UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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




For
the fiscal year ended December 31, 2007




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




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  x




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  x  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.  ̈




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




Large
      accelerated filer  ̈
            Accelerated
      filer ̈Non-accelerated
      filer     ̈
      (Do not check if a smaller reporting company)
            Smaller
      reporting company  x







Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Act).




Yes      No  x




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of June 29, 2007 was approximately $68.3
million.




The
number of shares outstanding of the registrant’s common stock as of March 28,
2008 was 13,225,000.





DOCUMENTS
INCORPORATED BY REFERENCE




Portions
of the Proxy Statement for the 2008 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.











INDEX




Part
I




PageItem
      1.
            Business
            
            1Item
      1A.
            Risk Factors
            
            16Item
      1B.
            Unresolved Staff Comments
            
            20Item
      2.
            Properties
            
            21Item
      3.
            Legal Proceedings
            
            22Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            
            22Part
      IIItem
      5.
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            
            22Item
      6.
            Selected Financial Data
            
            23Item
      7.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            
            25Item
      7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            
            46Item
      8.
            Financial Statements and Supplementary
    Data
            
            46Item
      9.
            Changes in and Disagreements With Accountants on Accounting
      and Financial Disclosure
            
            46Item
      9A(T).
            Controls and Procedures
            
            47Item
      9B.
            Other Information
            
            47Part
      IIIItem
      10.
            Directors, Executive Officers and Corporate
      Governance
            
            47Item
      11.
            Executive Compensation
            
            47Item
      12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            
            48Item
      13.
            Certain Relationships and Related Transactions, and
      Director Independence
            
            48Item
      14.
            Principal Accounting Fees and Services
            
            48Part
      IVItem
      15.
            Exhibits and Financial Statement
    Schedules
            
            49SIGNATURES





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 74 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
expanded our lending territory to include all of New
York,  Massachusetts, New Jersey, Connecticut, Pennsylvania, New
Hampshire, Rhode Island, Delaware, Maryland, Maine and Vermont, which we refer
to collectively in this Form 10-K as the “Northeastern United States”. We do not
offer one- to four-family residential loans.





During
2007, we continued our plan to diversify the products and services that we offer
our customers.  In March 2007, we hired two individuals with
significant commercial bank lending experience, a senior lending officer and a
commercial loan underwriter, for our new commercial lending
department.  Since establishing the department, our commercial loan
portfolio has increased from no commercial loans at March 31, 2007 to $5.5
million of commercial loans committed with $3.0 million drawn at December 31,
2007.




1
 Index





In
November 2007, we completed the acquisition of the operating assets of Hayden
Financial Group, LLC, an investment advisory firm located in Westport,
Connecticut.  This acquisition gives us the ability to offer
investment advisory and financial planning services under the name Hayden
Financial Group, a division of the Bank, through a networking arrangement with a
registered broker-dealer and investment advisor.





Available
Information





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





Market
Area





We are
headquartered in White Plains, New York, which is located in Westchester County
and we operate through our main office in White Plains and our five other
full-service branch offices in the New York City boroughs of Manhattan (New York
County), Brooklyn (Kings County) and Bronx (Bronx County).  We also
operate a loan production office in Wellesley, Massachusetts.  We
generate deposits through our main office and five branch offices.  We
conduct lending activities throughout the Northeastern United States, including
New York, Massachusetts, New Jersey,  Connecticut, Pennsylvania, New
Hampshire, Rhode Island, Delaware, Maryland, Maine and Vermont.





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.  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.





While
each of the states in our lending area 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.





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, 2007, which is the most recent
date for which data is available from the Federal Deposit Insurance Corporation,
we held 0.07% or less of the deposits in each of Westchester, Kings and New York
counties, New York, and approximately 0.61% of the deposits in Bronx County, New
York.





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 ten
states that we  designate as our lending territory.  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.





2
 Index





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, and in 2007 we began originating commercial
loans.  To a limited degree, we make consumer loans and purchase
participation interests in construction 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 be the
Northeastern United States, including New York, Massachusetts, New Jersey,
Connecticut, Pennsylvania, New Hampshire, Rhode Island, Delaware, Maryland,
Maine and Vermont.  We do not originate or purchase subprime
loans.





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 throughout the Northeastern United States.





For the
year ended December 31, 2007, originations of multi-family real estate
loans in states other than New York represented 60.8% of our total multi-family
mortgage loan originations, and originations of mixed-use real estate loans in
states other than New York represented 16.7% of our total mixed-use mortgage
loan originations.  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.  We intend to continue
to increase our originations of multi-family and mixed-use real estate loans in
the eleven 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 20 to 30-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 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  outstanding 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




3
 Index




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 as 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 1.20% to 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 the appraised value or purchase price of the property securing the
loan on purchases and refinances of Class A and B properties and up to 70% of
the lesser of the appraised value or purchase price for properties that are
rated Class C.  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
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.  During the past four years 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
twenty unit to one hundred unit apartment buildings.  At December 31,
2007, the majority of our mixed-use real estate loans are secured by properties
that are at least 70% residential, but contain some non-residential
space.





On
December 31, 2007, the largest outstanding multi-family or mixed-use real estate
loan had a balance of $4.0 million and is performing according to its terms at
December 31, 2007.  This loan is secured by a mixed-use building with
10 apartment units and 5 commercial units located in New York.  As of
December 31, 2007, the average loan balance in our multi-family and mixed-use
portfolio was approximately $572,000.





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,
medical facilities and retail shopping centers that are primarily located in
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 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 outstanding 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.





4
 Index





At
December 31, 2007, we had $79.3 million in non-residential real estate loans
outstanding, or 28.0% of total loans. Originations in states other than New York
represented 22.8% of our total originations of non-residential real estate loans
for the year ended December 31, 2007 and 28.3% for the year ended December 31,
2006.





At
December 31, 2007, the largest outstanding non-residential real estate loan had
an outstanding balance of $3.5 million.  This loan is secured by a
multi-tenant building located in New York, New York, and was performing
according to its terms at December 31, 2007.  At December 31, 2007,
the largest outstanding non-residential real estate loan relationship with one
borrower was comprised of five loans totaling $9.0 million secured by an office
building located in Larchmont, New York and four shopping centers located in New
York and Connecticut.  These five loans were performing according to
their terms at December 31, 2007.  As of December 31, 2007, the
average balance of loans in our non-residential loan portfolio was $1.1
million.





In
addition, at December 31, 2007, we had one loan with a net present value of
$16.9 million that we received in connection with the sale of our First Avenue
branch office building.  See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Sale of New York City
Branch Office.”





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, in
March 2007 we hired two individuals with significant commercial bank lending
experience, a senior lending officer and a commercial underwriter, for our new
commercial lending department.  Interest rates and payments on our
commercial loans are typically indexed to the prime rate as published in the
Wall Street Journal and
adjusted as the prime rate changes.  Since establishing the
department, our
commercial loan portfolio has increased from no commercial loans at March 31,
2007 to $5.5 million of commercial loans committed with $3.0 million drawn at
December 31, 2007.





At
December 31, 2007, the largest commercial loan was a line of credit totaling
$2.0 million, with a zero outstanding balance and a remaining available line of
credit of $2.0 million.  This loan is secured by the assets of a
construction business located in Lincoln Park, New Jersey.  The
largest outstanding commercial loan was a line of credit of $1.25 million, with
an outstanding balance totaling $1.1 million and a remaining available line of
credit of $170,000.  This loan is secured by the inventory of
numismatic coins that the borrower of this loan sells to the public via various
tele-marketing medias.  The borrower is located in New
Jersey.  Both commercial lines of credit were performing according to
terms at December 31, 2007.





Construction
Loans.  We purchase participation interests in loans to finance
the construction of multi-family, mixed-use and non-residential
buildings.  We perform our own underwriting analysis on each of our
participation interests before purchasing such loans.  Construction
loans are typically for twelve to twenty-four month terms and pay interest only
during that period.  All construction loans are underwritten as if
they will be rental properties and must meet our normal debt service and loan to
value ratio requirements on an as completed basis.  The outstanding
balance of construction loan participation interests purchased totaled $9.5
million at December 31, 2007.





5
 Index





At
December 31, 2007, the largest outstanding construction loan participation
secured by one property was comprised of two loans with an aggregate outstanding
balance of $4.1 million and a commitment of $1.9 million for a total potential
exposure of $6.0 million.  This balance represents our 25%
participation ownership of the loans. These loans are secured by a building
undergoing renovation to become a hotel with 151 guestrooms located in Long
Beach, New York, and were performing according to its terms at December 31,
2007.  We also own a 35.6% participation interest in a loan to the
same borrower.  Our outstanding balance and total commitment for this
loan was $2.5 million at December 31, 2007.  This loan is secured by a
two-story commercial building located in New York, New York.  The
aforementioned three loans were performing according to their terms at December
31, 2007.





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, 2007, our portfolio of consumer loans was $88,000, or 0.03% of
total loans.





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 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
1.20%.  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 success of the business
itself.  Further, any collateral securing such loans may depreciate
over time, may be difficult to appraise and may fluctuate in value.





Construction
Loans.  We have purchased participation interests in loans to
finance the construction of multi-family, mixed-use and non-residential
buildings.   Construction financing affords the Bank the
opportunity to achieve higher interest rates and fees with shorter terms to
maturity than do residential mortgage loans.  However, construction
financing is generally considered to involve a higher degree of risk of loss
than long-term financing on improved, occupied real estate due to (1) the
increased difficulty at the time the loan is made of estimating the building
costs and the selling price of the property to be built; (2) the increased
difficulty and costs of monitoring the




6
 Index




loan; (3) the
higher degree of sensitivity to increases in market rates of interest; and (4)
the increased difficulty of working out loan problems.  The Bank has
sought to minimize this risk by limiting the amount of construction loan
participation interests outstanding at any time and by spreading the
participations among multi-family, mixed-use and non-residential
projects.  We perform our own underwriting analysis on each of our
construction loan participation interests before purchasing such loans and
therefore believe there is no greater risk of default on these obligations than
on a construction loan originated by the Bank.  See “Mortgage
and Construction Loan Originations and Participations”
below.




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.





Mortgage and
Construction Loan Originations and Participations.  Our mortgage loan
originations come from a number of sources.  The primary source of
mortgage 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.





During
2007, we purchased participation interests in loans to finance the construction
of multi-family, mixed-use and non-residential properties.  The
outstanding balance of the construction loan participation interests purchased
totaled $9.5 million at December 31, 2007.  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 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.





Commercial Loan
Originations.  We originate commercial loans from contacts made
by our commercial loan officer.  Our commercial lending department
does not utilize the services of loan brokers.





The Bank
will consider granting credit to commercial and industrial businesses located
within our lending area which is defined as the Northeastern United
States.  The Bank will consider the credit needs of businesses located
in our lending area if we can effectively service the credit and if the customer
has a strong financial position.





We will
consider loans to small businesses with revenues normally not to exceed $65.0
million.  The small business may be one that manufactures wholesale or
retail products and/or services.  Generally, we will consider loans to
small businesses such as:  retail sales and services, such as grocery,
restaurants, clothing, furniture, appliances, hardware, automotive parts,
automobiles and trucks; wholesale businesses, such as automotive parts and
industrial parts and equipment; manufacturing businesses, such as tool and die
shops and commercial manufacturers and contractors with strong financials and
well-known principals.





Mortgage and
Construction 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 Mortgage 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 and construction loans in amounts of up to $1.0
million.





7
 Index





Mortgage
and construction 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.  Mortgage and construction 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.





Commercial Loan
Approval Procedures and Authority. Our commercial 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 Commercial Loan Origination Group (which is comprised of our
commercial loan officer, our commercial loan underwriter, our chief financial
officer and our president) with loan approval authority for commercial loans up
to $2.0 million.





Loans in
amounts greater than $2.0 million, in addition to being approved by the
Commercial Loan Origination Group, must be approved by 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, 2007, our general regulatory limit on loans
to one borrower was approximately $11.7 million.  On December 31,
2007, our largest lending relationship consists of five loans totaling $9.0
million secured by an office building located in New York and four shopping
centers located in New York and Connecticut.  These loans were
performing according to their terms at December 31, 2007.  See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—SaleofNew York CityBranch Office.”





In
connection with the sale of our First Avenue branch office building, the Bank
received an $18.0 million promissory note from the purchaser which, at December
31, 2007, had a net present value of $16.9 million, that is payable in two equal
installments at June 30, 2008 and June 30, 2009.  This promissory note
is not treated as a loan or extension of credit subject to the regulatory limits
on loans to one borrower.





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, 2007.





At
December 31, 2007, our securities and short-term investments totaled $40.4
million and consisted primarily of $36.8 million in interest-earning deposits
with the Federal Home Loan Bank of New York, $3.2 million in mortgage-backed
securities issued primarily by Fannie Mae, Freddie Mac and
Ginnie Mae, and $414,000 in Federal Home Loan Bank of New York
stock.  At December 31, 2007, 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.





8
 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.  Except for certificates of deposit obtained
through  two nationwide listing services, as described below,
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,
2007, 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, maturity 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 and competitive interest rates to
retain these deposits.  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.





During
2007, we began to offer non-brokered certificates of deposit through two
nationwide certificate of deposit listing services.  Certificates of
deposit are accepted from banks, credit unions, non-profit organizations and
certain corporations in amounts greater then $75,000 and less
then  $100,000.





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.





Investment
Advisory and Financial Planning Activities





In
November 2007, Northeast Community Bank purchased for $2.0 million the operating
assets of Hayden Financial Group, LLC.  The Bank formed a Division
within the Bank known as Hayden Financial Group, and the Division offers
investment advisory and financial planning services through a networking
arrangement with a registered broker-dealer and investment advisor.





Hayden
Financial Group performs a wide range of financial planning and investment
advisory services based on the needs of a diversified client base including, but
not limited to: wealth management based on a clients’ time dimension, risk
aversion/tolerance, value system and specific purposes of a portfolio;
transition planning from one career to another, especially the transition to
retirement; conducting risk assessment and management on issues related to
various kinds of insurance covered contingencies; and providing assistance
relating to the ultimate disposition of assets. In this capacity, Hayden
Financial Group helps clients understand the issues and coordinates with estate
planning attorneys as needed.





Personnel





As of
December 31, 2007, we had 87 full-time employees and 2 part-time employees, none
of whom is represented by a collective bargaining unit.  We believe
our relationship with our employees is good.





9
 Index





Legal
Proceedings





From time
to time, we may be party to various legal proceedings incident to our
business.  At December 31, 2007, 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.  The
Bank has one wholly owned subsidiary, New England Commercial Properties LLC, a
New York limited liability company.  New England Commercial Properties
was formed in October 2007 to facilitate the purchase or lease of real property
by the Bank.  As of December 31, 2007, New England Commercial
Properties, LLC had been inactive since its formation and had no assets or
employees.  In the future, we may also use New England Commercial
Properties to hold real estate owned acquired by the Bank through foreclosure or
deed-in-lieu of foreclosure.




REGULATION
AND SUPERVISION





General





Northeast
Community Bank, as an insured federal savings association, 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 Associations





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 business 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.





10
 Index





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, less certain specified deductions from total capital such
as reciprocal holdings of depository institution capital, instruments and equity
investments) 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 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, 2007, 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.  Generally, 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.





11
 Index





Standards for
Safety and Soundness.  The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness in
various areas such as internal controls and information systems, internal audit,
loan documentation and credit underwriting, interest rate exposure, asset growth
and quality, earnings and compensation, fees and benefits.  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
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 but also including education, credit card and small business loans)
in at least 9 months out of each 12 month period.





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, 2007, Northeast Community Bank maintained
88.1% 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 other 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




12
 Index




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. Loans to executive officers are subject to
additional limitations based on the type of loan involved.




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 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, 2007 totaled
$78,000.





Insurance of
Deposit Accounts.The deposits of Northeast Community Bank are insured up to applicable
limits by the Deposit Insurance Fund of the Federal Deposit Insurance
Corporation. The Deposit Insurance Fund is the successor to the Bank Insurance
Fund and the Savings Association Insurance Fund, which were merged in 2006. The
Federal Deposit Insurance Corporation amended its risk-based assessment system
for 2007 to implement authority granted by the Federal Deposit Insurance Reform
Act of 2005 (“Reform Act”). Under the revised system, insured institutions are
assigned to one of four risk categories based on supervisory evaluations,
regulatory capital levels and certain other factors. An institution’s assessment
rate depends upon the category to which it is assigned. Risk category I, which
contains the least risky depository institutions, is expected to include more
than 90% of all institutions. Unlike the other categories, Risk Category I
contains further risk differentiation based on the Federal Deposit Insurance
Corporation’s analysis of financial ratios, examination component ratings and
other information. Assessment rates are determined by the Federal Deposit
Insurance Corporation and currently range from five to seven basis points for
the healthiest institutions (Risk Category I) to 43 basis points of assessable
deposits for the riskiest (Risk Category IV). The Federal Deposit Insurance
Corporation may adjust rates uniformly from one quarter to the next, except that
no single adjustment can exceed three basis points. No institution may pay a
dividend if in default of its Federal Deposit Insurance Corporation
assessment.





The
Reform Act also provided for a one-time credit for eligible institutions based
on their assessment base as of December 31, 1996.  Subject to certain
limitations, credits could be used beginning in 2007 to offset assessments until
exhausted.  Northeast Community Bank’s one-time credit approximated
$308,000, of which $74,000 was used to offset assessments in 2007, and $234,000
is still available for future use.  The Reform Act also provided for
the possibility that the Federal Deposit Insurance Corporation may pay dividends
to insured institutions once the Deposit Insurance fund reserve ratio equals or
exceeds 1.35% of estimated insured deposits.





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.  That




13
 Index




payment is
established quarterly and during the calendar year ending December 31, 2007
averaged 1.18 basis points of assessable deposits.




