans**
                        
                        
                        201,591
                        
                        
                        
                        191,436Allowance
                            for loan losses
                        
                        
                        (1,200
                        )
                        
                        
                        (1,200
                        )Deferred
                            loan fees and costs
                        
                        
                        915
                        
                        
                        
                        660$
                        201,306
                        
                        
                        $
                        190,896







Loans
      serviced for the benefit of others totaled approximately $3,012,000, $3,163,000,
      and $3,708,000 at December 31, 2006, 2005 and 2004,
      respectively.




At
      December 31, 2006, 2005 and 2004, the Bank had no loans on nonaccrual
      status or which were in the process of foreclosure.  At
      December 31, 2006, 2005 and 2004, and for the years then ended, the Bank
      had no loans that were classified as impaired.  At December 31, 2006,
      the Bank had $2,000 in loans which were three or more months delinquent and
      still accruing interest.  There were no such loans at December 31,
      2005 and 2004.




The
      following is an analysis of the allowance for loan losses:




**Years
                            Ended December 31,****2006**
                      
                      
                      **2005**
                      
                      
                      **2004****(In
                          Thousands)**Balance,
                          beginning
                      
                      $
                      1,200
                      
                      
                      $
                      1,200
                      
                      
                      $
                      1,200Provision
                          charged to
                          operations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Losses
                          charged to
                          allowance
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Balance,
                          ending
                      
                      $
                      1,200
                      
                      
                      $
                      1,200
                      
                      
                      $
                      1,200
 63
 *Index*
  Northeast
          Community Bancorp,
          Inc.
 
 Notes
          to Consolidated Financial
          Statements
 **Note
          7 - Premises and Equipment, Net**




**December
                            31,****2006**
                      
                      
                      **2005****(In
                          Thousands)**Land
                      
                      $
                      587
                      
                      
                      $
                      587Air
                          rights acquired
                      
                      
                      6,088
                      
                      
                      
                      -Buildings
                          and improvements
                      
                      
                      7,592
                      
                      
                      
                      7,592Leasehold
                          improvements
                      
                      
                      725
                      
                      
                      
                      419Furnishings
                          and equipment
                      
                      
                      4,823
                      
                      
                      
                      4,56219,815
                      
                      
                      
                      13,160Accumulated
                          depreciation and amortization
                      
                      
                      (8,698
                      )
                      
                      
                      (8,158
                      )$
                      11,117
                      
                      
                      $
                      5,002







Included
      in property and equipment at December 31, 2006, are $6,187,000 in assets which
      are held for sale.  These assets relate to a branch located in New
      York City and consist of the following: land of $52,000, air rights of
      $6,088,000, building of $5,000 and furnishings and equipment of
      $42,000.  The Bank entered into an agreement on December 14, 2006, to
      sell these assets for an aggregate price of $28.0 million.  This sale,
      which is subject to significant conditions, is expected to close in the second
      quarter of 2007.







**Note
        8 - Accrued Interest Receivable, Net**






**December
                            31,****2006**
                      
                      
                      **2005****(In
                          Thousands)**Loans
                      
                      $
                      1,041
                      
                      
                      $
                      925Securities
                      
                      
                      64
                      
                      
                      
                      821,105
                      
                      
                      
                      1,007Allowance
                          for uncollected interest
                      
                      
                      (4
                      )
                      
                      
                      (4
                      )$
                      1,101
                      
                      
                      $
                      1,003












64
 *Index*




Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial
        Statements


**Note
        9 - Deposits**




**December
                                31,****2006**
                          
                          
                          
                          
                          
                          **2005****Amount**
                          
                          
                          **Weighted**
                              **Average**
                              **Interest**
                              **Rate**
                          
                          
                          **Amount**
                          
                          
                          **Weighted**
                              **Average**
                              **Interest**
                              **Rate****(Dollars
                              in Thousands)**Demand
                              deposits:Non-interest
                              bearing
                          
                          $
                          1,439
                          
                          
                          
                          0.00
                          %
                          
                          $
                          1,499
                          
                          
                          
                          0.00
                          %NOW
                              and money
                              market
                          
                          
                          21,137
                          
                          
                          
                          0.49
                          %
                          
                          
                          22,731
                          
                          
                          
                          0.26
                          %22,576
                          
                          
                          
                          0.46
                          %
                          
                          
                          24,230
                          
                          
                          
                          0.24
                          %Savings
                              accounts
                          
                          
                          60,755
                          
                          
                          
                          0.70
                          %
                          
                          
                          73,133
                          
                          
                          
                          0.58
                          %Certificates
                              of deposit maturing in:One
                              year or less
                          
                          
                          68,033
                          
                          
                          
                          4.40
                          %
                          
                          
                          59,301
                          
                          
                          
                          2.71
                          %After
                              one to two
                              years
                          
                          
                          13,537
                          
                          
                          
                          4.17
                          %
                          
                          
                          8,769
                          
                          
                          
                          3.52
                          %After
                              two to three
                              years
                          
                          
                          9,630
                          
                          
                          
                          4.28
                          %
                          
                          
                          7,845
                          
                          
                          
                          3.64
                          %After
                              three to four
                              years
                          
                          
                          9,339
                          
                          
                          
                          4.57
                          %
                          
                          
                          10,275
                          
                          
                          
                          4.30
                          %After
                              four to five
                              years
                          
                          
                          4,722
                          
                          
                          
                          5.27
                          %
                          
                          
                          9,761
                          
                          
                          
                          4.56
                          %105,261
                          
                          
                          
                          4.41
                          %
                          
                          
                          95,951
                          
                          
                          
                          3.22
                          %$
                          188,592
                          
                          
                          
                          2.74
                          %
                          
                          $
                          193,314
                          
                          
                          
                          1.84
                          %




As
      of
      December 31, 2006 and 2005, certificates of deposit over $100,000 totaled
      $24,368,000 and $19,799,000, respectively.  Generally, deposits in
      excess of $100,000 are not insured by the FDIC.




