UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K





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





For the fiscal year ended December 31,
2009





OR





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





For the transition period from
_________________________ to _________________________





Commission
File Number: 0-51852




NORTHEAST
COMMUNITY BANCORP, INC.


(Exact
name of registrant as specified in its charter)





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





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





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





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





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





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





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





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   T      No   £





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   Yes £   No
£





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





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





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





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


Yes  £       No   T





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of June 30, 2009 was approximately $47.7 million.





The
number of shares outstanding of the registrant’s common stock as of March 9,
2010 was 13,225,000.





DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the Proxy Statement for the 2010 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.













INDEX





Part
I





PageItem
      1.
            Business
            1Item
      1A.
            Risk Factors
            18Item
      1B.
            Unresolved Staff Comments
            23Item
      2.
            Properties
            24Item
      3.
            Legal Proceedings
            25Item
      4.
            [Reserved and Removed]
            25Part
      IIItem
      5.
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and IssuerPurchases 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
            53Item
      8.
            Financial Statements and Supplementary Data
            53Item
      9.
            Changes in and Disagreements With Accountants on Accounting and
      Financial Disclosure
            53Item
      9A(T).
            Controls and Procedures
            53Item
      9B.
            Other Information
            54Part
      IIIItem
      10.
            Directors, Executive Officers and Corporate
      Governance
            54Item
      11.
            Executive Compensation
            54Item
      12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related 54Stockholder Matters
            54Item
      13.
            Certain Relationships and Related Transactions, and Director
      Independence
            55Item
      14.
            Principal Accounting Fees and Services
            55Part
      IVItem
      15.
            Exhibits and Financial Statement Schedules
            56SIGNATURES





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, demand for loans and deposits, changes in
quality or composition of our loan portfolio and changes in federal and state
legislation and regulation.  For further discussion of factors that
may affect our results, see “Item 1A. Risk Factors” in this Annual Report on
Form 10-K (“Form 10-K”).  These factors should be considered in
evaluating the forward-looking statements and undue reliance should not be
placed on such statements.  Northeast Community Bancorp, Inc. assumes
no obligation to update any forward-looking statements.





PART
I





Item
      1.
            BUSINESS





General





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





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





Northeast Community Bank 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 for over half a century.  In 2007, we
established a new commercial loan department and have increased this portfolio
from no commercial loans at March 31, 2007 to $23.9 million of commercial loans
committed with $10.4 million drawn at December 31, 2009.  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.





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, 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) and our two full-service branch offices in Danvers and
Plymouth, Massachusetts.  Our two Massachusetts branches were opened
in the second quarter of 2009.   We generate deposits through our
main office and seven branch offices.  We conduct lending activities
throughout the Northeastern United States, including New York, Massachusetts,
New Jersey, Connecticut, and Pennsylvania.




Our
primary market area includes a population base with a broad cross section of
wealth, employment and ethnicity.  We operate in markets that
generally have experienced relatively slow demographic growth, a characteristic
typical of mature urban markets located throughout the Northeast
region.  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.  The counties in which the Danvers and Plymouth retail
branches currently operate include a mixture of rural, suburban and urban
markets. The economies of these areas were historically based on manufacturing,
but, similar to many areas of the country, the underpinnings of these economies
are now more service oriented, with employment spread across many economic
sectors including service, finance, health-care, technology, real estate and
government.








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 and Boston metropolitan areas
have 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 and Boston metropolitan areas 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, 2009, which is the most recent
date for which data is available from the Federal Deposit Insurance Corporation,
we held 0.09% or less of the deposits in Kings and New York counties, New York,
approximately 0.64% and 0.17% of the deposits in Bronx and Westchester Counties,
New York, respectively, and 0.24% and 0.29% of the deposits in Essex and
Plymouth Counties, Massachusetts, 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 and Boston metropolitan areas as well as in the other 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





2
 Index





availability
of lendable funds and credit, general and local economic conditions, current
interest rate levels, volatility in the mortgage markets and other factors which
are not readily predictable.





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





Lending
Activities





General.  We
originate loans primarily for investment purposes.  The largest
segment of our loan portfolio is multi-family residential real estate
loans.  We also originate mixed-use real estate loans and
non-residential real estate loans, 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, and Pennsylvania.  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, 2009, originations of multi-family real estate loans in
states other than New York and Massachusetts represented 37.3% of our total
multi-family mortgage loan originations, and originations of mixed-use real
estate loans in states other than New York and Massachusetts represented 4.7% of
our total mixed-use mortgage loan originations.  For the year ended
December 31, 2008, originations of multi-family real estate loans in states
other than New York and Massachusetts represented 41.8% of our total
multi-family mortgage loan originations, and originations of mixed-use real
estate loans in New York and Massachusetts represented 100.0% 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 several
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.





3
 Index





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 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 75
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 five years
we have developed similar relationships with mortgage brokers in the other
states within our lending territory, in particular Massachusetts, 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, 2009, 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, 2009, the largest
outstanding multi-family real estate loan had a balance of $8.6 million and is
performing according to its terms at December 31, 2009.  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,
2009.  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, 2009, the average loan balance in our multi-family and mixed-use
portfolio was approximately $667,000.





Non-residential
Real Estate Loans.  Due to current market conditions, we
discontinued offering new non-residential real estate loans effective the first
quarter of 2009.  We will continue to monitor market conditions to
determine whether we will resume offering such loans at a future date.  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.





Our non-residential real estate loans
are structured in a manner similar to our multi-family and mixed-use real estate
loans, typically at a fixed rate of interest for three to five years and then a
rate that adjusts every three to five years over the term of the loan, which is
typically 15 years.  Interest rates and payments on these loans
generally are based on the three-year or five-year constant maturity treasury
index plus a margin.  The lifetime interest rate cap is five
percentage points over the initial interest rate of the loan (four percentage
points for loans with three-year terms).  Loans are secured by first
mortgages that generally do not exceed 75% of the property’s appraised
value.  Properties securing non-residential real estate loans are
appraised by independent appraisers and inspected by us.





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





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





4
 Index


At December 31, 2009, we had $105.2
million in non-residential real estate loans outstanding, or 26.8% of total
loans.  Originations in states other than New York and Massachusetts
represented 17.3% of our total originations of non-residential real estate loans
for the year ended December 31, 2009 and 14.4% for the year ended December 31,
2008.





At
December 31, 2009, 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, 2009.  At December
31, 2009, the largest outstanding non-residential real estate loan relationship
with one borrower was comprised of six loans totaling $12.6 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,
2009.  As of December 31, 2009, the average balance of loans in our
non-residential loan portfolio was $1.2 million.





In addition, at December 31, 2009, we
had one note, which is treated as a loan in our non-residential loan portfolio
with a net present value of $10.9 million that we received in connection with
the sale of our First Avenue branch office building.  See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Sale of New York City
Branch Office.”





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





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





Our equity lines of credit are
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 $22.8 million of commercial loans committed with $7.6 million
drawn at December 31, 2008 to $23.9 million of commercial loans committed with
$10.4 million drawn at December 31, 2009.





At
December 31, 2009, the largest commercial loan and the largest outstanding
commercial loan was a line of credit totaling $4.0 million, with a $2.0 million
outstanding balance and a remaining available line of credit of $2.0
million.  This loan is secured by the assets of a construction
business located in Pleasantville, New York.





