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 EXCHANGEACT OF
      1934




For the fiscal year ended December 31,
2008




OR




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




For the transition period from
_________________________ to _________________________




Commission
File Number: 0-51852




NORTHEAST
COMMUNITY BANCORP, INC.


(Exact
name of registrant as specified in its charter)




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




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




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




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




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




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  o       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  o      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   o




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. x




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   o
                  
                  Accelerated
      filer   oNon-accelerated
      filer      o
      (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  o       No   x




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of June 30, 2008 was approximately $66.2 million.




The
number of shares outstanding of the registrant’s common stock as of March 23,
2009 was 13,225,000.





DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the Proxy Statement for the 2009 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.













INDEX




Part
      IPageItem
      1.
                                Business
                                2Item
      1A.
                                Risk Factors
                                18Item
      1B.
                                Unresolved Staff Comments
                                23Item
      2.
                                Properties
                                24Item
      3.
                                Legal Proceedings
                                25Item
      4.
                                Submission of Matters to a Vote of Security
      Holders
                                25Part
      IIItem
      5.
                                Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
                                25Item
      6.
                                Selected Financial Data
                                26Item
      7.
                                Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                                28Item
      7A.
                                Quantitative and Qualitative Disclosures About Market
      Risk
                                50Item
      8.
                                Financial Statements and Supplementary Data
                                50Item
      9.
                                Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure
                                50Item
      9A(T).
                                Controls and Procedures
                                50Item
      9B.
                                Other Information
                                51Part
      IIIItem
      10.
                                Directors, Executive Officers and Corporate
      Governance
                                51Item
      11.
                                Executive Compensation
                                51Item
      12.
                                Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
                                51Item
      13.
                                Certain Relationships and Related Transactions, and Director
      Independence
                                52Item
      14.
                                Principal Accounting Fees and Services
                                52Part
      IVItem
      15.
                                Exhibits and Financial Statement Schedules
                                53SIGNATURES





1
 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.





PARTI





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 75
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 over half a
century and expanded our lending territory to include all of New
York,  Massachusetts, New Jersey, Connecticut, Pennsylvania, New
Hampshire and Rhode Island, which we refer to collectively in this Form 10-K as
the “Northeastern United States.”  In 2007, we established a new
commercial loan department and have increased this portfolio from no commercial
loans at March 31, 2007 to $22.6 million of commercials loans committed with
$7.6 million drawn at December 31, 2008.  We do not offer one- to
four-family residential loans.





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 Wealth Management Group, a division of
the Bank, through a networking arrangement with a registered broker-dealer and
investment advisor.





2
 Index





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 and Rhode Island.





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 depositors’ funds from
money market funds, mutual funds and other corporate and government
securities.  At June 30, 2008, which is the most recent date for which
data is available from the Federal Deposit Insurance Corporation, we held 0.08%
or less of the deposits in Kings and New York counties, New York, and
approximately 0.60% and 0.19% of the deposits in Bronx and Westchester Counties,
New York, respectively.





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.





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,





3
 Index





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 and Rhode Island.  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 our first location outside of New
York and now originate multi-family and mixed-use real estate loans in several
northeastern states.





For the
year ended December 31, 2008, originations of multi-family real estate
loans in states other than New York represented 47.3% of our total multi-family
mortgage loan originations, and originations of mixed-use real estate loans in
states other than New York represented 6.6% of our total mixed-use mortgage loan
originations.  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.  We intend to continue
our originations of multi-family and mixed-use real estate loans in the seven
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 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 1.50%
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





4
 Index





purchase
price of the property securing the loan on purchases and refinances of Class A
and B properties and up to 65% of the lesser of 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, 2008, 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, 2008, the largest
outstanding multi-family real estate loan had a balance of $8.7 million and is
performing according to its terms at December 31, 2008.  This loan is
secured by a 216 unit apartment complex located in Philadelphia,
Pennsylvania.  The largest mixed-use real estate loan had a balance of
$4.0 million and is performing according to its terms at December 31,
2008.  This loan is secured by a mixed-use building with 10 apartment
units and 5 commercial units located in Jamaica, New York.  As of
December 31, 2008, the average loan balance in our multi-family and mixed-use
portfolio was approximately $637,000.





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.





5
 Index





At December 31, 2008, we had
$102.8  million in non-residential real estate loans outstanding, or
28.2% of total loans.  Originations in states other than New York
represented 33.5% of our total originations of non-residential real estate loans
for the year ended December 31, 2008 and 22.8% for the year ended December 31,
2007.





At
December 31, 2008, the largest outstanding non-residential real estate loan had
an outstanding balance of $4.5 million.  This loan is secured by a
multi-tenant office building located in Lawrenceville, New Jersey, and was
performing according to its terms at December 31, 2008.  At December
31, 2008, the largest outstanding non-residential real estate loan relationship
with one borrower was comprised of six loans totaling $12.7 million secured by
six office buildings located in the Syracuse, New York area.  These
six loans were performing according to their terms at December 31,
2008.  As of December 31, 2008, the average balance of loans in our
non-residential loan portfolio was $1.2 million.





In addition, at December 31, 2008, we
had one note, which is treated as a loan in our non-residential loan portfolio
with a net present value of $10.7 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
typically 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.  Our commercial loan portfolio
increased from $5.5 million of commercial loans committed with $3.0 million
drawn at December 31, 2007 to $22.8 million of commercial loans committed with
$7.6 million drawn at December 31, 2008.





At
December 31, 2008, the largest commercial loan was a line of credit totaling
$6.0 million, with a zero outstanding balance and a remaining available line of
credit of $6.0 million.  This loan is secured by the assets of a
construction business located in Astoria, New York.





The
largest outstanding commercial loan was a line of credit of $2.4 million, with
an outstanding balance totaling $2.0 million and a remaining available line of
credit of $371,000.  The same borrower also has a commercial term
loan, with an outstanding balance of $34,000.  These two loans are
secured by the inventory of numismatic coins that the borrower of these loans
sells to the public via various telemarketing medias.  The borrower is
located in Lakewood, New Jersey.





At
December 31, 2008, the largest outstanding commercial loan relationship with one
borrower was comprised of two loans totaling $2.3 million, consisting of a line
of credit of $3.3 million, with an outstanding balance totaling $1.8 million and
a remaining available line of credit of $1.5 million, and a term loan with
an





6
 Index





outstanding
balance of $480,000.  The line of credit is secured by the assets of a
construction business located in Mineola, New York and the term loan is secured
by a first mortgage on the nonresidential property occupied by the business and
the cash value of a whole life insurance policy on the owner of the
business.





All the
aforementioned commercial loans were performing according to their terms at
December 31, 2008.





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 $9.0
million at December 31, 2008.





At
December 31, 2008, the largest outstanding construction loan participation
secured by one property was comprised of three loans with an aggregate
outstanding balance of $4.5 million (net of loans in process of $1.5 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
their terms at December 31, 2008.





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, 2008, our portfolio of consumer loans was $114,000, 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
1.25%.  In underwriting these loans, we take into account projected
increases in interest rates in determining whether a loan meets our debt service
coverage ratios at the higher interest rate under the adjustable rate
mortgage.  Environmental surveys and property inspections are utilized
for all loans.





Commercial
Loans.  Unlike
residential mortgage loans, which are generally made on the basis of a
borrower’s ability to make repayment from his or her employment or other income
and are secured by real property whose value tends to be more ascertainable,
commercial loans are of higher risk and tend to be made on the basis
of





7
 Index





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 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.  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 2008, 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 $9.0 million at
December 31, 2008.  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.





8
 Index





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 our chief mortgage officer, 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.





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.





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, 2008.





At December 31, 2008, our securities
and short-term investments totaled $39.2  million and consisted
primarily of $28.9 million in interest-earning deposits with the Federal Home
Loan Bank of New York, $5.5 million in short-term deposits, $2.3 million in
mortgage-backed securities issued primarily by Fannie Mae, Freddie Mac and
Ginnie Mae, and $2.4 million in Federal Home Loan Bank of New York
stock.  At December 31, 2008, 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.





9
 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,
2008, 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 2008, we offered 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 than $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
Wealth Management Group, and the Division offers investment advisory and
financial planning services through a networking arrangement with a registered
broker-dealer and investment advisor.





Hayden Wealth Management 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 Wealth Management Group coordinates
with estate planning attorneys as needed.





10
 Index





Personnel





As of December 31, 2008, we had 88
full-time employees and two part-time employees, none of whom is represented by
a collective bargaining unit.  We believe our relationship with our
employees is good.





Legal
Proceedings





From time to time, we may be party to
various legal proceedings incident to our business.  At December 31,
2008, 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 and to hold
real estate owned acquired by the Bank through foreclosure or deed-in-lieu of
foreclosure.  As of December 31, 2008, New England Commercial
Properties, LLC had $1.2 million in assets including $832,000 related
to two foreclosed multi-family properties, one located in Hampton, New
Hampshire which was subsequently sold in March 2009, and one located in Newark,
New Jersey.





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.





11
 Index





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.





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, 2008, Northeast Community Bank exceeded  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.





12
 Index





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.





At December 31, 2008, the Bank met the
criteria for being considered “well-capitalized.”





Community
Reinvestment Act and Fair Lending Laws. All savings associations have a
responsibility under the Community Reinvestment Act and related regulations of
the Office of Thrift Supervision to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods.  In
connection with its examination of a federal savings association, the Office of
Thrift Supervision is required to assess the association’s record of compliance
with the Community Reinvestment Act.  In addition, the Equal Credit
Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in
their lending practices on the basis of characteristics specified in those
statutes.  An association’s failure to comply with the provisions of
the Community Reinvestment Act could result in denial of certain corporate
applications, such as branches or mergers, or restrictions on its
activities.  The failure to comply with the Equal Credit Opportunity
Act and the Fair Housing Act could result in enforcement actions by the Office
of Thrift Supervision, as well as other Federal regulatory agencies and the
Department of Justice.  The Bank received an “Outstanding” Community
Reinvestment Act rating in its most recent Federal examination.





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.





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
multi-family residential mortgages and related





13
 Index





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,
2008, Northeast Community Bank maintained 90.0% 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 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, 2008 totaled
$88,000.





14
 Index





Insurance of
Deposit Accounts.  Northeast Community Bank’s deposits 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.  Under the Federal Deposit Insurance
Corporation’s risk-based assessment system, insured institutions are assigned to
one of four risk categories based on supervisory evaluations, regulatory capital
levels and certain other factors, with less risky institutions paying lower
assessments.  An institution’s assessment rate depends upon the
category to which it is assigned.  For 2008, assessments ranged from
five to forty-three basis points of assessable deposits.  Due to
losses incurred by the Deposit Insurance Fund in 2008 as a result of failed
institutions, and anticipated future losses, the Federal Deposit Insurance
Corporation has proposed to adopt an across the board seven basis point increase
in the assessment range for the first quarter of 2009.  The Federal
Deposit Insurance Corporation has adopted further refinements to its risk-based
assessment system that are effective April 1, 2009 and effectively make the
range seven to 77 1/2 basis points.  The Federal Deposit Insurance
Corporation has also imposed a special emergency assessment of up to 20 basis
points of assessable deposits, as of June 30, 2009, in order to cover the losses
to the Deposit Insurance Fund.  The Federal Deposit Insurance
Corporation may adjust rates uniformly from one quarter to the next, except that
no adjustment can exceed three basis points without notice and comment
rulemaking.  No institution may pay a dividend if in default of the
FDIC assessment.





Federal law 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 $191,923 was used to offset assessments in 2007 and 2008, and
$116,077 remains to offset 2009 assessments.  The Federal Deposit
Insurance Reform Act of 2005 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 payment is established quarterly and
during the calendar year ending December 31, 2008 averaged 1.2 basis points of
assessable deposits.





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,
2008 of $2.4 million.  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.





15
 Index





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.





Recent
Legislation





Troubled Asset
Relief Program.  On October 3, 2008, the Emergency
Economic Stabilization Act of 2008 (“EESA”) was enacted establishing the
Troubled Asset Relief Program (“TARP”).  On October 14, 2008,
Treasury announced its intention to inject capital into U.S. financial
institutions under the TARP Capital Purchase Program (“CPP”) and since has
injected capital into many financial institutions.  The Board of
Directors of the Company determined not to participate in the CPP.





Temporary
Liquidity Guarantee Program.On November 21,
2008, the Board of Directors of the FDIC adopted a final rule relating to the
Temporary Liquidity Guarantee Program (“TLG Program”).  The
TLG Program was announced by the FDIC on October 14, 2008, preceded by
the determination of systemic risk by Treasury, as an initiative to counter the
system-wide crisis in the nation’s financial sector. Under the TLG Program
the FDIC will (i) guarantee, through the earlier of maturity or
June 30, 2012, certain newly issued senior unsecured debt issued by
participating institutions and (ii) provide full FDIC deposit insurance
coverage for non-interest bearing transaction deposit accounts, Negotiable Order
of Withdrawal accounts paying less than 0.5% interest per annum and Interest on
Lawyers Trust Accounts held at participating FDIC-insured institutions through
December 31, 2009. Coverage under the TLG Program was available for
the first 30 days without charge. The fee assessment for coverage of senior
unsecured debt ranges from 50 basis points to 100 basis points per
annum, depending on the initial maturity of the debt. The fee assessment for
deposit insurance coverage is 10 basis points per quarter on amounts in
covered accounts exceeding $250,000. The Bank elected to participate in the
unlimited non-interest bearing transaction account coverage and the Bank and its
holding companies elected to not participate in the unsecured debt guarantee
program.





American Recovery
and Reinvestment Act of 2009.On February 17, 2009,
the American Recovery and Reinvestment Act of 2009 (“ARRA”) was
enacted.  The ARRA, commonly known as the economic stimulus or
economic recovery package, includes a wide variety of programs intended to
stimulate the economy and provide for extensive infrastructure, energy, health,
and education needs.  In addition, ARRA imposes certain new executive
compensation and corporate expenditure limits on all current and future TARP
recipients until the institution has repaid Treasury, which is now permitted
under ARRA without penalty and without the need to raise new capital, subject to
Treasury’s consultation with the recipient’s appropriate regulatory
agency.





Future
Legislation.  Various
legislation affecting financial institutions and the financial industry is from
time to time introduced in Congress.  Such legislation may change
banking statutes and the operating environment of the Company and its
subsidiaries in substantial and unpredictable ways, and could increase or
decrease the cost of doing business, limit or expand permissible activities or
affect the competitive balance depending upon whether any of this potential
legislation will be enacted, and if enacted, the effect that it or any
implementing regulations, would have on the financial condition or results of
operations of the Company or any of its subsidiaries. With the recent enactments
of EESA and ARRA, the nature and extent of future legislative and regulatory
changes affecting financial institutions is very unpredictable at this
time.





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,





16
 Index





MHC and
their non-savings institution subsidiaries.  Among other things, this
authority permits the Office of Thrift Supervision to restrict or prohibit
activities that are determined to be a serious risk to Northeast Community
Bank.





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




In
addition, mutual holding companies may engage in activities permitted for
financial holding companies.  Financial holding companies may engage
in a broad array of financial service activities including insurance and
securities.





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





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





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 2008.





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,





17
 Index





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 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, 2008.





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 43.





ITEM1A.            
  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





18
 Index





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.”




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,
2008,$347.3
million, or 95.3%, 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, 2008, $7.6 million, or 2.1%, 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, 2008, the outstanding
balance of our construction loan participation interests totaled $9.0 million,
or 2.5% of our total loan portfolio.





19
 Index





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 and Rhode
Island.  In January 2004, we opened a loan production office in
Wellesley, Massachusetts which serves Massachusetts, New Hampshire and Rhode
Island.  We relocated this office to Danvers, Massachusetts in March
2009.  We expect to open a full service branch at this location in
April 2009 and expect to open another full service branch in Plymouth,
Massachusetts in the second quarter of 2009.  In 2008, approximately
40.1% 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.





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





At
December 31, 2008, we operated 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.  Recently, we began to
implement a growth strategy that expands our presence in other select markets in
the Northeastern United States.  We relocated the loan production
office to Danvers, Massachusetts in March 2009.  We expect to open a
full service branch at this location in April 2009 and expect to open another
full service branch in Plymouth, Massachusetts in the second quarter of
2009.  We expect to incur approximately $300,000 in expenses relating
to these two new branches and anticipate that we will incur approximately
$50,000 in expenses relating to our search for possible additional
locations.





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 retail branch personnel,
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, the new branches 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





20
 Index





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.





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, 2008, the most recent date for
which information is available from the Federal Deposit Insurance Corporation,
we held less than 0.08% of the deposits in Kings and New York counties, New
York, and approximately 0.60% and 0.19% of the deposits in Bronx and Westchester
Counties, New York, respectively.  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.”





Future
FDIC Assessments Will Hurt Our Earnings.





In February 2009, the FDIC adopted an
interim final rule imposing a special assessment on all insured institutions due
to recent bank and savings association failures.  The emergency
assessment, of up to 20 basis points of assessed deposits as of June 30, 2009,
will be collected on September 30, 2009.  The special assessment will
negatively impact the Company’s earnings and the Company expects that
non-interest expenses will increase as much as $522,000 in 2009 as compared to
2008 as a result of this special assessment.  In addition, the interim
rule would also permit the FDIC to impose additional emergency special
assessments after June 30, 2009, of up to 10 basis points per quarter if
necessary to maintain public confidence in federal deposit insurance, or as a
result of





21
 Index





deterioration
in the deposit insurance fund reserve ratio due to institution
failures.  Any additional emergency special assessment imposed by the
FDIC will further hurt the Company’s earnings.





The
market price of our common stock may be materially adversely affected by market
volatility.