Interest
      expense on deposits consists of the following:




**Years
                          Ended December 31,****2006**
                    
                    
                    **2005**
                    
                    
                    **2004****(In
                        Thousands)**Demand
                        deposits
                    
                    $
                    111
                    
                    
                    $
                    62
                    
                    
                    $
                    61Savings
                        accounts
                    
                    
                    469
                    
                    
                    
                    373
                    
                    
                    
                    393Certificates
                        of deposit
                    
                    
                    3,913
                    
                    
                    
                    2,675
                    
                    
                    
                    2,040$
                    4,493
                    
                    
                    $
                    3,110
                    
                    
                    $
                    2,494









65
 *Index*




Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial
        Statements


**Note
        10 - Income Taxes**




The
      Bank
      qualifies as a savings institution under the provisions of the Internal Revenue
      Code and was, therefore, prior to January 1, 1996, permitted to deduct from
      taxable income an allowance for bad debts based upon eight percent of taxable
      income before such deduction, less certain adjustments.  Retained
      earnings at December 31, 2006 and 2005, include approximately $4.1 million
      of such bad debt deductions which, in accordance with SFAS No. 109,
“Accounting for Income Taxes,” is considered a permanent difference between the
      book and income tax basis of loans receivable, and for which income taxes have
      not been provided.  If such amount is used for purposes other than for
      bad debt losses, including distributions in liquidation, it will be subject
      to
      income tax at the then current rate.




The
      components of income taxes are summarized as follows:




**Years
                          Ended December 31,****2006**
                    
                    
                    **2005**
                    
                    
                    **2004****(In
                        Thousands)**Current
                        tax expense
                    
                    $
                    1,260
                    
                    
                    $
                    1,608
                    
                    
                    $
                    1,437Deferred
                        tax expense
                    
                    
                    (214
                    )
                    
                    
                    (37
                    )
                    
                    
                    (264
                    )**Income
                        Tax Expense**
                    
                    $
                    1,046
                    
                    
                    $
                    1,571
                    
                    
                    $
                    1,173




The
      following table presents a reconciliation between the reported income taxes
      and
      the income taxes, which would be computed by applying normal federal income
      tax
      rates to income before taxes:




**Years
                          Ended December 31,****2006**
                    
                    
                    **2005**
                    
                    
                    **2004****(In
                        Thousands)**Federal
                        income tax at statutory rates
                    
                    $
                    886
                    
                    
                    $
                    1,211
                    
                    
                    $
                    930State
                        and City tax, net of federal income taxeffect
                    
                    
                    202
                    
                    
                    
                    333
                    
                    
                    
                    209Non-taxable
                        income on bank owned lifeinsurance
                    
                    
                    (52
                    )
                    
                    
                    -
                    
                    
                    
                    -Other
                    
                    
                    10
                    
                    
                    
                    27
                    
                    
                    
                    34**Income
                        Tax Expense**
                    
                    $
                    1,046
                    
                    
                    $
                    1,571
                    
                    
                    $
                    1,173Effective
                        Income Tax Rate
                    
                    
                    40.2
                    %
                    
                    
                    44.1
                    %
                    
                    
                    42.9
                    %




66
 *Index*




Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial
        Statements


**Note
        10 - Income Taxes (Continued)**




The
      tax
      effects of significant items comprising the net deferred tax asset are as
      follows:




**December
                          31,****2006**
                    
                    
                    **2005****(In
                        Thousands)**Deferred
                        tax assets:Allowance
                        for loan
                        losses
                    
                    $
                    514
                    
                    
                    $
                    514Depreciation
                    
                    
                    264
                    
                    
                    
                    88Benefit
                        plans
                    
                    
                    63
                    
                    
                    
                    -Accumulated
                        other comprehensive
                        loss - DRP
                    
                    
                    114
                    
                    
                    
                    -Deferred
                        loan fees and
                        discounts
                    
                    
                    67
                    
                    
                    
                    92**Total
                        Deferred Tax Assets**
                    
                    
                    1,022
                    
                    
                    
                    694Deferred
                        tax liability, unrealized gain on securities available for
                        sale
                    
                    
                    28
                    
                    
                    
                    25**Net
                        Deferred Tax Asset**
                    
                    $
                    994
                    
                    
                    $
                    669






The
      net
      deferred tax asset is included in other assets in the consolidated statements
      of
      financial condition.




**Note
        11 - Other Non-Interest Expenses**




The
      following is an analysis of other non-interest expenses:




**Years
                            Ended December 31,****2006**
                      
                      
                      **2005**
                      
                      
                      **2004****(In
                          Thousands)**Service
                          contracts
                      
                      $
                      191
                      
                      
                      $
                      171
                      
                      
                      $
                      215Insurance
                      
                      
                      162
                      
                      
                      
                      166
                      
                      
                      
                      186Audit
                          and accounting
                      
                      
                      208
                      
                      
                      
                      153
                      
                      
                      
                      188Directors
                          compensation
                      
                      
                      214
                      
                      
                      
                      66
                      
                      
                      
                      46Telephone
                      
                      
                      161
                      
                      
                      
                      145
                      
                      
                      
                      154Office
                          supplies and stationary
                      
                      
                      252
                      
                      
                      
                      145
                      
                      
                      
                      156Director,
                          officer, and employee expenses
                      
                      
                      158
                      
                      
                      
                      155
                      
                      
                      
                      182Legal
                          fees
                      
                      
                      185
                      
                      
                      
                      48
                      
                      
                      
                      174Other
                      
                      
                      440
                      
                      
                      
                      485
                      
                      
                      
                      526$
                      1,971
                      
                      
                      $
                      1,534
                      
                      
                      $
                      1,827







67
 *Index*




Northeast
      Community Bancorp,
      Inc.