The
Reform Act provided the Federal Deposit Insurance Corporation with authority to
adjust the Deposit Insurance Fund ratio to insured deposits within a range of
1.15% and 1.50%, in contrast to the prior statutorily fixed ratio of
1.25%.  The ratio, which is viewed by the Federal Deposit Insurance
Corporation as the level that the fund should achieve, was established by the
agency at 1.25% for 2008, which is unchanged from 2007.





The
Federal Deposit Insurance Corporation has authority to increase insurance
assessments.  A significant increase in insurance premiums would
likely have an adverse effect on the operating expenses and results of
operations of Northeast Community Bank.  Management cannot predict
what insurance assessment rates will be in the future.





Insurance
of deposits may be terminated by the Federal Deposit Insurance Corporation 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 Federal
Deposit Insurance Corporation or the Office of Thrift
Supervision.  The management of Northeast Community Bank does not know
of any practice, condition or violation that might lead to termination of
deposit insurance.





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,
2007 of $414,000.  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 $43.9 million; a 10% reserve ratio is
applied above $43.9 million. The first $9.3 million of otherwise reservable
balances are exempted from the reserve requirements. The amounts are adjusted
annually. Northeast Community Bank complies with the foregoing
requirements.





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




14
 Index




(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.





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 board of directors determines that such
waiver is consistent with such directors’ fiduciary duties to the mutual holding
company’s members.  Northeast Community Bancorp, MHC waived receipt of
dividends from Northeast Community Bancorp in 2007.





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 designed to ensure
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 direct




15
 Index




or indirect
“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
            
            PositionKenneth
      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
            
            Executive
      Vice President and Chief Mortgage Officer of the
  Bank





Below is
information regarding our executive officer who is not also a
director.  Age presented is as of December 31, 2007.





Susan Barilehas served as
Executive 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 42.





ITEM 1A.
            RISK
      FACTORS





Changes
in interest rates may hurt our earnings and asset value.




Our net
interest income is the interest we earn on loans and investment less the
interest we pay on our deposits and borrowings.  Our net interest
margin is the difference between the yield we earn on our assets and the
interest rate we pay for deposits and our other sources of
funding.  Changes in interest rates—up or down—could adversely affect
our net interest margin and, as a result, our net interest
income.  Although the yield we earn on our assets and our funding
costs tend to move in the same direction in response to changes in interest
rates, one can rise or fall faster than the other, causing our net interest
margin to expand or contract.  Our liabilities tend to be shorter in
duration than our assets, so they may adjust faster in response to changes in
interest rates.  As a result, when interest rates rise, our funding
costs may rise faster than the yield we earn on our assets, causing our net
interest margin to contract until the yield catches up.  Changes in
the slope of the “yield curve”—or the spread between short-term and long-term
interest rates—could also reduce our net interest margin.  Normally,
the yield curve is upward sloping, meaning short-term rates are lower than
long-term rates.  Because our liabilities tend to be shorter in
duration than our assets, when the yield curve flattens or even inverts, we
could experience pressure on our net interest margin as our cost of funds
increases relative to the yield we can earn on our assets.  See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Risk Management—Interest Rate
Risk Management.”





16
 Index




Our
emphasis on multi-family residential, mixed-use and non-residential real estate
lending and our expansion into commercial lending and participations in
construction loans 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,
2007,$270.9
million, or95.6%,
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 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 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.  At December 31, 2007, $3.0 million, or 1.1%, of our loan
portfolio consisted of commercial loans.





Our
participation interests in construction loans present a greater level of risk
than loans secured by improved, occupied real estate due to:  (1) the
increased difficulty at the time the loan is made of estimating the building
costs and the selling price of the property to be built; (2) the increased
difficulty and costs of monitoring the loan; (3) the higher degree of
sensitivity to increases in market rates of interest; and (4) the increased
difficulty of working out loan problems.  We have sought to minimize
this risk by  limiting the amount of construction loan participation
interests outstanding at any time and spreading the participations between
multi-family, mixed-use and non-residential projects.  At December 31,
2007, the outstanding balance of our construction loan participation interests
totaled $9.5 million, or 3.3% of our total loan portfolio.





Our
expanded lending territory could expose us to increased lending
risks.





We have
expanded our lending territory beyond the New York metropolitan area to include
all of New York, Massachusetts, New Jersey, Connecticut, Pennsylvania, New
Hampshire, Rhode Island, Delaware, Maryland, Maine and Vermont.  In
January 2004, we opened a loan production office in Wellesley, Massachusetts
which serves Massachusetts, New Hampshire, Rhode Island, Maine and
Vermont.  In 2007, approximately 41.2% of our total loan originations
were outside the state of New York.  In 2006, approximately 44.0% of
our total loan originations were outside the state of New York.  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.  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.





17
 Index




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





We
currently operate out of our main office, our five other full-service branch
offices in the New York metropolitan area, and our loan production office in
Wellesley, Massachusetts, which we opened in 2004.  Recently, we began
to implement a growth strategy that expands our presence in other select markets
in the Northeastern United States.  We are currently exploring the
feasibility of opening several retail branch offices in the Wellesley,
Massachusetts market area.  We also intend to open de novo or purchase
at least two additional retail branch offices in locations 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 anticipate that we will incur approximately $90,000 in
expenses relating to our search for possible locations.  In addition,
we intend to open additional loan production offices in the next several years,
one likely in Pennsylvania and one in a location yet to be
determined.  We anticipate that the setup and operating expenses of
the loan production office in Pennsylvania will be approximately $235,000 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 mortgage lending, mortgage servicing and other employees to support
our expanded infrastructure.  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.  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.





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.





Our
allowance for loan losses may be inadequate, which could hurt our
earnings.





When
borrowers default and do not repay the loans that we make to them, we may lose
money.  The allowance for loan losses is the amount estimated by
management as necessary to cover probable 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.  If our estimates and judgments regarding
such matters prove to be incorrect, our allowance for loan losses might not be
sufficient, and additional loan loss provisions might need to be made. Depending
on the amount of such loan loss provisions, the adverse impact on our earnings
could be material.





In
addition, bank regulators may require us to make a provision for loan losses or
otherwise recognize further loan charge-offs following their periodic review of
our loan portfolio, our underwriting procedures, and our loan loss allowance.
Any increase in our allowance for loan losses or loan charge-offs as required by
such regulatory authorities could have a material adverse effect on our
financial condition and results of operations.  Please see “Allowance for Loan Losses”
under “Critical Accounting
Policies” in Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” for a discussion of
the procedures we follow in establishing our loan loss allowance.





18
 Index





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, 2007, the most recent date for which information is available from
the Federal Deposit Insurance Corporation, we held less than 0.07% of the
deposits in each of Westchester, Kings and New York counties, New York, and
approximately 0.61% 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.  We have recently
experienced an increase in non-performing and classified assets.  For
more information, see Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Risk
Management.”





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
senior 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.




19
 Index


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.





ITEM 1B.
            UNRESOLVED
      STAFF COMMENTS





None.




20
 Index





ITEM 2.
            PROPERTIES





We
conduct our business through our main office and five other full-service branch
offices.  The following table sets forth certain information relating
to these facilities as of December 31, 2007.


Location
                  
                  Year
                    Opened
                  
                  Date
      of Lease
                    Expiration
                  
                  Owned/
                    Leased
                  
                  Net
      Book Value(Dollars
      in thousands)Corporate
      Headquarters and Main Office:325
      Hamilton Avenue
                    White
      Plains, New York 10601
                  
                  1994
                  
                  N/A
                  
                  Owned
                  
                  $  1,085Branch
      Offices:1470
      First Avenue
                    New
      York, NY 10021(1)
                  
                  2006
                  
                  04/30/2011
                  
                  Leased
                  
                  213590
      East 187th Street
                    Bronx,
      New York 10458
                  
                  1972
                  
                  N/A
                  
                  Owned
                  
                  5202047
      86th Street
                    Brooklyn,
      New York 11214
                  
                  1988
                  
                  N/A
                  
                  Owned
                  
                  940242
      West 23rd Street
                    New
      York, NY 10011
                  
                  1996
                  
                  N/A
                  
                  Owned/Leased(2)
                  
                  1,0171751
      Second Avenue
                    New
      York, NY 10128
                  
                  1978
                  
                  09/30/2015
                  
                  Leased
                  
                  44Other
      Properties:300
      Hamilton Avenue
                    White
      Plains, New York 10601
                  
                  2000
                  
                  05/31/2010
                  
                  Leased
                  
                  601355
      First Avenue
                    New
      York, NY 10021(3)
                  
                  1946
                  
                  2109
                  
                  Leased
                  
                  -40
      Grove Street
                    Wellesley,
      Massachusetts 02482
                  
                  2004
                  
                  02/28/2009
                  
                  Leased
                  
                  2830
      Post Road East
                    Westport,
      Connecticut  06880
                  
                  2007
                  
                  4/30/2010
                  
                  Leased
                  
                  -
  ____________________________________


(1)
            The
      Bank has temporarily relocated its branch office at 1353-55 First Avenue
      to this property due to the sale and renovation of the building located at
      1355 First Avenue.  See footnote 3
  below.


(2)
            This
      property is owned by us, but is subject to a 99 year ground lease, the
      term of which expires in 2084.


(3)
            In
      June 2007, the Bank sold this building and temporarily relocated its
      branch office located at 1353-55 First Avenue to 1470 First Avenue, New
      York, New York, while 1353-55 First Avenue is being
      renovated.  On June 30, 2007, the Bank entered into a 99 year
      lease agreement for office space on the first floor of the building at
      1353-55 First Avenue so that the Bank may continue to operate a branch
      office at this location after the building has been renovated. Lease to commence
      upon completion of construction at 1353-55 First Avenue, which is
      presently expected to be in 2010.





21
 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, 2007, 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.







PART
II





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 Global Market (“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, as
reported by NASDAQ, and the dividends paid by the Company during each quarter
since trading commenced.  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
            
            
            Low2007:First
      Quarter
            
            
            N/A
            
            
            $
            12.47
            
            
            $
            11.50Second
      Quarter
            
            
            N/A
            
            
            
            12.60
            
            
            
            11.35Third
      Quarter
            
            $
            0.03
            
            
            
            12.18
            
            
            
            9.25Fourth
      Quarter
            
            
            0.03
            
            
            
            12.89
            
            
            
            10.002006:Third
      Quarter
            
            
            N/A
            
            
            $
            11.45
            
            
            $
            10.75Fourth
      Quarter
            
            
            N/A
            
            
            
            12.35
            
            
            
            11.25





Northeast
Community Bancorp, MHC, the Company’s majority stockholder, has waived receipt
of all dividends declared by the Company.  During 2007, the aggregate
amount of dividends waived was $436,000.





As
of  March 17, 2008, there were approximately 346 holders of record of
the Company’s common stock.





The
Company did not repurchase any of its common stock during the fourth quarter of
2007 and, at December 31, 2007, we had no publicly announced repurchase plans or
programs.





22
 Index





ITEM6.
            SELECTED
      FINANCIAL DATA





At
      or For the Years Ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in thousands, except per share data)Financial
      Condition Data:Total
      assets
            
            $
            343,895
            
            
            $
            288,417
            
            
            $
            238,821
            
            
            $
            237,300
            
            
            $
            231,788Cash
      and cash equivalents
            
            
            39,146
            
            
            
            36,749
            
            
            
            27,389
            
            
            
            48,555
            
            
            
            57,824Securities
      held to maturity
            
            
            2,875
            
            
            
            27,455
            
            
            
            12,228
            
            
            
            11,395
            
            
            
            9,452Securities
      available for sale
            
            
            320
            
            
            
            355
            
            
            
            362
            
            
            
            473
            
            
            
            649Loans
      receivable, net
            
            
            283,133
            
            
            
            201,306
            
            
            
            190,896
            
            
            
            167,690
            
            
            
            154,546Bank
      owned life insurance
            
            
            8,515
            
            
            
            8,154
            
            
            
            –
            
            
            
            –
            
            
            
            –Deposits
            
            
            225,978
            
            
            
            188,592
            
            
            
            193,314
            
            
            
            193,617
            
            
            
            190,037Total
      stockholders’ equity
            
            
            108,829
            
            
            
            96,751
            
            
            
            43,120
            
            
            
            41,146
            
            
            
            39,589Operating
      Data:Interest
      income
            
            $
            17,602
            
            
            $
            15,348
            
            
            $
            13,652
            
            
            $
            12,885
            
            
            $
            14,513Interest
      expense
            
            
            5,918
            
            
            
            4,493
            
            
            
            3,110
            
            
            
            2,494
            
            
            
            2,620Net
      interest income
            
            
            11,684
            
            
            
            10,855
            
            
            
            10,542
            
            
            
            10,391
            
            
            
            11,893Provision
      for loan losses
            
            
            338
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Net
      interest income after provision for loan losses
            
            
            11,346
            
            
            
            10,855
            
            
            
            10,542
            
            
            
            10,391
            
            
            
            11,893Gain
      (loss) on sale of premises and equipment
            
            
            18,962
            
            
            
            (5
            )
            
            
            (19
            )
            
            
            (136
            )
            
            
            (52
            )Other
      income
            
            
            805
            
            
            
            624
            
            
            
            553
            
            
            
            559
            
            
            
            543Other
      expenses
            
            
            9,826
            
            
            
            8,870
            
            
            
            7,515
            
            
            
            8,078
            
            
            
            7,400Income
      before income taxes
            
            
            21,287
            
            
            
            2,604
            
            
            
            3,561
            
            
            
            2,736
            
            
            
            4,984Provision
      for income taxes
            
            
            9,150
            
            
            
            1,046
            
            
            
            1,571
            
            
            
            1,173
            
            
            
            2,592Net
      income
            
            $
            12,137
            
            
            $
            1,558
            
            
            $
            1,990
            
            
            $
            1,563
            
            
            $
            2,392Net
      income per share – basic and diluted (1)
            
            $
            0.95
            
            
            $
            0.06
            
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/ADividends
      declared per share
            
            $
            0.06
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –





____________________________________


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





23
 Index




At
      or For the Years Ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Performance
      Ratios:Return
      on average assets (1)
            
            
            3.94
            %
            
            
            0.57
            %
            
            
            0.83
            %
            
            
            0.66
            %
            
            
            1.02
            %Return
      on average equity (1)
            
            
            11.70
            
            
            
            2.24
            
            
            
            4.69
            
            
            
            3.80
            
            
            
            6.13Interest
      rate spread (2)
            
            
            3.13
            
            
            
            3.65
            
            
            
            4.27
            
            
            
            4.36
            
            
            
            5.07Net
      interest margin (3)
            
            
            4.09
            
            
            
            4.24
            
            
            
            4.55
            
            
            
            4.58
            
            
            
            5.30Noninterest
      expense to average assets
            
            
            3.19
            
            
            
            3.26
            
            
            
            3.13
            
            
            
            3.42
            
            
            
            3.16Efficiency
      ratio (1) (4)
            
            
            31.24
            
            
            
            77.31
            
            
            
            67.85
            
            
            
            74.70
            
            
            
            59.75Average
      interest-earning assets to average interest-bearing
      liabilities
            
            
            146.61
            
            
            
            133.99
            
            
            
            120.33
            
            
            
            119.73
            
            
            
            118.82Average
      equity to average assets
            
            
            33.67
            
            
            
            25.57
            
            
            
            17.65
            
            
            
            17.45
            
            
            
            16.66Capital
      Ratios - Bank:Tangible
      capital
            
            
            24.18
            
            
            
            25.46
            
            
            
            17.92
            
            
            
            17.05
            
            
            
            16.92Core
      capital
            
            
            24.18
            
            
            
            25.46
            
            
            
            17.92
            
            
            
            17.05
            
            
            
            16.92Total
      risk-based capital
            
            
            37.50
            
            
            
            44.58
            
            
            
            33.08
            
            
            
            35.71
            
            
            
            36.33Asset
      Quality Ratios:Allowance
      for loan losses as a percent of total loans
            
            
            0.53
            
            
            
            0.60
            
            
            
            0.63
            
            
            
            0.71
            
            
            
            0.77Allowance
      for loan losses as a percent of nonperforming loans
            
            
            65.48
            
            
            
            N/M
            
            
            
            N/M
            
            
            
            N/M
            
            
            
            N/MNet
      charge-offs to average outstanding loans during the period
            
            
            0.02
            
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.01Non-performing
      loans as a percent of total loans
            
            
            0.80
            
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.00Other
      Data:Number
      of:Real
      estate loans outstanding
            
            
            485
            
            
            
            400
            
            
            
            399
            
            
            
            364
            
            
            
            381Deposit
      accounts
            
            
            15,025
            
            
            
            15,898
            
            
            
            17,243
            
            
            
            18,251
            
            
            
            19,528Offices
      (5)
            
            
            9
            
            
            
            8
            
            
            
            8
            
            
            
            7
            
            
            
            7


____________________________________




(1)
            2007
      operations included a non-recurring gain of $18,962,000 from the gain on
      sale of the building in which our First Avenue branch was
      located.  If such gain, net of income taxes at the 2007 marginal
      income tax rate, were removed, return on average assets, return on average
      equity, and efficiency ratio would be 0.43%, 1.28%, and 78.68%,
      respectively.


(2)
            Represents
      the difference between the weighted average yield on average
      interest-earning assets and the weighted average cost of interest-bearing
      liabilities.


(3)
            Represents
      net interest income as a percent of average interest-earning
      assets.


(4)
            Represents
      noninterest expense divided by the sum of net interest income and
      noninterest income.


(5)
            For
      2007, includes our main office, our five other full-service branch
      offices, our loan production office in Wellesley, Massachusetts, our
      investment advisory service office in Westport, Connecticut, and an office
      that houses our processing center.


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








24
 Index





ITEM7.
            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




25
 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.