Many
publicly traded financial services companies have recently experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance or prospects of such companies.  We may
experience market fluctuations that are not directly related to our operating
performance but are influenced by the market’s perception of the state of
the financial services industry in general and, in particular, the market’s
assessment of general credit quality conditions, including default and
foreclosure rates in the industry.





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.





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.





22
 Index





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.





ITEM1B.
            UNRESOLVED
      STAFF COMMENTS





None.




23
 Index





ITEM2.
            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, 2008.







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
                                          
                                          $
                                          1,027Branch
      Offices:1470
      First Avenue
                                            New
      York, NY 10021(1)
                                          2006
                                          
                                          04/30/2011
                                          
                                          Leased
                                          
                                          
                                          152590
      East 187th Street
                                            Bronx,
      New York 10458
                                          1972
                                          
                                          N/A
                                          
                                          Owned
                                          
                                          
                                          5172047
      86th Street
                                            Brooklyn,
      New York 11214
                                          1988
                                          
                                          N/A
                                          
                                          Owned
                                          
                                          
                                          883242
      West 23rd Street (2)
                                            New
      York, NY 10011
                                          1996
                                          
                                          N/A
                                          
                                          Owned/Leased
                                          
                                          
                                          9671751
      Second Avenue
                                            New
      York, NY 10128
                                          1978
                                          
                                          09/30/2015
                                          
                                          Leased
                                          
                                          
                                          36Other
      Properties:300
      Hamilton Avenue
                                            White
      Plains, New York 10601
                                          2000
                                          
                                          05/31/2010
                                          
                                          Leased
                                          
                                          
                                          521353-55
      First Avenue
                                            New
      York, NY 10021(3)
                                          1946
                                          
                                          2109
                                          
                                          Leased
                                          
                                          
                                          -40
      Grove Street (4)
                                            Wellesley,
      Massachusetts 02482
                                          2004
                                          
                                          02/28/2009
                                          
                                          Leased
                                          
                                          
                                          1830
      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
      1353-55 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.  The lease will commence upon completion of
      construction at 1353-55 First Avenue, which is presently expected to be in
      2011.


(4)
            The
      loan production office at this location was relocated to Danvers,
      Massachusetts on March 6, 2009.  The Bank is scheduled to open a
      full service branch at the Danvers location in April 2009.  In
      addition, the Bank expects to open a full service branch in Plymouth,
      Massachusetts in the second quarter of 2009.  The Bank will own
      the properties at both new
locations.





24
 Index





ITEM3.
            LEGAL
      PROCEEDINGS





Legal
Proceedings





From time to time, we may be party to
various legal proceedings incident to our business.  At December 31,
2008, 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.





ITEM4.                  SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.




PART
II





ITEM5.
            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 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 of the two most recent fiscal years.  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
                      
                      
                      Low2008:First
      Quarter
                      
                      $
                      0.03
                      
                      
                      $
                      12.50
                      
                      
                      $
                      11.40Second
      Quarter
                      
                      
                      0.03
                      
                      
                      
                      11.98
                      
                      
                      
                      11.24Third
      Quarter
                      
                      
                      0.03
                      
                      
                      
                      11.47
                      
                      
                      
                      8.00Fourth
      Quarter
                      
                      
                      0.03
                      
                      
                      
                      9.51
                      
                      
                      
                      6.002007: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
                      
                      
                      
                      10.00





Northeast Community Bancorp, MHC, the
Company’s majority stockholder, has waived receipt of all dividends declared by
the Company.  During 2008, the aggregate amount of dividends waived
was $873,000.





As of  March 8, 2009, there
were approximately 304 holders of record of the Company’s common
stock.





The Company did not repurchase any of
its common stock during the fourth quarter of 2008 and, at December 31, 2008, we
had no publicly announced repurchase plans or programs.





25
 Index





ITEM6.
            SELECTED
      FINANCIAL DATA





At
      or For the Years Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004(Dollars
      in thousands, except per share data)Financial
      Condition Data:Total
      assets
                  
                  $
                  424,228
                  
                  
                  $
                  343,895
                  
                  
                  $
                  288,417
                  
                  
                  $
                  238,821
                  
                  
                  $
                  237,300Cash
      and cash equivalents
                  
                  
                  36,534
                  
                  
                  
                  39,146
                  
                  
                  
                  36,749
                  
                  
                  
                  27,389
                  
                  
                  
                  48,555Securities
      held to maturity
                  
                  
                  2,078
                  
                  
                  
                  2,875
                  
                  
                  
                  27,455
                  
                  
                  
                  12,228
                  
                  
                  
                  11,395Securities
      available for sale
                  
                  
                  182
                  
                  
                  
                  320
                  
                  
                  
                  355
                  
                  
                  
                  362
                  
                  
                  
                  473Loans
      receivable, net
                  
                  
                  363,616
                  
                  
                  
                  283,133
                  
                  
                  
                  201,306
                  
                  
                  
                  190,896
                  
                  
                  
                  167,690Bank
      owned life insurance
                  
                  
                  8,902
                  
                  
                  
                  8,515
                  
                  
                  
                  8,154
                  
                  
                  
                  –
                  
                  
                  
                  –Deposits
                  
                  
                  261,430
                  
                  
                  
                  225,978
                  
                  
                  
                  188,592
                  
                  
                  
                  193,314
                  
                  
                  
                  193,617Federal
      Home Loan Bank advances
                  
                  
                  40,000
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Total
      stockholders’ equity
                  
                  
                  110,502
                  
                  
                  
                  108,829
                  
                  
                  
                  96,751
                  
                  
                  
                  43,120
                  
                  
                  
                  41,146Operating
      Data:Interest
      income
                  
                  $
                  21,947
                  
                  
                  $
                  17,602
                  
                  
                  $
                  15,348
                  
                  
                  $
                  13,652
                  
                  
                  $
                  12,885Interest
      expense
                  
                  
                  8,550
                  
                  
                  
                  5,918
                  
                  
                  
                  4,493
                  
                  
                  
                  3,110
                  
                  
                  
                  2,494Net
      interest income
                  
                  
                  13,397
                  
                  
                  
                  11,684
                  
                  
                  
                  10,855
                  
                  
                  
                  10,542
                  
                  
                  
                  10,391Provision
      for loan losses
                  
                  
                  411
                  
                  
                  
                  338
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Net
      interest income after provision for loan losses
                  
                  
                  12,986
                  
                  
                  
                  11,346
                  
                  
                  
                  10,855
                  
                  
                  
                  10,542
                  
                  
                  
                  10,391Gain
      (loss) on sale of premises and equipment
                  
                  
                  –
                  
                  
                  
                  18,962
                  
                  
                  
                  (5
                  )
                  
                  
                  (19
                  )
                  
                  
                  (136
                  )Noninterest
      income
                  
                  
                  1,794
                  
                  
                  
                  805
                  
                  
                  
                  624
                  
                  
                  
                  553
                  
                  
                  
                  559Noninterest
      expenses
                  
                  
                  11,500
                  
                  
                  
                  9,826
                  
                  
                  
                  8,870
                  
                  
                  
                  7,515
                  
                  
                  
                  8,078Income
      before income taxes
                  
                  
                  3,280
                  
                  
                  
                  21,287
                  
                  
                  
                  2,604
                  
                  
                  
                  3,561
                  
                  
                  
                  2,736Provision
      for income taxes
                  
                  
                  1,178
                  
                  
                  
                  9,150
                  
                  
                  
                  1,046
                  
                  
                  
                  1,571
                  
                  
                  
                  1,173Net
      income
                  
                  $
                  2,102
                  
                  
                  $
                  12,137
                  
                  
                  $
                  1,558
                  
                  
                  $
                  1,990
                  
                  
                  $
                  1,563Net
      income per share – basic and diluted (1)
                  
                  
                  0.16
                  
                  
                  $
                  0.95
                  
                  
                  $
                  0.06
                  
                  
                  
                  N/A
                  
                  
                  
                  N/ADividends
      declared per share
                  
                  $
                  0.12
                  
                  
                  $
                  0.06
                  
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  –







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





26
 Index




At
      or For the Years Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Performance
      Ratios:Return
      on average assets (1)
                  
                  
                  0.54
                  %
                  
                  
                  3.94
                  %
                  
                  
                  0.57
                  %
                  
                  
                  0.83
                  %
                  
                  
                  0.66
                  %Return
      on average equity (1)
                  
                  
                  1.91
                  
                  
                  
                  11.70
                  
                  
                  
                  2.24
                  
                  
                  
                  4.69
                  
                  
                  
                  3.80Interest
      rate spread (2)
                  
                  
                  2.73
                  
                  
                  
                  3.13
                  
                  
                  
                  3.65
                  
                  
                  
                  4.27
                  
                  
                  
                  4.36Net
      interest margin (3)
                  
                  
                  3.63
                  
                  
                  
                  4.09
                  
                  
                  
                  4.24
                  
                  
                  
                  4.55
                  
                  
                  
                  4.58Noninterest
      expense to average assets
                  
                  
                  2.96
                  
                  
                  
                  3.19
                  
                  
                  
                  3.26
                  
                  
                  
                  3.13
                  
                  
                  
                  3.42Efficiency
      ratio (1) (4)
                  
                  
                  75.70
                  
                  
                  
                  31.24
                  
                  
                  
                  77.31
                  
                  
                  
                  67.85
                  
                  
                  
                  74.70Average
      interest-earning assets to average interest-bearing
      liabilities
                  
                  
                  138.82
                  
                  
                  
                  146.61
                  
                  
                  
                  133.99
                  
                  
                  
                  120.33
                  
                  
                  
                  119.73Average
      equity to average assets
                  
                  
                  28.35
                  
                  
                  
                  33.67
                  
                  
                  
                  25.57
                  
                  
                  
                  17.65
                  
                  
                  
                  17.45Capital
      Ratios - Bank:Tangible
      capital
                  
                  
                  19.45
                  
                  
                  
                  24.18
                  
                  
                  
                  25.46
                  
                  
                  
                  17.92
                  
                  
                  
                  17.05Core
      capital
                  
                  
                  19.45
                  
                  
                  
                  24.18
                  
                  
                  
                  25.46
                  
                  
                  
                  17.92
                  
                  
                  
                  17.05Total
      risk-based capital
                  
                  
                  30.65
                  
                  
                  
                  37.50
                  
                  
                  
                  44.58
                  
                  
                  
                  33.08
                  
                  
                  
                  35.71Asset
      Quality Ratios:Allowance
      for loan losses as a percent of total loans
                  
                  
                  0.51
                  
                  
                  
                  0.53
                  
                  
                  
                  0.60
                  
                  
                  
                  0.63
                  
                  
                  
                  0.71Allowance
      for loan losses as a percent of nonperforming loans
                  
                  
                  57.92
                  
                  
                  
                  65.48
                  
                  
                  
                  N/M
                  
                  
                  
                  N/M
                  
                  
                  
                  N/MNet
      charge-offs to average outstanding loans during the
      period...........................
                  
                  
                  0.01
                  
                  
                  
                  0.02
                  
                  
                  
                  0.00
                  
                  
                  
                  0.00
                  
                  
                  
                  0.00Non-performing
      loans as a percent of total loans
                  
                  
                  0.88
                  
                  
                  
                  0.80
                  
                  
                  
                  0.00
                  
                  
                  
                  0.00
                  
                  
                  
                  0.00Other
      Data:Number
      of:Real
      estate loans outstanding
                  
                  
                  491
                  
                  
                  
                  485
                  
                  
                  
                  400
                  
                  
                  
                  399
                  
                  
                  
                  364Deposit
      accounts
                  
                  
                  14,449
                  
                  
                  
                  15,025
                  
                  
                  
                  15,898
                  
                  
                  
                  17,243
                  
                  
                  
                  18,251Offices
      (5)
                  
                  
                  9
                  
                  
                  
                  9
                  
                  
                  
                  8
                  
                  
                  
                  8
                  
                  
                  
                  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 the 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)
            At
      December 31, 2008, 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 were negligible as of these
dates.





27
 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.





28
 Index





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 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 and an
$18.0 million zero coupon promissory note recorded at its then present value of
$16.3 million (the “Original Note”).  The Original Note was payable in
two $9.0 million installments due on the first and second anniversaries of the
Original Note.  On July 31, 2008, as payment of the first installment
due under the Original Note, the Bank received $2.0 million in cash and a new
$7.0 million note bearing interest at 7% per annum and payable over a five-month
period ending on December 31, 2008 (the “New Note”).  On December 31,
2008, the Original Note and the remaining $1.9 million balance on the New Note
were rolled into a new $10.9 million note payable on July 31, 2009 (the
“Combined Note”).  The Combined Note is secured by 100% of the
interests in the companies owning the Property.  In addition, the
Combined Note is secured by a pocket mortgage on the Property, which is held in
escrow by the Bank.  This note is not treated as a loan or extension
of credit subject to the regulatory limits on loans to one
borrower.





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 2011).  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





29
 Index





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, 2008 was $481,000 and note discount accreted during 2008 totaled
$29,000.  The acquired business is being operated as a division of the
Bank and, during 2008, generated total revenues of approximately $878,000 and
pre-tax income of approximately $17,000.





Balance
Sheet Analysis





Overview. Total assets at
December 31, 2008, increased $80.3 million, or 23.4%, to $424.2 million from
total assets of $343.9 million at December 31, 2007.  The increase was
primarily due to an increase of $80.5 million in loans receivable,
net.  The increase in loans was funded with increases of $40.0 million
in Federal Home Loan Bank advances, $35.5 million in deposits, and $3.7 million
in advance payments by borrowers for taxes and insurance.  As of
December 31, 2008, the Company, on a consolidated basis, had stockholders equity
of $110.5 million, or 26.05% of assets.





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, 2008, loans receivable, net, totaled $363.6 million, an increase of
$80.5 million, or 28.4%, from total loans receivable, net, of $283.1 million at
December 31, 2007.  The promissory notes 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 $10.7 million and $16.9 million balance at December
31, 2008 and 2007, respectively, are included in the non-residentialsegment of our real
estate loan portfolio for both 2008 and 2007.





The largest segment of our real estate
loans is multi-family residential loans.  As of December 31, 2008,
these loans totaled $186.2 million, or 51.1% of our total loan portfolio,
compared to $138.8 million, or 49.0% of our total loan portfolio at December 31,
2007.  As of December 31, 2008, mixed-use loans totaled $58.3 million,
or 16.0% of our total loan portfolio, compared to $52.6 million, or 18.5% of our
total loan portfolio at December 31, 2007.  Non-residential real
estate loans totaled $102.8 million, or 28.2% of our total loan portfolio at
December 31, 2008, compared to $79.3 million, or 28.0% of our total loan
portfolio at December 31, 2007.  At December 31, 2008 and 2007, one-
to four-family residential real estate loans totaled $275,000 and $304,000, or
0.1% and 0.1% of our total loan portfolio, respectively.





At December 31, 2008, our commercial
loan portfolio totaled $22.8 million in committed loans, with $7.6 million drawn
against such commitments, compared to $5.5 million in committed loans, with $3.0
million drawn against such commitments at December 31, 2007.  In both
2008 and 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 $9.0 million, or 2.5% of our
total loan portfolio at December 31, 2008 compared to $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 $114,000 and represented 0.03% of
total loans at December 31, 2008  compared to $88,000, or 0.03%, of
total loans at December 31, 2007.





30
 Index




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





At
      December 31,2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent(Dollars
      in thousands)Real
      estate:Residential
      Real Estate:One-
      to four-family
                
                $
                275
                
                
                
                0.08
                %
                
                $
                304
                
                
                
                0.11
                %
                
                $
                405
                
                
                
                0.20
                %
                
                $
                587
                
                
                
                0.31
                %
                
                $
                837
                
                
                
                0.49
                %Multi-family
      (1)
                
                
                186,199
                
                
                
                51.11
                
                
                
                138,767
                
                
                
                48.95
                
                
                
                110,389
                
                
                
                54.76
                
                
                
                100,360
                
                
                
                52.43
                
                
                
                99,400
                
                
                
                58.93Mixed-use
      (1)
                
                
                58,317
                
                
                
                16.00
                
                
                
                52,559
                
                
                
                18.54
                
                
                
                42,576
                
                
                
                21.12
                
                
                
                43,919
                
                
                
                22.94
                
                
                
                38,287
                
                
                
                22.70Total
      residential real estate loans
                
                
                244,791
                
                
                
                67.19
                
                
                
                191,630
                
                
                
                67.60
                
                
                
                153,370
                
                
                
                76.08
                
                
                
                144,866
                
                
                
                75.68
                
                
                
                138,524
                
                
                
                82.12Non-residential
      real estate (1)
                
                
                102,785
                
                
                
                28.21
                
                
                
                79,305
                
                
                
                27.98
                
                
                
                47,802
                
                
                
                23.71
                
                
                
                46,219
                
                
                
                24.14
                
                
                
                29,785
                
                
                
                17.66Total
      real estate
                
                
                347,576
                
                
                
                95.40
                
                
                
                270,935
                
                
                
                95.58
                
                
                
                201,172
                
                
                
                99.79
                
                
                
                191,085
                
                
                
                99.82
                
                
                
                168,309
                
                
                
                99.78Construction
      loans
                
                
                9,025
                
                
                
                2.48
                
                
                
                9,456
                
                
                
                3.34
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Commercial
      loans
                
                
                7,620
                
                
                
                2.09
                
                
                
                2,977
                
                
                
                1.05
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Consumer:Overdraft
      lines of credit
                
                
                57
                
                
                
                0.02
                
                
                
                69
                
                
                
                0.02
                
                
                
                71
                
                
                
                0.04
                
                
                
                83
                
                
                
                0.04
                
                
                
                96
                
                
                
                0.06Passbook
      loans
                
                
                57
                
                
                
                0.01
                
                
                
                19
                
                
                
                0.01
                
                
                
                348
                
                
                
                0.17
                
                
                
                268
                
                
                
                0.14
                
                
                
                270
                
                
                
                0.16Total
      consumer loans
                
                
                114
                
                
                
                0.03
                
                
                
                88
                
                
                
                0.03
                
                
                
                419
                
                
                
                0.21
                
                
                
                351
                
                
                
                0.18
                
                
                
                366
                
                
                
                0.22Total
      loans
                
                
                364,335
                
                
                
                100.00
                %
                
                
                283,456
                
                
                
                100.00
                %
                
                
                201,591
                
                
                
                100.00
                %
                
                
                191,436
                
                
                
                100.00
                %
                
                
                168,675
                
                
                
                100.00
                %Net
      deferred loan costs
                
                
                1,146
                
                
                
                
                
                
                
                1,166
                
                
                
                
                
                
                
                915
                
                
                
                
                
                
                
                660
                
                
                
                
                
                
                
                215Allowance
      for losses
                
                
                (1,865
                )
                
                
                
                
                
                
                (1,489
                )
                
                
                
                
                
                
                (1,200
                )
                
                
                
                
                
                
                (1,200
                )
                
                
                
                
                
                
                (1,200
                )Loans,
      net
                
                $
                363,616
                
                
                
                
                
                
                $
                283,133
                
                
                
                
                
                
                $
                201,306
                
                
                
                
                
                
                $
                190,896
                
                
                
                
                
                
                $
                167,690








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





31
 Index





The
following table sets forth certain information at December 31, 2008 regarding
the dollar amount of loans repricing or maturing during the periods
indicated.  The table does not include any estimate of prepayments
which significantly shorten the average life of all loans and may cause our
actual repayment experience to differ from that shown below.  Demand
loans having no stated maturity are reported as due in one year or
less.