Notes
      to Consolidated Financial Statements






**Note
      12 - Benefits Plans**




**Outside
      Director Retirement Plan (“DRP”)**




Effective
      January 1, 2006, the Bank implemented the DRP. This plan is a non-contributory
      defined benefit pension plan covering all non-employee directors meeting
      eligibility requirements as specified in the plan document. The DRP is accounted
      for under Statements of Financial Accounting Standards Nos. 132 and 158. The
      following table sets forth the funded status of the DRP at December 31, 2006,
      and components of net periodic expense for the year then ended (dollars in
      thousands):




Benefit
                              Obligation – beginning
                          
                          $
                          -Service
                              cost
                          
                          
                          32Interest
                              cost
                          
                          
                          18Prior
                              service
                              cost
                          
                          
                          308Benefit
                              Obligation – ending
                          
                          $
                          358Funded
                              Status – Accrued liability included in Accounts Payable and
                              Accrued
                              Expenses
                          
                          $
                          358Discount
                              rate
                          
                          
                          6.00
                          %Salary
                              increase rate
                          
                          
                          2.00
                          %Net
                              pension expense:Service
                              cost
                          
                          $
                          32Interest
                              cost
                          
                          
                          18Amortization
                              of unrecognized
                              prior service liability
                          
                          
                          21Total
                              pension expense included in Other Non-Interest Expenses
                          
                          $
                          71Discount
                              rate
                          
                          
                          6.00
                          %Salary
                              increase rate
                          
                          
                          2.00
                          %


At
      December 31, 2006, $287,000 ($158,000 net of $129,000 of related deferred income
      tax assets) in prior service cost reflected in the above table has been recorded
      in Accumulated Other Comprehensive Loss. Approximately $21,000 of that amount
      is
      expected to be included in pension expense in 2007.




68
 *Index*




Northeast
      Community Bancorp,
      Inc.





Notes
      to Consolidated Financial Statements






**Note
      12 - Benefits Plans (Continued)**




**Outside
      Director Retirement Plan (“DRP”) (Continued)**




Benefit
      payments, which reflect expected future service as appropriate, are expected
      to
      be paid for the years ended December 31 as follows (in
      thousands):




2007
                              
                              
                              $
                              -2008
                              
                              
                              
                              -2009
                              
                              
                              
                              -2010
                              
                              
                              
                              -2011
                              
                              
                              262012
                                – 2016
                              
                              
                              317$
                              343







**Supplemental
      Executive Retirement Plan (“SERP”)**




Effective
      January 1, 2006, the Bank implemented the SERP. This plan is a non-contributory
      defined benefit plan accounted for under SFAS 106. The SERP covers both the
      Bank’s Chief Executive Officer and Chief Financial Officer. Under the SERP, each
      of these individuals will be entitled to receive, upon retirement at age 65,
      an
      annual benefit, paid in monthly installments, equal to 50% of his average base
      salary in the three-year period preceding retirement. Each individual may also
      retire early and receive a reduced benefit (0.25% reduction in benefit for
      each
      month by which retirement age is less than 65 years) upon the attainment of
      both
      age 60 and 20 years of service. Additional terms related to death while
      employed, death after retirement, disability before retirement and termination
      of employment are fully described within the plan document. The benefit payment
      term is the greater of 15 years or the executives remaining life. No benefits
      are expected to be paid during the next ten years. During the year ended
      December 31, 2006, an expense of $114,000 was recorded for this plan and is
      reflected in the Consolidated Statements of Income under Salaries and Employee
      Benefits. At December 31, 2006, a liability for this plan of  $114,000
      is included in the Consolidated Statements of Financial Condition under Accounts
      Payable and Accrued Expenses.




**401(k)
      Plan**




The
      Bank
      maintains a 401(k) plan for all eligible employees.  Participants are
      permitted to contribute from 1% to 15% of their annual compensation up to the
      maximum permitted under the Internal Revenue Code.  The Bank through
      August 2006, made matching contributions equal to 100% of the employees
      contribution up to 5% of annual compensation.  In September 2006, the
      Bank ceased making matching contributions to the 401(k)
      plan.  Employer contributions fully vest after 6
      years.  Plan expenses for the years ended December 31, 2006, 2005
      and 2004 were $90,000, $123,000, and $115,000, respectively.




**Employee
      Stock Ownership Plan (“ESOP”)**




In
      conjunction with the Company’s initial public stock offering, the Bank
      established an ESOP for all eligible employees (substantially all full-time
      employees). The ESOP borrowed $5,184,200 from the Company and used those funds
      to acquire 518,420 shares of Company common stock at $10.00 per share. The
      loan
      from the Company carries an interest rate of 8.25% and is repayable in twenty
      annual installments through 2025. Each year, the Bank intends to make
      discretionary contributions to the ESOP equal to the principal and interest
      payment required on the loan from the Company. The ESOP may further pay down
      the
      principal balance of the loan by using dividends paid, if any, on the shares
      of
      Company common stock it owns. The balance remaining on the ESOP loan was
      $4,877,000 at December 31, 2006.




69
 *Index*


Northeast
      Community Bancorp,
      Inc.