At
December 31, 2009, the largest outstanding commercial loan and mortgage loan
relationship with one borrower was comprised of three loans totaling $2.5
million, consisting of two commercial loans totaling $2.4 million and a first
mortgage loan with an outstanding balance of $165,000.  The two
commercial loans consisted of a line of credit of $3.3 million, with an
outstanding balance totaling $1.9 million and a remaining available line of
credit of $1.4 million, and a term loan with an 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 the cash value of a whole life insurance policy on the owner of the
business.  The first mortgage loan is secured by the nonresidential
property occupied by the business.





5
 Index








All the
aforementioned commercial loans were performing according to their terms at
December 31, 2009.





Construction
Loans.  Historically, we have purchased 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 $15.1 million at December 31,
2009.  Due to current market conditions, we discontinued purchasing
participation interests in construction loans effective the first quarter of
2009.





At
December 31, 2009, the largest outstanding construction loan participation
consisted of four loans with an aggregate outstanding balance of $7.5 million
(net of loans in process of $78,000) for a total potential exposure of $7.6
million.  This balance represents our 25% participation ownership of
the loans.  These loans are secured by a building undergoing
renovation to become a 151 room hotel located in Long Beach, New York, and were
performing according to their terms at December 31, 2009.





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, 2009, our portfolio of consumer loans was $150,000, or 0.04% 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.





6
 Index





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





Construction
Loans.  We have purchased participation interests in loans to
finance the construction of multi-family, mixed-use and non-residential
buildings.  Construction financing affords the Bank the opportunity to
achieve higher interest rates and fees with shorter terms to maturity than do
residential mortgage loans.  However, construction financing is
generally considered to involve a higher degree of risk of loss than long-term
financing on improved, occupied real estate due to (1) the increased difficulty
at the time the loan is made of estimating the building costs and the selling
price of the property to be built; (2) the increased difficulty and costs of
monitoring the 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 2009, we continued our policy of
purchasing 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 $15.1 million at December 31, 2009.  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.





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.





7
 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 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 and chief operating
officer.  Mortgage 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 operating 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, 2009.





At December 31, 2009, our securities
and short-term investments totaled $108.3 million and consisted primarily of
$85.3 million in interest earning deposits in other financial institutions,
including $74.6 million with the Federal Home Loan Bank of New York, $12.0
million in mortgage-backed securities issued primarily by Fannie Mae, Freddie
Mac and Ginnie Mae, $8.7 million in short-term certificates of deposits at other
financial institutions, and $2.3 million in Federal Home Loan Bank of New York
stock.  At December 31, 2009, 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.





8
 Index





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.





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 States of New York and Massachusetts.  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, 2009, 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 lower to 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 2009, we discontinued our policy
of offering non-brokered certificates of deposit through two nationwide
certificate of deposit listing services.  Prior to that time,
certificates of deposit under these listing services were accepted from
banks, credit unions, non-profit organizations and certain corporations in
amounts greater than $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.





9
 Index





Personnel





As of December 31, 2009, we had 98
full-time employees and 4 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,
2009, 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, 2009, New England Commercial
Properties, LLC had $807,000 in assets, including $636,000 related to a
foreclosed multi-family property 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.





10
 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, 2009, 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.





11
 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, 2009, 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 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.





12
 Index











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,
2009, Northeast Community Bank maintained 94.0% 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.





Office of Thrift
Supervision 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, 2009 totaled
$109,000.





13
 Index





Insurance of
Deposit Accounts.  Northeast Community Bank’s deposits are
insured up to applicable limits, which have generally been increased to $250,000
per depositor until January 1, 2014, 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 calendar 2008, assessments
ranged from five to forty-three basis points of  each institution’s
deposit assessment base.  Due to losses incurred by the Deposit
Insurance Fund in 2008 from failed institutions, and anticipated future losses,
the Federal Deposit Insurance Corporation adopted, pursuant to a Restoration
Plan to replenish the fund, an across the board seven basis point increase in
the assessment range for the first quarter of 2009.  The Federal
Deposit Insurance Corporation made further refinements to its risk-based
assessment that were effective April 1, 2009 and that effectively made the range
seven to 771/2
basis points.  The Federal Deposit Insurance Corporation may adjust
the scale uniformly from one quarter to the next, except that no adjustment can
deviate more than three basis points from the base scale without notice and
comment rulemaking.  No institution may pay a dividend if in default
of the federal deposit insurance assessment.





The Federal Deposit Insurance
Corporation imposed on all insured institutions a special emergency assessment
of five basis points of total assets minus tier 1 capital, as of June 30, 2009
(capped at ten basis points of an institution’s deposit assessment base), in
order to cover losses to the Deposit Insurance Fund.  That special
assessment of $205,000 was collected on September 30, 2009.  The
Federal Deposit Insurance Corporation provided for similar assessments during
the final two quarters of 2009, if deemed necessary.  However, in lieu
of further special assessments, the Federal Deposit Insurance Corporation
subsequently required insured institutions to prepay estimated quarterly
risk-based assessments for the fourth quarter of 2009 through the fourth quarter
of 2012.  The Bank’s estimated assessments, which include an assumed
annual assessment base increase of 5%, totaled $1.6 million, of which $1.5
million was recorded as a prepaid expense asset as of December 31,
2009.  As of December 31, 2009, and each quarter thereafter, a charge
to earnings will be recorded for each regular assessment with an offsetting
credit to the prepaid asset.





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, allof
which was used to offset assessments in 2007, 2008 and 2009.  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, 2009 averaged 1.06 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,
2009 of $2.3 million.  Federal Home Loan Bank advances must be secured
by specified types of collateral.





14
 Index











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





Federal Reserve
System.The Federal Reserve Board regulations require savings
institutions to maintain non-interest earning reserves against their transaction
accounts (primarily Negotiable Order of Withdrawal (NOW) and regular checking
accounts).  For 2009, the regulations generally provided that reserves
be maintained against aggregate transaction accounts as follows: a 3% reserve
ratio is assessed on net transaction accounts up to and including $44.4 million;
a 10% reserve ratio is applied above $44.4 million.  The first $10.3
million of otherwise reservable balances are exempted from the reserve
requirements. The amounts are adjusted annually and, for 2010, require a 3%
ratio for up to $55.2 million and an exception of $10.7
million.  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 (i) guaranteed, through the earlier of maturity or June 30, 2012, certain
newly issued senior unsecured debt issued by participating institutions and (ii)
provided 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, later
extended until June 30, 2010.  Coverage under the TLG Program was
available for the first 30 days without charge. The fee assessment for coverage
of senior unsecured debt ranged 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 was 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.  The Bank also will participate in the six month extension of
the unlimited deposit insurance, to June 30, 2010, at a slightly greater
cost.





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.











15
 Index





Regulatory
Restructuring Legislation.The Obama Administration has
proposed, and the House of Representatives and Senate are currently considering,
legislation that would restructure the regulation of depository
institutions.  Proposals range from the merger of the Office of Thrift
Supervision with the Office of the Comptroller of the Currency, which regulates
national banks, to the creation of an independent federal agency that would
assume the regulatory responsibilities of the Office of Thrift Supervision,
Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
and Federal Reserve Board.  The federal savings association charter
would be eliminated and federal associations required to become banks under some
proposals, although others would grandfather existing charters such as that of
the Bank.  Existing savings and loan holding companies would become
subject to regulation as bank holding companies under certain
proposals.  Also proposed is the creation of a new federal agency to
administer and enforce consumer and fair lending laws, a function that is now
performed by the depository institution regulators.  The federal
preemption of state laws currently accorded federally chartered depository
institutions would be reduced under certain proposals as well.