At
      December 31, 2008Residential
                  Real
      Estate
                  Loans
                
                
                Non-Residential
      Real Estate Loans
                
                
                Commercial
                  Loans
                
                
                Construction
                  Loans
                
                
                Consumer
      and other
                  Loans
                
                
                Total
                  Loans(In
      thousands)One
      year or less
                
                $
                57,162
                
                
                $
                43,111
                
                
                $
                6,878
                
                
                $
                9,025
                
                
                $
                114
                
                
                $
                116,290More
      than one year to five years
                
                
                182,295
                
                
                
                59,674
                
                
                
                742
                
                
                
                -
                
                
                
                -
                
                
                
                242,711More
      than five years
                
                
                5,334
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,334Total
                
                $
                244,791
                
                
                $
                102,785
                
                
                $
                7,620
                
                
                $
                9,025
                
                
                $
                114
                
                
                $
                364,335





The
following table sets forth the dollar amount of all loans at December 31, 2008
that are due after December 31, 2009 and have either fixed or adjustable
interest rates.




Fixed
      Rates
                
                
                Adjustable
      Rates
                
                
                Total(In
      thousands)Residential
      real estate:One-
      to four-family
                
                $
                132
                
                
                $
                -
                
                
                $
                132Multi-family
                
                
                6,597
                
                
                
                136,266
                
                
                
                142,863Mixed-use
                
                
                4,061
                
                
                
                40,573
                
                
                
                44,634Non-residential
      real estate
                
                
                2,976
                
                
                
                56,698
                
                
                
                59,674Construction
      loans
                
                
                -
                
                
                
                -
                
                
                
                -Commercial
      loans
                
                
                742
                
                
                
                -
                
                
                
                742Consumer
      and other loans
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                $
                14,508
                
                
                $
                233,537
                
                
                $
                248,045





32
 Index





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





2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(In
      thousands)Total
      loans at beginning of
      period
                    
                    $
                    283,456
                    
                    
                    $
                    201,591
                    
                    
                    $
                    191,436
                    
                    
                    $
                    168,675
                    
                    
                    $
                    155,557Loans
      originated:Residential
      real estate:One-
      to four-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Multi-family
                    
                    
                    70,450
                    
                    
                    
                    43,376
                    
                    
                    
                    19,409
                    
                    
                    
                    24,551
                    
                    
                    
                    34,939Mixed-use
                    
                    
                    6,616
                    
                    
                    
                    16,098
                    
                    
                    
                    7,304
                    
                    
                    
                    9,794
                    
                    
                    
                    11,801Non-residential
      real estate
                    
                    
                    42,954
                    
                    
                    
                    24,451
                    
                    
                    
                    9,010
                    
                    
                    
                    23,831
                    
                    
                    
                    6,957Construction
      loans
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Commercial
      loans
                    
                    
                    4,794
                    
                    
                    
                    3,012
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Consumer
      and other loans
                    
                    
                    87
                    
                    
                    
                    17
                    
                    
                    
                    80
                    
                    
                    
                    –
                    
                    
                    
                    63Total
      loans originated
                    
                    
                    124,901
                    
                    
                    
                    86,954
                    
                    
                    
                    35,803
                    
                    
                    
                    58,176
                    
                    
                    
                    53,760Construction
      loan participation purchased
                    
                    
                    5,406
                    
                    
                    
                    11,695
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Permanent
      loan participation purchased
                    
                    
                    2,971
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Loan
      from sale of building
                    
                    
                    –
                    
                    
                    
                    16,341
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Deduct:Loan
      principal repayments
                    
                    
                    44,069
                    
                    
                    
                    32,109
                    
                    
                    
                    25,648
                    
                    
                    
                    35,415
                    
                    
                    
                    40,642Loan
      sales
                    
                    
                    7,045
                    
                    
                    
                    1,505
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
      deductions
                    
                    
                    51,114
                    
                    
                    
                    33,614
                    
                    
                    
                    25,648
                    
                    
                    
                    35,415
                    
                    
                    
                    40,642Other
      increases
                    
                    
                    (1,285
                    )
                    
                    
                    489
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
      loans at end of period
                    
                    $
                    364,335
                    
                    
                    $
                    283,456
                    
                    
                    $
                    201,591
                    
                    
                    $
                    191,436
                    
                    
                    $
                    168,675





Securities. Our securities
portfolio consists primarily of mortgage-backed
securities.  Securities decreased $935,000, or 29.3%, from $3.2
million at December 31, 2007, to $2.3 million at December 31,
2008.  The decreasewas primarily due to
maturities and repayments of $882,000.




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





At
      December 31,2008
                
                
                2007
                
                
                2006Amortized
                  Cost
                
                
                Fair
                  Value
                
                
                Amortized
                  Cost
                
                
                Fair
                  Value
                
                
                Amortized
                  Cost
                
                
                Fair
                  Value(In
      thousands)Securities
      available for sale:Fannie
      Mae common stock
                
                $
                4
                
                
                $
                1
                
                
                $
                4
                
                
                $
                46
                
                
                $
                4
                
                
                $
                72Mortgage-backed
      securities
                
                
                183
                
                
                
                181
                
                
                
                273
                
                
                
                274
                
                
                
                281
                
                
                
                283Total
                
                $
                187
                
                
                
                182
                
                
                $
                277
                
                
                $
                320
                
                
                $
                285
                
                
                $
                355Securities
      held to maturity:U.S.
      Government and agency securities
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                –
                
                
                $
                22,904
                
                
                $
                22,904Mortgage-backed
      securities
                
                
                2,078
                
                
                
                2,050
                
                
                
                2,875
                
                
                
                2,890
                
                
                
                4,551
                
                
                
                4,564Total
                
                $
                2,078
                
                
                $
                2,050
                
                
                $
                2,875
                
                
                $
                2,890
                
                
                $
                27,455
                
                
                $
                27,468





At December 31, 2008, we had no
investments in a single company or entity that had an aggregate book value in
excess of 10% of our equity.





33
 Index




The
following table sets forth the stated maturities and weighted average yields of
debt securities at December 31, 2008.  Certain mortgage-backed
securities have adjustable interest rates and will re-price annually within the
various maturity ranges.  These repricing schedules are not reflected
in the table below.  At December 31, 2008, mortgage-backed securities
with adjustable rates totaled $2.2 million.





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
                
                $
                1
                
                
                
                0.00
                %
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                1
                
                
                
                0.00
                %Mortgage-backed
      securities
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                181
                
                
                
                4.83
                %
                
                
                181
                
                
                
                4.83Total
      securities available for sale
                
                $
                1
                
                
                
                0.00
                %
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                181
                
                
                
                4.83
                %
                
                $
                182
                
                
                
                4.73
                %Securities
      held to maturity:Mortgage-backed
      securities
                
                $
                -
                
                
                
                -
                
                
                $
                15
                
                
                
                8.25
                %
                
                $
                339
                
                
                
                4.88
                %
                
                $
                1,724
                
                
                
                4.82
                %
                
                $
                2,078
                
                
                
                4.85
                %Total
      securities held to maturity
                
                $
                -
                
                
                
                -
                
                
                $
                15
                
                
                
                8.25
                %
                
                $
                339
                
                
                
                4.88
                %
                
                $
                1,724
                
                
                
                4.82
                %
                
                $
                2,078
                
                
                
                4.85
                %





34
 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.





Deposits
increasedby $35.5
million, or 15.7%, in the year ended December 31, 2008.  The
increasein
deposits is primarily attributable to the Bank’s use of two nationwide
certificate of deposit listing services.  At December 31, 2008, the
Bank had a total of $63.6 million in certificates of deposits that had been
obtained through the two nationwide certificate of deposits listing
services.  Also contributing to the increase in deposits was the
Bank’s offering of competitive interest rates in our retail
branches.





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





At
      December 31,2008
                
                
                2007
                
                
                2006Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent(Dollars
      in thousands)Now
      and money market deposit accounts
                
                $
                24,595
                
                
                
                9.4
                %
                
                $
                21,839
                
                
                
                9.6
                %
                
                $
                21,137
                
                
                
                11.2
                %Savings
      accounts
                
                
                56,987
                
                
                
                21.8
                
                
                
                57,346
                
                
                
                25.4
                
                
                
                60,755
                
                
                
                32.2Noninterest
      bearing demand deposits
                
                
                6,209
                
                
                
                2.4
                
                
                
                1,745
                
                
                
                0.8
                
                
                
                1,439
                
                
                
                0.8Certificates
      of deposit
                
                
                173,639
                
                
                
                66.4
                
                
                
                145,048
                
                
                
                64.2
                
                
                
                105,261
                
                
                
                55.8Total
                
                $
                261,430
                
                
                
                100.0
                %
                
                $
                225,978
                
                
                
                100.0
                %
                
                $
                188,592
                
                
                
                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,
2008.  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
                    
                    $
                    5,945Over
      three through six months
                    
                    
                    6,831Over
      six through twelve months
                    
                    
                    14,130Over
      twelve months
                    
                    
                    7,855Total
                    
                    $
                    34,761





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.  Advances
from the Federal Home Loan Bank of New York (“FHLB”) increased to $40.0 million
as of December 31, 2008 from no FHLB advances outstanding as of December 31,
2007.  The proceeds were used to fund loan originations.





35
 Index





The
following table sets forth certain information regarding FHLB advances for the
periods indicated:





At
      or for the
                    Years
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006(Dollars
      in Thousands)Federal Home Loan Bank
      advances:Average
      balance outstanding during the period
                  
                  $
                  20,620
                  
                  
                  $
                  352
                  
                  
                  $
                  -Average
      interest rate during the period
                  
                  
                  3.55
                  %
                  
                  
                  5.97
                  %
                  
                  
                  -
                  %Maximum
      amount outstanding at any month-end during the period
                  
                  $
                  40,000
                  
                  
                  $
                  4,000
                  
                  
                  $
                  -Balance
      outstanding at end of period
                  
                  
                  40,000
                  
                  
                  
                  -
                  
                  
                  
                  -Weighted
      average interest rate at end of period
                  
                  
                  3.04
                  %
                  
                  
                  -
                  %
                  
                  
                  -
                  %




The
contractual maturities of FHLB advances at December 31, 2008 are as
follows:





Amount
                
                
                Weighted
      Average Interest RateAdvances
      maturing in:One
      year or less
                
                $
                15,000
                
                
                
                2.14
                %After
      one to two years
                
                
                10,000
                
                
                
                3.58
                %After
      two to three years
                
                
                5,000
                
                
                
                3.30
                %After
      four to five years
                
                
                10,000
                
                
                
                3.70
                %$
                40,000
                
                
                
                3.04
                %





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, 2008 was $481,000 and note discount accreted during 2008 totaled
$29,000.





Stockholders’
Equity.  Stockholders’
equity increased $1.7 million, or 1.5%, to $110.5 million at December 31, 2008,
from $108.8 million at December 31, 2007.  The increase was primarily
due to net income of $2.1 million.  In addition, stockholders’ equity
increased by $263,000 due to earned ESOP shares, reduced by $659,000 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 2008, which totaled approximately $873,000,
and for similar quarterly cash dividends, if any, to be paid for the first and
second quarters of 2009.  We anticipate that the MHC will continue to
waive receipt of all dividends declared by the Company, subject to applicable
regulatory approvals.





36
 Index





Results
of Operations for the Years Ended December 31, 2008 and 2007





Overview.





2008
                  
                  
                  2007
                  
                  
                  %
      Change
                    2008/2007(Dollars
      in thousands)Net
      income
                  
                  $
                  2,102
                  
                  
                  $
                  12,137
                  
                  
                  
                  (82.7
                  )%Return
      on average assets
                  
                  
                  0.54
                  %
                  
                  
                  3.94
                  %
                  
                  
                  (86.3
                  )Return
      on average equity
                  
                  
                  1.91
                  
                  
                  
                  11.70
                  
                  
                  
                  (83.7
                  )Average
      equity to average assets
                  
                  
                  28.35
                  
                  
                  
                  33.67
                  
                  
                  
                  (15.8
                  )





Net income for the year ended December
31, 2008 decreased by $10.0 million, or 82.7%, to $2.1 million from $12.1
million in 2007.  The decrease 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 2008
increased by $776,000, or 58.5%, primarily due to a $1.7 million increase in net
interest income and a $989,000 increase in noninterest income (excluding effect
of the branch sale), partially offset by a $1.7 million increase in noninterest
expense, a $73,000 increase in the provision for loan losses, and a $179,000
increase in income tax (excluding the effect of the branch sale).





Net Interest
Income.  Net interest income increased by $1.7 million, or
14.7%, to $13.4 million for the year ended December 31, 2008, from $11.7 million
for the year ended December 31, 2007.  The increasein net interest income
resulted primarily from the increased average balance of net interest-earning
assets of $12.3 million due primarily to increased loan
originations.  The effect of increased balances was partially offset
by a 39 basis point decrease in our net interest rate spread to 2.73% for the
year ended December 31, 2008, from 3.13% for the year ended December 31,
2007.  The net interest margin decreased 46 basis points to 3.63% for
the year ended December 31, 2008, from 4.09% for the year ended December 31,
2007.





The decreasein the interest rate
spread and net interest margin in 2008 was due to a decrease in the yield earned
on our interest-earning assets and an increase in the cost of our
interest-bearing liabilities.  The yield on our interest-earning
assets decreased by 22 basis points to 5.94% for the year ended December 31,
2008, from 6.16% for the year ended December 31, 2007 and the cost of our
interest-bearing liabilities increased by 18 basis points to 3.21% for the year
ended December 31, 2008, from 3.03% for the year ended December 31,
2007.





The increase in our cost of funds was
due to a change in the mix of our interest-bearing
liabilities.  Higher cost borrowings and certificates of deposit
increased to 69.5% of our interest-bearing liabilities at December 31, 2008,
from 59.2% at December 31,2007.