Notes
      to Consolidated Financial Statements




**Note
      12 - Benefits Plans (Continued)**




**Employee
      Stock Ownership Plan (“ESOP”) (Continued)**




Shares
      purchased with the loan proceeds serve as collateral for the loan and are held
      in a suspense account for future allocation among ESOP participants. As the
      loan
      principal is repaid, shares will be released from the suspense account and
      become eligible for allocation. The allocation among plan participants will
      be
      as described in the ESOP governing document.




The
      ESOP
      is accounted for in accordance with Statement of Position 93-6, “Accounting for
      Employee Stock Ownership Plans”, which was issued by the American Institute of
      Certified Public Accountants. Accordingly, ESOP shares initially pledged as
      collateral were recorded as unearned ESOP shares in the stockholders’ equity
      section of the consolidated statement of financial condition. Thereafter, on
      a
      monthly basis over a 240 month period, approximately 2,160 shares are committed
      to be released and compensation expense recorded equal to the shares committed
      to be released multiplied by the average closing price of the Company’s stock
      during that month. ESOP expense during the year ended December 31, 2006, totaled
      approximately $276,000.




As
      of
      December 31, 2006, ESOP shares are summarized as follows:




Allocated
                      shares
                  
                  ****
                  **-**Shares
                      committed to be released
                  
                  
                  25,921Unearned
                      shares
                  
                  
                  492,499**Total
                      ESOP Shares**
                  
                  
                  518,420Fair
                      value of unearned shares
                  
                  $
                  6,053,000






**Note
      13 - Commitments and Contingencies**






Lease
      Commitments




Rentals
      under operating leases for certain branch offices amounted to $210,000, $88,000,
      and $78,000 for the years ended December 31, 2006, 2005 and 2004,
      respectively.  At December 31, 2006, the minimum rental
      commitments under all noncancellable leases with initial or remaining terms
      of
      more than one year are as follows (in thousands):




Year
                        ending December 31,2007
                    
                    $
                    2772008
                    
                    
                    2942009
                    
                    
                    2742010
                    
                    
                    2482011
                    
                    
                    161Thereafter
                    
                    
                    1,178$
                    2,432







70
 *Index*


Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements
   Note
          13 - Commitments and Contingencies (Continued)




**Available
      Credit Facilities**




The
      Bank
      has the ability to borrow up to $12 million from the Federal Home Loan Bank
      of
      New York, consisting of a $6 million Overnight Line of Credit and a $6 million
      Companion (DRA) Commitment, both of which expire on July 31,
      2007.  At December 31, 2006, no amounts were outstanding under
      these credit facilities.




**Other**




The
      Company and Bank are also subject to claims and litigation that arise primarily
      in the ordinary course of business.  Based on information presently
      available and advice received from legal counsel representing the Company and
      Bank in connection with such claims and litigation, it is the opinion of
      management that the disposition or ultimate determination of such claims and
      litigation will not have a material adverse effect on the consolidated financial
      position, results of operations or liquidity of the Company.




**Note
      14 - Disclosures About Fair Value of Financial Instruments**




The
      following methods and assumptions were used to estimate the fair value of each
      class of financial instruments for which it is practicable to estimate fair
      value:




**Cash
      and Cash Equivalents and Accrued Interest Receivable**




For
      these
      short-term instruments, the carrying amount is a reasonable estimate of fair
      value.




**Securities**




For
      both
      available for sale and held to maturity securities, fair values are based on
      quoted market prices.




**Loans**




Fair
      values are estimated for portfolios of loans with similar financial
      characteristics.  The total loan portfolio is first divided into
      performing and nonperforming categories.  Performing loans are then
      segregated into adjustable and fixed rate interest terms.  Fixed rate
      loans are segmented by type, such as construction and land development, other
      loans secured by real estate, commercial and industrial loans, and loans to
      individuals.  Certain types, such as commercial loans and loans to
      individuals, are further segmented by maturity and type of
      collateral.




For
      performing loans, fair value is calculated by discounting scheduled future
      cash
      flows through estimated maturity using a discount rate equivalent to the rate
      at
      which the Bank would currently make loans which are similar with regard to
      collateral, maturity, and the type of borrower.  The discounted value
      of the cash flows is reduced by a credit risk adjustment based on internal
      loan
      classifications.




For
      nonperforming loans, fair value is calculated by first reducing the carrying
      value by a credit risk adjustment based on internal loan classifications, and
      then discounting the estimated future cash flows from the remaining carrying
      value at the rate at which the Bank would currently make similar loans to
      creditworthy borrowers.




**Federal
      Home Loan Bank of New York Stock**




The
      carrying amount of the Federal Home Loan Bank of New York stock is equal to
      its
      fair value.




71
 *Index*


Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements
   Note
            14 - Disclosures About Fair Value of Financial Instruments
            (Continued)




**Deposit
      Liabilities**




The
      fair
      value of deposits with no stated maturity, such as non-interest-bearing demand
      deposits, money market accounts, interest checking accounts, and savings
      accounts is equal to the amount payable on demand.  Time deposits are
      segregated by type, size, and remaining maturity.  The fair value of
      time deposits is based on the discounted value of contractual cash
      flows.  The discount rate is equivalent to the rate currently by the
      Bank for deposits of similar size, type and maturity.  Accrued
      interest payable is included in deposit liabilities.




**Borrowed
      Funds**




The
      fair
      value of the Bank’s borrowed funds is estimated based on the discounted value of
      future contractual payments.  The discount rate is equivalent to the
      estimated rate at which the Bank could currently obtain similar
      financing.




**Off-Balance-Sheet
      Financial Instruments**




The
      fair
      value of commitments to extend credit is estimated based on an analysis of
      the
      interest rates and fees currently charged to enter into similar transactions,
      considering the remaining terms of the commitments and the credit-worthiness
      of
      the potential borrowers.  At December 31, 2006 and 2005, the
      estimated fair values of these off-balance-sheet financial instruments were
      immaterial.