Enactment of any of these proposals
would revise the regulatory structure imposed on the Bank, which could result in
more stringent regulation.  At this time, management has no way of
predicting the contents of any final legislation, or whether any legislation
will be enacted at all.





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, 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.





16
 Index





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 has waived
receipt of all dividends from Northeast Community Bancorp in prior years and in
2009.





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





Acquisition of
Control.
Under the federal Change in Bank Control Act, a notice must be submitted to the
Office of Thrift Supervision if any person (including a company), or group
acting in concert, seeks to acquire direct 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.





17
 Index





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, Chief Operating Officer 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, 2009.





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 44.





ITEM 1A.
            RISK
    FACTORS





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





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





Our
recent emphasis on multi-family residential, mixed-use and non-residential real
estate lending and our recent expansion into commercial lending and
participation in construction loans could expose us to increased lending
risks.





Our
primary business strategy centers on continuing our emphasis on multi-family and
mixed-use 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, 2009,$366.0
million, or 93.4%, 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.





18
 Index





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, 2009, $10.4 million, or 2.7%, 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, 2009, the outstanding balance of our
construction loan participation interests totaled $15.1 million, or 3.9% of our
total loan portfolio.  We currently do not participate in construction
loans.





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





Our lending territory includes New
York, Massachusetts, New Jersey, Connecticut and Pennsylvania.  Our
Wellesley, Massachusetts loan production office was relocated to Danvers,
Massachusetts in March 2009.  We opened a full service branch at this
location and another full service branch in Plymouth, Massachusetts during the
second quarter of 2009.  In 2009, approximately 43.4% of our total
loan originations were outside the state of New York.  While we have
over seventy five 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.





In 2004,
we began to implement a growth strategy that expands our presence in other
select markets in the Northeastern United States.  In 2004, we opened
a loan production office in Wellesley, Massachusetts.  We relocated
this loan production office to Danvers, Massachusetts in March 2009 and opened a
full service branch at this location.  We opened another full service
branch in Plymouth, Massachusetts during the second quarter of
2009.





When
opportunities arise, we may continue to pursue opportunities to expand our
branch network and our lending operations.





19
 Index





If
we do not achieve profitability on new branches, the new branches may hurt our
earnings.





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





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





When
borrowers default and do not repay the loans that we make to them, we may lose
money.  The allowance for loan losses is the amount estimated by
management as necessary to cover probable losses in the loan portfolio at the
statement of financial condition date.  The allowance is established
through the provision for loan losses, which is charged to
income.  Determining the amount of the allowance for loan losses
necessarily involves a high degree of judgment.  Among the material
estimates required to establish the allowance are:  loss exposure at
default; the amount and timing of future cash flows on impacted loans; value of
collateral; and determination of loss factors to be applied to the various
elements of the portfolio.  If our estimates and judgments regarding
such matters prove to be incorrect, our allowance for loan losses might not be
sufficient, and additional loan loss provisions might need to be
made.  Depending on the amount of such loan loss provisions, the
adverse impact on our earnings could be material.  Our allowance for
loan losses amounted to 1.7% of total loans outstanding and 33.4% of
nonperforming loans at December 31, 2009.  Our allowance for loan
losses at December 31, 2009 may not be sufficient to cover future loan
losses.  A large loss could deplete the allowance and require
increased provisions to replenish the allowance, which would negatively affect
earnings.





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, 2009, the most recent date for
which information is available from the Federal Deposit Insurance Corporation,
we held less than 0.09% of the deposits in Kings and New York counties, New
York, approximately 0.64% and 0.17% of the deposits in Bronx and Westchester
Counties, New York, respectively, and 0.24% and 0.29% of the deposits in Essex
and Plymouth Counties, Massachusetts, 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.





20
 Index





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





Our loan
portfolio includes primarily real estate secured loans, demand for which may
decrease during economic downturns as a result of, among other things, an
increase in unemployment, a decrease in real estate values or increases in
interest rates.  These factors could depress our earnings and
consequently our financial condition because customers may not want or need our
products and services; borrowers may not be able to repay their loans; the value
of the collateral securing our loans to borrowers may decline; and the quality
of our loan portfolio may decline.  Any of the latter three scenarios
could cause an increase in delinquencies and non-performing assets or require us
to “charge-off” a percentage of our loans and/or increase our provisions for
loan losses, which would reduce our earnings.  We have recently
experienced an increase in non-performing and classified assets.  For
more information, see Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Risk
Management.”





The
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.





Increased
and/or special FDIC assessments will hurt our earnings.





The recent economic recession has
caused a high level of bank failures, which has dramatically increased FDIC
resolution costs and led to a significant reduction in the balance of the
Deposit Insurance Fund.  As a result, the FDIC has significantly
increased the initial base assessment rates paid by financial institutions for
deposit insurance.  Increases in the base assessment rate have
increased our deposit insurance costs and negatively impacted our
earnings.  In addition, in May 2009, the FDIC imposed a special
assessment on all insured institutions.  Our special assessment, which
was reflected in earnings for the quarter ended June 30, 2009, was
$205,000.  In lieu of imposing an additional special assessment, the
FDIC required all institutions to prepay their assessments for all of 2010, 2011
and 2012, which for us totaled $1.5 million.  Additional increases in
the base assessment rate or additional special assessments would negatively
impact our earnings.





Turmoil
in the financial markets could have an adverse effect on our financial position
or results of operations.





Beginning in 2008, United States and
global financial markets experienced severe disruption and volatility, and
general economic conditions have declined significantly.  Adverse
developments in credit quality, asset values and revenue opportunities
throughout the financial services industry, as well as general uncertainty
regarding the economic, industry and regulatory environment, have had a negative
impact on the industry.  The United States and the governments of
other countries have taken steps to try to stabilize the financial system,
including investing in financial institutions, and have implemented programs
intended to improve general economic conditions.  The U.S. Department
of the Treasury created the Capital Purchase Program under the Troubled Asset
Relief Program, pursuant to which the Treasury Department provided additional
capital to participating financial institutions through the purchase of
preferred stock or other securities.  Other measures include homeowner
relief that encourages loan restructuring and modification; the establishment of
significant liquidity and credit facilities for financial institutions and
investment money market funds; the establishment of a commercial paper funding
facility to provide back-stop liquidity to commercial paper issuers; and
coordinated international efforts to address illiquidity and other weaknesses in
the banking sector.  Notwithstanding the actions of the United States
and other governments, there can be no assurances that these efforts will be
successful in restoring industry, economic or market conditions to their
previous levels and that they will not result in adverse unintended
consequences.  Factors that could continue to pressure financial
services companies, including Northeast Community Bancorp, Inc., are numerous
and include (1) worsening credit quality, leading among other things to
increases in loan losses and reserves, (2) continued or worsening disruption and
volatility in financial markets, leading among other things to continuing
reductions in asset values, (3) capital and liquidity concerns regarding
financial institutions generally, (4) limitations resulting from or imposed in
connection with governmental actions intended to stabilize or provide additional
regulation of the financial system, or (5) recessionary conditions that are
deeper or last longer than currently anticipated.





21
 Index











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.





Proposed
regulatory reform may have a material impact on our operations.