37
 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 31,2008
                              
                              
                              2007
                              
                              
                              2006Average
                                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
                              
                              $
                              326,472
                              
                              
                              $
                              21,008
                              
                              
                              
                              6.43
                              %
                              
                              $
                              232,496
                              
                              
                              $
                              14,894
                              
                              
                              
                              6.41
                              %
                              
                              $
                              200,683
                              
                              
                              $
                              12,771
                              
                              
                              
                              6.36
                              %Securities
                              
                              
                              4,074
                              
                              
                              
                              201
                              
                              
                              
                              4.93
                              
                              
                              
                              16,664
                              
                              
                              
                              839
                              
                              
                              
                              5.03
                              
                              
                              
                              22,913
                              
                              
                              
                              1,064
                              
                              
                              
                              4.64Other
      interest-earning assets
                              
                              
                              38,749
                              
                              
                              
                              738
                              
                              
                              
                              1.90
                              
                              
                              
                              36,813
                              
                              
                              
                              1,869
                              
                              
                              
                              5.08
                              
                              
                              
                              32,390
                              
                              
                              
                              1,513
                              
                              
                              
                              4.67Total
      interest-earning assets
                              
                              
                              369,295
                              
                              
                              
                              21,947
                              
                              
                              
                              5.94
                              
                              
                              
                              285,973
                              
                              
                              
                              17,602
                              
                              
                              
                              6.16
                              
                              
                              
                              255,986
                              
                              
                              
                              15,348
                              
                              
                              
                              6.00Allowance
      for loan losses
                              
                              
                              (1,558
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (1,362
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (1,200
                              )Noninterest-earning
      assets
                              
                              
                              20,967
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              23,535
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              17,145Total
      assets
                              
                              $
                              388,704
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              308,146
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              271,931Liabilities
      and equity:Interest-bearing
      liabilities:Interest-bearing
      demand
                              
                              $
                              21,817
                              
                              
                              $
                              144
                              
                              
                              
                              0.66
                              %
                              
                              $
                              20,704
                              
                              
                              $
                              117
                              
                              
                              
                              0.57
                              %
                              
                              $
                              22,363
                              
                              
                              
                              111
                              
                              
                              
                              0.50
                              %Savings
      and club accounts
                              
                              
                              59,392
                              
                              
                              
                              450
                              
                              
                              
                              0.76
                              
                              
                              
                              58,963
                              
                              
                              
                              415
                              
                              
                              
                              0.70
                              
                              
                              
                              66,951
                              
                              
                              
                              469
                              
                              
                              
                              0.70Certificates
      of deposit
                              
                              
                              164,196
                              
                              
                              
                              7,224
                              
                              
                              
                              4.50
                              
                              
                              
                              115,032
                              
                              
                              
                              5,365
                              
                              
                              
                              4.66
                              
                              
                              
                              101,732
                              
                              
                              
                              3,913
                              
                              
                              
                              3.85Total
      interest-bearing deposits
                              
                              
                              245,405
                              
                              
                              
                              7,818
                              
                              
                              
                              3.19
                              
                              
                              
                              194,699
                              
                              
                              
                              5,897
                              
                              
                              
                              3.03
                              
                              
                              
                              191,046
                              
                              
                              
                              4,493
                              
                              
                              
                              2.35Borrowings
                              
                              
                              20,620
                              
                              
                              
                              732
                              
                              
                              
                              3.55
                              
                              
                              
                              352
                              
                              
                              
                              21
                              
                              
                              
                              5.97
                              
                              
                              
                              –
                              
                              
                              
                              –
                              
                              
                              
                              0.00Total
      interest-bearing liabilities
                              
                              
                              266,025
                              
                              
                              
                              8,550
                              
                              
                              
                              3.21
                              
                              
                              
                              195,051
                              
                              
                              
                              5,918
                              
                              
                              
                              3.03
                              
                              
                              
                              191,046
                              
                              
                              
                              4,493
                              
                              
                              
                              2.35Noninterest-bearing
      demand
                              
                              
                              2,646
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,753
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              7,806Other
      liabilities
                              
                              
                              9,850
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              7,583
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3,559Total
      liabilities
                              
                              
                              278,521
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              204,387
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              202,411Stockholders’
      equity
                              
                              
                              110,183
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              103,759
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              69,520Total
      liabilities and Stockholders’ equity
                              
                              $
                              388,704
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              308,146
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              271,931Net
      interest income
                              
                              
                              
                              
                              
                              $
                              13,397
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              11,684
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              10,855Interest
      rate spread
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2.73
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3.13
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3.65Net
      interest margin
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3.63
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              4.09
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              4.24Net
      interest-earning assets
                              
                              $
                              103,270
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              90,922
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              64,940Interest-earning
      assets to interest- bearing liabilities
                              
                              
                              138.82
                              %
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              146.61
                              %
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              133.99
                              %





38
 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.





2008
      Compared to 2007
                
                
                2007
      Compared to 2006Increase
      (Decrease)
                  Due
      to
                
                
                
                
                
                Increase
      (Decrease)
                  Due
      toVolume
                
                
                Rate
                
                
                Net
                
                
                Volume
                
                
                Rate
                
                
                Net(In
      thousands)Interest
      and dividend income:Loans
      receivable
                
                $
                6,047
                
                
                $
                67
                
                
                $
                6,114
                
                
                $
                2,037
                
                
                $
                86
                
                
                $
                2,123Investment
      securities
                
                
                (621
                )
                
                
                (17
                )
                
                
                (638
                )
                
                
                (309
                )
                
                
                84
                
                
                
                (225
                )Other
      interest-earning assets
                
                
                94
                
                
                
                (1,225
                )
                
                
                (1,131
                )
                
                
                218
                
                
                
                138
                
                
                
                356Total
      interest-earning assets
                
                
                5,520
                
                
                
                (1,175
                )
                
                
                4,345
                
                
                
                1,946
                
                
                
                308
                
                
                
                2,254Interest
      expense:Interest-bearing
      demand deposits
                
                
                7
                
                
                
                20
                
                
                
                27
                
                
                
                (9
                )
                
                
                15
                
                
                
                6Savings
      accounts
                
                
                3
                
                
                
                32
                
                
                
                35
                
                
                
                (56
                )
                
                
                2
                
                
                
                (54
                )Certificates
      of deposit
                
                
                2,179
                
                
                
                (320
                )
                
                
                1,859
                
                
                
                553
                
                
                
                900
                
                
                
                1,453Borrowings
                
                
                723
                
                
                
                (12
                )
                
                
                711
                
                
                
                –
                
                
                
                21
                
                
                
                21Total
      interest-bearing liabilities
                
                
                2,912
                
                
                
                (280
                )
                
                
                2,632
                
                
                
                488
                
                
                
                938
                
                
                
                1,426Net
      change in interest income
                
                $
                2,608
                
                
                $
                (895
                )
                
                $
                1,713
                
                
                $
                1,458
                
                
                $
                (630
                )
                
                $
                828





Provision for
Loan Losses.  In 2008, a $411,000 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 $35,000 on a mixed-use mortgage loan that
was subsequently foreclosed and sold during 2008.  In 2007, a $338,000
provision was made to the allowance for loan losses due primarily to an 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, 2008
represented 0.51% of total loans, compared to 0.53% as of December 31,
2007.





There were no recoveries during the
years ended December 31, 2008 and  2007.





Noninterest
Income.  The following table shows the components of
noninterest income for the years ended December 31, 2008 and 2007.





2008
                  
                  
                  2007
                  
                  
                  %
      Change
                    2008/2007(Dollars
      in thousands)Service
      charges
                  
                  $
                  478
                  
                  
                  $
                  358
                  
                  
                  
                  33.5
                  %Net
      gain from premises and equipment
                  
                  
                  -
                  
                  
                  
                  18,962
                  
                  
                  
                  (100.0
                  )Earnings
      on bank owned life insurance
                  
                  
                  386
                  
                  
                  
                  361
                  
                  
                  
                  6.9Investment
      advisory fees
                  
                  
                  878
                  
                  
                  
                  69
                  
                  
                  
                  1,172.5Other
                  
                  
                  52
                  
                  
                  
                  17
                  
                  
                  
                  205.9Total
                  
                  $
                  1,794
                  
                  
                  $
                  19,767
                  
                  
                  
                  (90.9
                  )





39
 Index





Non-interest income decreased $18.0
million, or 90.9%, to $1.8 million for the year ended December 31, 2008, from
$19.8 million for the year ended December 31, 2007.  The decrease was
primarily the result of the $19.0 million gain from the sale of the Bank’s
branch office building located at 1353-55 First Avenue that occurred in June
2007.  Excluding the effect of the branch sale, non-interest income in
2008 increased by $989,000, or 122.9%, primarily due to an $809,000 increase in
investment advisory fees, a $120,000 increase in service charges, and a $25,000
increase in earnings on bank owned life insurance.





Noninterest
Expense.
The following table shows the components of noninterest expense and the
percentage changes for the years ended December 31, 2008 and 2007.





Year
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      %
      Change
                        2008/2007(Dollars
      in thousands)Salaries
      and employee benefits
                      
                      $
                      5,872
                      
                      
                      $
                      5,189
                      
                      
                      
                      13.2
                      %Net
      occupancy expense of premises
                      
                      
                      1,140
                      
                      
                      
                      1,107
                      
                      
                      
                      3.0Equipment
                      
                      
                      517
                      
                      
                      
                      462
                      
                      
                      
                      11.9Outside
      data processing
                      
                      
                      826
                      
                      
                      
                      650
                      
                      
                      
                      27.1Advertising
                      
                      
                      225
                      
                      
                      
                      84
                      
                      
                      
                      167.9REO
      expenses
                      
                      
                      381
                      
                      
                      
                      –
                      
                      
                      
                      N/MService
      contracts
                      
                      
                      212
                      
                      
                      
                      205
                      
                      
                      
                      3.2Insurance
                      
                      
                      163
                      
                      
                      
                      165
                      
                      
                      
                      (1.2
                      )Audit
      and accounting
                      
                      
                      267
                      
                      
                      
                      214
                      
                      
                      
                      24.4Directors
      compensation
                      
                      
                      287
                      
                      
                      
                      219
                      
                      
                      
                      31.0Telephone
                      
                      
                      165
                      
                      
                      
                      167
                      
                      
                      
                      (1.0
                      )Office
      supplies and stationary
                      
                      
                      218
                      
                      
                      
                      209
                      
                      
                      
                      4.6Director,
      officer, and employee expenses
                      
                      
                      269
                      
                      
                      
                      235
                      
                      
                      
                      14.1Legal
      fees
                      
                      
                      290
                      
                      
                      
                      277
                      
                      
                      
                      4.7Other
                      
                      
                      668
                      
                      
                      
                      642
                      
                      
                      
                      4.1Total
      noninterest expenses
                      
                      $
                      11,500
                      
                      
                      $
                      9,826
                      
                      
                      
                      17.0







N/M – Not
meaningful





Noninterest expense increased $1.7
million, or 17.0%, to $11.5 million for the year ended December 31, 2008, from
$9.8 million for the year ended December 31, 2007.  The increase
resulted primarily from an increase of  $683,000 in salaries and
employee benefits, $176,000 in outside data processing expense, $141,000 in
advertising expense, and $381,000 in real estate owned expenses.  All
other categories of noninterest expense increased in the aggregate by $293,000
or 7.5%





Salaries and employee benefits
increased by $683,000, or 13.2%, to $5.9 million for the year ended December 31,
2008 from $5.2 million for the year ended December 31, 2007 due to the hiring of
employees in connection with our acquisition of the operating assets of Hayden
Financial Group, LLC in November 2007 and the addition of one loan officer in
December 2007.





Outside data processing expense
increased $176,000, or 27.1%, to $826,000 for the year ended December 31, 2008
from $650,000 for the year ended December 31, 2007 due primarily to a one time
payment of $148,000 to terminate the item processing contract with a third party
vendor and an increase in the Company’s core data processing
expense.





Advertising expense increased by
$141,000, or 167.9%, to $225,000 for the year ended December 31, 2008 from
$84,000 for the year ended December 31, 2007 due to an increased effort to
market the Bank’s loan, deposit, and investment products and
services.





40
 Index





Real estate owned expenses increased to
$381,000 due primarily to an impairment loss of $369,000 in 2008 on a foreclosed
multi-family property as a result of a fair value calculation based upon a
recent appraisal and a recent purchase offer on the property.  The
Bank did not have any foreclosed property and real estate owned expenses in
2007.





All other
components of noninterest expense increased in the aggregate by $293,000, or
7.5%, to $4.2 million for the year ended December 31, 2008 from $3.9 million for
the year ended December 31, 2007 due mainly to increases in audit and accounting
fees, directors’ compensation, directors, officers and employee expenses, and
the amortization expense of intangible assets.  These increases were
partially offset by decreases in insurance and telephone expenses.





Income
Taxes.
Income tax expense decreased by $8.0 million, or 87.1%, to $1.2 million for the
year ended December 31, 2008, from $9.2 million for the year ended December 31,
2007.  The decrease resulted primarily from the $18.0 million decrease
in pre-tax income in 2008 compared to 2007.  The effective tax rate
was 35.9% or the year ended December 31, 2008, compared to 43.0% for
2007.  The decreased effective tax rate was due to the decreased level
of pre-tax income and the resultant increased impact of tax-exempt income from
bank-owned life insurance.





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 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





41
 Index





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.





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 31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(Dollars
      in thousands)Nonaccrual
      loans:Residential
      real estate:One-
      to four-family
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    –
                    
                    
                    $
                    –Multi-family
                    
                    
                    261
                    
                    
                    
                    666
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Mixed-use
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Non-residential
      real estate
                    
                    
                    1,614
                    
                    
                    
                    1,200
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Construction
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Consumer
      and other loans
                    
                    
                    –
                    
                    
                    
                    1
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
                    
                    
                    1,875
                    
                    
                    
                    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
                    
                    
                    1,875
                    
                    
                    
                    2,274
                    
                    
                    
                    2
                    
                    
                    
                    –
                    
                    
                    
                    –Foreclosed
      real estate
                    
                    
                    832
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Other
      nonperforming loans (1)
                    
                    
                    1,345
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
      nonperforming assets
                    
                    
                    4,052
                    
                    
                    
                    2,274
                    
                    
                    
                    2
                    
                    
                    
                    –
                    
                    
                    
                    –Troubled
      debt restructurings
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Troubled
      debt restructurings and total nonperforming assets
                    
                    $
                    4,052
                    
                    
                    $
                    2,274
                    
                    
                    $
                    2
                    
                    
                    $
                    –
                    
                    
                    $
                    –Total
      nonperforming loans to total loans
                    
                    
                    0.88
                    %
                    
                    
                    0.80
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %Total
      nonperforming loans to total assets
                    
                    
                    0.76
                    %
                    
                    
                    0.66
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %Total
      nonperforming assets and troubled debt restructurings to total
      assets
                    
                    
                    0.96
                    %
                    
                    
                    0.66
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %








(1)
            Other
      non-performing loans consist of loans which were not 90 days or more
      delinquent, but where management has serious doubts about the borrowers
      abilities to comply with contractual loan
terms.





At December 31, 2008, 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





42
 Index





balance
of $261,000 and is secured by an eleven unit apartment building located in
Elizabeth, New Jersey.  We are in the process of foreclosing 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 $845,000 and is secured by an
office building located in Mamaroneck, New York.  The other nonaccrual
non-residential mortgage loan had an outstanding balance of $769,000 at December
31, 2008 and is secured by two gasoline stations and an automobile repair
facility located in Putnam and Westchester Counties, New York.  We are
in the process of foreclosing on both properties.  Based on a recent
fair value analysis of the properties, the Bank does not expect a loss on the
disposition of these properties.





Interest income that would have been
recorded for the year ended December 31, 2008 had nonaccruing loans been current
to their original terms amounted to approximately $142,000.  During
the year ended December 31, 2008, the Bank recognized interest income of
approximately $1,000 on the nonaccrual loans.





At December 31, 2008, one of the
foreclosed properties had a net balance of $369,000 and consisted of a 14 unit
multi-family building located in Hampton, New Hampshire.  This
property was subsequently sold in March 2009.  The other foreclosed
property had a net balance of $463,000 and consisted of a 6 unit multi-family
building located in Newark, New Jersey.  We are renovating this
property for purposes of leasing all the units, with the eventual goal of
marketing the property when the real estate market has stabilized.





Other nonperforming loans consisted of
two loans.  The first had an outstanding balance of $1.2 million and
is secured by a 7 unit multi-family building located in Cambridge,
Massachusetts.  The second nonperforming loan had an outstanding
balance of $181,000 and is secured by a 6 unit multi-family building located in
Philadelphia, Pennsylvania.  As of December 31, 2008, both loans were
60 days delinquent and classified as substandard.  We have started
foreclosure proceedings on both properties and we do not anticipate any loss on
the disposition of these properties.





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 31,2008
                  
                  
                  2007
                  
                  
                  2006(In
      thousands)Special
      mention assets
                  
                  $
                  –
                  
                  
                  $
                  865
                  
                  
                  $
                  –Substandard
      assets
                  
                  
                  3,220
                  
                  
                  
                  1,866
                  
                  
                  
                  –Doubtful
      and loss assets
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Total
      classified assets
                  
                  $
                  3,220
                  
                  
                  $
                  2,731
                  
                  
                  $
                  –





43
 Index





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





At
      December 31,2008
                  
                  
                  2007
                  
                  
                  200630-59
                    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
                  
                  
                  –
                  
                  
                  
                  1,345
                  
                  
                  
                  –
                  
                  
                  
                  458
                  
                  
                  
                  –
                  
                  
                  
                  –Mixed-use
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Non-residential
      real estate
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Construction
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Commercial
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Consumer
      and other loans
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  4
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  2Total
                  
                  $
                  –
                  
                  
                  $
                  1,345
                  
                  
                  $
                  4
                  
                  
                  $
                  458
                  
                  
                  $
                  –
                  
                  
                  $
                  2





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
other then 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.





44
 Index





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, 2008, our allowance for
loan losses was $1.9 million and represented 0.51% of total gross
loans.  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.  The increase in our allowance for loan losses is
due primarily to the increase in mortgage loan balances outstanding as of
December 31, 2008.