Sale
of New York City Branch Office





In June
2007, the Bank completed the sale of its branch office building located at
1353-55 First Avenue, New York, New York.  The purchase price for the
building was $28.0 million.  The Bank received $10.0 million in cash
at closing.  The remaining $18.0 million will be paid in two
installments of $9.0 million on each of June 30, 2008 and June 30, 2009,
pursuant to a zero coupon promissory note secured by a purchase money real
estate mortgage, assignment and security agreement.  The zero coupon
note was recorded at its present value of $16.3 million.





The sale
of the branch office resulted in a pre-tax gain of $19.0 million, or a net gain
of $10.8 million after providing for $8.2 million in income
taxes.  The sale also provided an increase in total assets of $19.0
million represented by increases of $9.1 million in cash and $16.3 million in
loans receivable partially offset by decreases of $6.2 million in property and
equipment and $263,000 in other assets.  The sale resulted in the
accrual of $8.2 million of income taxes on the sale gain.





In
connection with the sale of the branch office building, the Bank entered into a
99-year lease agreement to enable the Bank to retain a branch office at 1353-55
First Avenue.  This lease will be effective upon the completion of the
renovation of the property (projected to be in 2010).  We have
temporarily relocated our First Avenue branch office to 1470 First Avenue while
1353-55 First Avenue is being renovated.





Acquisition
of the Business Assets of Hayden Financial Group LLC





On
November 16, 2007, the Bank acquired the operating assets of Hayden Financial
Group LLC (“Hayden”), an investment advisory firm located in Connecticut, at a
cost of $2.0 million.  The Bank paid $1.3 million at closing, and
$700,000 will be paid in four annual installments of $175,000.  The
acquisition of these business assets has enabled the Bank to expand the services
it provides to include investment advisory and financial planning services to
the then-existing Hayden customer base as well as future customers through a
networking arrangement with a registered broker-dealer and investment
adviser.  In connection with this transaction, we acquired intangible
assets related to customer relationships of $710,000 and goodwill of $1,310,000
and booked a note payable with a present value of $625,000.  The
intangible asset has been determined to have an 11.7-year life and, absent
impairment issues, will be amortized to operations over that period using the
straight-line method.  Both the intangible assets and goodwill will be
subject to impairment review on no less than an annual basis.  The
note is payable in four annual installments, one on each succeeding note
anniversary date, of $175,000.  The note was initially recorded at
$625,000, assuming a 4.60% discount rate.  The note payable balance at
December 31, 2007 was $627,000 and note discount accreted during 2007 totaled
$2,000.  The acquired business is being operated as a




26
 Index




division of the Bank and,
during the period owned in 2007, generated total revenues of approximately
$69,000 and net income of approximately $2,000.




Balance
Sheet Analysis





Overview.Total
assets at December 31, 2007, increased $55.5 million, or 19.2%, to $343.9
million from total assets of $288.4 million at December 31, 2006.  The
increase was primarily due to an increase of $81.8 million in loans receivable,
net, partially offset by a decrease of $24.6 million in securities and $6.6
million in premises and equipment.  Of the $81.8 million increase in
loans receivable, $16.9 million was attributable to the note received in
connection with the sale of our First Avenue branch office.  The
remaining increase in loans was funded with the aforementioned decrease in
securities and an increase of $37.4 million in deposits.





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 commercial and consumer loans and purchase
participation interests in construction loans.  At December 31, 2007,
loans receivable, net, totaled $283.1 million, an increase of $81.8 million, or
40.6%, from total loans receivable, net, of $201.3 million at December 31,
2006.  The promissory note that the Bank received in connection with
the sale of the Bank’s branch office building located at 1353-55 First Avenue,
which had a $16.9 million balance at December 31, 2007, is included in the
non-residentialsegment of our real
estate loan portfolio for 2007.





The
largest segment of our real estate loans is multi-family residential
loans.  As of December 31, 2007, these loans totaled $138.8 million,
or 49.0% of our total loan portfolio, compared to $110.4 million, or 54.8% of
our total loan portfolio at December 31, 2006.  As of December 31,
2007, mixed-use loans totaled $52.6 million, or 18.5% of our total loan
portfolio, compared to $42.6 million, or 21.1% of our total loan portfolio at
December 31, 2006.  Non-residential real estate loans totaled $79.3
million, or 28.0% of our total loan portfolio at December 31, 2007, compared to
$47.8 million, or 23.7% of our total loan portfolio at December 31,
2006.  At December 31, 2007 and 2006, one- to four-family residential
real estate loans totaled $304,000 and $405,000, or 0.1% and 0.2% of our total
loan portfolio, respectively.





During
2007, we established a new commercial loan department.  At December
31, 2007, our commercial loan portfolio totaled $5.5 million in committed loans,
with $3.0 million drawn against such commitments, compared to no commercial
loans at December 31, 2006.  In 2007 we also purchased participation
interests in construction loans secured by multi-family, mixed-use and
non-residential properties.  We perform our own underwriting analysis
on each of our participation interests before purchasing such
loans.  The outstanding balance of construction loan participation
interests purchased totaled $9.5 million, or 3.3% of our total loan portfolio at
December 31, 2007.





In
addition, 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
$88,000 and represented 0.03% of total loans at December 31, 2007, compared to
$419,000, or 0.21%, of total loans at December 31, 2006.





27
 Index





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





At
      December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in thousands)Real
      estate:Residential
      Real Estate:One-
      to four-family
            
            $
            304
            
            
            
            0.11
            %
            
            $
            405
            
            
            
            0.20
            %
            
            $
            587
            
            
            
            0.31
            %
            
            $
            837
            
            
            
            0.49
            %
            
            $
            985
            
            
            
            0.63
            %Multi-family
      (1)
            
            
            138,767
            
            
            
            48.95
            
            
            
            110,389
            
            
            
            54.76
            
            
            
            100,360
            
            
            
            52.43
            
            
            
            99,400
            
            
            
            58.93
            
            
            
            86,000
            
            
            
            55.29Mixed-use
      (1)
            
            
            52,559
            
            
            
            18.54
            
            
            
            42,576
            
            
            
            21.12
            
            
            
            43,919
            
            
            
            22.94
            
            
            
            38,287
            
            
            
            22.70
            
            
            
            40,457
            
            
            
            26.01Total
      residential real estate loans
            
            
            191,630
            
            
            
            67.60
            
            
            
            153,370
            
            
            
            76.08
            
            
            
            144,866
            
            
            
            75.68
            
            
            
            138,524
            
            
            
            82.12
            
            
            
            127,442
            
            
            
            81.93Non-residential
      real estate (1)
            
            
            79,305
            
            
            
            27.98
            
            
            
            47,802
            
            
            
            23.71
            
            
            
            46,219
            
            
            
            24.14
            
            
            
            29,785
            
            
            
            17.66
            
            
            
            27,795
            
            
            
            17.87Total
      real estate
            
            
            270,935
            
            
            
            95.58
            
            
            
            201,172
            
            
            
            99.79
            
            
            
            191,085
            
            
            
            99.82
            
            
            
            168,309
            
            
            
            99.78
            
            
            
            155,237
            
            
            
            99.80Construction
      loans
            
            
            9,456
            
            
            
            3.34
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Commercial
      loans
            
            
            2,977
            
            
            
            1.05
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Consumer:Overdraft
      lines of credit
            
            
            69
            
            
            
            0.02
            
            
            
            71
            
            
            
            0.04
            
            
            
            83
            
            
            
            0.04
            
            
            
            96
            
            
            
            0.06
            
            
            
            113
            
            
            
            0.07Passbook
      loans
            
            
            19
            
            
            
            0.01
            
            
            
            348
            
            
            
            0.17
            
            
            
            268
            
            
            
            0.14
            
            
            
            270
            
            
            
            0.16
            
            
            
            207
            
            
            
            0.13Total
      consumer loans
            
            
            88
            
            
            
            0.03
            
            
            
            419
            
            
            
            0.21
            
            
            
            351
            
            
            
            0.18
            
            
            
            366
            
            
            
            0.22
            
            
            
            320
            
            
            
            0.20Total
      loans
            
            
            283,456
            
            
            
            100.00
            %
            
            
            201,591
            
            
            
            100.00
            %
            
            
            191,436
            
            
            
            100.00
            %
            
            
            168,675
            
            
            
            100.00
            %
            
            
            155,557
            
            
            
            100.00
            %Net
      deferred loan costs
            
            
            1,166
            
            
            
            
            
            
            
            915
            
            
            
            
            
            
            
            660
            
            
            
            
            
            
            
            215
            
            
            
            
            
            
            
            189Allowance
      for losses
            
            
            (1,489
            )
            
            
            
            
            
            
            (1,200
            )
            
            
            
            
            
            
            (1,200
            )
            
            
            
            
            
            
            (1,200
            )
            
            
            
            
            
            
            (1,200
            )Loans,
      net
            
            $
            283,133
            
            
            
            
            
            
            $
            201,306
            
            
            
            
            
            
            $
            190,896
            
            
            
            
            
            
            $
            167,690
            
            
            
            
            
            
            $
            154,546








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





28
 Index





The
following table sets forth the dollar amount of all loans at December 31, 2007
that are due after December 31, 2008 and have either fixed or adjustable
interest rates.





Fixed
      Rates
            
            
            Adjustable
      Rates
            
            
            Total(In
      thousands)Residential
      real estate:One-
      to four-family
            
            $
            66
            
            
            $
            238
            
            
            $
            304Multi-family
            
            
            6,183
            
            
            
            132,058
            
            
            
            138,241Mixed-use
            
            
            4,102
            
            
            
            48,019
            
            
            
            52,121Non-residential
      real estate
            
            
            19,883
            
            
            
            58,800
            
            
            
            78,683Construction
      loans
            
            
            -
            
            
            
            2,131
            
            
            
            2,131Commercial
      loans
            
            
            615
            
            
            
            -
            
            
            
            615Consumer
      and other loans
            
            
            -
            
            
            
            69
            
            
            
            69Total
            
            $
            30,849
            
            
            $
            241,315
            
            
            $
            272,164





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





2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(In
      thousands)Total
      loans at beginningof
      period
            
            $
            201,591
            
            
            $
            191,436
            
            
            $
            168,675
            
            
            $
            155,557
            
            
            $
            169,524Loans
      originated:Residential
      real estate:One-
      to four-family
            
            
            -
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Multi-family
            
            
            43,376
            
            
            
            19,409
            
            
            
            24,551
            
            
            
            34,939
            
            
            
            23,114Mixed-use
            
            
            16,098
            
            
            
            7,304
            
            
            
            9,794
            
            
            
            11,801
            
            
            
            5,945Non-residential
      real estate
            
            
            24,451
            
            
            
            9,010
            
            
            
            23,831
            
            
            
            6,957
            
            
            
            12,006Construction
      loans
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Commercial
      loans
            
            
            3,012
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Consumer
      and other loans
            
            
            17
            
            
            
            80
            
            
            
            –
            
            
            
            63
            
            
            
            71Total
      loans originated
            
            
            86,954
            
            
            
            35,803
            
            
            
            58,176
            
            
            
            53,760
            
            
            
            41,136Construction
      loan participation purchased
            
            
            11,695
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Loan
      from sale of building
            
            
            16,341
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Deduct:Loan
      principal repayments
            
            
            32,109
            
            
            
            25,648
            
            
            
            35,415
            
            
            
            40,642
            
            
            
            52,006Loan
      sales
            
            
            1,505
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            3,097Total
      deductions
            
            
            33,614
            
            
            
            25,648
            
            
            
            35,415
            
            
            
            40,642
            
            
            
            55,103Other
      increases
            
            
            489
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      loans at end of period
            
            $
            283,456
            
            
            $
            201,591
            
            
            $
            191,436
            
            
            $
            168,675
            
            
            $
            155,557





Securities. Our securities
portfolio consists primarily of U.S. Treasury securities, U.S. Government agency
securities, and mortgage-backed securities.  Securities decreased
$24.6 million, or 88.5%, from $27.8 million at December 31, 2006, to $3.2
million at December 31, 2007.  The decrease was primarily due to
maturities and repayments of $29.7 million that exceeded purchases of $5.0
million.




29
 Index





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





At
      December 31,2007
            
            
            2006
            
            
            2005Amortized
              Cost
            
            
            Fair
              Value
            
            
            Amortized
              Cost
            
            
            Fair
              Value
            
            
            Amortized
              Cost
            
            
            Fair
              Value(In
      thousands)Securities
      available for sale:Fannie
      Mae common stock
            
            $
            4
            
            
            $
            46
            
            
            $
            4
            
            
            $
            72
            
            
            $
            4
            
            
            $
            58Mortgage-backed
      securities
            
            
            273
            
            
            
            274
            
            
            
            281
            
            
            
            283
            
            
            
            302
            
            
            
            304Total
            
            $
            277
            
            
            $
            320
            
            
            $
            285
            
            
            $
            355
            
            
            $
            306
            
            
            $
            362Securities
      held to maturity:U.S.
      Government and agency securities
            
            $
            -
            
            
            $
            -
            
            
            $
            22,904
            
            
            $
            22,904
            
            
            $
            4,999
            
            
            $
            4,950Mortgage-backed
      securities
            
            
            2,875
            
            
            
            2,890
            
            
            
            4,551
            
            
            
            4,564
            
            
            
            7,229
            
            
            
            7,232Total
            
            $
            2,875
            
            
            $
            2,890
            
            
            $
            27,455
            
            
            $
            27,468
            
            
            $
            12,228
            
            
            $
            12,182





At
December 31, 2007, we had no investments in a single company or entity that had
an aggregate book value in excess of 10% of our equity.





30
 Index





The
following table sets forth the stated maturities and weighted average yields of
debt securities at December 31, 2007.  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, 2007, mortgage-backed securities
with adjustable rates totaled $3.1 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
            
            
            TotalCarrying
              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
            
            $
            46
            
            
            
            0.00
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            46
            
            
            
            -Mortgage-backed
      securities
            
            
            4
            
            
            
            4.80
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            270
            
            
            
            6.76
            %
            
            
            274
            
            
            
            6.73
            %Total
      securities available for sale
            
            $
            50
            
            
            
            0.38
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            270
            
            
            
            6.76
            %
            
            $
            320
            
            
            
            5.76
            %Securities
      held to maturity:U.S.
      Government and agency securities
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -Mortgage-backed
      securities
            
            
            50
            
            
            
            5.29
            %
            
            
            46
            
            
            
            8.25
            %
            
            
            303
            
            
            
            6.63
            %
            
            
            2,476
            
            
            
            6.08
            %
            
            
            2,875
            
            
            
            6.16
            %Total
      securities held to maturity
            
            $
            50
            
            
            
            5.29
            %
            
            $
            46
            
            
            
            8.25
            %
            
            $
            303
            
            
            
            6.63
            %
            
            $
            2,476
            
            
            
            6.08
            %
            
            $
            2,875
            
            
            
            6.16
            %




31
 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 and non-broker
certificates of deposit gathered through two nationwide certificate of deposit
listing services.  The non-broker certificates of deposits are
accepted from banks, credit unions, non-profit organizations and certain
corporations in amounts greater then $75,000 and less then
$100,000.





Depositsincreased by $37.4
million, or 19.8%, in the year ended December 31, 2007.  The increase
in deposits is primarily attributable to an effort by the Bank to increase
deposits through the offering of competitive interest rates in two nationwide
certificate of deposits listing services.  As a result, the Bank had a
total of $43.2 million in such certificates of deposits at December 31,
2007.





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





At
      December 31,2007
            
            
            2006
            
            
            2005Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in thousands)Now
      and money market deposit accounts
            
            $
            21,839
            
            
            
            9.6
            %
            
            $
            21,137
            
            
            
            11.2
            %
            
            $
            22,731
            
            
            
            11.8
            %Savings
      accounts
            
            
            57,346
            
            
            
            25.4
            
            
            
            60,755
            
            
            
            32.2
            
            
            
            73,133
            
            
            
            37.8Noninterest
      bearing demand deposits
            
            
            1,745
            
            
            
            0.8
            
            
            
            1,439
            
            
            
            0.8
            
            
            
            1,499
            
            
            
            0.8Certificates
      of deposit
            
            
            145,048
            
            
            
            64.2
            
            
            
            105,261
            
            
            
            55.8
            
            
            
            95,951
            
            
            
            49.6Total
            
            $
            225,978
            
            
            
            100.0
            %
            
            $
            188,592
            
            
            
            100.0
            %
            
            $
            193,314
            
            
            
            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,
2007.  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
            
            $
            7,483Over
      three through six months
            
            
            3,838Over
      six through twelve months
            
            
            7,890Over
      twelve months
            
            
            9,035Total
            
            $
            28,246





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





At
      December 31,2007
            
            
            2006
            
            
            2005(In
      thousands)0.00
      - 1.00%
            
            $
            40
            
            
            $
            32
            
            
            $
            5671.01
      - 2.00%
            
            
            1
            
            
            
            329
            
            
            
            10,3502.01
      - 3.00%
            
            
            988
            
            
            
            9,407
            
            
            
            33,6833.01
      - 4.00%
            
            
            16,551
            
            
            
            26,025
            
            
            
            28,6804.01
      - 5.00%
            
            
            65,554
            
            
            
            47,212
            
            
            
            22,2845.01
      - 6.00%
            
            
            61,914
            
            
            
            22,249
            
            
            
            338Over
      6.00%
            
            
            -
            
            
            
            7
            
            
            
            49Total
            
            $
            145,048
            
            
            $
            105,261
            
            
            $
            95,951





32
 Index





The
following table sets forth the amount and maturities of time deposits at
December 31, 2007.