The regulatory environment for banks,
savings associations and other financial institutions is under scrutiny from
Congress at this time.  New legislation may lead to significant
changes in our regulatory environment.





The current administration has
published a comprehensive regulatory reform plan that is intended to modernize
and protect the integrity of the United States financial system and has offered
proposed legislation to accomplish these reforms.  The President’s
plan contains several elements that would have a direct effect on Northeast
Community Bancorp and Northeast Community Bank.  Under the initial
proposed legislation, the federal thrift charter and the Office of Thrift
Supervision would have been eliminated and all companies that control an insured
depository institution would be required to register as a bank holding
company.  The House Financial Services Committee, in cooperation with
the Treasury Department, has prepared alternative legislation that would
preserve the thrift charter as well as federal mutual holding
companies.  Under this legislation, the Office of Thrift Supervision
would be merged into the Office of the Comptroller of the Currency and a
division within that agency would regulate federal thrifts.  All
holding companies of thrifts would be bank holding companies regulated by the
Federal Reserve.





Registration as a bank holding company
would represent a significant change, as there currently exist significant
differences between savings and loan holding company and bank holding company
supervision and regulation.  For example, the Federal Reserve imposes
leverage and risk-based capital requirements on bank holding companies whereas
the Office of Thrift Supervision does not impose any capital requirements on
savings and loan holding companies.  Additionally, Office of Thrift
Supervision regulations permit mutual holding company parents, such as Northeast
Community Bancorp, MHC, to waive the receipt of dividends paid by their mutual
holding company subsidiaries. Mutual holding companies in the bank holding
company structure have generally not been permitted to waive
dividends.  Accordingly, if Northeast Community Bancorp were required
to register as a bank holding company, Northeast Community Bancorp, MHC may not
be able to waive the receipt of dividends paid by Northeast Community
Bancorp.  If it could not waive the receipt of dividends, Northeast
Community Bancorp may have to reduce the rate of the dividends it pays to its
shareholders.





The Administration has also proposed
the creation of a new federal agency, the Consumer Financial Protection Agency,
that would be dedicated to protecting consumers in the financial products and
services market.  The creation of this agency could result in new
regulatory requirements and raise the cost of regulatory
compliance.  In addition, legislation stemming from the reform plan
could require changes in regulatory capital requirements, loan loss provisioning
practices, and compensation practices.  If implemented, the foregoing
regulatory reforms may have a material impact on our
operations.  However, because the final legislation may differ
significantly from the reform plan proposed by the President or from what is
currently being discussed by Congress, we cannot determine the specific impact
of regulatory reform at this time.





22
 Index











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





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





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





Current Office of Thrift Supervision
regulations permit a mutual holding company to be acquired by a mutual
institution in a remutualization transaction.  However, the Office of
Thrift Supervision has issued a policy statement indicating that it views
remutualization transactions as raising significant issues concerning disparate
treatment of minority stockholders and mutual members of the target entity and
raising issues concerning the effect on the mutual members of the acquiring
entity.  Under certain circumstances, the Office of Thrift Supervision
intends to give these issues special scrutiny and reject applications providing
for the remutualization of a mutual holding company unless the applicant can
clearly demonstrate that the Office of Thrift Supervision’s concerns are not
warranted in the particular case.  Should the Office of Thrift
Supervision prohibit or otherwise restrict these transactions in the future, our
per share stock price may be adversely affected.





ITEM
      1B.
            UNRESOLVED STAFF COMMENTS





None.





23
 Index





ITEM
      2.
            PROPERTIES





We conduct our business through our
main office and seven other full-service branch offices.  The
following table sets forth certain information relating to these facilities as
of December 31, 2009.





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
            
            $  1,146Branch
      Offices:1470
      First Avenue
              New
      York, NY 10021(1)
            
            2006
            
            04/30/2011
            
            Leased
            
            91590
      East 187th Street
              Bronx,
      New York 10458
            
            1972
            
            N/A
            
            Owned
            
            5942047
      86th Street
              Brooklyn,
      New York 11214
            
            1988
            
            N/A
            
            Owned
            
            825242
      West 23rd Street (2)
              New
      York, NY 10011
            
            1996
            
            N/A
            
            Owned/Leased
            
            9171751
      Second Avenue
              New
      York, NY 10128
            
            1978
            
            09/30/2015
            
            Leased
            
            2887
      Elm Street
              Danvers,
      MA 01923
            
            2009
            
            N/A
            
            Owned
            
            1,4158
      No. Park Avenue
              Plymouth,
      MA 02360
            
            2009
            
            N/A
            
            Owned
            
            1,870Other
      Properties:1353-55
      First Avenue
              New
      York, NY 10021(3)
            
            1946
            
            2109
            
            Leased
            
            -830
      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.





24
 Index





ITEM
      3.
            LEGAL
      PROCEEDINGS





Legal
Proceedings





From time to time, we may be party to
various legal proceedings incident to our business.  At December 31,
2009, we were not a party to any pending legal proceedings that we believe would
have a material adverse effect on our financial condition, results of operations
or cash flows.





ITEM
      4.
            [RESERVED
      ANDREMOVED]





PART
II





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





The Company’s common stock is listed on
the Nasdaq Global Market (“NASDAQ”) under the trading symbol
“NECB.”  The following table sets forth the high and low sales prices
of the common stock, as reported by NASDAQ, and the dividends declared 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
            
            
            Low2009:First
      Quarter
            
            $
            0.03
            
            
            $
            8.14
            
            
            $
            6.85Second
      Quarter
            
            
            0.03
            
            
            
            9.49
            
            
            
            7.05Third
      Quarter
            
            
            0.03
            
            
            
            9.00
            
            
            
            6.60Fourth
      Quarter
            
            
            0.03
            
            
            
            7.52
            
            
            
            6.102008: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
            
            
            
            6.00








Northeast Community Bancorp, MHC, the
Company’s majority stockholder, has waived receipt of all dividends declared by
the Company.  During 2009, the aggregate amount of dividends waived
was $873,000.  On a cumulative basis, $2,182,000 of such dividends
have been waived through December 31,2009.





As of  March 3, 2010, there
were approximately 288 holders of record of the Company’s common
stock.





The Company did not repurchase any of
its common stock during the fourth quarter of 2009 and, at December 31, 2009, we
had no publicly announced repurchase plans or programs.





25
 Index





ITEM
      6.
            SELECTED
      FINANCIAL DATA





At
      or For the Years Ended December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(Dollars
      in thousands, except per share data)Financial
      Condition Data:Total
      assets
            
            $
            527,276
            
            
            $
            424,228
            
            
            $
            343,895
            
            
            $
            288,417
            
            
            $
            238,821Cash
      and cash equivalents
            
            
            88,718
            
            
            
            36,534
            
            
            
            39,146
            
            
            
            36,749
            
            
            
            27,389Securities
      held to maturity
            
            
            11,845
            
            
            
            2,078
            
            
            
            2,875
            
            
            
            27,455
            
            
            
            12,228Securities
      available for sale
            
            
            176
            
            
            
            182
            
            
            
            320
            
            
            
            355
            
            
            
            362Loans
      receivable, net
            
            
            386,266
            
            
            
            363,616
            
            
            
            283,133
            
            
            
            201,306
            
            
            
            190,896Bank
      owned life insurance
            
            
            10,522
            
            
            
            8,902
            
            
            
            8,515
            
            
            
            8,154
            
            
            