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





At
      December 31,2008
                
                
                2007
                
                
                2006Amount
                
                
                %
      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
                %
                
                
                0.1
                %
                
                $
                –
                
                
                
                0.0
                %
                
                
                0.2
                %Multi-family
                
                
                604
                
                
                
                32.4
                
                
                
                51.1
                
                
                
                472
                
                
                
                31.7
                
                
                
                49.0
                
                
                
                395
                
                
                
                32.9
                
                
                
                54.8Mixed-use
                
                
                319
                
                
                
                17.1
                
                
                
                16.0
                
                
                
                250
                
                
                
                16.8
                
                
                
                18.5
                
                
                
                251
                
                
                
                20.9
                
                
                
                21.1Non-residential
      real estate
                
                
                841
                
                
                
                45.1
                
                
                
                28.2
                
                
                
                691
                
                
                
                46.4
                
                
                
                28.0
                
                
                
                554
                
                
                
                46.2
                
                
                
                23.7Construction
                
                
                21
                
                
                
                1.1
                
                
                
                2.5
                
                
                
                50
                
                
                
                3.4
                
                
                
                3.3
                
                
                
                –
                
                
                
                0.0
                
                
                
                0.0Commercial
                
                
                80
                
                
                
                4.3
                
                
                
                2.1
                
                
                
                25
                
                
                
                1.7
                
                
                
                1.1
                
                
                
                –
                
                
                
                0.0
                
                
                
                0.0Consumer
      and other loans
                
                
                –
                
                
                
                0.0
                
                
                
                0.0
                
                
                
                –
                
                
                
                0.0
                
                
                
                0.0
                
                
                
                –
                
                
                
                0.0
                
                
                
                0.2Total
      allowance for loan losses
                
                $
                1,865
                
                
                
                100.0
                %
                
                
                100.0
                %
                
                $
                1,489
                
                
                
                100.0
                %
                
                
                100.0
                %
                
                $
                1,200
                
                
                
                100.0
                %
                
                
                100.0
                %





At
      December 31,2005
                  
                  
                  2004Amount
                  
                  
                  %
      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
                  %
                  
                  
                  0.3
                  %
                  
                  $
                  2
                  
                  
                  
                  0.2
                  %
                  
                  
                  0.5
                  %Multi-family
                  
                  
                  443
                  
                  
                  
                  36.9
                  
                  
                  
                  52.4
                  
                  
                  
                  520
                  
                  
                  
                  43.3
                  
                  
                  
                  58.9Mixed-use
                  
                  
                  277
                  
                  
                  
                  23.1
                  
                  
                  
                  22.9
                  
                  
                  
                  290
                  
                  
                  
                  24.2
                  
                  
                  
                  22.7Non-residential
      real estate
                  
                  
                  480
                  
                  
                  
                  40.0
                  
                  
                  
                  24.2
                  
                  
                  
                  388
                  
                  
                  
                  32.3
                  
                  
                  
                  17.7Construction
                  
                  
                  –
                  
                  
                  
                  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





45
 Index





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.





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 31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004(Dollars
      in thousands)Allowance
      at beginning of period
                    
                    $
                    1,489
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200Provision
      for loan losses
                    
                    
                    411
                    
                    
                    
                    338
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Charge
      offs:Residential
      real estate:One-
      to four-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Multi-family
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Mixed-use
                    
                    
                    (35
                    )
                    
                    
                    (49
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Non-residential
      real estate
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Construction
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Consumer
      and other loans
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
      charge-offs
                    
                    
                    (35
                    )
                    
                    
                    (49
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –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
                    
                    
                    (35
                    )
                    
                    
                    (49
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Allowance
      at end of period
                    
                    $
                    1,865
                    
                    
                    $
                    1,489
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200
                    
                    
                    $
                    1,200Allowance
      to nonperforming loans
                    
                    
                    57.92
                    %
                    
                    
                    65.48
                    %
                    
                    
                    N/M
                    
                    
                    
                    N/M
                    
                    
                    
                    N/MAllowance
      to total loans outstanding at the end of the period
                    
                    
                    0.51
                    %
                    
                    
                    0.53
                    %
                    
                    
                    0.60
                    %
                    
                    
                    0.63
                    %
                    
                    
                    0.71
                    %Net
      charge-offs to average loans outstanding during the period
                    
                    
                    0.01
                    %
                    
                    
                    0.02
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %





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,





46
 Index





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.





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 50 to 300
basis point increase or 50 and 100 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, 2008 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
                
                $
                89,838
                
                
                $
                (3,860
                )
                
                
                (4
                )%
                
                
                21.46
                %
                
                
                (26
                )
      bp200
                
                
                91,315
                
                
                
                (2,382
                )
                
                
                (3
                )%
                
                
                21.59
                %
                
                
                (13
                )
      bp100
                
                
                92,562
                
                
                
                (1,136
                )
                
                
                (1
                )%
                
                
                21.67
                %
                
                
                (5
                )
      bp50
                
                
                93,146
                
                
                
                (551
                )
                
                
                (1
                )%
                
                
                21.70
                %
                
                
                (2
                )
      bp0
                
                
                93,698
                
                
                
                -
                
                
                
                
                
                
                
                21.72
                %(50)
                
                
                94,182
                
                
                
                485
                
                
                
                1
                %
                
                
                21.73
                %
                
                
                1
                bp(100)
                
                
                93,972
                
                
                
                275
                
                
                
                0
                %
                
                
                21.63
                %
                
                
                (9
                )
      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





47
 Index





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 $36.5 million at December
31, 2008 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 provide an additional source of liquidity.  Total
securities classified as available-for-sale were $182,000 at December 31, 2008
and $320,000 at December 31, 2007.





At December 31, 2008, we had $53.3
million in loan commitments outstanding.  At December 31, 2008, this
consisted of $32.3 million of real estate loan origination commitments, $15.4
million in unused commercial loan lines, $3.9  million in unused real
estate equity lines of credit, $1.5 million in construction loans in process,
and $181,000 in unused consumer lines of credit.  Certificates of
deposit due within one year of December 31, 2008 totaled $138.9
million.  This represented 80.0% of certificates of deposit at
December 31, 2008.  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,
2009.  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, 2008, we had the ability to borrow an additional $51.4 million from
the Federal Home Loan Bank of New York, which included two available overnight
lines of credit of $5.6 million each.  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.





48
 Index





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





Year
      Ended December 31,2008
                        
                        
                        2007
                        
                        
                        2006(In
      thousands)Investing
      activities:Loans
      disbursed or closed
                        
                        $
                        (124,901
                        )
                        
                        $
                        (86,954
                        )
                        
                        $
                        (35,803
                        )Purchase
      of loan participations
                        
                        
                        (8,377
                        )
                        
                        
                        (11,695
                        )
                        
                        
                        –Loan
      principal repayments
                        
                        
                        44,069
                        
                        
                        
                        32,109
                        
                        
                        
                        25,648Sale
      of loans
                        
                        
                        7,045
                        
                        
                        
                        1,505
                        
                        
                        
                        –Proceeds
      from maturities and principal repayments of securities
                        
                        
                        882
                        
                        
                        
                        29,676
                        
                        
                        
                        35,682Purchases
      of securities
                        
                        
                        –
                        
                        
                        
                        (5,000
                        )
                        
                        
                        (50,335
                        )Purchase
      of bank owned life insurance
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        (8,000
                        )Purchase
      of FHLB-NY stock
                        
                        
                        (1,937
                        )
                        
                        
                        (15
                        )
                        
                        
                        (42
                        )Proceeds
      from sale of premises and equipment
                        
                        
                        –
                        
                        
                        
                        9,082
                        
                        
                        
                        –Purchases
      of premises and equipment
                        
                        
                        (396
                        )
                        
                        
                        (198
                        )
                        
                        
                        (6,726
                        )Purchase
      of business
                        
                        
                        –
                        
                        
                        
                        (1,384
                        )
                        
                        
                        –Financing
      activities:Increase
      (decrease) in deposits
                        
                        
                        35,452
                        
                        
                        
                        37,386
                        
                        
                        
                        (4,727
                        )Proceeds
      from FHLB-NY advances
                        
                        
                        40,000
                        
                        
                        
                        –
                        
                        
                        
                        –Initial
      stock offering, net of ESOP shares
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        52,444





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, 2008, 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 in 2007.  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 4 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, 2008
and 2007, 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





49
 Index





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.





ITEM7A.
            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.




ITEM9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




None.





ITEM9A(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
      independent registered public accounting firm regarding internal control
      over financial reporting.  Management’s report was not subject
      to attestation by the Company’s independent 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





There
were no changes in the Company’s internal control over financial reporting
during the three months ended December 31, 2008 that have materially affected,
or are reasonable likely to materially affect, the Company’s internal control
over financial reporting.





50
 Index





ITEM9B.
            OTHER
      INFORMATION





None.





PART
III




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





For information concerning Northeast
Community Bancorp’s directors, the information contained under the section
captioned “Item 1—Election of
Directors” in Northeast Community Bancorp’s Proxy Statement for the 2008
Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by
reference.




Executive
Officers





For
information relating to officers of Northeast Community Bancorp, the section
captioned “Item 1—Election of
Directors” in the Proxy Statement, and Part I, Item 1, “Business—Executive Officers of the
Registrant” in this Annual Report on Form 10-K, are incorporated by
reference.





Compliance
with Section 16(a) of the Exchange Act





For
information regarding compliance with Section 16(a) of the Exchange Act, the
information contained under the section captioned “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Proxy Statement is incorporated herein by
reference.





Disclosure
of Code of Ethics





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.





Corporate
Governance





For
information regarding the audit committee and its composition and the audit
committee financial expert, the section captioned “Corporate Governance and Board
Matters” in the Proxy Statement is incorporated herein by
reference.





ITEM11.
            EXECUTIVE
      COMPENSATION





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





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





(a)
            Security
      Ownership of Certain Beneficial
Owners





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





(b)
            Security
      Ownership of Management





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





51
 Index





(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.





ITEM13.
            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.





ITEM14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





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





52
 Index





PARTIV





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
            Northeast
      Community Bank Executive Incentive Deferral
  Plan*(4)


21.0
            List
      of Subsidiaries


23.0
            Consent
      of Beard Miller Company LLP


31.1
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer


31.2
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer


32.0
            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 10.1 to the Company’s Quarterly Report on
      Form 10-Q for the quarter ended September 30,
  2008.





53
 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 26, 2009
              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
      26, 2009Kenneth
      A. Martinek
                
                and
      Director(principal
      executive officer)/s/ Salvatore Randazzo
                
                Executive
      Vice President, Chief
                
                March
      26, 2009Salvatore
      Randazzo
                
                Financial
      Officer and Director(principal
      accounting andfinancial
      officer)/s/ Diane B. Cavanaugh
                
                Director
                
                March
      26, 2009Diane
      B. Cavanaugh/s/ Arthur M. Levine
                
                Director
                
                March
      26, 2009Arthur
      M. Levine/s/ Charles A. Martinek
                
                Director
                
                March
      26, 2009Charles
      A. Martinek/s/ John F. McKenzie
                
                Director
                
                March
      26, 2009John
      F. McKenzie/s/ Linda M. Swan
                
                Director
                
                March
      26, 2009Linda
      M. Swan/s/ Harry (Jeff) A.S Read
                
                Director
                
                March
      26, 2009Harry
      (Jeff) A.S. Read/s/ Kenneth H. Thomas
                
                Director
                
                March
      26, 2009Kenneth
      H. Thomas





Index







Management’s
Report on Internal Control Over Financial Reporting
 
 The management of 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, 2008, 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, 2008 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.
 
 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.





Index


Report
of Independent Registered Public Accounting Firm
  To
the Board of Directors and Stockholders
 Northeast
Community Bancorp, Inc. and Subsidiaries
 White
Plains, New York
  We
have audited the accompanying consolidated statements of financial condition of
Northeast Community Bancorp, Inc. and Subsidiaries (the “Company”) as of
December 31, 2008 and 2007, and the related consolidated statements of
income, stockholders’ equity, and cash flows for the years then
ended.  The Company’s management is responsible for these consolidated
financial statements.  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 Subsidiaries as of December 31, 2008
and 2007, 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 LLP
  Beard
Miller Company LLP
 Clark,
New Jersey
 March
27, 2009
  F-1
 Index
 
 Northeast Community Bancorp,
      Inc.
 Consolidated
Statements of Financial Condition
 December
      31,2008
                  
                  
                  2007(In
      thousands, except share and per share data)AssetsCash
      and amounts due from depository institutions
                  
                  $
                  2,368
                  
                  
                  $
                  1,878Interest-bearing
      deposits
                  
                  
                  34,166
                  
                  
                  
                  37,268Cash
      and cash equivalents
                  
                  
                  36,534
                  
                  
                  
                  39,146Certificates
      of deposit
                  
                  
                  498
                  
                  
                  
                  -Securities
      available-for-sale
                  
                  
                  182
                  
                  
                  
                  320Securities
      held-to-maturity
                  
                  
                  2,078
                  
                  
                  
                  2,875Loans
      receivable, net of allowance for loan losses $1,865 and $1,489,
      respectively
                  
                  
                  363,616
                  
                  
                  
                  283,133Premises
      and equipment, net
                  
                  
                  4,365
                  
                  
                  
                  4,529Federal
      Home Loan Bank of New York stock, at cost
                  
                  
                  2,350
                  
                  
                  
                  414Bank
      owned life insurance
                  
                  
                  8,902
                  
                  
                  
                  8,515Accrued
      interest receivable
                  
                  
                  1,785
                  
                  
                  
                  1,340Goodwill
                  
                  
                  1,310
                  
                  
                  
                  1,310Intangible
      assets
                  
                  
                  649
                  
                  
                  
                  710Real
      estate owned
                  
                  
                  832
                  
                  
                  
                  -Other
      assets
                  
                  
                  1,127
                  
                  
                  
                  1,603Total
      Assets
                  
                  $
                  424,228
                  
                  
                  $
                  343,895Liabilities
      and Stockholders’ EquityLiabilities:Deposits:Non-interest-bearing
      deposits
                  
                  $
                  6,209
                  
                  
                  $
                  1,745Interest-bearing
      deposits
                  
                  
                  255,221
                  
                  
                  
                  224,233Total
      deposits
                  
                  
                  261,430
                  
                  
                  
                  225,978Advance
      payments by borrowers for taxes and insurance
                  
                  
                  6,624
                  
                  
                  
                  2,884Federal
      Home Loan Bank Advances
                  
                  
                  40,000
                  
                  
                  
                  -Accounts
      payable and accrued expenses
                  
                  
                  5,191
                  
                  
                  
                  5,577Note
      payable
                  
                  
                  481
                  
                  
                  
                  627Total
      Liabilities
                  
                  
                  313,726
                  
                  
                  
                  235,066Commitments
      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
                  
                  
                  57,560
                  
                  
                  
                  57,555Unearned
      Employee Stock Ownership Plan (“ESOP”) shares
                  
                  
                  (4,407
                  )
                  
                  
                  (4,665
                  )Retained
      earnings
                  
                  
                  57,399
                  
                  
                  
                  55,956Accumulated
      comprehensive loss
                  
                  
                  (182
                  )
                  
                  
                  (149
                  )Total
      Stockholders’ Equity
                  
                  
                  110,502
                  
                  
                  
                  108,829Total
      Liabilities and Stockholders’ Equity
                  
                  $
                  424,228
                  
                  
                  $
                  343,895
 
 
 See
notes to consolidated financial statements.
  F-2
 Index
 
 Northeast Community Bancorp,
      Inc.
 Consolidated
Statements of Income
 
 Years Ended December 31,2008
                      
                      
                      2007(In thousands, except per share
      data)Interest
      Income:Loans
                      
                      $
                      21,008
                      
                      
                      $
                      14,894Interest-earning
      deposits
                      
                      
                      738
                      
                      
                      
                      1,869Securities
      - taxable
                      
                      
                      201
                      
                      
                      
                      839Total
      Interest Income
                      
                      
                      21,947
                      
                      
                      
                      17,602Interest
      Expense:Deposits
                      
                      
                      7,818
                      
                      
                      
                      5,897Borrowings
                      
                      
                      732
                      
                      
                      
                      21Total
      Interest Expense
                      
                      
                      8,550
                      
                      
                      
                      5,918Net
      Interest Income
                      
                      
                      13,397
                      
                      
                      
                      11,684Provision
      for Loan Losses
                      
                      
                      411
                      
                      
                      
                      338Net
      Interest Income after Provision for Loan Losses
                      
                      
                      12,986
                      
                      
                      
                      11,346Non-Interest
      Income:Other
      loan fees and service charges
                      
                      
                      478
                      
                      
                      
                      358Net
      gain from premises and equipment
                      
                      
                      -
                      
                      
                      
                      18,962Earnings
      on bank owned life insurance
                      
                      
                      386
                      
                      
                      
                      361Investment
      advisory fees
                      
                      
                      878
                      
                      
                      
                      69Other
                      
                      
                      52
                      
                      
                      
                      17Total
      Non-Interest Income
                      
                      
                      1,794
                      
                      
                      
                      19,767Non-Interest
      Expenses:Salaries
      and employee benefits
                      
                      
                      5,872
                      
                      
                      
                      5,189Net
      occupancy expense
                      
                      
                      1,140
                      
                      
                      
                      1,107Equipment
                      
                      
                      517
                      
                      
                      
                      462Outside
      data processing
                      
                      
                      826
                      
                      
                      
                      650Advertising
                      
                      
                      225
                      
                      
                      
                      84Real
      estate owned expenses
                      
                      
                      381
                      
                      
                      
                      -Other
                      
                      
                      2,539
                      
                      
                      
                      2,334Total
      Non-Interest Expenses
                      
                      
                      11,500
                      
                      
                      
                      9,826Income
      before Provision for Income Taxes
                      
                      
                      3,280
                      
                      
                      
                      21,287Provision
      for Income Taxes
                      
                      
                      1,178
                      
                      
                      
                      9,150Net
      Income
                      
                      $
                      2,102
                      
                      
                      $
                      12,137Net
      Income per Common Share – Basic
                      
                      $
                      0.16
                      
                      
                      $
                      0.95Weighted
      Average Number of Common Shares Outstanding – Basic
                      
                      
                      12,771
                      
                      
                      
                      12,745Dividends
      Declared per Common Share
                      
                      $
                      0.12
                      
                      
                      $
                      0.06
 
 
 See
notes to consolidated financial statements.
  F-3
 Index
 
 Northeast Community Bancorp,
      Inc.
 Consolidated
Statements of Stockholders’ Equity
 Years
Ended December 31, 2008 and 2007
 
 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, 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
                          )Pension
      liability – DRP, net of taxes of $(13)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (16
                          )
                          
                          
                          (16
                          )
                          
                          
                          (16
                          )Cash
      dividends 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
                          )
                          
                          
                          108,829Comprehensive
      income:Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,102
                          
                          
                          
                          -
                          
                          
                          