The
      carrying amounts and estimated fair value of our financial instruments are
      as
      follows:




**December
                        31,****2006**
                  
                  
                  **2005****Carrying**
                      **Amount**
                  
                  
                  **Estimated**
                      **Fair
                        Value**
                  
                  
                  **Carrying**
                      **Amount**
                  
                  
                  **Estimated**
                      **Fair
                        Value****(In
                      Thousands)**Financial
                      assets:Cash
                      and cash
                      equivalents
                  
                  $
                  36,749
                  
                  
                  $
                  36,749
                  
                  
                  $
                  27,389
                  
                  
                  $
                  27,389Securities
                      available for
                      sale
                  
                  
                  355
                  
                  
                  
                  355
                  
                  
                  
                  362
                  
                  
                  
                  362Securities
                      held to
                      maturity
                  
                  
                  27,455
                  
                  
                  
                  27,468
                  
                  
                  
                  12,228
                  
                  
                  
                  12,182Loans
                      receivable
                  
                  
                  201,306
                  
                  
                  
                  196,020
                  
                  
                  
                  190,896
                  
                  
                  
                  186,284FHLB
                      stock
                  
                  
                  399
                  
                  
                  
                  399
                  
                  
                  
                  357
                  
                  
                  
                  357Accrued
                      interest
                      receivable
                  
                  
                  1,101
                  
                  
                  
                  1,101
                  
                  
                  
                  1,003
                  
                  
                  
                  1,003Financial
                      liabilities:Deposits
                  
                  
                  188,592
                  
                  
                  
                  187,919
                  
                  
                  
                  193,314
                  
                  
                  
                  192,880







72
 *Index*




Northeast
      Community Bancorp,
      Inc.





Notes
      to Consolidated Financial Statements






Note
      15 – Parent Company Only Financial Information




**STATEMENT
                                        OF FINANCIAL CONDITION – DECEMBER 31, 2006 (In
                                        Thousands)****Assets**Cash
                                        and due from banks
                                    
                                    $
                                    9,533Securities
                                        held to maturity
                                    
                                    
                                    14,916Investment
                                        in subsidiary
                                    
                                    
                                    67,662ESOP
                                        loan receivable
                                    
                                    
                                    4,877Other
                                        assets
                                    
                                    
                                    3**Total
                                        Assets**
                                    
                                    $
                                    96,991**Liabilities
                                        and Stockholders’ Equity****Liabilities****Other
                                        liabilities**
                                    
                                    $
                                    240**Total
                                        Liabilities**
                                    
                                    
                                    240**Total
                                        Stockholders’ Equity**
                                    
                                    
                                    96,751**Total
                                        Liabilities and Stockholders’ Equity**
                                    
                                    $
                                    96,991**STATEMENT
                                        OF INCOME – July 5, 2006 (Inception) to December 31,
                                        2006 (In
                                        Thousands)**Interest
                                        income – securities
                                    
                                    $
                                    307Interest
                                        income – deposits
                                    
                                    
                                    149Interest
                                        Income – ESOP loan
                                    
                                    
                                    210Operating
                                        expenses
                                    
                                    
                                    (90
                                    )**Income
                                        before Income Tax Expense and Equity in Undistributed
                                        Earnings of
                                        Subsidiary**
                                    
                                    
                                    576Income
                                        tax expense
                                    
                                    
                                    226**Income
                                        before Equity in Undistributed****Earnings
                                        of Subsidiary**
                                    
                                    
                                    350Equity
                                        in undistributed earnings of subsidiary
                                    
                                    
                                    399**Net
                                        Income**
                                    
                                    $
                                    749




73
 *Index*






Northeast
      Community Bancorp,
      Inc.





Notes
      to Consolidated Financial Statements







**Note
      15 - Parent Only Financial Information (Continued)**




**STATEMENT
                        OF CASH FLOW - July 5, 2006 (Inception) to December 31, 2006
                        (In
                        Thousands)****Cash
                        Flows from Operating Activities**Net
                        income
                    
                    $
                    749Adjustments
                        to reconcile net
                        income to net cash provided byoperating
                        activities:Equity
                        in undistributed earnings of subsidiary
                    
                    
                    (399
                    )Amortization
                        of securities discount
                    
                    
                    (307
                    )(Increase)
                        in other assets
                    
                    
                    (3
                    )Increase
                        in other liabilities
                    
                    
                    240**Net
                        Cash Provided by Operating Activities**
                    
                    
                    280**Cash
                        Flows from Investing Activities**Purchase
                        of securities held to
                        maturity
                    
                    
                    (29,609
                    )Maturities
                        of securities held to
                        maturity
                    
                    
                    15,000Loan
                        to ESOP
                    
                    
                    (5,184
                    )Repayment
                        of ESOP
                        loan
                    
                    
                    307Purchase
                        of Bank capital
                        stock
                    
                    
                    (28,889
                    )**Net
                        Cash Used in Investing Activities**
                    
                    
                    (48,375
                    )**Cash
                        Flows from Financing Activities**Proceeds
                        from issuance of common
                        stock
                    
                    
                    57,628**Net
                        Cash Provided by Financing Activities**
                    
                    
                    57,628**Net
                        Increase in Cash and Cash Equivalents**
                    
                    
                    9,533**Cash
                        and Cash Equivalents - Beginning**
                    
                    
                    -**Cash
                        and Cash Equivalents - Ending**
                    
                    $
                    9,533






**Note
      16 - Recent Accounting Pronouncements**




Fair
      Value Measurement




In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”,
        which defines fair value, establishes a framework for measuring fair value
        under
        U.S. GAAP, and expands disclosures about fair value measurements. SFAS
        No. 157 applies to other accounting pronouncements that require or permit
        fair value measurements. The new guidance is effective for financial statements
        issued for fiscal years beginning after November 15, 2007, and for interim
        periods within those fiscal years. We are currently evaluating the potential
        impact, if any, of the adoption of SFAS No. 157 on our consolidated
        financial position, results of operations and cash flows.
  74
 *Index*
  Northeast
          Community Bancorp,
          Inc.
 