            –Deposits
            
            
            379,518
            
            
            
            261,430
            
            
            
            225,978
            
            
            
            188,592
            
            
            
            193,314Federal
      Home Loan Bank advances
            
            
            35,000
            
            
            
            40,000
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      stockholders’ equity
            
            
            107,448
            
            
            
            110,502
            
            
            
            108,829
            
            
            
            96,751
            
            
            
            43,120Operating
      Data:Interest
      income
            
            $
            24,373
            
            
            $
            21,947
            
            
            $
            17,602
            
            
            $
            15,348
            
            
            $
            13,652Interest
      expense
            
            
            10,092
            
            
            
            8,550
            
            
            
            5,918
            
            
            
            4,493
            
            
            
            3,110Net
      interest income
            
            
            14,281
            
            
            
            13,397
            
            
            
            11,684
            
            
            
            10,855
            
            
            
            10,542Provision
      for loan losses
            
            
            7,314
            
            
            
            411
            
            
            
            338
            
            
            
            –
            
            
            
            –Net
      interest income after provision for loan losses
            
            
            6,967
            
            
            
            12,986
            
            
            
            11,346
            
            
            
            10,855
            
            
            
            10,542Gain
      (loss) on sale of premises and equipment
            
            
            –
            
            
            
            –
            
            
            
            18,962
            
            
            
            (5
            )
            
            
            (19
            )Noninterest
      income
            
            
            1,498
            
            
            
            1,794
            
            
            
            805
            
            
            
            624
            
            
            
            553Noninterest
      expenses
            
            
            13,893
            
            
            
            11,500
            
            
            
            9,826
            
            
            
            8,870
            
            
            
            7,515Income
      (loss) before provision for income taxes
            
            
            (5,428
            )
            
            
            3,280
            
            
            
            21,287
            
            
            
            2,604
            
            
            
            3,561Provision
      for income taxes (benefit)
            
            
            (2,812
            )
            
            
            1,178
            
            
            
            9,150
            
            
            
            1,046
            
            
            
            1,571Net
      income (loss)
            
            $
            (2,616
            )
            
            $
            2,102
            
            
            $
            12,137
            
            
            $
            1,558
            
            
            $
            1,990Net
      income (loss) per share – basic and diluted (1)
            
            $
            (0.20
            )
            
            $
            0.16
            
            
            $
            0.95
            
            
            $
            0.06
            
            
            
            N/ADividends
      declared per share
            
            $
            0.12
            
            
            $
            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 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Performance
      Ratios:Return
      on average assets (1)
            
            
            (0.54
            )%
            
            
            0.54
            %
            
            
            3.94
            %
            
            
            0.57
            %
            
            
            0.83
            %Return
      on average equity (1)
            
            
            (2.37
            )
            
            
            1.91
            
            
            
            11.70
            
            
            
            2.24
            
            
            
            4.69Interest
      rate spread (2)
            
            
            2.49
            
            
            
            2.73
            
            
            
            3.13
            
            
            
            3.65
            
            
            
            4.27Net
      interest margin (3)
            
            
            3.08
            
            
            
            3.63
            
            
            
            4.09
            
            
            
            4.24
            
            
            
            4.55Noninterest
      expense to average assets
            
            
            2.86
            
            
            
            2.96
            
            
            
            3.19
            
            
            
            3.26
            
            
            
            3.13Efficiency
      ratio (1) (4)
            
            
            88.05
            
            
            
            75.70
            
            
            
            31.24
            
            
            
            77.31
            
            
            
            67.85Average
      interest-earning assets toaverage
      interest-bearing liabilities
            
            
            127.33
            
            
            
            138.82
            
            
            
            146.61
            
            
            
            133.99
            
            
            
            120.33Average
      equity to average assets
            
            
            22.77
            
            
            
            28.35
            
            
            
            33.67
            
            
            
            25.57
            
            
            
            17.65Capital
      Ratios - Bank:Tangible
      capital
            
            
            15.66
            
            
            
            19.45
            
            
            
            24.18
            
            
            
            25.46
            
            
            
            17.92Core
      capital
            
            
            15.66
            
            
            
            19.45
            
            
            
            24.18
            
            
            
            25.46
            
            
            
            17.92Total
      risk-based capital
            
            
            27.01
            
            
            
            30.65
            
            
            
            37.50
            
            
            
            44.58
            
            
            
            33.08Asset
      Quality Ratios:Allowance
      for loan losses as a percent oftotal
      loans
            
            
            1.72
            
            
            
            0.51
            
            
            
            0.53
            
            
            
            0.60
            
            
            
            0.63Allowance
      for loan losses as a percent ofnonperforming
      loans
            
            
            33.41
            
            
            
            57.92
            
            
            
            65.48
            
            
            
            N/M
            
            
            
            N/MNet
      charge-offs to average outstandingloans
      during the period
            
            
            0.62
            
            
            
            0.01
            
            
            
            0.02
            
            
            
            0.00
            
            
            
            0.00Non-performing
      loans as a percentof
      total loans
            
            
            5.14
            
            
            
            0.88
            
            
            
            0.80
            
            
            
            0.00
            
            
            
            0.00Other
      Data:Number
      of:Real
      estate loans outstanding
            
            
            497
            
            
            
            491
            
            
            
            485
            
            
            
            400
            
            
            
            399Deposit
      accounts
            
            
            15,781
            
            
            
            14,449
            
            
            
            15,025
            
            
            
            15,898
            
            
            
            17,243Offices
      (5)
            
            
            10
            
            
            
            9
            
            
            
            9
            
            
            
            8
            
            
            
            8


________________________________


(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, 2009, includes our main office, our seven other full-service
      branch offices, our investment advisory service office in Westport,
      Connecticut, and a leased property for future branch office
      use.


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





27
 Index





ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSISOF 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.  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





On June 29, 2007, the Bank completed
the sale of its branch office building located at 1353-55 First Avenue, New
York, New York (the “Property”).  The sale price for the Property was
$28.0 million.  At closing, the Bank received $10.0 million in cash
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”).  On July 29, 2009,
prior to the due date, the $10.9 million Combined Note was extended to January
31, 2010.  The amount due on such date includes interest and
expenses.  The Company is currently negotiating with the borrower to
extend the terms of 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 first mortgage on the
Property.  Based on a current appraisal, the loan to value is
significantly less than 50%.  This note is not treated as a loan or
extension of credit for purposes of 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.  We have temporarily relocated our First
Avenue branch office to 1470 First Avenue while 1353-55 First Avenue is being
renovated.





29
 Index





Acquisition
of the Business Assets of Hayden Financial Group LLC





On November 16, 2007, the Bank acquired
the operating assets of Hayden Financial Group LLC (“Hayden”), an investment
advisory firm located in Connecticut, at a cost of $2.0 million.  The
Bank paid $1.3 million at closing, and $700,000 will be paid in four annual
installments of $175,000.  The acquisition of these business assets
has enabled the Bank to expand the services it provides to include investment
advisory and financial planning services to the then-existing Hayden customer
base as well as future customers through a networking arrangement with a
registered broker-dealer and investment adviser.  In connection with
this transaction, we acquired intangible assets related to customer
relationships of $710,000 and goodwill of $1,310,000 and booked a note payable
with a present value of $625,000.  The intangible asset has been
determined to have an 11.7-year life and, absent impairment issues, is being
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, 2009 was $328,000 and note discount accreted during 2009 totaled
$22,000.  The acquired business is being operated as a division of the
Bank and, during 2009, generated total revenues of approximately
$713,000.