                          2,102
                          
                          
                          $
                          2,102Unrealized
      loss on securities available for sale, net of taxes of
    $(18)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (30
                          )
                          
                          
                          (30
                          )
                          
                          
                          (30
                          )Pension
      liability – DRP, net of taxes of $(1)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (3
                          )
                          
                          
                          (3
                          )
                          
                          
                          (3
                          )Cash
      dividends declared ($0.12 per share)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (659
                          )
                          
                          
                          -
                          
                          
                          
                          (659
                          )ESOP
      shares earned
                          
                          
                          -
                          
                          
                          
                          5
                          
                          
                          
                          258
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          263Total
      Comprehensive Income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          2,069Balance
      - December 31, 2008
                          
                          $
                          132
                          
                          
                          $
                          57,560
                          
                          
                          $
                          (4,407
                          )
                          
                          $
                          57,399
                          
                          
                          $
                          (182
                          )
                          
                          $
                          110,502
 
 
 See
notes to consolidated financial statements.
  F-4
 Index
 
 Northeast Community Bancorp,
      Inc.
 Consolidated
Statements of Cash Flows
 Years Ended December 31,2008
                    
                    
                    2007(In
      Thousands)Cash
      Flows from Operating Activities:Net
      income
                    
                    $
                    2,102
                    
                    
                    $
                    12,137Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Net
      amortization (accretion) of securities premiums and
    discounts
                    
                    
                    5
                    
                    
                    
                    (88
                    )Provision
      for loan losses
                    
                    
                    411
                    
                    
                    
                    338Provision
      for depreciation
                    
                    
                    560
                    
                    
                    
                    589Net
      (accretion) amortization of deferred discounts, fees and
    costs
                    
                    
                    151
                    
                    
                    
                    (424
                    )Amortization
      other
                    
                    
                    90
                    
                    
                    
                    -Deferred
      income tax expense (benefit)
                    
                    
                    (2,679
                    )
                    
                    
                    5,053(Gain)
      from dispositions of premises and equipment
                    
                    
                    -
                    
                    
                    
                    (18,962
                    )Impairment
      losses on real estate owned
                    
                    
                    369
                    
                    
                    
                    -Earnings
      on bank owned life insurance
                    
                    
                    (386
                    )
                    
                    
                    (361
                    )(Increase)
      in accrued interest receivable
                    
                    
                    (445
                    )
                    
                    
                    (239
                    )(Increase)
      decrease in other assets
                    
                    
                    474
                    
                    
                    
                    (1,080
                    )Increase
      (decrease) in accrued interest payable
                    
                    
                    (7
                    )
                    
                    
                    8Increase
      in other liabilities
                    
                    
                    2,317
                    
                    
                    
                    184ESOP
      shares earned
                    
                    
                    263
                    
                    
                    
                    302Net
      Cash Provided by (Used in) Operating Activities
                    
                    
                    3,225
                    
                    
                    
                    (2,543
                    )Cash
      Flows from Investing Activities:Purchase
      of loans
                    
                    
                    (8,377
                    )
                    
                    
                    (11,695
                    )Net
      increase in loans
                    
                    
                    (73,787
                    )
                    
                    
                    (53,703
                    )Purchase
      of securities held-to-maturity
                    
                    
                    -
                    
                    
                    
                    (5,000
                    )Principal
      repayments on securities available-for-sale
                    
                    
                    89
                    
                    
                    
                    8Principal
      repayments on securities held-to-maturity
                    
                    
                    793
                    
                    
                    
                    29,668Purchases
      of certificates of deposit
                    
                    
                    (498
                    )
                    
                    
                    -Purchase
      of Federal Home Loan Bank of New York stock
                    
                    
                    (1,937
                    )
                    
                    
                    (15
                    )Purchases
      of premises and equipment
                    
                    
                    (396
                    )
                    
                    
                    (198
                    )Proceeds
      from sale of premises and equipment
                    
                    
                    -
                    
                    
                    
                    9,082Purchase
      of business
                    
                    
                    -
                    
                    
                    
                    (1,384
                    )Capitalized
      costs on real estate owned
                    
                    
                    (82
                    )
                    
                    
                    -Net
      Cash (Used in) Investing Activities
                    
                    
                    (84,195
                    )
                    
                    
                    (33,237
                    )Cash
      Flows from Financing Activities:Net
      increase in deposits
                    
                    
                    35,452
                    
                    
                    
                    37,386Proceeds
      from FHLB of NY advances
                    
                    
                    40,000
                    
                    
                    
                    -Repayment
      of note payable
                    
                    
                    175
                    
                    
                    
                    -Increase
      in advance payments by borrowers for taxes and insurance
                    
                    
                    3,740
                    
                    
                    
                    955Cash
      dividends paid to minority shareholders
                    
                    
                    (659
                    )
                    
                    
                    (164
                    )Net
      Cash Provided by Financing Activities
                    
                    
                    78,358
                    
                    
                    
                    38,177Net
      (Decrease) Increase in Cash and Cash Equivalents
                    
                    
                    (2,612
                    )
                    
                    
                    2,397Cash
      and Cash Equivalents - Beginning
                    
                    
                    39,146
                    
                    
                    
                    36,749Cash
      and Cash Equivalents - Ending
                    
                    $
                    36,534
                    
                    
                    $
                    39,146
 
 
 See
notes to consolidated financial statements.
  F-5
 Index
 
 Northeast Community Bancorp,
      Inc.
 Consolidated
Statements of Cash Flows (Continued)
 
 
 Years Ended December 31,2008
                    
                    
                    2007(In
      Thousands)Supplementary
      Cash Flows Information:Income
      taxes paid
                    
                    $
                    1,195
                    
                    
                    $
                    4,865Interest
      paid
                    
                    $
                    8,557
                    
                    
                    $
                    5,910Supplementary
      Disclosure of Non-Cash Investing and Financing Activities:Loan
      made to facilitate the sale of  real estate
owned
                    
                    $
                    311
                    
                    
                    $
                    -Real
      estate owned received in settlement of loans
                    
                    $
                    1,430
                    
                    
                    $
                    -Loan
      receivable originated in connection with building sale
                    
                    $
                    -
                    
                    
                    $
                    16,341Assets
      acquired (liabilities incurred) in connection with the acquisition of a
      business:Intangible
      Assets
                    
                    $
                    -
                    
                    
                    $
                    710Goodwill
                    
                    
                    -
                    
                    
                    
                    1,310Note
      Payable
                    
                    
                    -
                    
                    
                    
                    (625
                    )
 
 
 See
notes to consolidated financial statements.
  F-6
 Index
 
 Northeast Community Bancorp,
      Inc.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.
  The Bank
also offers investment advisory and financial planning services under the name
Hayden Wealth Management Group, a division of the Bank, through a networking
arrangement with a registered broker-dealer and investment advisor.
  New
England Commercial Properties LLC (“NECP”), 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.New England Commercial
Properties, LLC currently owns two foreclosed multi-family properties, one
located in Hampton, New Hampshire and another located in Newark, New
Jersey.
  The
consolidated financial statements include the accounts of the Company, the Bank,
and NECP 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.
  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.
  F-7
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
  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 fair 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 principal balances plus net deferred loan origination fees and
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 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.
  F-8
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
  Loans
and Allowance for Loan Losses (Continued)
  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, 2008, such deposits totaled $29.2 million, of which $28.9
million was held by the Federal Home Loan Bank of New
York.  Generally, deposits in excess of $250,000 are not insured by
the FDIC.
  Premises
and Equipment
  Land is
stated at cost.  Buildings and improvements, leasehold improvements
and furnishings and equipment are stated at cost less accumulated depreciation
and amortization computed on the straight-line method over the following useful
lives:
  YearsBuildings
                    30
      - 50Building
      improvements
                    10
      - 50Leasehold
      improvements
                    1 -
      15Furnishings
      and equipment
                    3 -
      50
 
 Maintenance
and repairs are charged to operations in the years incurred.
  F-9
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
  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.  The BOLI is invested in a General Account Portfolio and
a Yield Portfolio account and is managed by an independent investment
firm.
  Federal
Home Loan Bank of New York Stock
  Federal
law requires a member institution of the Federal Home Loan Bank (“FHLB”) system
to hold stock of its district FHLB according to a predetermined formula. The
stock carried at cost.
  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, 2008 and 2007, totaled $649,000 and $710,000,
respectively, 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 is amortizing them, using the
straight-line method, over 11.7 years. Amortization expense is included in other
non-interest expenses. The Company evaluates 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 reviews 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 assesses
the recoverability of 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 is estimated based upon the present value of discounted future cash flows
or other reasonable estimates of fair value.
  Goodwill
  Goodwill
at December 31, 2008 and 2007, totaled $1.3 million and consists of goodwill
acquired in the business combination completed by the Company in November
2007.  The Company tests 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 utilizes
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 estimates 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.
  F-10
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
  Goodwill
(Continued)
  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.
  Real
Estate Owned
  Real
estate owned is carried at the lower of fair value of the related property, as
determined by current appraisals less estimated costs to sell, or the recorded
investment in the property.  Write-downs on these properties, which
occur after the initial transfer from the loan portfolio, are recorded as
operating expenses.  Costs of holding such properties are charged to
expense in the current period.  Gains, to the extent allowable, and
losses on the disposition of these properties are reflected in current
operations.
  Income
Taxes
  The
Company, the Bank and NECP file a consolidated federal income tax
return.  Income taxes are allocated to the Company, Bank and NECP
based upon their respective income or loss included in the consolidated income
tax return.  The Company, the Bank and NECP 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.
  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.
  F-11
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
  Other
Comprehensive Income
  The
Company records in accumulated other comprehensive income (loss), net of related
deferred income taxes, unrealized gains and losses on available for sale
securities and the prior service cost and actuarial gains and losses of the
Outside Directors Retirement Plan (“DRP”) that have 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 and actuarial losses of the
DRP is recorded in expense annually. At December 31, 2008, accumulated other
comprehensive loss totaled $(182,000) and included $(5,000) of net losses on
available for sale securities with no related deferred tax and $(318,000) in
prior service cost and actuarial losses of the DRP less $141,000 of related
deferred income taxes.  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.
  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.  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 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.
  F-12
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
  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, 2008, must hold at least 50.1% of the Company’s stock
so long as the MHC exists.
  All
depositors who had membership or liquidation rights with respect to the Bank as
of the effective date of the reorganization will continue to have such rights
solely with respect to the MHC as long as they continue to hold deposit accounts
with the Bank. In addition, all persons who become depositors of the Bank
subsequent to the date of the transaction will have such membership and
liquidation rights with respect to the MHC.  Borrowers of the Bank as
of the date of the transaction will have the same membership rights in the MHC
that they had in the Bank immediately prior to the date of the transaction as
long as their existing borrowings remain outstanding.
  Office of
Thrift Supervision (“OTS”) regulations impose limitations upon all capital
distributions, including cash dividends, by savings institutions such as the
Bank. Under these regulations, an application to and a prior approval of the OTS
are required before any capital distribution if (1) the institution does not
meet the criteria for “expedited treatment” of applications under OTS
regulations; (2) total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years; (3) the institution would be undercapitalized following the
distribution; or (4) the distribution would otherwise be contrary to statute,
regulation or agreement with the OTS. If an application is not required, the
Bank would still be required to provide the OTS with prior notification. The
Company’s ability to pay dividends, should any be declared, may depend on the
ability of the Bank to pay dividends to the Company.
  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
2008 and 2007, the MHC filed notice with the OTS, which did not object, of its
intention to waive dividends declared by the Company.  The OTS
approval received in 2008 applies also to quarterly cash dividends, if any, to
be paid for the first and second quarters of 2009.  Dividends declared
by the Company in 2008 and 2007 and waived by the MHC totaled approximately
$873,000 and $436,000, respectively.  As of
  F-13
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
2 – Mutual Holding Company Reorganization and Regulatory Matters
(Continued)
  December
31, 2008, total dividends waived by the MHC aggregated $1,309,000.  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, 2008.
  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
      31,2008
                    
                    
                    2007(In
      Thousands)GAAP
      capital
                    
                    $
                    81,312
                    
                    
                    $
                    79,282Less:  Goodwill
      and intangible assets
                    
                    
                    (1,959
                    )
                    
                    
                    (2,020
                    )Directors
      retirement plan AOCI
                    
                    
                    177
                    
                    
                    
                    174Unrealized
      loss (gain) on securities available for sale
                    
                    
                    5
                    
                    
                    
                    (25
                    )Disallowed
      deferred tax assets
                    
                    
                    (64
                    )
                    
                    
                    (1,003
                    )Core
      and Tangible Capital
                    
                    
                    79,471
                    
                    
                    
                    76,408Add:  General
      valuation allowances
                    
                    
                    1,865
                    
                    
                    
                    1,489Total
      Capital
                    
                    $
                    81,336
                    
                    
                    $
                    77,897
  F-14
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
2 – Mutual Holding Company Reorganization and Regulatory Matters
(Continued)
  Actual
                    
                    
                    For
      Capital Adequacy Purposes
                    
                    
                    To
      be Well Capitalized under Prompt Corrective Action
      ProvisionsAmount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio
                    
                    
                    Amount
                    
                    
                    Ratio(Dollars
      in Thousands)As
      of December 31, 2008:Total
      capital (to risk-weighted assets)
                    
                    $
                    81,336
                    
                    
                    
                    30.65
                    %
                    
                    $
                    >21,230
                    
                    
                    
                    >8.00
                    %
                    
                    $
                    >26,538
                    
                    
                    
                    >10.00
                    %Tier
      1 capital (to risk-weighted assets)
                    
                    
                    79,471
                    
                    
                    
                    29.95
                    
                    
                    
                    >         
      -
                    
                    
                    
                    >     
      -
                    
                    
                    
                    >15,923
                    
                    
                    
                    >  6.00Core
      (Tier 1) capital (to adjusted total assets
                    
                    
                    79,471
                    
                    
                    
                    19.45
                    
                    
                    
                    >16,339
                    
                    
                    
                    >4.00
                    
                    
                    
                    >20,424
                    
                    
                    
                    >  5.00Tangible
      capital (to adjusted total assets)
                    
                    
                    79,471
                    
                    
                    
                    19.45
                    
                    
                    
                    >  6,127
                    
                    
                    
                    >1.50
                    
                    
                    
                    >         -
                    
                    
                    
                    >      
      -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
                    
                    
                    
                    >        
      -
                    
                    
                    
                    >      
      -
  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 2008
and 2007, generated total revenues of approximately $878,000 and $69,000,
respectively, and income before taxes of approximately $17,000 and $2,000,
respectively.
  F-15
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 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
      31,2008
                    
                    
                    2007(In
      Thousands)Financial
      instruments whose contract amounts represent credit risk:Commitments
      to extend credit
                    
                    $
                    32,348
                    
                    
                    $
                    44,071Construction
      loans in process
                    
                    
                    1,471
                    
                    
                    
                    582Commitments
      to fund unused lines of credit:Commercial
      lines
                    
                    
                    19,256
                    
                    
                    
                    5,379Consumer
      lines
                    
                    
                    181
                    
                    
                    
                    191$
                    53,256
                    
                    
                    $
                    50,223
 
 At
December 31, 2008, 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 – Certificates of Deposit
  December
      31,2008
                    
                    
                    2007(In
      Thousands)Due
      within one year
                    
                    $
                    498
                    
                    
                    $
                    -$
                    498
                    
                    
                    $
                    -
 
  F-16
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
  Note
6 - Securities Available for Sale
  December
      31, 2008Amortized
      Cost
                    
                    
                    Gross
                        Unrealized
                        Gains
                    
                    
                    Gross
                        Unrealized
                        Losses
                    
                    
                    Fair
      Value(In
      Thousands)Federal
      National Mortgage Association common stock
                    
                    $
                    4
                    
                    
                    $
                    -
                    
                    
                    $
                    3
                    
                    
                    $
                    1Mortgage-backed
      securities:Federal
      Home Loan Mortgage Corporation
                    
                    
                    124
                    
                    
                    
                    -
                    
                    
                    
                    1
                    
                    
                    
                    123Federal
      National Mortgage Association
                    
                    
                    59
                    
                    
                    
                    -
                    
                    
                    
                    1
                    
                    
                    
                    58183
                    
                    
                    
                    -
                    
                    
                    
                    2
                    
                    
                    
                    181$
                    187
                    
                    
                    $
                    -
                    
                    
                    $
                    5
                    
                    
                    $
                    182
  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
 
 There
were no sales of securities available for sale during the years ended
December 31, 2008 and 2007.
  F-17
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
6 - Securities Available for Sale (Continued)
  Contractual
maturities of mortgage-backed securities were as follows:
  December
      31,2008
                  
                  
                  2007Amortized
      Cost
                  
                  
                  Fair
      Value
                  
                  
                  Amortized
      Cost
                  
                  
                  Fair
      Value(In
      Thousands)Due
      within one year
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  4
                  
                  
                  $
                  4Due
      after ten years
                  
                  
                  183
                  
                  
                  
                  181
                  
                  
                  
                  269
                  
                  
                  
                  270$
                  183
                  
                  
                  $
                  181
                  
                  
                  $
                  273
                  
                  
                  $
                  274
 
 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 available for sale
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, 2008:FNMA
      common stock
                  
                  $
                  1
                  
                  
                  $
                  3
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1
                  
                  
                  $
                  3Mortgage-backedsecurities
                  
                  
                  125
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  125
                  
                  
                  
                  2$
                  126
                  
                  
                  $
                  5
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  126
                  
                  
                  $
                  5
 
 At
December 31, 2008, one equity security and seven mortgage-backed securities
had unrealized losses.  Management concluded that the unrealized
losses reflected above for mortgage-backed securities 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-18
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
7 - Securities Held to Maturity
  December
      31, 2008Amortized
      Cost
                  