Amount
      DueLess
      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%
            
            $
            40
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            40
            
            
            
            0.03
            %1.01
      - 2.00%
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1
            
            
            
            0.002.01
      - 3.00%
            
            
            942
            
            
            
            46
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            988
            
            
            
            0.683.01
      - 4.00%
            
            
            12,264
            
            
            
            3,692
            
            
            
            565
            
            
            
            30
            
            
            
            -
            
            
            
            16,551
            
            
            
            11.414.01
      - 5.00%
            
            
            44,328
            
            
            
            9,070
            
            
            
            8,876
            
            
            
            1,279
            
            
            
            2,001
            
            
            
            65,554
            
            
            
            45.195.01
      - 6.00%
            
            
            37,766
            
            
            
            11,723
            
            
            
            4,971
            
            
            
            3,790
            
            
            
            3,664
            
            
            
            61,914
            
            
            
            42.69Over
      6.00%
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0.00Total
            
            $
            95,341
            
            
            $
            24,531
            
            
            $
            14,412
            
            
            $
            5,099
            
            
            $
            5,665
            
            
            $
            145,048
            
            
            
            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.  As of
December 31, 2007, we had no FHLB advances outstanding.  In
conjunction with the Hayden acquisition on November 16, 2007, the Company
incurred a four-year zero-coupon note payable of $700,000.  The note
is payable in four annual installments, one on each succeeding note anniversary
date, of $175,000.  The note was initially recorded at $625,000,
assuming a 4.60% discount rate.  The note payable balance at December
31, 2007 was $627,000 and note discount accreted during 2007 totaled
$2,000.  We had no borrowings as of or during the year ended December
31, 2006.





Stockholders’
Equity.  Stockholders’
equity increased $12.1 million, or 12.5%, to $108.83 million at December 31,
2007, from $96.75 million at December 31, 2006.  The increase was
primarily due to net income of $12.1 million.  In addition,
stockholders’ equity was increased by $302,000 of earned ESOP shares and reduced
by $328,000 of cash dividends declared to minority
stockholders.  Northeast Community Bancorp, MHC, the Company’s
majority stockholder, received approval of the Office of Thrift Supervision to
waive its right to receive its share of cash dividends declared by the Company
in 2007, which totaled approximately $436,000.  We anticipate that the
MHC will continue to waive receipt of all dividends declared by the Company,
subject to applicable regulatory approvals.





Results
of Operations for the Years Ended December 31, 2007 and 2006





Overview.





2007
            
            
            2006
            
            
            %
      Change
              2007/2006(Dollars
      in thousands)Net
      income
            
            $
            12,137
            
            
            $
            1,558
            
            
            
            679.0
            %Return
      on average assets
            
            
            3.94
            %
            
            
            0.57
            %
            
            
            591.2Return
      on average equity
            
            
            11.70
            
            
            
            2.24
            
            
            
            422.3Average
      equity to average assets
            
            
            33.67
            
            
            
            25.57
            
            
            
            31.7





Net
income for the year ended December 31, 2007 increased by $10.6 million, or
679.0%, to $12.1 million from $1.6 million in 2006.  The increase was
primarily the result of the $19.0 million gain ($10.8 million net of income
taxes) from the disposition in June 2007 of the Bank’s branch office building
located at 1353-55 First Avenue.  Excluding the effect of the branch
sale, net income in 2007 decreased by $232,000, or 14.9%, primarily due to a
$956,000 increase in noninterest expense and a $338,000 increase in the
provision for loan losses, partially offset by an increase of $829,000 in net
interest income, a $186,000 increase in noninterest income (excluding effect of
the branch sale), and a $47,000 decrease in income tax (excluding the effect of
the branch sale).





33
 Index





Net Interest
Income.  Net interest income increased by $829,000, or 7.6%, to
$11.7 million for the year ended December 31, 2007, from $10.9 million for the
year ended December 31, 2006.  The increase in net interest income
resulted primarily from the increased average balance of net interest-earning
assets of $26.0 million due primarily to increased loan
originations.  The effect of increased balances was partially offset
by a 52 basis point decrease in our net interest rate spread to 3.13% for the
year ended December 31, 2007, from 3.65% for the year ended December 31,
2006.  The net interest margin decreased 15 basis points to 4.09% for
the year ended December 31, 2007, from 4.24% for the year ended December 31,
2006.





The
decrease in the interest rate spread and net interest margin in 2007 was due to
the cost of our interest-bearing liabilities increasing to a greater degree than
the increase in the yield earned on our interest-earning assets.  The
cost of our interest-bearing liabilities increased by 68 basis points to 3.03%
for the year ended December 31, 2007, from 2.35% for the year ended December 31,
2006, whereas the yield on our interest-earning assets increased by 16 basis
points to 6.16% for the year ended December 31, 2007, from 6.00% for the year
ended December 31, 2006.








34
 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.  Average loan balances include nonaccrual loans, which were
not material to any period presented.  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.


Year
      Ended December 31,2007
              
              
              2006
              
              
              2005Average
                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
              
              $
              232,496
              
              
              $
              14,894
              
              
              
              6.41
              %
              
              $
              200,683
              
              
              $
              12,771
              
              
              
              6.36
              %
              
              $
              179,129
              
              
              $
              11,987
              
              
              
              6.69
              %Securities
              
              
              16,664
              
              
              
              839
              
              
              
              5.03
              
              
              
              22,913
              
              
              
              1,064
              
              
              
              4.64
              
              
              
              13,764
              
              
              
              496
              
              
              
              3.60Other
      interest-earning assets
              
              
              36,813
              
              
              
              1,869
              
              
              
              5.08
              
              
              
              32,390
              
              
              
              1,513
              
              
              
              4.67
              
              
              
              38,707
              
              
              
              1,169
              
              
              
              3.02Total
      interest-earning assets
              
              
              285,973
              
              
              
              17,602
              
              
              
              6.16
              
              
              
              255,986
              
              
              
              15,348
              
              
              
              6.00
              
              
              
              231,600
              
              
              
              13,652
              
              
              
              5.89Allowance
      for loan losses
              
              
              (1,362
              )
              
              
              
              
              
              
              
              
              
              
              (1,200
              )
              
              
              
              
              
              
              
              
              
              
              (1,200
              )Noninterest-earning
      assets
              
              
              23,535
              
              
              
              
              
              
              
              
              
              
              
              17,145
              
              
              
              
              
              
              
              
              
              
              
              9,879Total
      assets
              
              $
              308,146
              
              
              
              
              
              
              
              
              
              
              $
              271,931
              
              
              
              
              
              
              
              
              
              
              $
              240,279Liabilities
      and equity:Interest-bearing
      liabilities:Interest-bearing
      demand
              
              $
              20,704
              
              
              
              117
              
              
              
              0.57
              %
              
              $
              22,363
              
              
              
              111
              
              
              
              0.50
              %
              
              $
              22,825
              
              
              
              62
              
              
              
              0.27Savings
      and club accounts
              
              
              58,963
              
              
              
              415
              
              
              
              0.70
              
              
              
              66,951
              
              
              
              469
              
              
              
              0.70
              
              
              
              76,607
              
              
              
              373
              
              
              
              0.49Certificates
      of deposit
              
              
              115,032
              
              
              
              5,365
              
              
              
              4.66
              
              
              
              101,732
              
              
              
              3,913
              
              
              
              3.85
              
              
              
              93,039
              
              
              
              2,675
              
              
              
              2.88Total
      interest-bearing deposits
              
              
              194,699
              
              
              
              5,897
              
              
              
              3.03
              
              
              
              191,046
              
              
              
              4,493
              
              
              
              2.35
              
              
              
              192,471
              
              
              
              3,110
              
              
              
              1.62Borrowings
              
              
              352
              
              
              
              21
              
              
              
              5.97
              
              
              
              -
              
              
              
              -
              
              
              
              0.00
              
              
              
              -
              
              
              
              -
              
              
              
              0.00Total
      interest-bearing liabilities
              
              
              195,051
              
              
              
              5,918
              
              
              
              3.03
              
              
              
              191,046
              
              
              
              4,493
              
              
              
              2.35
              
              
              
              192,471
              
              
              
              3,110
              
              
              
              1.62Noninterest-bearing
      demand
              
              
              1,753
              
              
              
              
              
              
              
              
              
              
              
              7,806
              
              
              
              
              
              
              
              
              
              
              
              1,663Other
      liabilities
              
              
              7,583
              
              
              
              
              
              
              
              
              
              
              
              3,559
              
              
              
              
              
              
              
              
              
              
              
              3,735Total
      liabilities
              
              
              204,387
              
              
              
              
              
              
              
              
              
              
              
              202,411
              
              
              
              
              
              
              
              
              
              
              
              197,869Stockholders’
      equity
              
              
              103,759
              
              
              
              
              
              
              
              
              
              
              
              69,520
              
              
              
              
              
              
              
              
              
              
              
              42,410Total
      liabilities and Stockholders’ equity
              
              $
              308,146
              
              
              
              
              
              
              
              
              
              
              $
              271,931
              
              
              
              
              
              
              
              
              
              
              $
              240,279Net
      interest income
              
              
              
              
              
              $
              11,684
              
              
              
              
              
              
              
              
              
              
              $
              10,855
              
              
              
              
              
              
              
              
              
              
              $
              10,542Interest
      rate spread
              
              
              
              
              
              
              
              
              
              
              3.13
              
              
              
              
              
              
              
              
              
              
              
              3.65
              
              
              
              
              
              
              
              
              
              
              
              4.27Net
      interest margin
              
              
              
              
              
              
              
              
              
              
              4.09
              
              
              
              
              
              
              
              
              
              
              
              4.24
              
              
              
              
              
              
              
              
              
              
              
              4.55Net
      interest-earning assets
              
              $
              90,922
              
              
              
              
              
              
              
              
              
              
              $
              64,940
              
              
              
              
              
              
              
              
              
              
              $
              39,129Interest-earning
      assets to interest- bearing liabilities
              
              
              146.61
              %
              
              
              
              
              
              
              
              
              
              
              133.99
              %
              
              
              
              
              
              
              
              
              
              
              120.33
              %





35
 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.





2007
      Compared to 2006
            
            
            2006
      Compared to 2005Increase
      (Decrease)
              Due
      to
            
            
            
            
            
            Increase
      (Decrease)
              Due
      toVolume
            
            
            Rate
            
            
            Net
            
            
            Volume
            
            
            Rate
            
            
            Net(In
      thousands)Interest
      and dividend income:Loans
      receivable
            
            $
            2,037
            
            
            $
            86
            
            
            $
            2,123
            
            
            $
            1,392
            
            
            $
            (608
            )
            
            $
            784Investment
      securities
            
            
            (309
            )
            
            
            84
            
            
            
            (225
            )
            
            
            396
            
            
            
            172
            
            
            
            568Other
      interest-earning assets
            
            
            218
            
            
            
            138
            
            
            
            356
            
            
            
            (215
            )
            
            
            559
            
            
            
            344Total
      interest-earning assets
            
            
            1,946
            
            
            
            308
            
            
            $
            2,254
            
            
            
            1,573
            
            
            
            123
            
            
            
            1,696Interest
      expense:Interest-bearing
      demand deposits
            
            
            (9
            )
            
            
            15
            
            
            
            6
            
            
            
            (1
            )
            
            
            50
            
            
            
            49Savings
      accounts
            
            
            (56
            )
            
            
            2
            
            
            
            (54
            )
            
            
            (52
            )
            
            
            148
            
            
            
            96Certificates
      of deposit
            
            
            553
            
            
            
            900
            
            
            
            1,453
            
            
            
            268
            
            
            
            970
            
            
            
            1,238Borrowings
            
            
            -
            
            
            
            21
            
            
            
            21
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      interest-bearing liabilities
            
            
            488
            
            
            
            938
            
            
            
            1,426
            
            
            
            215
            
            
            
            1,168
            
            
            
            1,383Net
      change in interest income
            
            $
            1,458
            
            
            $
            (630
            )
            
            $
            828
            
            
            $
            1,358
            
            
            $
            (1,045
            )
            
            $
            313





Provision for
Loan Losses.  In 2007, a $338,000 provision was made to the
allowance for loan losses due primarily to the increase in mortgage loan
balances outstanding.  The effect of the provision for loan losses was
partially offset by a charge-off of $49,000 on a mixed-use mortgage loan that
was subsequently foreclosed and sold during 2007.  The allowance for
loan losses as of December 31, 2007 represented 0.53% of total loans, compared
to 0.60% as of December 31, 2006.





There
were no recoveries during the year ended December 31, 2007, and there were no
recoveries, charge-offs or provisions for loan losses during the year ended
December 31, 2006.





Noninterest
Income.  The following table shows the components of
noninterest income for the years ended December 31, 2007 and 2006.





2007
            
            
            2006
            
            
            %
      Change
              2007/2006(Dollars
      in thousands)Service
      charges
            
            $
            358
            
            
            $
            443
            
            
            
            (19.2
            )%Net
      gain (loss) from premises and equipment
            
            
            18,962
            
            
            
            (5
            )
            
            
            N/MEarnings
      on bank owned life insurance
            
            
            361
            
            
            
            154
            
            
            
            134.4Other
            
            
            86
            
            
            
            27
            
            
            
            218.5Total
            
            $
            19,767
            
            
            $
            619
            
            
            
            3,093.4








N/M           Not
meaningful.





Non-interest
income increased $19.1 million, or 3,093.4%, to $19.8 million for the year ended
December 31, 2007, from $619,000 for the year ended December 31,
2006.  The increase was primarily the result of the $19.0 million gain
from the June 2007 sale of the Bank’s branch office building located at 1353-55
First Avenue.  In addition, income from bank-owned life insurance,
which was purchased in July 2006, increased by $207,000, or 134.4%, to $361,000
for the year ended December 31, 2007, from $154,000 for the year ended December
31, 2006.




36
 Index




The increase in
other noninterest income was primarily the result of $69,000 in investment
advisory income earned by our Hayden Division since its acquisition in November
2007.




Noninterest
Expense.
The following table shows the components of noninterest expense and the
percentage changes for the years ended December 31, 2007, 2006 and
2005.





Year
      Ended December 31,2007
            
            
            2006
            
            
            %
      Change
              2007/2006(Dollars
      in thousands)Salaries
      and employee benefits
            
            $
            5,189
            
            
            $
            4,604
            
            
            
            12.7
            %Net
      occupancy expense of premises
            
            
            1,107
            
            
            
            1,072
            
            
            
            3.3Equipment
            
            
            462
            
            
            
            480
            
            
            
            (3.8
            )Outside
      data processing
            
            
            650
            
            
            
            608
            
            
            
            6.9Advertising
            
            
            84
            
            
            
            135
            
            
            
            (37.8
            )Service
      contracts
            
            
            205
            
            
            
            191
            
            
            
            7.3Insurance
            
            
            165
            
            
            
            162
            
            
            
            1.9Audit
      and accounting
            
            
            214
            
            
            
            208
            
            
            
            2.9Directors
      compensation
            
            
            219
            
            
            
            214
            
            
            
            2.3Telephone
            
            
            167
            
            
            
            161
            
            
            
            3.7Office
      supplies and stationary
            
            
            209
            
            
            
            252
            
            
            
            (17.1
            )Director,
      officer, and employee expenses
            
            
            235
            
            
            
            158
            
            
            
            48.7Legal
      fees
            
            
            277
            
            
            
            185
            
            
            
            49.7Other
            
            
            642
            
            
            
            440
            
            
            
            45.9Total
      noninterest expenses
            
            $
            9,826
            
            
            $
            8,870
            
            
            
            10.8





Noninterest
expense increased $956,000, or 10.8%, to $9.8 million for the year ended
December 31, 2007, from $8.9 million for the year ended December 31,
2006.  The increase resulted primarily from an increase of $585,000 in
salaries and employee benefits.  All other elements of noninterest
expense increased in the aggregate by $371,000 or 8.7%.





The
increase in salaries and employee benefits was primarily due to a $161,000
mid-year goal attainment payment made to employees, a $140,000 severance payment
made to a long-time officer, an increase of $25,000 in ESOP expense, and an
increase in the number of full time equivalent employees to 87 at December 31,
2007 from 74 at December 31, 2006.





All other
noninterest expenses increased by $371,000, or 8.7%, to $4.6 million in 2007
from $4.3 million in 2006 due largely to additional expenses (audit and
accounting, directors compensation, legal fees, and other non-interest expense)
associated with being a public company.  The increase in director,
officer, and employee expenses was due to the additional marketing efforts of
the mortgage loan and commercial loan departments.





Income Taxes.Income tax expense increased by $8.1 million, or 774.8%, to $9.15 million
for the year ended December 31, 2007, from $1.05 million for the year ended
December 31, 2006.  The increase resulted primarily from the $18.7
million increase in pre-tax income in 2007 compared to 2006.  The
effective tax rate was 43.0% or the year ended December 31, 2007, compared to
40.2% for 2006.  The increased effective tax rate was due to the
increased level of pre-tax income and the resultant reduced impact of tax-exempt
income.





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


37
 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  past-due 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 continue to
accrue interest on past-due loans and loans in foreclosure as long management
determines that there is a reasonable expectation of collection.  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 a 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.





38
 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 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in thousands)Nonaccrual
      loans:Residential
      real estate:One-
      to four-family
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –Multi-family
            
            
            666
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Mixed-use
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            1,200
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Construction
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            1
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
            
            $
            1,867
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –Accruing
      loans past due 90 days or more:Residential
      real estate:One-
      to four-family
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Multi-family
            
            
            407
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Mixed-use
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            –
            
            
            
            2
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
            
            
            407
            
            
            
            2
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      of nonaccrual and 90 days or more past due loans
            
            
            2,274
            
            
            
            2
            
            
            
            –
            
            
            
            –
            
            
            
            –Foreclosed
      real estate
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Other
      nonperforming assets
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      nonperforming assets
            
            
            2,274
            
            
            
            2
            
            
            
            –
            
            
            
            –
            
            
            
            –Troubled
      debt restructurings
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Troubled
      debt restructurings and total nonperforming assets
            
            $
            2,274
            
            
            $
            2
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –Total
      nonperforming loans to total loans
            
            
            0.80
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %Total
      nonperforming loans to total assets
            
            
            0.66
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %Total
      nonperforming assets and troubled debt restructurings to total
      assets
            
            
            0.66
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %





At
December 31, 2007, we had one nonaccrual multi-family mortgage loan and two
nonaccrual non-residential mortgage loans totaling $1.9 million.  The
nonaccrual multi-family mortgage loan had an outstanding balance of $666,000 and
is secured by three buildings containing fourteen apartments located in Hampton,
New Hampshire.  We are in the process of accepting a deed-in-lieu of
foreclosure on this property.  Based on a recent fair value analysis
of the property, the Bank does not expect a loss on the disposition of the
property.