Balance
Sheet Analysis





Overview. Total assets at
December 31, 2009, increased by $103.1 million, or 24.3%, to $527.3 million from
total assets of $424.2 million at December 31, 2008.  The increase was
primarily due to increases of $52.2 million in cash and cash equivalents, $22.7
million in loans receivable, net, $9.8 million in investment securities
held-to-maturity, $8.2 million in certificates of deposits at other financial
institutions, $5.0 million in other assets, $3.9 million in premises and
equipment, and $1.6 million in bank owned life insurance.





These
increases were funded by an increase of $118.1 million in deposits, partially
offset by decreases of $5.0 million in Federal Home Loan Bank advances, $3.5
million in advance payments by borrowers for taxes and insurance, and $3.4
million in accounts payable and accrued expenses.  As of December 31,
2009, the Company, on a consolidated basis, had stockholders equity of $107.4
million, or 20.4% 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, 2009, loans receivable, net, totaled $386.3 million, an increase of
$22.7 million, or 6.2%, from total loans receivable, net, of $363.6 million at
December 31, 2008.  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 $10.9 million and $10.7 million balance at December
31, 2009 and 2008, respectively, are included in the non-residentialsegment of our real
estate loan portfolio for both 2009 and 2008.





The largest segment of our real estate
loans is multi-family residential loans.  As of December 31, 2009,
these loans totaled $201.1 million, or 51.3% of our total loan portfolio,
compared to $186.2 million, or 51.1% of our total loan portfolio at December 31,
2008.  As of December 31, 2009, mixed-use loans totaled $59.8 million,
or 15.3% of our total loan portfolio, compared to $58.3 million, or 16.0% of our
total loan portfolio at December 31, 2008.  Non-residential real
estate loans totaled $105.2 million, or 26.8% of our total loan portfolio at
December 31, 2009, compared to $102.8 million, or 28.2% of our total loan
portfolio at December 31, 2008.  At December 31, 2009 and 2008, one-
to four-family residential real estate loans totaled $244,000 and $275,000, or
0.1% and 0.1% of our total loan portfolio, respectively.





At December 31, 2009, our commercial
loan portfolio totaled $23.9 million in committed loans, with $10.4 million
drawn against such commitments, compared to $22.8 million in committed loans,
with $7.6 million drawn against such commitments at December 31,
2008.  In both 2009 and 2008 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 $15.1
million, or 3.9% of our total loan portfolio at December 31, 2009 compared to
$9.0 million or 2.5% of our total loan portfolio at December 31,
2008.





30
 Index





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 $150,000 and represented 0.04% of
total loans at December 31, 2009  compared to $114,000, or 0.03%, of
total loans at December 31, 2008.





31
 Index




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





At December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in thousands)Real
      estate:Residential
      Real Estate:One-
      to four-family
            
            $
            244
            
            
            
            0.06
            %
            
            $
            275
            
            
            
            0.08
            %
            
            $
            304
            
            
            
            0.11
            %
            
            $
            405
            
            
            
            0.20
            %
            
            $
            587
            
            
            
            0.31
            %Multi-family
      (1)
            
            
            201,059
            
            
            
            51.30
            
            
            
            186,199
            
            
            
            51.11
            
            
            
            138,767
            
            
            
            48.95
            
            
            
            110,389
            
            
            
            54.76
            
            
            
            100,360
            
            
            
            52.43Mixed-use
      (1)
            
            
            59,779
            
            
            
            15.25
            
            
            
            58,317
            
            
            
            16.00
            
            
            
            52,559
            
            
            
            18.54
            
            
            
            42,576
            
            
            
            21.12
            
            
            
            43,919
            
            
            
            22.94Total
      residential real estateloans
            
            
            261,082
            
            
            
            66.61
            
            
            
            244,791
            
            
            
            67.19
            
            
            
            191,630
            
            
            
            67.60
            
            
            
            153,370
            
            
            
            76.08
            
            
            
            144,866
            
            
            
            75.68Non-residential
      real estate (1)
            
            
            105,194
            
            
            
            26.84
            
            
            
            102,785
            
            
            
            28.21
            
            
            
            79,305
            
            
            
            27.98
            
            
            
            47,802
            
            
            
            23.71
            
            
            
            46,219
            
            
            
            24.14Total
      real estate
            
            
            366,276
            
            
            
            93.45
            
            
            
            347,576
            
            
            
            95.40
            
            
            
            270,935
            
            
            
            95.58
            
            
            
            201,172
            
            
            
            99.79
            
            
            
            191,085
            
            
            
            99.82Construction
      loans
            
            
            15,121
            
            
            
            3.86
            
            
            
            9,025
            
            
            
            2.48
            
            
            
            9,456
            
            
            
            3.34
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Commercial
      loans
            
            
            10,400
            
            
            
            2.65
            
            
            
            7,620
            
            
            
            2.09
            
            
            
            2,977
            
            
            
            1.05
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer:Overdraft
      lines of credit
            
            
            60
            
            
            
            0.02
            
            
            
            57
            
            
            
            0.02
            
            
            
            69
            
            
            
            0.02
            
            
            
            71
            
            
            
            0.04
            
            
            
            83
            
            
            
            0.04Passbook
      loans
            
            
            90
            
            
            
            0.02
            
            
            
            57
            
            
            
            0.01
            
            
            
            19
            
            
            
            0.01
            
            
            
            348
            
            
            
            0.17
            
            
            
            268
            
            
            
            0.14Total
      consumer loans
            
            
            150
            
            
            
            0.04
            
            
            
            114
            
            
            
            0.03
            
            
            
            88
            
            
            
            0.03
            
            
            
            419
            
            
            
            0.21
            
            
            
            351
            
            
            
            0.18Total
      loans
            
            
            391,947
            
            
            
            100.00
            %
            
            
            364,335
            
            
            
            100.00
            %
            
            
            283,456
            
            
            
            100.00
            %
            
            
            201,591
            
            
            
            100.00
            %
            
            
            191,436
            
            
            
            100.00
            %Net
      deferred loan costs
            
            
            1,052
            
            
            
            
            
            
            
            1,146
            
            
            
            
            
            
            
            1,166
            
            
            
            
            
            
            
            915
            
            
            
            
            
            
            
            660Allowance
      for losses
            
            
            (6,733
            )
            
            
            
            
            
            
            (1,865
            )
            
            
            
            
            
            
            (1,489
            )
            
            
            
            
            
            
            (1,200
            )
            
            
            
            
            
            
            (1,200
            )Loans,
      net
            
            $
            386,266
            
            
            
            
            
            
            $
            363,616
            
            
            
            
            
            
            $
            283,133
            
            
            
            
            
            
            $
            201,306
            
            
            
            
            
            
            $
            190,896





____________________________


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





32
 Index





The
following table sets forth certain information at December 31, 2009 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, 2009Residential
              Real Estate
              Loans
            
            
            Non-
              Residential
              Real Estate
              Loans
            
            
            Commercial
              Loans
            
            
            Construction
              Loans
            
            
            Consumer
              and other
              Loans
            
            
            Total
              Loans(In
      thousands)One
      year or less
            
            $
            23,755
            
            
            $
            34,845
            
            
            $
            9,695
            
            
            $
            15,121
            
            
            $
            150
            
            
            $
            83,566More
      than one year to five years
            
            
            226,516
            
            
            
            66,441
            
            
            
            580
            
            
            
            -
            
            
            
            -
            
            
            
            293,537More
      than five years
            
            
            10,811
            
            
            
            3,908
            
            
            
            125
            
            
            
            -
            
            
            
            -
            
            
            
            14,844Total
            
            $
            261,082
            
            
            $
            105,194
            
            
            $
            10,400
            
            
            $
            15,121
            
            
            $
            150
            
            
            $
            391,947





The
following table sets forth the dollar amount of all loans at December 31, 2009
that are due after December 31, 2010 and have either fixed or adjustable
interest rates.