 Notes
          to Consolidated Financial Statements   **Note
            16 - Recent Accounting
            Pronouncements  (Continued)**


**Defined
      Benefit Pension and Other Postretirement Plans**




In
        September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting
        for Defined Benefit Pension and Other Postretirement Plans*”*, which
        amends SFAS Nos. 87 and 106 to require recognition of the over funded or
        under
        funded status of pension and other postretirement benefit plans on the balance
        sheet. Under SFAS 158, gains and losses, prior service costs and credits,
        and
        any remaining transition amounts under SFAS Nos. 87 and 106 that have not
        yet
        been recognized through net periodic benefit cost will be recognized in
        accumulated other comprehensive income, net of tax effects, until they are
        amortized as a component of net periodic cost. The measurement date — the date
        at which the benefit obligation and plan assets are measured — is required to be
        the company’s fiscal year end. SFAS 158 is effective for publicly-held companies
        for fiscal years ending after December 15, 2006, except for the measurement
        date provisions, which are effective for fiscal years ending after
        December 15, 2008. We have implemented SFAS 158 as of December 31,
        2006.  The effect of this implementation on our consolidated financial
        statements is discussed in note 12.


**Financial
      Statement Misstatements**




On
        September 13, 2006, the Securities and Exchange Commission (“SEC”) issued
        Staff Accounting Bulletin (“SAB”) No. 108.  SAB No. 108 provides
        interpretive guidance on how the effects of the carryover or reversal of
        prior
        year misstatements should be considered in quantifying a potential current
        year
        misstatement. Prior to SAB No. 108, companies might evaluate the materiality
        of
        financial-statement misstatements using either the income statement or balance
        sheet approach, with the income statement approach focusing on new misstatements
        added in the current year, and the balance sheet approach focusing on the
        cumulative amount of misstatement present in a company’s balance sheet.
        Misstatements that would be material under one approach could be viewed as
        immaterial under another approach, and not be corrected. SAB No. 108 now
        requires that companies view financial statement misstatements as material
        if
        they are material according to either the income statement or balance sheet
        approach. The Company has analyzed SAB 108 and determined that it had no
        impact
        on the Company’s consolidated financial position or results of
        operations.


**Accounting
      for Uncertainty in Income Taxes**




In
        July
        2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
        in
        Income Taxes." The interpretation clarifies the accounting for uncertainty
        in
        income taxes recognized in a company's financial statements in accordance
        with
        SFAS No. 109, "Accounting for Income Taxes." Specifically, the pronouncement
        prescribes a recognition threshold and a measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return. The interpretation also provides guidance on the related
        derecognition, classification, interest and penalties, accounting for interim
        periods, disclosure and transition of uncertain tax positions. The
        interpretation is effective for fiscal years beginning after December 15,
        2006.
        We are evaluating the impact of this new pronouncement on the Company’s
        consolidated financial statements.


75
 *Index*




Northeast
        Community Bancorp,
        Inc.
 
 Notes
        to Consolidated Financial Statements


**Note
        17 - Quarterly Financial Data (Unaudited)**


**Quarter
                        Ended****March
                        31,**
                      **2006**
                  
                  
                  **June
                        30,**
                      **2006**
                  
                  
                  **September
                        30,**
                      **2006**
                  
                  
                  **December
                        31,**
                      **2006****(In
                      thousands, except for per share data)****Interest
                      Income**
                  
                  $
                  3,545
                  
                  
                  $
                  3,684
                  
                  
                  $
                  4,111
                  
                  
                  $
                  4,008**Interest
                      Expense**
                  
                  
                  903
                  
                  
                  
                  1,072
                  
                  
                  
                  1,225
                  
                  
                  
                  1,293**Net
                      Interest Income**
                  
                  
                  2,642
                  
                  
                  
                  2,612
                  
                  
                  
                  2,886
                  
                  
                  
                  2,715**Provision
                      for Loan Losses**
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -**Net
                      Interest Income after Provision for Loan Losses**
                  
                  
                  2,642
                  
                  
                  
                  2,612
                  
                  
                  
                  2,886
                  
                  
                  
                  2,715**Non-Interest
                      Income**
                  
                  
                  113
                  
                  
                  
                  119
                  
                  
                  
                  179
                  
                  
                  
                  208**Non-Interest
                      Expenses**
                  
                  
                  2,035
                  
                  
                  
                  2,110
                  
                  
                  
                  2,354
                  
                  
                  
                  2,371**Income
                      before Income Taxes**
                  
                  
                  720
                  
                  
                  
                  621
                  
                  
                  
                  711
                  
                  
                  
                  552**Income
                      Taxes**
                  
                  
                  311
                  
                  
                  
                  271
                  
                  
                  
                  299
                  
                  
                  
                  165**Net
                      Income**
                  
                  $
                  409
                  
                  
                  $
                  350
                  
                  
                  $
                  412
                  
                  
                  $
                  387**Net
                      Income per common share****–
                      Basic and Diluted**
                  
                  N/A
                  
                  
                  N/A
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.03**Weighted
                      average numbers of****common
                      shares outstanding – basic and diluted**
                  
                  N/A
                  
                  
                  N/A
                  
                  
                  
                  12,723
                  
                  
                  
                  12,729




During
      the fourth quarter of 2006, the Company recorded in non-interest expense
      $185,000 for retirement plans that were implemented in 2006 as well as a related
      income tax benefit of $83,000.  These accrued expenses, as well as the
      related income tax benefits, were inadvertently omitted from our previously
      reported quarterly results for 2006.  The quarterly data presented
      above has been corrected to reflect an additional $46,000 in non-interest
      expense and a $21,000 reduction in income taxes for each of the first three
      quarters of 2006.