One of
the nonaccrual non-residential mortgage loans had an outstanding balance of
$769,000 and is secured by two gasoline stations and an automobile repair
facility located in Putnam and Westchester Counties, New York.  The
other nonaccrual non-residential mortgage loan had an outstanding balance of
$431,000 and is secured by a non-residential building located in Yonkers, New
York.  The accruing multi-family delinquent mortgage loan had an
outstanding balance of $407,000 and is secured by a six unit apartment building
located in Newark, New Jersey.





39
 Index





Interest
income that would have been recorded for the year ended December 31, 2007 had
nonaccruing loans been current to their original terms amounted to approximately
$153,000.  During the year ended December 31, 2007, the Bank
recognized interest income of approximately $21,000 on the nonaccrual
loans.





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.





The
following table shows the aggregate amounts of our classified assets at the
dates indicated.





At
      December 31,2007
            
            
            2006
            
            
            2005(In
      thousands)Special
      mention assets
            
            $
            865
            
            
            $
            –
            
            
            $
            –Substandard
      assets
            
            
            1,866
            
            
            
            –
            
            
            
            –Doubtful
      and loss assets
            
            
            -
            
            
            
            –
            
            
            
            –Total
      classified assets
            
            $
            2,731
            
            
            $
            –
            
            
            $
            –





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





At
      December 31,2007
            
            
            2006
            
            
            200530-59
              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
            
            
            –
            
            
            
            458
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Mixed-use
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Construction
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Commercial
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            4
            
            
            
            –
            
            
            
            –
            
            
            
            2
            
            
            
            1
            
            
            
            –Total
            
            $
            4
            
            
            $
            458
            
            
            $
            –
            
            
            $
            2
            
            
            $
            1
            
            
            $
            –





40
 Index





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 impaired and
problem loans, if appropriate; 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 Impaired and Problem
Loans.  We establish an allowance on certain identified
impaired and 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 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, 2007, our allowance for loan losses was $1.5 million and
represented 0.53% of total gross loans.  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 increase in
our general valuation allowance is due primarily to the increase in mortgage
loan balances outstanding as of December 31, 2007.




41
 Index





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





At
      December 31,2007
            
            
            2006
            
            
            2005Amount
            
            
            %
      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
            %
            
            
            0.1
            %
            
            $
            -
            
            
            
            0.0
            %
            
            
            0.2
            %
            
            $
            –
            
            
            
            0.0
            %
            
            
            0.3
            %Multi-family
            
            
            472
            
            
            
            31.7
            
            
            
            49.0
            
            
            
            395
            
            
            
            32.9
            
            
            
            54.8
            
            
            
            443
            
            
            
            36.9
            
            
            
            52.4Mixed-use
            
            
            250
            
            
            
            16.8
            
            
            
            18.5
            
            
            
            251
            
            
            
            20.9
            
            
            
            21.1
            
            
            
            277
            
            
            
            23.1
            
            
            
            22.9Non-residential
      real estate
            
            
            691
            
            
            
            46.4
            
            
            
            28.0
            
            
            
            554
            
            
            
            46.2
            
            
            
            23.7
            
            
            
            480
            
            
            
            40.0
            
            
            
            24.2Construction
            
            
            50
            
            
            
            3.4
            
            
            
            3.3
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0Commercial
            
            
            25
            
            
            
            1.7
            
            
            
            1.1
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0Consumer
      and other loans
            
            
            –
            
            
            
            0.0
            
            
            
            0.0
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.2
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.2Total
      allowance for loan losses
            
            $
            1,489
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            1,200
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            1,200
            
            
            
            100.0
            %
            
            
            100.0
            %






At
      December 31,2004
            
            
            2003Amount
            
            
            %
      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
            
            $
            2
            
            
            
            0.2
            %
            
            
            0.5
            %
            
            $
            3
            
            
            
            0.3
            %
            
            
            0.6
            %Multi-family
            
            
            520
            
            
            
            43.3
            
            
            
            58.9
            
            
            
            497
            
            
            
            41.4
            
            
            
            55.3Mixed-use
            
            
            290
            
            
            
            24.2
            
            
            
            22.7
            
            
            
            329
            
            
            
            27.4
            
            
            
            26.0Non-residential
      real estate
            
            
            388
            
            
            
            32.3
            
            
            
            17.7
            
            
            
            371
            
            
            
            30.9
            
            
            
            17.9Construction
            
            
            –
            
            
            
            0.0
            
            
            
            0.0
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0Commercial
            
            
            –
            
            
            
            0.0
            
            
            
            0.0
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0Consumer
      and other loans
            
            
            –
            
            
            
            0.0
            
            
            
            0.2
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.2Total
      allowance for loan losses
            
            $
            1,200
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            1,200
            
            
            
            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.





42
 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 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
      in thousands)Allowance
      at beginning of period
            
            $
            1,200
            
            
            $
            1,200
            
            
            $
            1,200
            
            
            $
            1,200
            
            
            $
            1,219Provision
      for loan losses
            
            
            338
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Charge
      offs:Residential
      real estate:One-
      to four-family
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (19
            )Multi-family
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Mixed-use
            
            
            (49
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –ConstructionConsumer
      and other loans
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      charge-offs
            
            
            (49
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (19
            )Recoveries:Residential
      real estate:One-
      to four-family
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Multi-family
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Mixed-use
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Construction
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      recoveries
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Net
      charge-offsNet charge-offs
            
            
            (49
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (19
            )Allowance
      at end of period
            
            $
            1,489
            
            
            $
            1,200
            
            
            $
            1,200
            
            
            $
            1,200
            
            
            $
            1,200Allowance
      to nonperforming loans
            
            
            65.48
            %
            
            
            N/M
            
            
            
            N/M
            
            
            
            N/M
            
            
            
            N/MAllowance
      to total loans outstanding at the end of the period
            
            
            0.53
            %
            
            
            0.60
            %
            
            
            0.63
            %
            
            
            0.71
            %
            
            
            0.77
            %Net
      charge-offs (recoveries) to average loans outstanding during the
      period
            
            
            0.02
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.01
            %





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, chief retail banking 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.




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





43
 Index





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,
2007 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 AssetsBasis
      Point (“bp”)
              Change
      in Rates
            
            
            $
              Amount
            
            
            $
              Change
            
            
            %
              Change
            
            
            NPV
              Ratio
            
            
            Change300
            
            
            $
            82,817
            
            
            $
            (3,604
            )
            
            
            (4
            )%
            
            
            25.88
            %
            
            
            (29
            )
      bp200
            
            
            
            84,092
            
            
            
            (2,329
            )
            
            
            (3
            )%
            
            
            26.01
            %
            
            
            (16
            )
      bp100
            
            
            
            85,318
            
            
            
            (1,103
            )
            
            
            (1
            )%
            
            
            26.11
            %
            
            
            ( 6
            )
      bp0
            
            
            
            86,420
            
            
            
            -
            
            
            
            -
            
            
            
            26.17
            %(100
            )
            
            
            87,479
            
            
            
            1,059
            
            
            
            1
            %
            
            
            26.21
            %
            
            
            4
            bp(200
            )
            
            
            88,377
            
            
            
            1,956
            
            
            
            2
            %
            
            
            26.20
            %
            
            
            3
            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.





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 $39.1
million at December 31, 2007 and consist primarily of deposits at other
financial  institutions (Predominantly the Federal Home Loan Bank of
New York) 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 $320,000 at December 31, 2007 and $355,000 at December
31, 2006.





44
 Index





At
December 31, 2007, we had $50.2 million in loan commitments
outstanding.  At December 31, 2007, this consisted of $36.1 million of
real estate loan origination commitments, $8.0 million in commercial loan
commitments, $2.9 million in unused real estate equity lines of credit, $2.5
million in unused commercial loan lines, $582,000 in construction loans in
process, and $191,000 in unused consumer lines of
credit.  Certificates of deposit due within one year of December 31,
2007 totaled $95.3 million.  This represented 65.7% of certificates of
deposit at December 31, 2007.  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,
2008.  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.





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, 2007, we had the ability to borrow
$11.2 million from the Federal Home Loan Bank of New York, which included two
available overnight lines of credit of $5.6 million each.  At December
31, 2007, we had no overnight advances outstanding.  Subsequent to
December 31, 2007, we increased our borrowing line with the Federal Home Loan
Bank of New York to $72.7 million dollars.  During the first quarter
of 2008, we borrowed $15.0 million through advances from the FHLB, of which
$15.0 million was outstanding as of March 31, 2008.  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 and commercial loan commitments outstanding.  Occasionally, we
offer promotional rates on certain deposit products to attract deposits or to
lengthen repricing time frames.





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





Year
      Ended December 31,2007
            
            
            2006
            
            
            2005(In
      thousands)Investing
      activities:Loans
      disbursed or closed
            
            $
            (86,954
            )
            
            $
            (35,803
            )
            
            $
            (58,176
            )Purchase
      of loan participations
            
            
            (11,695
            )
            
            
            -
            
            
            
            -Loan
      principal repayments
            
            
            32,109
            
            
            
            25,648
            
            
            
            35,415Sale
      of loans.
            
            
            1,505
            
            
            
            -
            
            
            
            -Proceeds
      from maturities and principal repayments of securities
            
            
            29,676
            
            
            
            35,682
            
            
            
            3,107Purchases
      of securities
            
            
            (5,000
            )
            
            
            (50,335
            )
            
            
            (3,874
            )Purchase
      of bank owned life insurance
            
            
            -
            
            
            
            (8,000
            )
            
            
            –Proceeds
      from sale of premises and equipment
            
            
            9,082
            
            
            
            -
            
            
            
            -Purchases
      of premises and equipment
            
            
            (198
            )
            
            
            (6,726
            )
            
            
            (156
            )Purchase
      of business
            
            
            (1,384
            )
            
            
            -
            
            
            
            -Financing
      activities:Increase
      (decrease) in deposits
            
            
            37,386
            
            
            
            (4,727
            )
            
            
            (302
            )Initial
      stock offering, net of ESOP shares
            
            
            -
            
            
            
            52,444
            
            
            
            –




45
 Index





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, 2007, 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 sale of our First Avenue branch office
building in the second quarter of 2007 further increased our
capital.  Over time, the initial level of liquidity will be reduced as
net proceeds from the stock offering and the 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 branch office building sale will,
initially, have an adverse impact on our return on equity.  From time
to time, we may consider capital management tools such as cash dividends and
common stock repurchases.





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, 2007 and 2006, 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.





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 Operations.”





ITEM8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





The information required by this item
is included herein beginning on page F-1.




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




None.




46
 Index





ITEM
      9A(T).
            CONTROLS
      AND PROCEDURES





(a)
            Disclosure
      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, 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 effective for the purpose 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.





(b)
            Internal
      Controls Over Financial Reporting





Management’s
annual report on internal control over financial reporting is incorporated
herein by reference to the Company’s audited Consolidated Financial Statements
in this Annual Report on Form 10-K.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.





(c)
            Changes
      to Internal Control Over Financial
Reporting





Except as
indicated herein, there were no changes in the Company’s internal control over
financial reporting during the three months ended December 31, 2007 that have
materially affected, or are reasonable likely to materially affect, the
Company’s internal control over financial reporting.





ITEM9B.
                OTHER
      INFORMATION





None.





PART
III





ITEM
      10.
            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 2008 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.





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.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





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





47
 Index





ITEM
      12.
            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.





48
 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.
    (2)4.1
            Specimen
      Stock Certificate of Northeast Community Bancorp, Inc.
  (1)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 (3)*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*(4)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
      herein by reference to the Company’s Registration Statement on Form S-1,
      as amended, initially filed with the SEC on March 12,
  2006.


(2)
            Incorporated
      herein by reference to Exhibit 3.2 to the Company’s Current Report on Form
      8-K filed with the SEC on October 30,
2007.


(3)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on
      Form 10-Q for the quarter ended September 30,
  2006.


(4)
            Incorporated
      herein by reference to Exhibit 10.8 to the Company’s Annual Report on Form
      10-K for the year ended December 31,
2006.





49
 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 31, 2008
            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 Officer
            
            March
      31, 2008Kenneth
      A. Martinek
            
            and
      Director(principal
      executive officer)/s/
      Salvatore Randazzo
            
            Executive
      Vice President, Chief
            
            March
      31, 2008Salvatore
      Randazzo
            
            Financial
      Officer and Director(principal
      accounting and financial officer)/s/
      Diane B. Cavanaugh
            
            Director
            
            March
      31, 2008Diane
      B. Cavanaugh/s/
      Arthur M. Levine
            
            Director
            
            March
      31, 2008Arthur
      M. Levine/s/
      Charles A. Martinek
            
            Director
            
            March
      31, 2008Charles
      A. Martinek/s/
      John F. McKenzie
            
            Director
            
            March
      31, 2008John
      F. McKenzie/s/
      Linda M. Swan
            
            Director
            
            March
      31, 2008Linda
      M. Swan/s/
      Harry (Jeff) A.S. Read
            
            Director
            
            March
      31, 2008Harry
      (Jeff) A.S. Read/s/
      Kenneth H. Thomas
            
            Director
            
            March
      31, 2008Kenneth
      H. Thomas





Index





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




PageManagement’s
      Report on Internal Control over Financial Reporting
              F-1Report
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Statements of Financial Condition as of December 31, 2007 and
      2006
              F-3Consolidated
      Statements of Income for the Years Ended December 31, 2007 and
      2006
              F-4Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2007
      and 2006
              F-5Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2007 and
      2006
              F-6Notes
      to Consolidated Financial Statements
              F-8




Index





Management’s
Report on Internal Control Over Financial Reporting





The
management of Northeast Community Bancorp, Inc. (“the Company”) is responsible
for establishing and maintaining adequate internal control over financial
reporting.  The internal control process has been designed under our
supervision to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Company’s financial statements
for external reporting purposes in accordance with accounting principles
generally accepted in the United States of America.





Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2007, utilizing the framework
established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).  Based
on this assessment, management has determined that the Company’s internal
control over financial reporting as of December 31, 2007 is
effective.





Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that accurately and fairly reflect, in
reasonable detail, transactions and dispositions of assets; and provide
reasonable assurances that:  (1) transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States; (2) receipts and
expenditures are being made only in accordance with authorizations of management
and the directors of the Company; and (3) unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the
Company’s financial statements are prevented or timely detected.





All
internal control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





F-1
 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, 2007 and 2006, and the related consolidated statements of
income, stockholders’ equity, and cash flows for the years then
ended.  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, 2007 and 2006, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.








/s/
      Beard Miller Company LLPBeard
      Miller Company LLPPine
      Brook, New JerseyMarch
      19, 2008


F-2
 Index




Consolidated
Statements of Financial Condition







December
      31,2007
                
                
                2006(In
      thousands, except share and per share data)AssetsCash
      and amounts due from depository institutions
                
                $
                1,878
                
                
                $
                2,650Interest-bearing
      deposits
                
                
                37,268
                
                
                
                34,099Cash
      and cash equivalents
                
                
                39,146
                
                
                
                36,749Securities
      available-for-sale
                
                
                320
                
                
                
                355Securities
      held-to-maturity
                
                
                2,875
                
                
                
                27,455Loans
      receivable, net of allowance for loan losses $1,489 and $1,200,
      respectively
                
                
                283,133
                
                
                
                201,306Premises
      and equipment, net
                
                
                4,529
                
                
                
                11,117Federal
      Home Loan Bank of New York stock, at cost
                
                
                414
                
                
                
                399Bank
      owned life insurance
                
                
                8,515
                
                
                
                8,154Accrued
      interest receivable
                
                
                1,340
                
                
                
                1,101Goodwill
                
                
                1,310
                
                
                
                -Intangible
      assets
                
                
                710
                
                
                
                -Other
      assets
                
                
                1,603
                
                
                
                1,781Total
      Assets
                
                $
                343,895
                
                
                $
                288,417Liabilities
      and Stockholders’ EquityLiabilities:Deposits:Non-interest-bearing
      deposits
                
                $
                1,745
                
                
                $
                1,439Interest-bearing
      deposits
                
                
                224,233
                
                
                
                187,153Total
      deposits
                
                
                225,978
                
                
                
                188,592Advance
      payments by borrowers for taxes and insurance
                
                
                2,884
                
                
                
                1,929Accounts
      payable and accrued expenses
                
                
                5,577
                
                
                
                1,145Note
      payable
                
                
                627
                
                
                
                -Total
      Liabilities
                
                
                235,066
                
                
                
                191,666Commitments
      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 shares
                
                
                132
                
                
                
                132Additional
      paid-in capital
                
                
                57,555
                
                
                
                57,513Unearned
      Employee Stock Ownership Plan (“ESOP”) shares
                
                
                (4,665
                )
                
                
                (4,925
                )Retained
      earnings
                
                
                55,956
                
                
                
                44,147Accumulated
      comprehensive loss
                
                
                (149
                )
                
                
                (116
                )Total
      Stockholders’ Equity
                
                
                108,829
                
                
                
                96,751Total
      Liabilities and Stockholders’ Equity
                
                $
                343,895
                
                
                $
                288,417





See
notes to consolidated financial statements





F-3
 Index





Consolidated
Statements of Income





Years
      Ended December 31,2007
                  
                  
                  2006(In
      thousands, except share and per share data)Interest
      Income:Loans
                  
                  $
                  14,894
                  
                  
                  $
                  12,771Interest-earning
      deposits
                  
                  
                  1,869
                  
                  
                  
                  1,513Securities
      - taxable
                  
                  
                  839
                  
                  
                  
                  1,064Total
      Interest Income
                  
                  
                  17,602
                  
                  
                  
                  15,348Interest
      Expense:Deposits
                  
                  
                  5,897
                  
                  
                  
                  4,493Borrowings
                  
                  
                  21
                  
                  
                  
                  -Total
      Interest Expense
                  
                  
                  5,918
                  
                  
                  
                  4,493Net
      Interest Income before Provision for Loan Losses
                  
                  
                  11,684
                  
                  
                  
                  10,855Provision
      for Loan Losses
                  
                  
                  338
                  
                  
                  
                  -Net
      Interest Income after Provision for Loan Losses
                  
                  
                  11,346
                  
                  
                  
                  10,855Non-Interest
      Income:Other
      loan fees and service charges
                  
                  
                  358
                  
                  
                  
                  443Net
      gain (loss) from premises and equipment
                  
                  
                  18,962
                  
                  
                  
                  (5
                  )Earnings
      on bank owned life insurance
                  
                  
                  361
                  
                  
                  
                  154Other
                  
                  
                  86
                  
                  
                  
                  27Total
      Non-Interest Income
                  
                  
                  19,767
                  
                  
                  
                  619Non-Interest
      Expenses:Salaries
      and employee benefits
                  
                  
                  5,189
                  
                  
                  
                  4,604Net
      occupancy expense
                  
                  
                  1,107
                  
                  
                  
                  1,072Equipment
                  
                  
                  462
                  
                  
                  
                  480Outside
      data processing
                  
                  
                  650
                  
                  
                  
                  608Advertising
                  
                  
                  84
                  
                  
                  
                  135Other
                  
                  
                  2,334
                  
                  
                  
                  1,971Total
      Non-Interest Expenses
                  
                  
                  9,826
                  
                  
                  
                  8,870Income
      before Provision for Income Taxes
                  
                  
                  21,287
                  
                  
                  
                  2,604Provision
      for Income Taxes
                  
                  
                  9,150
                  
                  
                  
                  1,046Net
      Income
                  
                  $
                  12,137
                  
                  
                  $
                  1,558Net
      Income per Common Share – Basic
                  
                  $
                  0.95
                  
                  
                  $
                  0.06
                  (A)Weighted
      Average Number of Common Shares Outstanding – Basic
                  
                  
                  12,745
                  
                  
                  
                  12,726
                  (A)Dividends
      Declared per Common Share
                  
                  $
                  0.06
                  
                  
                  $
                  -(A)  The
      Company completed its initial public stock offering on July 5,
      2006.