Fixed Rates
            
            
            Adjustable Rates
            
            
            Total(In
      thousands)Residential
      real estate:One-
      to four-family
            
            $
            65
            
            
            $
            -
            
            
            $
            65Multi-family
            
            
            5,524
            
            
            
            174,781
            
            
            
            180,305Mixed-use
            
            
            3,210
            
            
            
            53,746
            
            
            
            56,956Non-residential
      real estate
            
            
            2,512
            
            
            
            67,837
            
            
            
            70,349Construction
      loans
            
            
            -
            
            
            
            -
            
            
            
            -Commercial
      loans
            
            
            706
            
            
            
            -
            
            
            
            706Consumer
      and other loans
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            12,017
            
            
            $
            296,364
            
            
            $
            308,381





33
 Index





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





2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(In
      thousands)Total
      loans at beginningof
      period
            
            $
            364,335
            
            
            $
            283,456
            
            
            $
            201,591
            
            
            $
            191,436
            
            
            $
            168,675Loans
      originated:Residential
      real estate:One-
      to four-family
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Multi-family
            
            
            22,423
            
            
            
            70,450
            
            
            
            43,376
            
            
            
            19,409
            
            
            
            24,551Mixed-use
            
            
            7,922
            
            
            
            6,616
            
            
            
            16,098
            
            
            
            7,304
            
            
            
            9,794Non-residential
      real estate
            
            
            6,920
            
            
            
            42,954
            
            
            
            24,451
            
            
            
            9,010
            
            
            
            23,831Construction
      loans
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Commercial
      loans
            
            
            3,026
            
            
            
            4,794
            
            
            
            3,012
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            35
            
            
            
            87
            
            
            
            17
            
            
            
            80
            
            
            
            –Total
      loans originated
            
            
            40,326
            
            
            
            124,901
            
            
            
            86,954
            
            
            
            35,803
            
            
            
            58,176Construction
      loan participationpurchased
            
            
            5,198
            
            
            
            5,406
            
            
            
            11,695
            
            
            
            –
            
            
            
            –Permanent
      loan participationpurchased
            
            
            –
            
            
            
            2,971
            
            
            
            –
            
            
            
            –
            
            
            
            –Loan
      from sale of building
            
            
            –
            
            
            
            –
            
            
            
            16,341
            
            
            
            –
            
            
            
            –Deduct:Loan
      principal repayments
            
            
            20,029
            
            
            
            44,069
            
            
            
            32,109
            
            
            
            25,648
            
            
            
            35,415Loan
      sales
            
            
            –
            
            
            
            7,045
            
            
            
            1,505
            
            
            
            –
            
            
            
            –Total
      deductions
            
            
            20,029
            
            
            
            51,114
            
            
            
            33,614
            
            
            
            25,648
            
            
            
            35,415Other
      increases (decreases), net.
            
            
            2,117
            
            
            
            (1,285
            )
            
            
            489
            
            
            
            –
            
            
            
            –Total
      loans at end of period
            
            $
            391,947
            
            
            $
            364,335
            
            
            $
            283,456
            
            
            $
            201,591
            
            
            $
            191,436





Securities. Our securities
portfolio consists primarily of residential mortgage-backed
securities.  Securities increased by $9.8 million, or 431.9%, from
$2.3 million at December 31, 2008, to $12.0 million at December 31,
2009.  The increase was primarily due to purchases of $10.2 million,
offset by maturities and repayments of $392,000.





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








At December 31,2009
            
            
            2008
            
            
            2007Amortized
              Cost
            
            
            Fair
              Value
            
            
            Amortized
              Cost
            
            
            Fair
              Value
            
            
            Amortized
              Cost
            
            
            Fair
              Value(In
      thousands)Securities
      available for sale:Fannie
      Mae common stock
            
            $
            -
            
            
            $
            -
            
            
            $
            4
            
            
            $
            1
            
            
            $
            4
            
            
            $
            46Mortgage-backed
      securities- residential
            
            
            174
            
            
            
            176
            
            
            
            183
            
            
            
            181
            
            
            
            273
            
            
            
            274Total
            
            $
            174
            
            
            $
            176
            
            
            $
            187
            
            
            $
            182
            
            
            $
            277
            
            
            $
            320Securities
      held to maturity:Mortgage-backed
      securities - residential
            
            
            11,845
            
            
            
            11,875
            
            
            
            2,078
            
            
            
            2,050
            
            
            
            2,875
            
            
            
            2,890Total
            
            $
            11,845
            
            
            $
            11,875
            
            
            $
            2,078
            
            
            $
            2,050
            
            
            $
            2,875
            
            
            $
            2,890





During 2009, the Company determined
that its investment in Fannie Mae common stock was other than-temporarily
impaired and wrote off its entire $4,000 investment.





At
December 31, 2009, we had no investments in a single company or entity that had
an aggregate book value in excess of 10% of our consolidated
equity.





34
 Index





The
following table sets forth the stated final  maturities and weighted
average yields of debt securities at December 31, 2009.  Certain
mortgage-backed securities have adjustable interest rates and will re-price
annually within the various maturity ranges.  These re-pricing
schedules are not reflected in the table below.  At December 31, 2009,
mortgage-backed securities with adjustable rates totaled $12.0
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:Mortgage-backed
      securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            176
            
            
            
            3.02
            %
            
            
            176
            
            
            
            3.02Total
      securities available for sale
            
            $
            -
            
            
            
            -
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            176
            
            
            
            3.02
            %
            
            $
            176
            
            
            
            3.02
            %Securities
      held to maturity:Mortgage-backed
      securities
            
            $
            -
            
            
            
            -
            
            
            $
            21
            
            
            
            3.33
            %
            
            $
            336
            
            
            
            3.45
            %
            
            $
            11,488
            
            
            
            3.73
            %
            
            $
            11,845
            
            
            
            3.72
            %Total
      securities held to maturity
            
            $
            -
            
            
            
            -
            
            
            $
            21
            
            
            
            3.33
            %
            
            $
            336
            
            
            
            3.45
            %
            
            $
            11,488
            
            
            
            3.73
            %
            
            $
            11,845
            
            
            
            3.72
            %





35
 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 were accepted from
banks, credit unions, non-profit organizations and certain corporations in
amounts greater then $75,000 and less then $100,000.





Deposits
increased by $118.1 million, or 45.2%, in the year ended December 31,
2009.  The increase in deposits was primarily attributable to an
effort by the Bank to increase deposits through the opening of two new branch
offices in Massachusetts during the second quarter of 2009 and the offering of
competitive interest rates in our retail branches.  During 2009, the
Bank discontinued its policy of offering non-brokered certificates of
deposit through two nationwide certificate of deposit listing
services.  As a result, our retail branches attracted $171.5 million
in additional deposits that were offset by a decrease of $53.4 million in
certificates of deposits obtained through the deposit listing
services.  At December 31, 2009, the Bank had a total of $10.2 million
in certificates of deposits that had been obtained through the two nationwide
certificate of deposits listing services.