**Quarter
                          Ended****March
                          31,**
                        **2005**
                    
                    
                    **June
                          30,**
                        **2005**
                    
                    
                    **September
                          30,**
                        **2005**
                    
                    
                    **December
                          31,**
                        **2005****(In
                        Thousands)****Interest
                        Income**
                    
                    $
                    3,297
                    
                    
                    $
                    3,399
                    
                    
                    $
                    3,590
                    
                    
                    $
                    3,366**Interest
                        Expense**
                    
                    
                    710
                    
                    
                    
                    754
                    
                    
                    
                    798
                    
                    
                    
                    848**Net
                        Interest Income**
                    
                    
                    2,587
                    
                    
                    
                    2,645
                    
                    
                    
                    2,792
                    
                    
                    
                    2,518**Provision
                        for Loan Losses**
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -**Net
                        Interest Income after Provision for Loan Losses**
                    
                    
                    2,587
                    
                    
                    
                    2,645
                    
                    
                    
                    2,792
                    
                    
                    
                    2,518**Non-Interest
                        Income**
                    
                    
                    126
                    
                    
                    
                    130
                    
                    
                    
                    121
                    
                    
                    
                    157**Non-Interest
                        Expenses**
                    
                    
                    1,880
                    
                    
                    
                    1,893
                    
                    
                    
                    1,864
                    
                    
                    
                    1,878**Income
                        before Income Taxes**
                    
                    
                    833
                    
                    
                    
                    882
                    
                    
                    
                    1,049
                    
                    
                    
                    797**Income
                        Taxes**
                    
                    
                    368
                    
                    
                    
                    389
                    
                    
                    
                    462
                    
                    
                    
                    352**Net
                        Income**
                    
                    $
                    465
                    
                    
                    $
                    493
                    
                    
                    $
                    587
                    
                    
                    $
                    445







76
 *Index*


**ITEM
                9.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**





None.





**ITEM9A.**
            **CONTROLS
                AND PROCEDURES**





The
      Company’s management, including the
      Company’s principal executive officer and principal financial officer, have
      evaluated the effectiveness of the Company’s “disclosure controls and
      procedures,” as such term is defined in Rule 13a-15(e) promulgated under the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”).  Based upon their evaluation, and based on the material
      weakness in the Company’s internal control over financial reporting set forth
      below, the principal executive officer and principal financial officer concluded
      that, as of the end of the period covered by this report, the Company’s
      disclosure controls and procedures were not effective for the purposes of
      ensuring that the information required to be disclosed in the reports that
      the
      Company files or submits under the Exchange Act with the Securities and Exchange
      Commission (the “SEC”) (1) is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms, and (2) is
      accumulated and communicated to the Company’s management, including its
      principal executive and principal financial officers, as appropriate to allow
      timely decisions regarding required disclosure.





During
      the process of closing our books
      for the year ended December 31, 2006, we became aware of certain internal
      control deficiencies that we considered to be, in the aggregate, a material
      weakness.  A material weakness is a significant deficiency, or
      combination of significant deficiencies, that results in more than a remote
      likelihood that a material misstatement of the annual or interim financial
      statements will not be prevented or detected.





In
      particular, the Company discovered
      that it had not accrued for the expenses associated with our directors’
retirement plan and supplemental executive retirement plan, both of which were
      established in 2006.  These expenses, which amounted to approximately
      $25,000 per quarter on a tax-effected basis, were inadvertently omitted from
      our
      previously reported quarterly results for 2006.  The aggregate amount
      of the accrued expenses, net of the related income tax benefits, was
      approximately $102,000.  The corrected quarterly data is reflected in
      Note 17 to the Consolidated Financial Statements included under Item 8 of this
      Form 10-K.





Upon
      investigation, the Company
      concluded that the failure to accrue for retirement plan expenses was caused
      by
      the lack of effective formalized procedures for ensuring that new types of
      transactions entered into by the Company, and the related accounting
      pronouncements related thereto, are appropriately identified and
      addressed.  In order to remediate the identified material weakness and
      to improve the effectiveness of the Company’s disclosure controls, the Company
      implemented new procedures designed to ensure that new types of transactions
      entered into by the Company are appropriately identified in a timely manner
      and
      that the related accounting requirements are effectively analyzed and
      implemented.  Management will monitor, evaluate and test the operating
      effectiveness of these controls on an ongoing basis.





**ITEM9B.              
OTHER INFORMATION**





None.





**PART
      III**





**ITEM10.**
            **DIRECTORS,  EXECUTIVE
                OFFICERS OF THE REGISTRANT AND CORPORATE
                GOVERNANCE**





The
      information relating to the
      directors and officers of Northeast Community Bancorp and information regarding
      compliance with Section 16(a) of the Exchange Act is incorporated herein by
      reference to Northeast Community Bancorp’s Proxy Statement for the 2007 Annual
      Meeting of Stockholders (the “Proxy Statement”) and to Part I, Item 1,
*“Business — Executive Officers of the Registrant”* to this Annual Report
      on Form 10-K.


77
 *Index*


Northeast
      Community Bancorp has adopted
      a Code of Ethics and Business Conduct, a copy of which can be found in the
      investor relations section of the Company’s website at
      www.necommunitybank.com.