See
notes to consolidated financial statements





F-4
 Index





Consolidated
Statements of Stockholders’ Equity


Years
Ended December 31, 2007 and 2006




Common
      Stock
            
            
            Additional
              Paid-
      in Capital
            
            
            Unearned
      ESOP Shares
            
            
            Retained
      Earnings
            
            
            Accumu-lated
      Other Compre-hensive Income (Loss)
            
            
            Total
              Equity
            
            
            Comprehensive
              Income(In
      thousands)Balance
      - December 31, 2005
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            43,089
            
            
            $
            31
            
            
            $
            43,120Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,558
            
            
            
            -
            
            
            
            1,558
            
            
            $
            1,558Unrealized
      gain on securities available for sale, net of deferred income taxes of
      $(3)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11
            
            
            
            11
            
            
            
            11ESOP
      shares earned
            
            
            -
            
            
            
            17
            
            
            
            259
            
            
            
            -
            
            
            
            -
            
            
            
            276Adjustment
      to initially apply SFAS 158, net of deferred income taxes of
      $129
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (158
            )
            
            
            (158
            )Capitalization
      of Mutual HoldingCompany
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (500
            )
            
            
            -
            
            
            
            (500
            )Issuance
      of common stock
            
            
            132
            
            
            
            57,496
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            57,628Common
      stock acquired by ESOP
            
            
            -
            
            
            
            -
            
            
            
            (5,184
            )
            
            
            -
            
            
            
            -
            
            
            
            (5,184
            )Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,569Balance
      - December 31, 2006
            
            
            132
            
            
            
            57,513
            
            
            
            (4,925
            )
            
            
            44,147
            
            
            
            (116
            )
            
            
            96,751Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,137
            
            
            
            -
            
            
            
            12,137
            
            
            $
            12,137Unrealized
      loss on securities available for sale, net of taxes of
    $(10)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (17
            )
            
            
            (17
            )
            
            
            (17
            )Prior
      Service Cost – DRP, net of taxes of $(13)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (16
            )
            
            
            (16
            )
            
            
            (16
            )Cash
      dividend declared ($0.06 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (328
            )
            
            
            -
            
            
            
            (328
            )ESOP
      shares earned
            
            
            -
            
            
            
            42
            
            
            
            260
            
            
            
            -
            
            
            
            -
            
            
            
            302Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            12,104Balance
      - December 31, 2007
            
            $
            132
            
            
            $
            57,555
            
            
            $
            (4,665
            )
            
            $
            55,956
            
            
            $
            (149
            )
            
            $
            108,829







See
notes to consolidated financial statements




F-5
 Index





Consolidated
Statements of Cash Flows







Years
      Ended December 31,2007
                  
                  
                  2006(In
      Thousands)Cash
      Flows from Operating Activities:Net
      income
                  
                  $
                  12,137
                  
                  
                  $
                  1,558Adjustments
      to reconcile net income to net cash provided by operating
      activities:Net
      accretion of securities premiums and (discounts)
                  
                  
                  (88
                  )
                  
                  
                  (553
                  )Provision
      for loan losses
                  
                  
                  338
                  
                  
                  
                  -Provision
      for depreciation
                  
                  
                  589
                  
                  
                  
                  589Net
      (accretion) amortization of deferred discounts, fees and
    costs
                  
                  
                  (424
                  )
                  
                  
                  76Deferred
      income tax expense (benefit)
                  
                  
                  5,053
                  
                  
                  
                  (214
                  )(Gain)
      loss from dispositions of premises and equipment
                  
                  
                  (18,962
                  )
                  
                  
                  5Earnings
      on bank owned life insurance
                  
                  
                  (361
                  )
                  
                  
                  (154
                  )(Increase)
      in accrued interest receivable
                  
                  
                  (239
                  )
                  
                  
                  (98
                  )(Increase)
      decrease in other assets
                  
                  
                  (1,080
                  )
                  
                  
                  143Increase
      in accrued interest payable
                  
                  
                  8
                  
                  
                  
                  5Increase
      in other liabilities
                  
                  
                  184
                  
                  
                  
                  174ESOP
      shares earned
                  
                  
                  302
                  
                  
                  
                  276Net
      Cash Provided by (Used in) Operating Activities
                  
                  
                  (2,543
                  )
                  
                  
                  1,807Cash
      Flows from Investing Activities:Purchase
      of loans
                  
                  
                  (11,695
                  )
                  
                  
                  -Sale
      of loan participation interest
                  
                  
                  1,505
                  
                  
                  
                  -Net
      increase in loans
                  
                  
                  (55,208
                  )
                  
                  
                  (10,486
                  )Purchase
      of securities held-to-maturity
                  
                  
                  (5,000
                  )
                  
                  
                  (50,335
                  )Principal
      repayments on securities available-for-sale
                  
                  
                  8
                  
                  
                  
                  21Principal
      repayments on securities held-to-maturity
                  
                  
                  29,668
                  
                  
                  
                  35,661Purchase
      of Federal Home Loan Bank of New York stock
                  
                  
                  (15
                  )
                  
                  
                  (42
                  )Purchases
      of premises and equipment
                  
                  
                  (198
                  )
                  
                  
                  (6,726
                  )Proceeds
      from sale of premises and equipment
                  
                  
                  9,082
                  
                  
                  
                  17Purchase
      of business
                  
                  
                  (1,384
                  )
                  
                  
                  -Purchase
      of bank owned life insurance
                  
                  
                  -
                  
                  
                  
                  (8,000
                  )Net
      Cash (Used in) Investing Activities
                  
                  
                  (33,237
                  )
                  
                  
                  (39,890
                  )Cash
      Flows from Financing Activities:Net
      increase (decrease) in deposits
                  
                  
                  37,386
                  
                  
                  
                  (4,727
                  )Increase
      in advance payments by borrowers for taxes and insurance
                  
                  
                  955
                  
                  
                  
                  226Net
      proceeds of initial public stock offering
                  
                  
                  -
                  
                  
                  
                  57,628Common
      stock acquired by the ESOP
                  
                  
                  -
                  
                  
                  
                  (5,184
                  )Cash
      dividends paid to minority shareholders
                  
                  
                  (164
                  )
                  
                  
                  -Initial
      capitalization of mutual holding company
                  
                  
                  -
                  
                  
                  
                  (500
                  )Net
      Cash Provided by Financing Activities
                  
                  
                  38,177
                  
                  
                  
                  47,443Net
      Increase in Cash and Cash Equivalents
                  
                  
                  2,397
                  
                  
                  
                  9,360Cash
      and Cash Equivalents - Beginning
                  
                  
                  36,749
                  
                  
                  
                  27,389Cash
      and Cash Equivalents - Ending
                  
                  $
                  39,146
                  
                  
                  $
                  36,749






See
notes to consolidated financial statements




F-6
 Index





Consolidated Statements of Cash Flows
(Continued)





Years
      Ended December 31,2007
            
            
            2006(In
      Thousands)Supplementary
      Cash Flows Information:Income
      taxes paid
            
            $
            4,865
            
            
            $
            1,093Interest
      paid
            
            $
            5,908
            
            
            $
            4,488Supplementary
      Disclosure of Non-Cash Investing and Financing Activities:Loan
      receivable originated in connection with building sale
            
            $
            16,341
            
            
            $
            -Assets
      acquired (liabilities incurred) in connection with the acquisition of a
      business:Intangible
      Assets
            
            $
            710
            
            
            $
            -Goodwill
            
            
            1,310
            
            
            
            -Note
      Payable
            
            
            (625
            )
            
            
            -





See
notes to consolidated financial statements




F-7
 Index





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 and commercial loans.  When demand for loans
is low, the Bank invests in debt securities.  Currently the Bank
conducts banking operations from its Headquarters in White Plains, New York
gathering deposits nationwide and lending from Pittsburgh, Pennsylvania to
southern Maine.  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.





New
England Commercial Properties LLC, a New York limited liability company and
wholly owned subsidiary of the Bank, was formed in October 2007 to facilitate
the purchase or lease of real property by the Bank.Northeast Commercial
Properties, LLC has been inactive since inception and had no assets or employees
during 2007.





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 inter-company accounts and transactions have been eliminated in
consolidation.





The
preparation of consolidated financial statements, in conformity with U.S.
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.





F-8
 Index





Note
1 - Summary of Significant Accounting Policies (Continued)





Nature
of Business and Significant Estimates (Continued)





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
re-pricing of assets are different than the maturities or re-pricing 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.





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 other than temporarily 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





Loans are
stated at unpaid principle balances plus net deferred loan origination costs
less an allowance for loan losses which 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
un-collectible.  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





F-9
 Index





Note
1 – Summary of Significant Accounting Policies (Continued)





Loans
and Allowance for Loan Losses (Continued)





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, second to late charges, third to escrow, and fourth to
principal.





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 there is a reasonable expectation 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
non-residential 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, 2007, such deposits totaled $37.0 million, of which $36.8
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.





F-10
 Index





Note
1 - Summary of Significant Accounting Policies (Continued)





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:





YearsBuildings
            
            
            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”)





The Bank
owns life insurance on the lives of certain of its officers.  The cash
surrender value is recorded as an asset and 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 is carried at cost.





Business
Combinations





Amounts
paid for acquisitions are allocated to the tangible assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition.  The Company then allocates the purchase price in excess
of net tangible assets acquired to identifiable intangible
assets.  The fair value of identifiable intangible assets is based on
detailed valuations that use information and assumptions provided by
management.  The Company allocates any excess purchase price over the
fair value of the net tangible and intangible assets acquired to
goodwill.





Intangible
Assets





Intangible
assets at December 31, 2007, totaled $710,000 and consist of the value of
customer relationships acquired in the business combination completed by the
Company in November 2007.  The Company recorded these intangible
assets at cost and will commence amortizing such assets on January 1, 2008,
using the straight-line method over 11.7 years.  Amortization expense
will be included in other non-interest expenses.  The Company plans to
evaluate the remaining useful life of intangible assets on a periodic basis to
determine whether events and circumstances warrant a revision to the remaining
useful life.  If the estimate of an intangible asset’s remaining
useful life is changed, the Company will amortize the remaining carrying value
of the intangible asset prospectively over the revised remaining useful
life.  The Company plans to review intangible assets subject to
amortization for impairment whenever events or circumstances indicate that the
carrying value of these assets may not be recoverable.  The Company
will assess the recoverability of





F-11
 Index





Note
1 - Summary of Significant Accounting Policies (Continued)





Intangible
Assets (Continued)





intangible
assets using undiscounted cash flows.  If intangible assets are found
to be impaired, the amount recognized for impairment is equal to the difference
between the carrying value and fair value.  The fair value will be
estimated based upon the present value of discounted future cash flows or other
reasonable estimates of fair value.





Goodwill





Goodwill
at December 31, 2007, totaled $1,310,000 and consists of goodwill acquired in
the business combination completed by the Company in November
2007.  The Company plans to test goodwill during the fourth quarter of
each year for impairment, or more frequently if certain indicators are present
or changes in circumstances suggest that impairment may exist.  The
Company plans to utilize a two-step approach.  The first step requires
a comparison of the carrying value of the reporting unit to the fair value of
the unit.  The Company will estimate the fair value of the reporting
unit through internal analyses and external valuation, which utilizes an income
approach based on the present value of future cash flows.  If the
carrying value of the reporting unit exceeds its fair value, the Company will
perform the second step of the goodwill impairment test to measure the amount of
impairment loss, if any.  The second step of the goodwill impairment
test compares the implied fair value of a reporting unit’s goodwill with its
carrying value.  The implied fair value of goodwill is determined in
the same manner that the amount of goodwill recognized in a business combination
is determined.  The Company allocates the fair value of the reporting
unit to all of the assets and liabilities of that unit, including intangible
assets, as if the reporting unit had been acquired in a business
combination.  Any excess of the value of a reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of
goodwill.





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 combined or separate state and
city income tax returns depending on the particular requirements of each
jurisdiction.





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.




F-12
 Index





Note
1 - Summary of Significant Accounting Policies (Continued)





Income
Taxes (Continued)





The
Company recognizes income tax related penalties and interest incurred as a
component of income tax expense.  Such amounts have been
immaterial.





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, 2007, accumulated other comprehensive loss
totaled $(149,000) and included $43,000 of net gains on available for sale
securities less $(18,000) of related deferred income taxes and $(316,000) in
prior service cost of the DRP less $142,000 of related deferred income
taxes.  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.
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 for the year
ended December 31, 2006, was 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 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.





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





F-13
 Index





Note
1 - Summary of Significant Accounting Policies (Continued)





Interest
Rate Risk (Continued)





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 re-price 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, 2007, 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
in 2006 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





F-14
 Index





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





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.





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.





During
2007, the MHC filed notice with the OTS, which did not object, of its intention
to waive dividends declared by the Company.  Dividends declared by the
Company in 2007 and waived by the MHC totaled approximately
$436,000.  We anticipate that the MHC will continue to waive receipt
of all dividends declared by the Company.





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 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, 2007.




F-15
 Index





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





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
      31,2007
            
            
            2006(In
      Thousands)GAAP
      capital
            
            $
            79,456
            
            
            $
            67,662Less:  Goodwill
      and intangible assets
            
            
            (2,020
            )
            
            
            -Unrealized
      gain on securities available for sale
            
            
            (25
            )
            
            
            (42
            )Disallowed
      deferred tax assets
            
            
            (1,003
            )
            
            
            (667
            )Core
      and Tangible Capital
            
            
            76,408
            
            
            
            66,953Add:  General
      valuation allowances
            
            
            1,489
            
            
            
            1,200Total
      Capital
            
            $
            77,897
            
            
            $
            68,153







Actual
            
            
            For
      Capital Adequacy Purposes
            
            
            To
      be Well Capitalized under Prompt Corrective Action
      ProvisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio(Dollars
      in Thousands)As
      of December 31, 2007:Total
      capital (to risk-weighted assets)
            
            $
            77,897
            
            
            
            37.50
            %
            
            $
            ≥16,617
            
            
            
            ≥8.00
            %
            
            $
            20,772
            
            
            
            ≥10.00
            %Tier
      1 capital (to risk-weighted assets)
            
            
            76,408
            
            
            
            36.78
            
            
            
            ≥ -
            
            
            
            ≥-
            
            
            
            ≥12,463
            
            
            
            ≥ 
      6.00Core
      (Tier 1) capital (to adjusted total assets)
            
            
            76,408
            
            
            
            24.18
            
            
            
            ≥12,641
            
            
            
            ≥4.00
            
            
            
            ≥15,801
            
            
            
            ≥ 
      5.00Tangible
      capital (to adjusted total assets)
            
            
            76,408
            
            
            
            24.18
            
            
            
            ≥4,740
            
            
            
            ≥1.50
            
            
            
            ≥ -
            
            
            
            ≥-As
      of December 31, 2006:Total
      capital (to risk-weighted assets)
            
            $
            68,153
            
            
            
            44.58
            %
            
            $
            ≥12,229
            
            
            
            ≥8.00
            %
            
            $
            ≥15,286
            
            
            
            ≥10.00
            %Tier
      1 capital (to risk-weighted assets)
            
            
            66,953
            
            
            
            43.80
            
            
            
            ≥
               -
            
            
            
            ≥ -
            
            
            
            ≥9,172
            
            
            
            ≥ 
      6.00Core
      (Tier 1) capital (to adjusted total assets)
            
            
            66,953
            
            
            
            25.46
            
            
            
            ≥10,520
            
            
            
            ≥4.00
            
            
            
            ≥13,150
            
            
            
            ≥ 
      5.00Tangible
      capital (to adjusted total assets)
            
            
            66,953
            
            
            
            25.46
            
            
            
            ≥3,945
            
            
            
            ≥1.50
            
            
            
            ≥ -
            
            
            
            ≥ -




F-16
 Index





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





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 - Acquisition





On
November 16, 2007, the Company acquired the operating assets of Hayden Financial
Group LLC (“Hayden”), an investment advisory firm located in Connecticut, at a
cost of $2,020,000, including $95,000 of expenses directly related to the
transaction.  The acquisition of these business assets has enabled the
Bank to expand the services it provides to include investment advisory and
financial planning services to the then-existing Hayden customer base as well as
future customers.  In connection with this transaction, the Company
recorded intangible assets related to customer relationships of $710,000,
goodwill of $1,310,000 and a note payable with a present value of
$625,000.  The acquired business is being operated as a division of
the Bank and, during the period owned in 2007, generated total revenues of
approximately $69,000 and net income of approximately $2,000.