                  
                  Gross
                      Unrealized
                      Gains
                  
                  
                  Gross
                      Unrealized
                      Losses
                  
                  
                  Fair
      Value(In
      Thousands)Mortgage-backed
      securities:Government
      National Mortgage Association
                  
                  $
                  960
                  
                  
                  $
                  1
                  
                  
                  $
                  19
                  
                  
                  $
                  942Federal
      Home Loan Mortgage Corporation
                  
                  
                  495
                  
                  
                  
                  1
                  
                  
                  
                  8
                  
                  
                  
                  488Federal
      National Mortgage Association
                  
                  
                  562
                  
                  
                  
                  4
                  
                  
                  
                  5
                  
                  
                  
                  561Collateralized
      Mortgage Obligations
                  
                  
                  57
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  56Private
      Pass-through Securities
                  
                  
                  4
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  3$
                  2,078
                  
                  
                  $
                  6
                  
                  
                  $
                  34
                  
                  
                  $
                  2,050
 
  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
 
 There
were no sales of securities held to maturity during the years ended
December 31, 2008 and 2007.
  F-19
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
7 - Securities Held to Maturity (Continued)
  Contractual
maturities of mortgage-backed securities were as follows:
  December
      31,2008
                  
                  
                  2007Amortized
      Cost
                  
                  
                  Fair
      Value
                  
                  
                  Amortized
      Cost
                  
                  
                  Fair
      Value(In
      Thousands)Due
      within one year
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  50
                  
                  
                  $
                  50Due
      after one but within five years
                  
                  
                  15
                  
                  
                  
                  15
                  
                  
                  
                  46
                  
                  
                  
                  47Due
      after five but within ten years
                  
                  
                  339
                  
                  
                  
                  337
                  
                  
                  
                  303
                  
                  
                  
                  303Due
      after ten years
                  
                  
                  1,724
                  
                  
                  
                  1,698
                  
                  
                  
                  2,476
                  
                  
                  
                  2,490$
                  2,078
                  
                  
                  $
                  2,050
                  
                  
                  $
                  2,875
                  
                  
                  $
                  2,890
 
 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, 2008:Mortgage-backedsecurities
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,656
                  
                  
                  $
                  34
                  
                  
                  $
                  1,656
                  
                  
                  $
                  34December
      31, 2007:Mortgage-backedsecurities
                  
                  $
                  74
                  
                  
                  $
                  1
                  
                  
                  $
                  961
                  
                  
                  $
                  7
                  
                  
                  $
                  1,035
                  
                  
                  $
                  8
 
 At
December 31, 2008, 46 mortgage-backed securities had unrealized
losses.  As of December 31, 2008 and 2007, 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-20
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
8 - Loans Receivable, Net
  December
      31,2008
                    
                    
                    2007(In
      Thousands)Real
      estate mortgage:One-to-four
      family
                    
                    $
                    275
                    
                    
                    $
                    304Multi-family
                    
                    
                    186,199
                    
                    
                    
                    138,767Mixed
      use
                    
                    
                    58,317
                    
                    
                    
                    52,559Commercial
                    
                    
                    102,785
                    
                    
                    
                    79,305347,576
                    
                    
                    
                    270,935Construction:Multi-family
                    
                    
                    9,025
                    
                    
                    
                    7,538Commercial
                    
                    
                    -
                    
                    
                    
                    1,9189,025
                    
                    
                    
                    9,456Commercial
      Business:Lines
      of Credit
                    
                    
                    6,398
                    
                    
                    
                    2,322Term
                    
                    
                    1,222
                    
                    
                    
                    6557,620
                    
                    
                    
                    2,977Consumer:Line
      of credit
                    
                    
                    57
                    
                    
                    
                    69Passbook
      or certificate
                    
                    
                    57
                    
                    
                    
                    19114
                    
                    
                    
                    88Total
      Loans
                    
                    
                    364,335
                    
                    
                    
                    283,456Allowance
      for loan losses
                    
                    
                    (1,865
                    )
                    
                    
                    (1,489
                    )Deferred
      loan fees and costs
                    
                    
                    1,146
                    
                    
                    
                    1,166$
                    363,616
                    
                    
                    $
                    283,133
 
 Loans
serviced for the benefit of others totaled approximately $11,346,000 and
$4,407,000 at December 31, 2008 and 2007, respectively.
  At
December 31, 2008 and December 31, 2007, we had three non-accrual loans totaling
$1,875,000 and three non-accrual loans totaling $1,867,000,
respectively.   Interest income on such loans is recognized only
when actually collected.  During the years ended December 31, 2008 and
December 31, 2007, the Bank recognized interest income of approximately $1,000
and $21,000, respectively, 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 $142,000 and $153,000 for the year ended December
31, 2008 and December 31, 2007,
  F-21
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
8 - Loans Receivable, Net (Continued)
  respectively.  The
Bank is not committed to lend additional funds to borrowers whose loans have
been placed on the non-accrual status.
  At
December 31, 2008, impaired loans totaled $3,220,000 and were not subject to
specific loan loss allowances.  For the year ended December 31, 2008,
the average recorded investment in impaired loans totaled approximately
$2,517,000.  Interest income recognized on impaired loans during 2008
totaled $76,000.
  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.
  The
following is an analysis of the allowance for loan losses:
  Years
      Ended December 31,2008
                    
                    
                    2007(In
      Thousands)Balance,
      beginning
                    
                    $
                    1,489
                    
                    
                    $
                    1,200Provision
      charged to operations
                    
                    
                    411
                    
                    
                    
                    338Losses
      charged to allowance
                    
                    
                    (35
                    )
                    
                    
                    (49
                    )Balance,
      ending
                    
                    $
                    1,865
                    
                    
                    $
                    1,489
 
 Note
9 - Premises and Equipment, Net
  December
      31,2008
                    
                    
                    2007(In
      Thousands)Land
                    
                    $
                    534
                    
                    
                    $
                    534Buildings
      and improvements
                    
                    
                    7,234
                    
                    
                    
                    7,183Leasehold
      improvements
                    
                    
                    736
                    
                    
                    
                    736Furnishings
      and equipment
                    
                    
                    5,301
                    
                    
                    
                    4,97713,805
                    
                    
                    
                    13,430Accumulated
      depreciation and amortization
                    
                    
                    (9,440
                    )
                    
                    
                    (8,901
                    )$
                    4,365
                    
                    
                    $
                    4,529
  F-22
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
9 - Premises and Equipment, Net (Continued)
  On June
29, 2007, the Bank closed on the sale of premises and equipment having an
aggregate carrying value of $6,195,000, receiving net proceeds of $25,157,000
(gross proceeds of $25,423,000 less transaction costs of $266,000) and
recognizing a net gain of $18,962,000.  The assets sold related 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
$50,000.  The proceeds received included cash of $9,082,000 and a
two-year zero-coupon note with a then present value of $16,341,000.
  Note
10 - Accrued Interest Receivable, Net
  December
      31,2008
                    
                    
                    2007(In
      Thousands)Loans
                    
                    $
                    1,998
                    
                    
                    $
                    1,456Securities
                    
                    
                    8
                    
                    
                    
                    162,006
                    
                    
                    
                    1,472Allowance
      for uncollected interest
                    
                    
                    (221
                    )
                    
                    
                    (132
                    )$
                    1,785
                    
                    
                    $
                    1,340
 
 Note
11 - Goodwill and Intangible Assets
  Goodwill
and intangible assets at December 31 are summarized as follows (in
thousands):
 
 2008
                      
                      
                      2007Goodwill
                      
                      $
                      1,310
                      
                      
                      $
                      1,310Customer
      relationships intangible
                      
                      
                      649
                      
                      
                      
                      710Total
                      
                      $
                      1,959
                      
                      
                      $
                      2,020
  Amortization
expense of intangible assets was $61,000 and $-0- for the years ended December
31, 2008 and 2007, respectively. Scheduled amortization for each of the
next five years and thereafter is as follows(in thousands):
 
 2009
                      
                      $
                      612010
                      
                      
                      612011
                      
                      
                      612012
                      
                      
                      612013
                      
                      
                      61Thereafter
                      
                      
                      344
  F-23
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
12 - Real Estate Owned (“REO”)
  The
Company held two properties valued at approximately $832,000 at December 31,
2008. During the year ended December 31, 2008, the Company recorded $369,000 of
impairment losses on these properties.  Further declines in real
estate values may result in additional impairment charges in the
future.  Routine holding costs are charged to expense as incurred and
improvements to real estate owned that enhance the value of the real estate are
capitalized. REO expenses during 2008 amounted to $381,000, including
net holding expenses of $12,000. The Company did not own any REO at or during
the year ended December 31, 2007.
  Note
13 - Deposits
  December
      31,2008
                    
                    
                    2007Amount
                    
                    
                    Weighted
      Average Interest Rate
                    
                    
                    Amount
                    
                    
                    Weighted
      Average Interest Rate(Dollars
      in Thousands)Demand
      deposits:Non-interest
      bearing
                    
                    $
                    6,209
                    
                    
                    
                    0.00
                    %
                    
                    $
                    1,745
                    
                    
                    
                    0.00
                    %NOW
      and money market
                    
                    
                    24,595
                    
                    
                    
                    0.57
                    %
                    
                    
                    21,839
                    
                    
                    
                    0.84
                    %30,804
                    
                    
                    
                    0.45
                    %
                    
                    
                    23,584
                    
                    
                    
                    0.77
                    %Savings
      accounts
                    
                    
                    56,987
                    
                    
                    
                    0.68
                    %
                    
                    
                    57,346
                    
                    
                    
                    0.73
                    %Certificates
      of deposit maturing in:One
      year or less
                    
                    
                    138,934
                    
                    
                    
                    3.96
                    %
                    
                    
                    95,341
                    
                    
                    
                    4.83
                    %After
      one to two years
                    
                    
                    20,331
                    
                    
                    
                    4.46
                    %
                    
                    
                    24,531
                    
                    
                    
                    4.76
                    %After
      two to three years
                    
                    
                    6,645
                    
                    
                    
                    5.03
                    %
                    
                    
                    14,412
                    
                    
                    
                    4.78
                    %After
      three to four years
                    
                    
                    5,907
                    
                    
                    
                    5.11
                    %
                    
                    
                    5,099
                    
                    
                    
                    5.27
                    %After
      four to five years
                    
                    
                    1,822
                    
                    
                    
                    3.33
                    %
                    
                    
                    5,665
                    
                    
                    
                    5.15
                    %173,639
                    
                    
                    
                    4.09
                    %
                    
                    
                    145,048
                    
                    
                    
                    4.84
                    %$
                    261,430
                    
                    
                    
                    2.93
                    %
                    
                    $
                    225,978
                    
                    
                    
                    3.37
                    %
  F-24
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
13 – Deposits (Continued)
  As of
December 31, 2008 and 2007, certificates of deposits over $100,000 totaled
$33,061,000 and $26,846,000, respectively.
  Interest
expense on deposits consists of the following:
  Years
      Ended December 31,2008
                    
                    
                    2007(In
      Thousands)Demand
      deposits
                    
                    $
                    144
                    
                    
                    $
                    117Savings
      accounts
                    
                    
                    450
                    
                    
                    
                    415Certificates
      of deposit
                    
                    
                    7,224
                    
                    
                    
                    5,365$
                    7,818
                    
                    
                    $
                    5,897
 
 Note
14 – Advances from Federal Home Loan Bank of New York
(“FHLB”)
  December
      31,2008
                    
                    
                    2007Amount
                    
                    
                    Weighted
      Average Interest Rate
                    
                    
                    Amount
                    
                    
                    Weighted
      Average Interest Rate(Dollars
      in Thousands)Advances
      maturing in:One
      year or less
                    
                    $
                    15,000
                    
                    
                    
                    2.14
                    %
                    
                    $
                    -
                    
                    
                    
                    -
                    %After
      one to two years
                    
                    
                    10,000
                    
                    
                    
                    3.58
                    %
                    
                    
                    -
                    
                    
                    
                    -
                    %After
      two to three years
                    
                    
                    5,000
                    
                    
                    
                    3.30
                    %
                    
                    
                    -
                    
                    
                    
                    -
                    %After
      four to five years
                    
                    
                    10,000
                    
                    
                    
                    3.70
                    %
                    
                    
                    -
                    
                    
                    
                    -
                    %$
                    40,000
                    
                    
                    
                    3.04
                    %
                    
                    $
                    -
                    
                    
                    
                    -
                    %
 
 At
December 31, 2008, none of the above advances were subject to early call or
redemption features.
 
 At
December 31, 2008, the advances were secured by a pledge of the Bank’s
investment in the capital stock of the FHLB and a blanket assignment of the
Bank’s unpledged qualifying mortgage loans.
  F-25
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
15 - 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, 2008 and 2007, was $481,000 and
$627,000, respectively, and the note discount accreted during 2008 and 2007
totaled $29,000 and $2,000, respectively.
 
 Note
16 - 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, 2008 and 2007, 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 31,2008
                    
                    
                    2007(In
      Thousands)Current
      tax expense
                    
                    $
                    3,857
                    
                    
                    $
                    4,097Deferred
      tax expense (benefit)
                    
                    
                    (2,679
                    )
                    
                    
                    5,053Income
      Tax Expense
                    
                    $
                    1,178
                    
                    
                    $
                    9,150
 
  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 31,2008
                    
                    
                    2007(Dollars
      In Thousands)Federal
      income tax at statutory rates
                    
                    $
                    1,115
                    
                    
                    $
                    7,238State
      and City tax, net of federal income tax effect
                    
                    
                    172
                    
                    
                    
                    1,945Non-taxable
      income on bank owned life insurance
                    
                    
                    (131
                    )
                    
                    
                    (123
                    )Other
                    
                    
                    22
                    
                    
                    
                    90Income
      Tax Expense
                    
                    $
                    1,178
                    
                    
                    $
                    9,150Effective
      Income Tax Rate
                    
                    
                    35.9
                    %
                    
                    
                    43.0
                    %
  F-26
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
16 - Income Taxes (continued)
  The tax
effects of significant items comprising the net deferred tax asset are as
follows:
  December
      31,2008
                    
                    
                    2007(In
      Thousands)Deferred
      tax assets:Allowance
      for loan losses
                    
                    $
                    788
                    
                    
                    $
                    657Reserve
      for uncollected interest
                    
                    
                    93
                    
                    
                    
                    -Unrealized
      losses on REO
                    
                    
                    151
                    
                    
                    
                    -Depreciation
                    
                    
                    183
                    
                    
                    
                    168Benefit
      plans
                    
                    
                    381
                    
                    
                    
                    223Accumulated
      other comprehensive loss - DRP
                    
                    
                    141
                    
                    
                    
                    142Total
      Deferred Tax Assets
                    
                    
                    1,737
                    
                    
                    
                    1,190Deferred
      tax liability:Unrealized
      gain on securities available for sale
                    
                    
                    -
                    
                    
                    
                    18Goodwill
                    
                    
                    37
                    
                    
                    
                    -Gain
      on sale of building
                    
                    
                    2,926
                    
                    
                    
                    5,179Other
                    
                    
                    99
                    
                    
                    
                    14Total
      Deferred Tax Liabilities
                    
                    
                    3,062
                    
                    
                    
                    5,211Net
      Deferred Tax (Liability)
                    
                    $
                    (1,325
                    )
                    
                    $
                    (4,021
                    )
 
 The net
deferred tax liability is included in Accounts Payable and Accrued Expenses in
the consolidated statements of financial condition.
  Note
17 - Other Non-Interest Expenses
  The
following is an analysis of other non-interest expenses:
  Years
      Ended December 31,2008
                    
                    
                    2007(In
      Thousands)Service
      contracts
                    
                    $
                    212
                    
                    
                    $
                    205Insurance
                    
                    
                    163
                    
                    
                    
                    165Audit
      and accounting
                    
                    
                    267
                    
                    
                    
                    214Directors
      compensation
                    
                    
                    287
                    
                    
                    
                    219Telephone
                    
                    
                    165
                    
                    
                    
                    167Office
      supplies and stationary
                    
                    
                    218
                    
                    
                    
                    209Director,
      officer, and employee expenses
                    
                    
                    269
                    
                    
                    
                    235Legal
      fees
                    
                    
                    290
                    
                    
                    
                    277Other
                    
                    
                    668
                    
                    
                    
                    642$
                    2,539
                    
                    
                    $
                    2,334
  F-27
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
18 - 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 31,2008
                                      
                                      
                                      2007(Dollars
      In Thousands)Benefit
      Obligation – beginning
                                      
                                      $
                                      476
                                      
                                      
                                      $
                                      358Service
      cost
                                      
                                      
                                      49
                                      
                                      
                                      
                                      43Interest
      cost
                                      
                                      
                                      31
                                      
                                      
                                      
                                      25Actuarial
      loss
                                      
                                      
                                      29
                                      
                                      
                                      
                                      49Prior
      service cost
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1Benefit
      Obligation – ending
                                      
                                      $
                                      585
                                      
                                      
                                      $
                                      476Funded
      Status – Accrued liability included in Accounts Payable and Accrued
      Expenses
                                      
                                      $
                                      585
                                      
                                      
                                      $
                                      476Discount
      rate
                                      
                                      
                                      6.00
                                      %
                                      
                                      
                                      6.00
                                      %Salary
      increase rate
                                      
                                      
                                      2.00
                                      %
                                      
                                      
                                      2.00
                                      %Net
      pension expense:Service
      cost
                                      
                                      $
                                      49
                                      
                                      
                                      $
                                      43Interest
      cost
                                      
                                      
                                      31
                                      
                                      
                                      