**ITEM11.               EXECUTIVE
      COMPENSATION**





The
      information regarding executive
      compensation is incorporated herein by reference to the Proxy
      Statement.





**ITEM12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDERS MATTERS**





(a)
            Security
                Ownership of Certain Beneficial
                Owners





Information
      required by this item is incorporated herein by reference to the section
      captioned “Stock Ownership” in the Proxy Statement.





(b)
            Security
                Ownership of Management





Information
      required by this item is incorporated herein by reference to the section
      captioned “Stock Ownership” in the Proxy Statement.





(c)
            Changes
                in Control





Management
      of Northeast Community Bancorp knows of no arrangements, including any pledge
      by
      any person or securities of Northeast Community Bancorp, the operation of which
      may at a subsequent date result in a change in control of the
      registrant.





(d)
            Equity
                Compensation Plan Information





None.





**ITEM
                13.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
                INDEPENDENCE**





The
      information relating to certain
      relationships and related transactions is incorporated herein by reference
      to
      the Proxy Statement.





**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES**





The
      information relating to the
      principal accountant fees and expenses is incorporated herein by reference
      to
      the Proxy Statement.


78
 *Index*


**PART
      IV**





**ITEM
                15.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES**





(1)
            The
                financial statements required in response to this item are incorporated
                by
                reference from Item 8 of this
                report.





(2)
            All
                financial statement schedules are omitted because they are not required
                or
                applicable, or the required information is shown in the consolidated
                financial statements or the notes
                thereto.





(3)
            Exhibits





3.1
                          Amended
                              and Restated Charter of Northeast Community Bancorp,
                              Inc.
                              (1)3.2
                          Amended
                              and Restated Bylaws of Northeast Community Bancorp,
                              Inc., as amended
                              (2)4.1
                          Specimen
                              Stock Certificate of Northeast Community Bancorp, Inc.
                              (1)4.2
                          No
                              long-term debt instrument issued by Northeast Community
                              Bancorp, Inc.
                              exceeds 10% of consolidated assets or is registered.  In
                              accordance with paragraph 4(iii) of Item 601(b) of
                              Regulation S-K,
                              Northeast Community Bancorp, Inc. will furnish the
                              Securities and Exchange
                              Commission copies of long-term debt instruments and
                              related agreements
                              upon request.10.1
                          Northeast
                              Community Bank Employee Severance Compensation Plan
                              (1)10.2
                          Northeast
                              Community Bank Supplemental Executive Retirement Plan
                              and Participation
                              Agreements with Kenneth A. Martinek and Salvatore Randazzo
                              (1)*10.3
                          Northeast
                              Community Bancorp, Inc. Employment Agreement for Kenneth
                              A. Martinek and
                              Salvatore Randazzo (1)*10.4
                          Northeast
                              Community Bank Employment Agreement for Kenneth A.
                              Martinek and Salvatore
                              Randazzo (1)*10.5
                          Employment
                              Agreement between Northeast Community Bancorp, Inc.,
                              Northeast Community
                              Bank and Susan Barile (2)*10.6
                          Northeast
                              Community Bank Directors’ Retirement Plan (1)*10.7
                          Northeast
                              Community Bank Directors’ Deferred Compensation Plan
                              (1)*10.8
                          Employment
                              Agreement between Northeast Community Bancorp, Inc.,
                              Northeast Community
                              Bank and Michael N. Gallina*21.0
                          List
                              of Subsidiaries23.0
                          Consent
                              of Beard Miller Company LLP31.1
                          Rule
                              13a-14(a)/15d-14(a) Certification of Chief Executive
                              Officer31.2
                          Rule
                              13a-14(a)/15d-14(a) Certification of Chief Financial
                              Officer32.0
                          Section
                              1350 Certification of Chief Executive Officer and Chief
                              Financial
                              Officer


_______________ _______________


*
            Management
                contract or compensatory plan, contract or
                arrangement.


(1)
            Incorporated
                by reference to the Company’s Registration Statement on Form S-1, as
                amended, initially filed on March 12,
                2006.


(2)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-Q for the quarter
                ended September 30, 2006.








79
 *Index*


**SIGNATURES**





Pursuant
      to the requirements of Section
      13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.





NORTHEAST
                    COMMUNITY BANCORP, INC.Date:
                    March 29, 2007
                By:
                /s/
                    Kenneth A. MartinekKenneth
                    A. MartinekPresident
                    and Chief Executive
                    Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





Name
              
              Title
              Date/s/
                  Kenneth A. Martinek
              
              President,
                  Chief Executive OfficerKenneth
                  A. Martinek
              
              and
                  Director
              March
                  29, 2007(principal
                  executive officer)/s/
                  Salvatore Randazzo
              
              Executive
                  Vice President, Chief
              March
                  29, 2007Salvatore
                  Randazzo
              
              Financial
                  Officer and Director(principal
                  accounting andfinancial
                  officer)/s/
                  Diane B. Cavanaugh
              
              Director
              March
                  29, 2007Diane
                  B. Cavanaugh/s/
                  Arthur M. Levine
              
              Director
              March
                  29, 2007Arthur
                  M. Levine/s/
                  Charles A. Martinek
              
              Director
              March
                  29, 2007Charles
                  A. Martinek/s/John
                  F. McKenzie
              
              Director
              March
                  29, 2007John
                  F. McKenzie/s/
                  Linda M. Swan
              
              Director
              March
                  29, 2007Linda
                  M. Swan/s/
                  Harry (Jeff) A.S. Read
              
              Director
              March
                  29, 2007Harry
                  (Jeff) A.S. Read/s/
                  Kenneth H. Thomas
              
              Director
              March
                  29, 2007Kenneth
                  H. Thomas




80