Note
4 - 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.





December
      31,2007
            
            
            2006(In
      Thousands)Financial
      instruments whose contract amounts represent credit risk:Commitments
      to extend credit
            
            $
            44,071
            
            
            $
            3,933Construction
      loans in process
            
            
            582
            
            
            
            -Commitments
      to fund unused lines of credit:Commercial
      lines
            
            
            5,379
            
            
            
            3,651Consumer
      lines
            
            
            191
            
            
            
            210$
            50,223
            
            
            $
            7,794




F-17
 Index





Note
4 - Financial Instruments with Off-Balance Sheet Risk
(Continued)





At
December 31, 2007, 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
5 - Securities Available for Sale






December
      31, 2007Amortized
      Cost
            
            
            Gross
                Unrealized
                Gains
            
            
            Gross
                Unrealized
                Losses
            
            
            Fair
      Value(In
      Thousands)Federal
      National Mortgage Association common stock
            
            $
            4
            
            
            $
            42
            
            
            $
            -
            
            
            $
            46Mortgage-backed
      securities:Federal
      Home Loan Mortgage  Corporation
            
            
            187
            
            
            
            1
            
            
            
            -
            
            
            
            188Federal
      National Mortgage Association
            
            
            82
            
            
            
            -
            
            
            
            -
            
            
            
            82Collateralized
      Mortgage Obligations
            
            
            4
            
            
            
            -
            
            
            
            -
            
            
            
            4273
            
            
            
            1
            
            
            
            -
            
            
            
            274$
            277
            
            
            $
            43
            
            
            $
            -
            
            
            $
            320







December
      31, 2006Amortized
      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 Mortgage Corporation
            
            
            193
            
            
            
            2
            
            
            
            -
            
            
            
            195Federal
      National Mortgage Association
            
            
            84
            
            
            
            -
            
            
            
            -
            
            
            
            84Collateralized
      Mortgage Obligations
            
            
            4
            
            
            
            -
            
            
            
            -
            
            
            
            4281
            
            
            
            2
            
            
            
            -
            
            
            
            283$
            285
            
            
            $
            70
            
            
            $
            -
            
            
            $
            355







There
were no sales of securities available for sale during the years ended
December 31, 2007 and 2006.




F-18
 Index





Note
5 - Securities Available for Sale (Continued)




Contractual
maturities of mortgage-backed securities were as follows:




December
      31,2007
            
            
            2006Amortized
      Cost
            
            
            Fair
      Value
            
            
            Amortized
      Cost
            
            
            Fair
      Value(In
      Thousands)Due
      within one year
            
            $
            4
            
            
            $
            4
            
            
            $
            -
            
            
            $
            -Due
      after one but within five years
            
            
            -
            
            
            
            -
            
            
            
            4
            
            
            
            4Due
      after ten years
            
            
            269
            
            
            
            270
            
            
            
            277
            
            
            
            279$
            273
            
            
            $
            274
            
            
            $
            281
            
            
            $
            283





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.





Note
6 - Securities Held to Maturity





December
      31, 2007Amortized
      Cost
            
            
            Gross
                Unrealized
                Gains
            
            
            Gross
                Unrealized
                Losses
            
            
            Fair
      Value(In
      Thousands)Mortgage-backed
      securities:Government
      National Mortgage Association
            
            $
            1,341
            
            
            $
            9
            
            
            $
            2
            
            
            $
            1,348Federal
      Home Loan Mortgage Corporation
            
            
            668
            
            
            
            4
            
            
            
            4
            
            
            
            668Federal
      National Mortgage Association
            
            
            746
            
            
            
            9
            
            
            
            2
            
            
            
            753Collateralized
      Mortgage Obligations
            
            
            116
            
            
            
            1
            
            
            
            -
            
            
            
            117Private
      Pass-through Securities
            
            
            4
            
            
            
            -
            
            
            
            -
            
            
            
            4$
            2,875
            
            
            $
            23
            
            
            $
            8
            
            
            $
            2,890




F-19
 Index





Note
6 - Securities Held to Maturity (Continued)




December
      31, 2006Amortized
      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 Mortgage Association
            
            
            2,190
            
            
            
            6
            
            
            
            13
            
            
            
            2,183Federal
      Home Loan Mortgage Corporation
            
            
            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





There
were no sales of securities held to maturity during the years ended December 31,
2007 and 2006.





Contractual
maturities of mortgage-backed securities were as follows:





December
      31,2007
            
            
            2006Amortized
      Cost
            
            
            Fair
      Value
            
            
            Amortized
      Cost
            
            
            Fair
      Value(In
      Thousands)Due
      within one year
            
            $
            50
            
            
            $
            50
            
            
            $
            -
            
            
            $
            -Due
      after one but within five years
            
            
            46
            
            
            
            47
            
            
            
            258
            
            
            
            260Due
      after five but within ten years
            
            
            303
            
            
            
            303
            
            
            
            95
            
            
            
            95Due
      after ten years
            
            
            2,476
            
            
            
            2,490
            
            
            
            4,198
            
            
            
            4,209$
            2,875
            
            
            $
            2,890
            
            
            $
            4,551
            
            
            $
            4,564





F-20
 Index





Note
6 - Securities Held to Maturity (Continued)





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.





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
              
              
              TotalFair
                  Value
              
              
              Gross
      Unrealized Losses
              
              
              Fair
                Value
              
              
              Gross
      Unrealized Losses
              
              
              Fair
                Value
              
              
              Gross
      Unrealized Losses(In
      Thousands)December
      31, 2007:Mortgage-backedsecurities
              
              $
              74
              
              
              $
              1
              
              
              $
              961
              
              
              $
              7
              
              
              $
              1,035
              
              
              $
              8December
      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




At
December 31, 2007, 27 mortgage-backed securities had unrealized losses. As of
December 31, 2007 and 2006, 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.




F-21
 Index





Note
7 - Loans Receivable, Net




December
      31,2007
            
            
            2006(In
      Thousands)Real
      estate mortgage:One-to-four
      family
            
            $
            304
            
            
            $
            405Multi-family
            
            
            138,767
            
            
            
            110,389Mixed
      use
            
            
            52,559
            
            
            
            42,576Commercial
            
            
            79,305
            
            
            
            47,802270,935
            
            
            
            201,172Construction:Multi-family
            
            
            7,538
            
            
            
            -Commercial
            
            
            1,918
            
            
            
            -9,456
            
            
            
            -Commercial
      Business:Lines
      of Credit
            
            
            2,322
            
            
            
            -Term
            
            
            655
            
            
            
            -2,977
            
            
            
            -Consumer:Line
      of credit
            
            
            69
            
            
            
            71Passbook
      or certificate
            
            
            19
            
            
            
            34888
            
            
            
            419Total
      Loans
            
            
            283,456
            
            
            
            201,591Allowance
      for loan losses
            
            
            (1,489
            )
            
            
            (1,200
            )Deferred
      loan fees and costs
            
            
            1,166
            
            
            
            915$
            283,133
            
            
            $
            201,306





Loans
serviced for the benefit of others totaled approximately $4,407,000 and
$3,012,000 at December 31, 2007 and 2006, respectively.





At
December 31, 2007, we had three non-accrual loans which totaled approximately
$1,867,000.  There were no non-accrual loans at December 31,
2006.  Interest income on such loans is recognized only when actually
collected.  During the year ended December 31, 2007, the Bank
recognized interest income of approximately $21,000 on the non-accrual
loans.  Interest income that would have been recorded had the loans
been on the accrual status would have amounted to approximately $153,000 for the
year ended December 31, 2007.  The Bank is not committed to lend
additional funds to borrowers whose loans have been placed on the non-accrual
status.





F-22
 Index





Note
7 - Loans Receivable, Net (Continued)





At
December 31, 2007, impaired loans totaled $1,866,000 and were not subject to
specific loan loss allowances.  For the year ended December 31, 2007,
the average recorded investment in impaired loans totaled approximately
$1,114,000.  No interest income was recognized on impaired loans
during the period of impairment.  At and during the year ended
December 31, 2006, no loans were classified as impaired.





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







Years
      Ended December 31,2007
              
              
              2006(In
      Thousands)Balance,
      beginning
              
              $
              1,200
              
              
              $
              1,200Provision
      charged to operations
              
              
              338
              
              
              
              -Losses
      charged to allowance
              
              
              (49
              )
              
              
              -Balance,
      ending
              
              $
              1,489
              
              
              $
              1,200




Note
8 - Premises and Equipment, Net




December
      31,2007
            
            
            2006(In
      Thousands)Land
            
            $
            534
            
            
            $
            587Air
      rights acquired
            
            
            -
            
            
            
            6,088Buildings
      and improvements
            
            
            7,183
            
            
            
            7,592Leasehold
      improvements
            
            
            736
            
            
            
            725Furnishings
      and equipment
            
            
            4,977
            
            
            
            4,82313,430
            
            
            
            19,815Accumulated
      depreciation and amortization
            
            
            (8,901
            )
            
            
            (8,698
            )$
            4,529
            
            
            $
            11,117







Included
in property and equipment at December 31, 2006, were $6,187,000 in assets, which
were held for sale.  These assets relate to a branch located in New
York City and consisted 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 closed on the sale of these assets on June 29,
2007, receiving net proceeds of $25,157,000 and recognizing a net gain of
$18,962,000.







F-23
 Index





Note
9 - Accrued Interest Receivable, Net




December
      31,2007
            
            
            2006(In
      Thousands)Loans
            
            $
            1,456
            
            
            $
            1,041Securities
            
            
            16
            
            
            
            641,472
            
            
            
            1,105Allowance
      for uncollected interest
            
            
            (132
            )
            
            
            (4
            )$
            1,340
            
            
            $
            1,101







Note
10 - Deposits




December
      31,2007
                
                
                2006Amount
                
                
                Weighted
      Average Interest Rate
                
                
                Amount
                
                
                Weighted
      Average Interest Rate(Dollars
      in Thousands)Demand
      deposits:Non-interest
      bearing
                
                $
                1,745
                
                
                
                0.00
                %
                
                $
                1,439
                
                
                
                0.00
                %NOW
      and money market
                
                
                21,839
                
                
                
                0.84
                %
                
                
                21,137
                
                
                
                0.49
                %23,584
                
                
                
                0.77
                %
                
                
                22,576
                
                
                
                0.46
                %Savings
      accounts
                
                
                57,346
                
                
                
                0.73
                %
                
                
                60,755
                
                
                
                0.70
                %Certificates
      of deposit maturing in:One
      year or less
                
                
                95,341
                
                
                
                4.83
                %
                
                
                68,033
                
                
                
                4.40
                %After
      one to two years
                
                
                24,531
                
                
                
                4.76
                %
                
                
                13,537
                
                
                
                4.17
                %After
      two to three years
                
                
                14,412
                
                
                
                4.78
                %
                
                
                9,630
                
                
                
                4.28
                %After
      three to four years
                
                
                5,099
                
                
                
                5.27
                %
                
                
                9,339
                
                
                
                4.57
                %After
      four to five years
                
                
                5,665
                
                
                
                5.15
                %
                
                
                4,722
                
                
                
                5.27
                %145,048
                
                
                
                4.84
                %
                
                
                105,261
                
                
                
                4.41
                %$
                225,978
                
                
                
                3.37
                %
                
                $
                188,592
                
                
                
                2.74
                %





As of
December 31, 2007 and 2006, certificates of deposit over $100,000 totaled
$26,846,000 and $24,368,000, respectively.  Generally, deposits in
excess of $100,000 are not insured by the FDIC.




F-24
 Index





Note
10 – Deposits (Continued)




Interest
expense on deposits consists of the following:




Years
      Ended December 31,2007
                
                
                2006(In
      Thousands)Demand
      deposits
                
                $
                117
                
                
                $
                111Savings
      accounts
                
                
                415
                
                
                
                469Certificates
      of deposit
                
                
                5,365
                
                
                
                3,913$
                5,897
                
                
                $
                4,493







Note
11 - Note Payable




In
conjunction with the Hayden acquisition on November 16, 2007, the Company
incurred a four-year, zero-coupon note payable of $700,000.  The note
is payable in four annual installments, one on each succeeding note anniversary
date, of $175,000.  The note was initially recorded at $625,000,
assuming a 4.60% discount rate.  The note payable balance at December
31, 2007, was $627,000 and note discount accreted during 2007 totaled
$2,000.







Note
12 - 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 31,2007
              
              
              2006(In
      Thousands)Current
      tax expense
              
              $
              4,097
              
              
              $
              1,260Deferred
      tax expense
              
              
              5,053
              
              
              
              (214
              )Income
      Tax Expense
              
              $
              9,150
              
              
              $
              1,046





F-25
 Index





Note
12 - Income Taxes (Continued)





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 31,2007
            
            
            2006(Dollars
      In Thousands)Federal
      income tax at statutory rates
            
            $
            7,238
            
            
            $
            886State
      and City tax, net of federal income tax effect
            
            
            1,945
            
            
            
            202Non-taxable
      income on bank owned life insurance
            
            
            (123
            )
            
            
            (52
            )Other
            
            
            90
            
            
            
            10Income
      Tax Expense
            
            $
            9,150
            
            
            $
            1,046Effective
      Income Tax Rate
            
            
            43.0
            %
            
            
            40.2
            %





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





December
      31,2007
            
            
            2006(In
      Thousands)Deferred
      tax assets:Allowance
      for loan losses
            
            $
            657
            
            
            $
            514Depreciation
            
            
            168
            
            
            
            264Benefit
      plans
            
            
            223
            
            
            
            63Accumulated
      other comprehensive loss - DRP
            
            
            142
            
            
            
            129Deferred
      loan fees and discounts
            
            
            -
            
            
            
            67Total
      Deferred Tax Assets
            
            
            1,190
            
            
            
            1,037Deferred
      tax liability:Unrealized
      gain on securities available for sale
            
            
            18
            
            
            
            28Deferred
      loan fees and discounts
            
            
            14
            
            
            
            -Gain
      on sale of building
            
            
            5,179
            
            
            
            -Total
      Deferred Tax Liabilities
            
            
            5,211
            
            
            
            28Net
      Deferred Tax (Liability) Asset
            
            $
            (
      4,021
            )
            
            $
            1,009





The net
deferred tax (liability) asset is included in (accounts payable and accrued
expenses) other assets in the consolidated statements of financial
condition.





F-26
 Index





Note
13 - Other Non-Interest Expenses





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





Years
      Ended December 31,2007
            
            
            2006(In
      Thousands)Service
      contracts
            
            $
            205
            
            
            $
            191Insurance
            
            
            165
            
            
            
            162Audit
      and accounting
            
            
            214
            
            
            
            208Directors
      compensation
            
            
            219
            
            
            
            214Telephone
            
            
            167
            
            
            
            161Office
      supplies and stationary
            
            
            209
            
            
            
            252Director,
      officer, and employee expenses
            
            
            235
            
            
            
            158Legal
      fees
            
            
            277
            
            
            
            185Other
            
            
            642
            
            
            
            440$
            2,334
            
            
            $
            1,971





Note
14 - 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 and components of net
periodic expense:





Years
      Ended December 31,2007
                
                
                2006(Dollars
      In Thousands)Benefit
      Obligation – beginning
                
                $
                358
                
                
                $
                -Service
      cost
                
                
                43
                
                
                
                12Interest
      cost
                
                
                25
                
                
                
                18Actuarial
      loss
                
                
                49
                
                
                
                -Prior
      service cost
                
                
                1
                
                
                
                308Benefit
      Obligation – ending
                
                $
                476
                
                
                $
                358Funded
      Status – Accrued liability included in Accounts Payable and Accrued
      Expenses
                
                $
                476
                
                
                $
                358Discount
      rate
                
                
                6.00
                %
                
                
                6.00
                %Salary
      increase rate
                
                
                2.00
                %
                
                
                2.00
                %Net
      pension expense:Service
      cost
                
                $
                43
                
                
                $
                32Interest
      cost
                
                
                25
                
                
                
                18Amortization
      of unrecognized prior service liability
                
                
                21
                
                
                
                21Total
      pension expense included in Other Non-Interest Expenses
                
                $
                89
                
                
                $
                71Discount
      rate
                
                
                6.00
                %
                
                
                6.00
                %Salary
      increase rate
                
                
                2.00
                %
                
                
                2.00
                %




F-27
 Index





Note
14 - Benefits Plans (Continued)





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





At
December 31, 2007, prior service cost of $267,000 and actuarial losses of
$49,000 have been recorded in Accumulated Other Comprehensive Loss.
Approximately $21,000 and $5,000 of those amount are expected to be included in
pension expense in 2008.