                                      25Actuarial
      loss recognized
                                      
                                      
                                      5
                                      
                                      
                                      
                                      -Prior
      service liability recognized
                                      
                                      
                                      21
                                      
                                      
                                      
                                      21Total
      pension expense included in Other Non-Interest Expenses
                                      
                                      $
                                      106
                                      
                                      
                                      $
                                      89Discount
      rate
                                      
                                      
                                      6.00
                                      %
                                      
                                      
                                      6.00
                                      %Salary
      increase rate
                                      
                                      
                                      2.00
                                      %
                                      
                                      
                                      2.00
                                      %
 
 At
December 31, 2008, prior service cost of $245,000 and actuarial losses of
$74,000 have been recorded in Accumulated Other Comprehensive Loss.
Approximately $21,000 and $8,000 of those amount are expected to be included in
pension expense in 2009.
  F-28
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
18 - Benefits Plans (Continued)
  Benefit
payments, which reflect expected future service as appropriate, are expected to
be paid for the years ended December 31 as follows (in
thousands):
  2009
                      
                      $
                      -2010
                      
                      
                      -2011
                      
                      
                      312012
                      
                      
                      632013
                      
                      
                      632014
      – 2018
                      
                      
                      451
 
 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, 2008 and 2007, expenses of $142,000 and $135,000,
respectively, were recorded for this plan and are reflected in the Consolidated
Statements of Income under Salaries and Employee Benefits. At December 31, 2008
and 2007, a liability for this plan of $391,000 and $249,000, 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.  In September 2006, the
Bank ceased making matching contributions to the 401(k)
plan.  Employer contributions fully vest after 6 years.
  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
$4,638,000 and $4,762,000 at December 31, 2008 and 2007,
respectively.
  F-29
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
18 - Benefits Plans (Continued)
  Shares
purchased with the loan proceeds serve as collateral for the loan and are held
in a suspense account for future allocation among ESOP participants. As the loan
principal is repaid, shares will be released from the suspense account and
become eligible for allocation. The allocation among plan participants will be
as described in the ESOP governing document.
  The ESOP
is accounted for in accordance with Statement of Position 93-6, “Accounting for
Employee Stock Ownership Plans”, which was issued by the American Institute of
Certified Public Accountants. Accordingly, ESOP shares initially pledged as
collateral were recorded as unearned ESOP shares in the stockholders’ equity
section of the consolidated statement of financial condition. Thereafter, on a
monthly basis over a 240 month period, approximately 2,160 shares are committed
to be released and compensation expense recorded equal to the shares committed
to be released multiplied by the average closing price of the Company’s stock
during that month. ESOP expense during the years ended December 31, 2008 and
2007, totaled approximately $263,000 and $302,000,
respectively.  Dividends on unallocated shares, which totaled
approximately $57,000 and $15,000 during 2008 and 2007,
respectively,  are recorded as a reduction of the ESOP loan. Dividends
on allocated shares, which totaled approximately $5,000 and $1,000 during 2008
and 2007, respectively, are charged to retained earnings. ESOP shares are
summarized as follows:
  ESOP
shares are summarized as follows:
  December
      31,2008
                    
                    
                    2007Allocated
      shares
                    
                    
                    51,842
                    
                    
                    
                    25,921Shares
      committed to be released
                    
                    
                    25,921
                    
                    
                    
                    25,921Unearned
      shares
                    
                    
                    440,657
                    
                    
                    
                    466,578Total
      ESOP Shares
                    
                    
                    518,420
                    
                    
                    
                    518,420Fair
      value of unearned shares
                    
                    $
                    3,238,000
                    
                    
                    $
                    5,520,000
 
 Note
19 - Commitments and Contingencies
  Lease
Commitments
  Rentals
under operating leases for certain branch offices and land amounted to $359,000
and $297,000 for the years ended December 31, 2008 and 2007,
respectively.  At December 31, 2008, 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 31,2009
                      
                      $
                      3412010
                      
                      
                      2702011
                      
                      
                      1622012
                      
                      
                      642013
                      
                      
                      64Thereafter
                      
                      
                      1,241$
                      2,142
  F-30
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
19 - Commitments and Contingencies (Continued)
  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, 2008 and 2007, 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
20 - Fair Value Disclosures
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 157, Fair
Value Measurements (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosures about
fair value measurements.  SFAS 157 applies to other accounting
pronouncements that require or permit fair value measurements.   The
Company adopted SFAS 157 effective for its fiscal year beginning January 1,
2008.
 
 In
December 2007, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement No.
157 (“FSP 157-2”).  FSP 157-2 delays the effective date of SFAS
157 for all non-financial assets and liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008 and interim periods within
those fiscal years.   As such, the Company only partially adopted
the provisions of SFAS 157, and will begin to account and report for
non-financial assets and liabilities in 2009.   In October 2008,
the FASB issued FASB Staff Position 157-3,Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active
(“FSP 157-3”), to clarify the application of the provisions of
SFAS 157 in an inactive market and how an entity would determine fair value
in an inactive market.  FSP 157-3 is effective immediately and
applies to the Company’s December 31, 2008 consolidated financial
statements. The adoption of SFAS 157 and FSP 157-3 had no impact
on the amounts reported in the financial statements.
 
 SFAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value.  The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements).  The three levels of the fair value
hierarchy under SFAS 157 are as follows:
 
 Level
1:
                Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or
  liabilities.
 
 Level
2:
                Quoted
      prices in markets that are not active, or inputs that are observable
      either directly or indirectly, for substantially the full term of the
      asset or liability.
  F-31
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
20- Fair Value Disclosures (continued)
  Level
3:
                Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (i.e., supported with little
      or no market activity).
 
  An
asset’s or liability’s level within the fair value hierarchy is based on the
lowest level of input that is   significant to the fair value
measurement.
 
 For
financial assets measured at fair value on a recurring basis, the fair value
measurements by level within the fair value hierarchy used at December 31, 2008
are as follows:
 
 
 Description
                    
                    December 31,2008
                    
                    
                    (Level
      1)
                        Quoted
      Prices in Active Markets for Identical Assets
                    
                    
                    (Level
      2)
                        Significant
                        Other
                        Observable
                        Inputs
                    
                    
                    (Level
      3)
                        Significant
                        Unobservable
      Inputs(In
      Thousands)Securities
      available for sale
                    
                    $
                    182
                    
                    
                    $
                    -
                    
                    
                    $
                    182
                    
                    
                    $
                    -
 
 
 At
December 31, 2008, the Company had no financial assets measured at fair value on
a nonrecurring basis.
 
 As
discussed above, the Company has delayed its disclosure requirements of
non-financial assets and liabilities.  Certain real estate owned with
write-downs subsequent to foreclosure are carried at fair value at the
consolidated statement of financial condition date for which the Company has not
yet adopted the provisions of SFAS 157.
  Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation
technique.  Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sales transaction on the dates
indicated.  The estimated fair value amounts have been measured as of
their respective year-ends and have not been re-evaluated or updated for
purposes of these financial statements subsequent to those respective
dates.  As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year-end.
 
 The
following information should not be interpreted as an estimate of the fair value
of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities.  Due to a
wide range of valuation techniques and the degree of subjectivity used in making
the estimates, comparisons between the Company’s disclosures and those of other
companies may not be meaningful.  The following methods and
assumptions were used to estimate the fair values of the Company’s financial
instruments at December 31, 2008 and 2007:
  F-32
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
20- Fair Value Disclosures (continued)
  Cash
and Cash Equivalents, Certificates of Deposit 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.
  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 market rate that reflects the credit
and interest-rate risks inherent in the loans.  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 a market rate.
  Impaired
loans are those that are accounted for under FASB Statement No. 114,Accounting by Creditors for
Impairment of a Loan(“SFAS 114”),in which the Bank has
measured impairment generally based on the fair value of the loan’s
collateral.  Fair value is generally determined based upon independent
third-party appraisals of the properties, or discounted cash flows based upon
the expected proceeds.  These assets are typically included as Level 3
fair values, based upon the lowest level of input that is significant to the
fair value measurements.
 
 FHLB
of New York Stock
  The
carrying amount of the FHLB of New York stock is equal to its fair value, and
considers the limited marketability of this security.
  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 based on rates currently offered in the
market.  At December 31, 2008 and 2007, accrued interest payable of
$20,000 and $27,000, respectively, is included in deposit
liabilities.
  F-33
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
20 - Fair Value Disclosures (Continued)
  FHLB
of New York Advances
  The fair
value of the FHLB advances 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, 2008 and 2007, the
estimated fair values of these off-balance-sheet financial instruments were
immaterial.
  The
carrying amounts and estimated fair value of our financial instruments are as
follows:
  December
      31,2008
                  
                  
                  2007Carrying
      Amount
                  
                  
                  Estimated
      Fair Value
                  
                  
                  Carrying
      Amount
                  
                  
                  Estimated
      Fair Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
                  
                  $
                  36,534
                  
                  
                  $
                  36,534
                  
                  
                  $
                  39,146
                  
                  
                  $
                  39,146Certificates
      of deposit
                  
                  
                  498
                  
                  
                  
                  498
                  
                  
                  
                  -
                  
                  
                  
                  -Securities
      available for sale
                  
                  
                  182
                  
                  
                  
                  182
                  
                  
                  
                  320
                  
                  
                  
                  320Securities
      held to maturity
                  
                  
                  2,078
                  
                  
                  
                  2,050
                  
                  
                  
                  2,875
                  
                  
                  
                  2,890Loans
      receivable
                  
                  
                  363,616
                  
                  
                  
                  381,444
                  
                  
                  
                  283,133
                  
                  
                  
                  286,213FHLB
      stock
                  
                  
                  2,350
                  
                  
                  
                  2,350
                  
                  
                  
                  414
                  
                  
                  
                  414Accrued
      interest receivable
                  
                  
                  1,785
                  
                  
                  
                  1,785
                  
                  
                  
                  1,340
                  
                  
                  
                  1,340Financial
      liabilities:Deposits
                  
                  
                  261,430
                  
                  
                  
                  267,168
                  
                  
                  
                  225,978
                  
                  
                  
                  228,605FHLB
      advances
                  
                  
                  40,000
                  
                  
                  
                  42,330
                  
                  
                  
                  -
                  
                  
                  
                  -Note
      payable
                  
                  
                  481
                  
                  
                  
                  481
                  
                  
                  
                  627
                  
                  
                  
                  627
  F-34
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
21 – Parent Company Only Financial Information
  The
following are the condensed financial statements for Northeast Community Bancorp
(Parent company only) as of December 31, 2008 and 2007 and for the years then
ended.
  Statements
of Financial Condition
 December
      31,2008
                    
                    
                    2007(In
      Thousands)AssetsCash
      and due from banks
                    
                    $
                    25,104
                    
                    
                    $
                    25,187Investment
      in subsidiary
                    
                    
                    81,312
                    
                    
                    
                    79,282ESOP
      loan receivable
                    
                    
                    4,638
                    
                    
                    
                    4,762Other
      assets
                    
                    
                    2
                    
                    
                    
                    -Total
      Assets
                    
                    $
                    111,056
                    
                    
                    $
                    109,231Liabilities
      and Stockholders’ EquityAccounts
      payable and accrued expense
                    
                    $
                    554
                    
                    
                    $
                    402Total
      Liabilities
                    
                    
                    554
                    
                    
                    
                    402Total
      Stockholders’ Equity
                    
                    
                    110,502
                    
                    
                    
                    108,829Total
      Liabilities and Stockholders’ Equity
                    
                    $
                    111,056
                    
                    
                    $
                    109,231
 
 Statements
of Income
 Years Ended December 31,2008
                                                      
                                                      
                                                      2007(In
      Thousands)Interest
      income – securities
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      402Interest
      income – interest- earning deposits
                                                      
                                                      
                                                      372
                                                      
                                                      
                                                      
                                                      780Interest
      income – ESOP loan
                                                      
                                                      
                                                      394
                                                      
                                                      
                                                      
                                                      402Operating
      expenses
                                                      
                                                      
                                                      (262
                                                      )
                                                      
                                                      
                                                      (276
                                                      )Income
      before Income Tax Expense and Equity in Undistributed Earnings of
      Subsidiary
                                                      
                                                      
                                                      504
                                                      
                                                      
                                                      
                                                      1,308Income
      tax expense
                                                      
                                                      
                                                      201
                                                      
                                                      
                                                      
                                                      522Income
      before Equity in Undistributed Earnings of Subsidiary
                                                      
                                                      
                                                      303
                                                      
                                                      
                                                      
                                                      786Equity
      in undistributed earnings of subsidiary
                                                      
                                                      
                                                      1,799
                                                      
                                                      
                                                      
                                                      11,351Net
      Income
                                                      
                                                      $
                                                      2,102
                                                      
                                                      
                                                      $
                                                      12,137
  F-35
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
21 - Parent Only Financial Information (Continued)
  Statements
of Cash Flow
 Years Ended December 31,2008
                          
                          
                          2007(In Thousands)Cash
      Flows from Operating ActivitiesNet
      income
                          
                          $
                          2,102
                          
                          
                          $
                          12,137Adjustments
      to reconcile net income to net cash provided by operating
      activities:Equity
      in undistributed earnings of subsidiary
                          
                          
                          (1,799
                          )
                          
                          
                          (11,351
                          )Amortization
      of securities discount
                          
                          
                          -
                          
                          
                          
                          (84
                          )(Increase)
      decrease in other assets
                          
                          
                          (2
                          )
                          
                          
                          3Increase
      (decrease) in other liabilities
                          
                          
                          151
                          
                          
                          
                          (2
                          )Net
      Cash Provided by Operating Activities
                          
                          
                          452
                          
                          
                          
                          703Cash
      Flows from Investing ActivitiesPurchase
      of securities held to maturity
                          
                          
                          -
                          
                          
                          
                          (5,000
                          )Maturities
      of securities held to maturity
                          
                          
                          -
                          
                          
                          
                          20,000Repayment
      of ESOP loan
                          
                          
                          124
                          
                          
                          
                          115Net
      Cash Provided by Investing Activities
                          
                          
                          124
                          
                          
                          
                          15,115Cash
      Flows from Financing ActivitiesCash
      dividends paid
                          
                          
                          (659
                          )
                          
                          
                          (164
                          )Net
      Cash (Used in) Financing Activities
                          
                          
                          (659
                          )
                          
                          
                          (164
                          )Net
      Increase (Decrease) in Cash and Cash Equivalents
                          
                          
                          (83
                          )
                          
                          
                          15,654Cash
      and Cash Equivalents - Beginning
                          
                          
                          25,187
                          
                          
                          
                          9,533Cash
      and Cash Equivalents - Ending
                          
                          $
                          25,104
                          
                          
                          $
                          25,187
  F-36
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
22 - 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.  This
new pronouncement will impact the Company’s accounting for business combinations
completed beginning January 1, 2009.
  FSP
FAS 142-3
  In April
2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of
the Useful Life of Intangible Assets.”  This FSP amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”).  The intent of this FSP is to improve the consistency between
the useful life of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of the asset under
SFAS 141R, and other GAAP.  This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early adoption is
prohibited.  The Company is currently evaluating the potential impact
the new pronouncement will have on its consolidated financial
statements.
   F-37
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
23 - Quarterly Financial Data (Unaudited)
  Quarter EndedMarch 31, 2008
                    
                    
                    June 30, 2008
                    
                    
                    September 30, 2008
                    
                    
                    December 31, 2008(In
      Thousands, except for per share data)Interest
      Income
                    
                    $
                    5,282
                    
                    
                    $
                    5,304
                    
                    
                    $
                    5,563
                    
                    
                    $
                    5,798Interest
      Expense
                    
                    
                    2,053
                    
                    
                    
                    2,087
                    
                    
                    
                    2,209
                    
                    
                    
                    2,201Net
      Interest Income
                    
                    
                    3,229
                    
                    
                    
                    3,217
                    
                    
                    
                    3,354
                    
                    
                    
                    3,597Provision
      for Loan Losses
                    
                    
                    -
                    
                    
                    
                    79
                    
                    
                    
                    147
                    
                    
                    
                    185Net
      Interest Income after Provision for Loan Losses
                    
                    
                    3,229
                    
                    
                    
                    3,138
                    
                    
                    
                    3,207
                    
                    
                    
                    3,412Non-Interest
      Income
                    
                    
                    428
                    
                    
                    
                    399
                    
                    
                    
                    430
                    
                    
                    
                    537Non-Interest
      Expenses
                    
                    
                    2,772
                    
                    
                    
                    2,821
                    
                    
                    
                    2,762
                    
                    
                    
                    3,145Income
      before Income Taxes
                    
                    
                    885
                    
                    
                    
                    716
                    
                    
                    
                    875
                    
                    
                    
                    804Income
      Taxes
                    
                    
                    357
                    
                    
                    
                    271
                    
                    
                    
                    333
                    
                    
                    
                    217Net
      Income
                    
                    $
                    528
                    
                    
                    $
                    445
                    
                    
                    $
                    542
                    
                    
                    $
                    587Net
      Income per common share – Basic
                    
                    $
                    0.04
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.04
                    
                    
                    $
                    0.05Weighted
      average numbers of common shares outstanding – basic
                    
                    
                    12,761
                    
                    
                    
                    12,768
                    
                    
                    
                    12,775
                    
                    
                    
                    12,781Dividends
      declared per share
                    
                    $
                    0.03
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.03
  F-38
 Index
 
 Northeast Community Bancorp,
      Inc.Notes
      to Consolidated Financial
Statements
 
 
 Note
23 - Quarterly Financial Data (Unaudited) (Continued)
 
 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-39