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





2008
            
            $
            -2009
            
            
            -2010
            
            
            -2011
            
            
            292012
            
            
            602013
      – 2017
            
            
            393





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 years ended December 31, 2007 and 2006, expenses of $135,000 and 114,000,
respectively, were recorded for this plan and are reflected in the Consolidated
Statements of Income under Salaries and Employee Benefits.  At
December 31, 2007 and 2006, a liability for this plan of $249,000 and $114,000,
respectively, 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.  Plan expenses for the
year ended December 31, 2006 were $90,000.  In September 2006,
the Bank ceased making matching contributions to the 401(k)
plan.  Employer contributions fully vest after 6 years.





F-28
 Index





Note
14 - Benefits Plans (Continued)





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 $4,762,000 at
December 31, 2007.





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
years ended December 31, 2007 and 2006, totaled approximately $302,000 and
$276,000, respectively.  Dividends on unallocated shares, which
totaled approximately $15,000 during 2007, are recorded as a reduction of the
ESOP loan.  Dividends on allocated shares, which totaled approximately
$1,000 during 2007, are charged to retained earnings. ESOP shares are summarized
as follows:





ESOP
shares are summarized as follows:







December
      31,2007
            
            
            2006Allocated
      shares
            
            
            25,921
            
            
            
            -Shares
      committed to be released
            
            
            25,921
            
            
            
            25,921Unearned
      shares
            
            
            466,578
            
            
            
            492,499Total
      ESOP Shares
            
            
            518,420
            
            
            
            518,420Fair
      value of unearned shares
            
            $
            5,520,000
            
            
            $
            6,053,000





F-29
 Index





Note
15 - Commitments and Contingencies




Lease
Commitments




Rentals
under operating leases for certain branch offices amounted to $297,000 and
$198,000 for the years ended December 31, 2007 and 2006,
respectively.  At December 31, 2007, the minimum rental
commitments under all non-cancelable leases with initial or remaining terms of
more than one year are as follows (in thousands):




Year
      ending December 31,2008
            
            $
            2942009
            
            
            2742010
            
            
            2482011
            
            
            1622012
            
            
            64Thereafter
            
            
            1,114$
            2,156





Available
Credit Facilities





The Bank
has the ability to borrow up to $11.2 million from the Federal Home Loan Bank of
New York, consisting of a $5.6 million Overnight Line of Credit and a $5.6
million Companion (DRA) Commitment, both of which expire on July 31,
2008.  At December 31, 2007 and 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
16 - 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 and Payable





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.





F-30
 Index





Note
16 - Disclosures About Fair Value of Financial Instruments
(Continued)





Loans





Fair
values are estimated for portfolios of loans with similar financial
characteristics.  The total loan portfolio is first divided into
performing and non-performing 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
non-performing 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.





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 offered
by the Bank for deposits of similar size, type and maturity.  At
December 31, 2007 and 2006, accrued interest payable of $27,000 and $19,000,
respectively, 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, 2007 and 2006, the
estimated fair values of these off-balance-sheet financial instruments were
immaterial.





F-31
 Index





Note
16 - Disclosures About Fair Value of Financial Instruments
(Continued)





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







December
      31,2007
            
            
            2006Carrying
      Amount
            
            
            Estimated
      Fair Value
            
            
            Carrying
      Amount
            
            
            Estimated
      Fair Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
            
            $
            39,146
            
            
            $
            39,146
            
            
            $
            36,749
            
            
            $
            36,749Securities
      available for sale
            
            
            320
            
            
            
            320
            
            
            
            355
            
            
            
            355Securities
      held to maturity
            
            
            2,875
            
            
            
            2,890
            
            
            
            27,455
            
            
            
            27,468Loans
      receivable
            
            
            283,133
            
            
            
            286,213
            
            
            
            201,306
            
            
            
            196,020FHLB
      stock
            
            
            414
            
            
            
            414
            
            
            
            399
            
            
            
            399Accrued
      interest receivable
            
            
            1,340
            
            
            
            1,340
            
            
            
            1,101
            
            
            
            1,101Financial
      liabilities:Deposits
            
            
            225,978
            
            
            
            228,605
            
            
            
            188,592
            
            
            
            187,919





Note
17 – Parent Company Only Financial Information





The
following are the condensed financial statements for Northeast Community Bancorp
(Parent company only) as of December 31, 2007 and 2006 and for the periods then
ended.





Statements
of Financial Condition





December 31,2007
              
              
              2006(In Thousands)AssetsCash
      and due from banks
              
              $
              25,187
              
              
              $
              9,533Securities
      held to maturity
              
              
              -
              
              
              
              14,916Investment
      in subsidiary
              
              
              79,282
              
              
              
              67,662ESOP
      loan receivable
              
              
              4,762
              
              
              
              4,877Other
      assets
              
              
              -
              
              
              
              3Total
      Assets
              
              $
              109,231
              
              
              $
              96,991Liabilities
      and Stockholders’ EquityAccounts
      payable and accrued expense
              
              $
              402
              
              
              $
              240Total
      Liabilities
              
              
              402
              
              
              
              240Total
      Stockholders’ Equity
              
              
              108,829
              
              
              
              96,751Total
      Liabilities and Stockholders’ Equity
              
              $
              109,231
              
              
              $
              96,991





F-32
 Index





Note
17 - Parent Only Financial Information (Continued)





Statements
of Income





Year EndedDecember 31, 2007
              
              
              July 5, 2006(Inception) toDecember 31,
      2006(In Thousands)Interest
      income – securities
              
              $
              402
              
              
              $
              307Interest
      income – interest- earning deposits
              
              
              780
              
              
              
              149Interest
      income – ESOP loan
              
              
              402
              
              
              
              210Operating
      expenses
              
              
              (276
              )
              
              
              (90
              )Income
      before Income Tax Expense and Equity in Undistributed Earnings of
      Subsidiary
              
              
              1,308
              
              
              
              576Income
      tax expense
              
              
              522
              
              
              
              226Income
      before Equity in Undistributed Earnings of Subsidiary
              
              
              786
              
              
              
              350Equity
      in undistributed earnings of subsidiary
              
              
              11,351
              
              
              
              399Net
      Income
              
              $
              12,137
              
              
              $
              749





F-33
 Index





Note
17 - Parent Only Financial Information (Continued)





Statements
of Cash Flow





Year EndedDecember 31, 2007
              
              
              July 5, 2006(Inception) toDecember 31,
      2006(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income
              
              $
              12,137
              
              
              $
              749Adjustments
      to reconcile net income to net cash provided by operating
      activities:Equity
      in undistributed earnings of subsidiary
              
              
              (11,351
              )
              
              
              (399
              )Amortization
      of securities discount
              
              
              (84
              )
              
              
              (307
              )Decrease
      (increase) in other assets
              
              
              3
              
              
              
              (3
              )(Decrease)
      increase in other liabilities
              
              
              (2
              )
              
              
              240Net
      Cash Provided by Operating Activities
              
              
              703
              
              
              
              280Cash
      Flows from Investing ActivitiesPurchase
      of securities held to maturity
              
              
              (5,000
              )
              
              
              (29,609
              )Maturities
      of securities held to maturity
              
              
              20,000
              
              
              
              15,000Loan
      to ESOP
              
              
              -
              
              
              
              (5,184
              )Repayment
      of ESOP loan
              
              
              115
              
              
              
              307Purchase
      of Bank capital stock
              
              
              -
              
              
              
              (28,889
              )Net
      Cash Provided by (Used in) Investing Activities
              
              
              15,115
              
              
              
              (48,375
              )Cash
      Flows from Financing ActivitiesProceeds
      from issuance of common stock
              
              
              -
              
              
              
              57,628Cash
      dividends paid
              
              
              (164
              )
              
              
              -Net
      Cash Provided by (Used in) Financing Activities
              
              
              (164
              )
              
              
              57,628Net
      Increase in Cash and Cash Equivalents
              
              
              15,654
              
              
              
              9,533Cash
      and Cash Equivalents - Beginning
              
              
              9,533
              
              
              
              -Cash
      and Cash Equivalents - Ending
              
              $
              25,187
              
              
              $
              9,533





F-34
 Index





Note
18 - Recent Accounting Pronouncements





FASB
Statement No. 141(R)





FASB
Statement No. 141 (R) “Business Combinations” was issued in December of 2007.
This Statement establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. The Statement also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The guidance will
become effective as of the beginning of a company’s fiscal year beginning after
December 15, 2008. This new pronouncement will impact the Company’s accounting
for business combinations completed beginning January 1, 2009.





FASB
Statement No. 157





In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements”, which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value measurements.
FASB Statement 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.  The adoption
of FASB Statement No. 157 is not expected to have a material effect on our
consolidated financial position, results of operations and cash
flows.





In
December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b,
“Effective Date of FASB Statement No. 157,” that would permit a one-year
deferral in applying the measurement provisions of Statement No. 157 to
non-financial assets and non-financial liabilities (non-financial items) that
are not recognized or disclosed at fair value in an entity’s financial
statements on a recurring basis (at least annually). Therefore, if the change in
fair value of a non-financial item is not required to be recognized or disclosed
in the financial statements on an annual basis or more frequently, the effective
date of application of Statement 157 to that item is deferred until fiscal years
beginning after November 15, 2008 and interim periods within those fiscal
years. This deferral does not apply, however, to an entity that applies
Statement 157 in interim or annual financial statements before proposed FSP
157-b is finalized. The Company is currently evaluating the impact, if any, that
the adoption of FSP 157-b will have on the Company’s operating income or net
earnings.





FASB
Statement No. 158





On
September 29, 2006, the FASB issued Statement No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans”, which
amends Statement 87 and Statement 106 to require recognition of the over funded
or under funded status of pension and other postretirement benefit plans on the
balance sheet. Under Statement 158, gains and losses, prior service costs and
credits, and any remaining transition amounts under Statement 87 and Statement
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. Statement 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. The implementation of the measurement date
provisions of Statement 158, effective January 1, 2008, did not have a
significant impact on the Company’s financial condition or results of
operations.





F-35
 Index





Note
18 - Recent Accounting Pronouncements (Continued)





FASB
Statement No. 158 (Continued)





In
February 2007, the FASB issued FASB Staff Position (FSP) FAS 158-1,
“Conforming Amendments to the Illustrations in FASB Statements No. 87,
No. 88, and No 106 and to the Related Staff Implementation
Guides.”  This FSP makes conforming amendments to other FASB
statements and staff implementation guides and provides technical corrections to
Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans.”  The conforming amendments in this FSP
shall be applied upon adoption of Statement No. 158.  The
adoption of FSP FAS 158-1 did not have a material impact on our consolidated
financial statements or disclosures.





FASB
Statement No. 159





In
February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." Statement No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair
value.  Unrealized gains and losses on items for which the fair value
option has been elected will be recognized in earnings at each subsequent
reporting date. Statement No. 159 is effective for our Company
January 1, 2008.  The Company does not expect the adoption of
Statement No. 159 to have a material effect on its consolidated financial
statements.\





FASB
Statement No. 160





FASB
Statement No. 160 “Non-controlling Interests in Consolidated Financial
Statements—an amendment of ARB No. 51” was issued in December of 2007. This
Statement establishes accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  The guidance will become effective as of the beginning of
a company’s fiscal year beginning after December 15, 2008.  The
Company is currently evaluating the potential impact the new pronouncement will
have on its consolidated financial statements.





Staff
Accounting Bulletin (SAB) 110





Staff
Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of
Section D.2 of Topic 14,“Share-Based Payment,” of the Staff Accounting Bulletin series. Question
6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use
of the “simplified” method in developing an estimate of expected term of “plain
vanilla” share options and allows usage of the “simplified” method for share
option grants prior to December 31, 2007. SAB 110 allows public companies
which do not have historically sufficient experience to provide a reasonable
estimate to continue use of the “simplified” method for estimating the expected
term of “plain vanilla” share option grants after December 31,
2007.  SAB 110 is effective January 1, 2008.  As the
Company does not presently have a stock option plan, SAB 110 has no present
impact.








F-36
 Index





Note
18 - Recent Accounting Pronouncements (Continued)





Emerging
Issues Task Force (EITF) 06-4 and 06-10





In
September 2006, the FASB's Emerging Issues Task Force (EITF) issued EITF Issue
No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split Dollar Life Insurance  Arrangements"
("EITF 06-4").  EITF 06-4 requires the recognition of a liability
related to the postretirement benefits covered by an endorsement split-dollar
life insurance arrangement.  The consensus highlights that the
employer (who is also the policyholder) has a liability for the benefit it is
providing to its employee.  As such, if the policyholder has agreed to
maintain the insurance policy in force for the employee's benefit during his or
her retirement, then the liability recognized during the employee's active
service period should be based on the future cost of insurance to be incurred
during the employee's retirement.  Alternatively, if the policy holder
has agreed to provide the employee with a death benefit, then the liability for
the future death benefit should be recognized by following the guidance in SFAS
No. 106 or Accounting Principles Board (APB) Opinion No. 12, as
appropriate.





For
transition, an entity can choose to apply the guidance using either of the
following approaches: (a) a change in accounting principle through retrospective
application to all periods presented or (b) a change in accounting principle
through a cumulative-effect adjustment to the balance in retained earnings at
the beginning of the year of adoption.  This EITF is effective for
fiscal years beginning after December 15, 2007, with early adoption
permitted.  The Company does not believe that the implementation of
this guidance will have a material impact on the Company's consolidated
financial statements.





In March
2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting
for Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF 06-10).
EITF 06-10 provides guidance for determining a liability for the postretirement
benefit obligation as well as recognition and measurement of the associated
asset on the basis of the terms of the collateral assignment
agreement.  The requirements of EITF 06-10 are essentially equivalent
to EITF 06-04 and are effective for fiscal years beginning after December 15,
2007.  The Company does not believe that the implementation of this
guidance will have a material impact on the Company's consolidated financial
statements.





Emerging
Issues Task Force (EITF) 06-11





In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue
No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards” (“EITF 06-11”).  EITF 06-11 states that an entity
should recognize a realized tax benefit associated with dividends on non-vested
equity shares, non-vested equity share units and outstanding equity share
options charged to retained earnings as an increase in additional paid in
capital.  The amount recognized in additional paid in capital should
be included in the pool of excess tax benefits available to absorb potential
future tax deficiencies on share-based payment awards. EITF 06-11 should be
applied prospectively to income tax benefits of dividends on equity-classified
share-based payment awards that are declared in fiscal years beginning after
December 15, 2007.  In the absence of any existing share-based
compensation plans, the implementation of this guidance will not impact on the
Company's consolidated financial statements.  Should share-based
compensation plans be adopted in the future, this guidance will
apply.





F-37
 Index





Note
19 - Quarterly Financial Data (Unaudited)





Quarter
      EndedMarch
      31, 2007
            
            
            June
      30, 2007
            
            
            September
      30, 2007
            
            
            December
      31, 2007(In
      Thousands, except for per share data)Interest
      Income
            
            $
            3,969
            
            
            $
            4,126
            
            
            $
            4,562
            
            
            $
            4,945Interest
      Expense
            
            
            1,284
            
            
            
            1,332
            
            
            
            1,504
            
            
            
            1,798Net
      Interest Income
            
            
            2,685
            
            
            
            2,794
            
            
            
            3,058
            
            
            
            3,147Provision
      for Loan Losses
            
            
            -
            
            
            
            338
            
            
            
            -
            
            
            
            -Net
      Interest Income after Provision for Loan Losses
            
            
            2,685
            
            
            
            2,456
            
            
            
            3,058
            
            
            
            3,147Non-Interest
      Income
            
            
            182
            
            
            
            19,141
            
            
            
            195
            
            
            
            249Non-Interest
      Expenses
            
            
            2,259
            
            
            
            2,739
            
            
            
            2,362
            
            
            
            2,466Income
      before Income Taxes
            
            
            608
            
            
            
            18,858
            
            
            
            891
            
            
            
            930Income
      Taxes
            
            
            218
            
            
            
            8,235
            
            
            
            337
            
            
            
            360Net
      Income
            
            $
            390
            
            
            $
            10,623
            
            
            $
            554
            
            
            $
            570Net
      Income per common share  – Basic
            
            $
            0.03
            
            
            $
            0.83
            
            
            $
            0.04
            
            
            $
            0.04Weighted
      average numbers of common shares outstanding – basic
            
            
            12,736
            
            
            
            12,742
            
            
            
            12,749
            
            
            
            12,758Dividends
      declared per share
            
            $
            -
            
            
            $
            -
            
            
            $
            0.03
            
            
            $
            0.03




F-38
 Index





Note
19 - Quarterly Financial Data (Unaudited) (Continued)







Quarter
      EndedMarch
      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
            
            
            $
            4,008Interest
      Expense
            
            
            903
            
            
            
            1,072
            
            
            
            1,225
            
            
            
            1,293Net
      Interest Income
            
            
            2,642
            
            
            
            2,612
            
            
            
            2,886
            
            
            
            2,715Provision
      for Loan Losses
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      Interest Income after Provision for Loan Losses
            
            
            2,642
            
            
            
            2,612
            
            
            
            2,886
            
            
            
            2,715Non-Interest
      Income
            
            
            113
            
            
            
            119
            
            
            
            179
            
            
            
            208Non-Interest
      Expenses
            
            
            2,035
            
            
            
            2,110
            
            
            
            2,354
            
            
            
            2,371Income
      before Income Taxes
            
            
            720
            
            
            
            621
            
            
            
            711
            
            
            
            552Income
      Taxes
            
            
            311
            
            
            
            271
            
            
            
            299
            
            
            
            165Net
      Income
            
            $
            409
            
            
            $
            350
            
            
            $
            412
            
            
            $
            387Net
      Income per common share  – Basic
            
            
            N/A
            
            
            
            N/A
            
            
            $
            0.03
            
            
            $
            0.03Weighted
      average numbers of common shares outstanding – basic
            
            
            N/A
            
            
            
            N/A
            
            
            
            12,723
            
            
            
            12,729






F-39