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





At December 31,2009
            
            
            2008
            
            
            2007Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in thousands)Now
      and money market deposit accounts
            
            $
            72,755
            
            
            
            19.2
            %
            
            $
            24,595
            
            
            
            9.4
            %
            
            $
            21,839
            
            
            
            9.6
            %Savings
      accounts
            
            
            60,033
            
            
            
            15.8
            
            
            
            56,987
            
            
            
            21.8
            
            
            
            57,346
            
            
            
            25.4Noninterest
      bearing demand deposits
            
            
            11,594
            
            
            
            3.0
            
            
            
            6,209
            
            
            
            2.4
            
            
            
            1,745
            
            
            
            0.8Certificates
      of deposit
            
            
            235,136
            
            
            
            62.0
            
            
            
            173,639
            
            
            
            66.4
            
            
            
            145,048
            
            
            
            64.2Total
            
            $
            379,518
            
            
            
            100.0
            %
            
            $
            261,430
            
            
            
            100.0
            %
            
            $
            225,978
            
            
            
            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,
2009.  We do not solicit jumbo certificates of deposit nor do we offer
special rates for jumbo certificates.  The minimum deposit to open a
certificate of deposit ranges from $500 to $2,500.





Maturity Period
            
            Certificates
              of Deposit(In thousands)Three
      months or less
            
            $
            7,002Over
      three through six months
            
            
            15,985Over
      six through twelve months
            
            
            54,121Over
      twelve months
            
            
            22,838Total
            
            $
            99,946





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”) decreased to $35.0 million
as of December 31, 2009 from $40.0 million FHLB advances outstanding as of
December 31, 2008.  The reduction in FHLB advances was funded by
increases in deposits.





36
 Index





The
contractual maturities of FHLB advances at December 31, 2009 are as
follows:





Amount
            
            
            Weighted
                Average
                Interest
                RateAdvances
      maturing in:One
      year or less
            
            $
            10,000
            
            
            
            3.58
            %After
      one to two years
            
            
            10,000
            
            
            
            2.80
            %After
      four to five years
            
            
            15,000
            
            
            
            3.68
            %$
            35,000
            
            
            
            3.40
            %





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, 2009 was $328,000 and note discount accreted during 2009 totaled
$22,000.





Stockholders’
Equity.  Stockholders’
equity decreased by $3.1 million, or 2.8%, to $107.4 million at December 31,
2009, from $110.5 million at December 31, 2008.  The decrease was
primarily due to net loss of $2.6 million.  In addition, stockholders’
equity increased by $196,000 due to earned ESOP shares, and decreased by
$662,000 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 2009, which totaled approximately $873,000, and for similar quarterly cash
dividends, if any, to be paid for the first and second quarters of
2010.  On a cumulative basis, $2,182,000 of such dividends have been
waived through December 31,2009.  We anticipate that the MHC will
continue to waive receipt of all dividends declared by the Company, subject to
applicable regulatory approvals.





37
 Index





Results
of Operations for the Years Ended December 31, 2009 and 2008





Overview.





2009
            
            
            2008
            
            
            % Change
              2009/2008(Dollars
      in thousands)Net
      income (loss)
            
            $
            (2,616
            )
            
            $
            2,102
            
            
            
            (224.5
            )%Return
      on average assets
            
            
            (0.54
            )%
            
            
            0.54
            %
            
            
            (200.0
            )Return
      on average equity
            
            
            (2.37
            )
            
            
            1.91
            
            
            
            (224.1
            )Average
      equity to average assets
            
            
            22.77
            
            
            
            28.35
            
            
            
            (
      19.7
            )





Net income (loss) for the year ended
December 31, 2009 decreased by $4.7 million, or 224.5%, to $(2.6) million from
$2.1 million in 2008.  The decrease was primarily the result of
increases in the provision for loan losses, decreases in non-interest income,
additional non-interest expenses associated with the opening of two new branch
locations in Massachusetts, and increases in FDIC insurance premiums, including
a special assessment as of June 30, 2009.  These items were partially
offset by an increase in net interest income and a decrease in provision for
income taxes.





Net Interest
Income.  Net interest income increased by $884,000, or 6.6%, to
$14.3 million for the year ended December 31, 2009, from $13.4 million for the
year ended December 31, 2008.  The increasein net interest income
resulted primarily from an increase in interest income due to increased loan
originations that exceeded an increase in interest expense resulting from
increased deposits and borrowings.  The increase in net interest
income was partially offset by a decrease of $3.9 million in average net
interest-earning assets.





The net
interest spread decreased by 24 basis points to 2.49% for the year ended
December 31, 2009, from 2.73% for the year ended December 31,
2008.  The net interest margin decreased by 55 basis points to 3.08%
for the year ended December 31, 2009, from 3.63% for the year ended December 31,
2008.





The
decrease in the interest rate spread and the net interest margin in 2009
compared to 2008 was due to the yield on our interest-earning assets decreasing
more than the corresponding decrease in the cost of our interest-bearing
liabilities.  The yield on our interest-earning assets decreased by 68
basis points to 5.26% for the year ended December 31, 2009, from 5.94% for the
year ended December 31, 2008 and the cost of our interest-bearing liabilities
decreased by 44 basis points to 2.77% for the year ended December 31, 2009, from
3.21% for the year ended December 31, 2008.  The decrease in both the
yield on our interest-earning assets and the cost of our interest-bearing
liabilities was due to the low interest rate environment in 2009.





38
 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.  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
    31,2009
            
            
            2008
            
            
            2007Average
              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
            
            $
            389,547
            
            
            $
            23,925
            
            
            
            6.14
            %
            
            $
            326,472
            
            
            $
            21,008
            
            
            
            6.43
            %
            
            $
            232,496
            
            
            $
            14,894
            
            
            
            6.41
            %Securities
            
            
            5,042
            
            
            
            218
            
            
            
            4.32
            
            
            
            4,074
            
            
            
            201
            
            
            
            4.93
            
            
            
            16,664
            
            
            
            839
            
            
            
            5.03Other
      interest-earning assets
            
            
            68,564
            
            
            
            230
            
            
            
            0.34
            
            
            
            38,749
            
            
            
            738
            
            
            
            1.90
            
            
            
            36,813
            
            
            
            1,869
            
            
            
            5.08Total
      interest-earning assets
            
            
            463,153
            
            
            
            24,373
            
            
            
            5.26
            
            
            
            369,295
            
            
            
            21,947
            
            
            
            5.94
            
            
            
            285,973
            
            
            
            17,602
            
            
            
            6.16Allowance
      for loan losses
            
            
            (2,546
            )
            
            
            
            
            
            
            
            
            
            
            (1,558
            )
            
            
            
            
            
            
            
            
            
            
            (1,362
            )Noninterest-earning
      assets
            
            
            25,026
            
            
            
            
            
            
            
            
            
            
            
            20,967
            
            
            
            
            
            
            
            
            
            
            
            23,535Total
      assets
            
            $
            485,633
            
            
            
            
            
            
            
            
            
            
            $
            388,704
            
            
            
            
            
            
            
            
            
            
            $
            308,146Liabilities
      and equity:Interest-bearing
      liabilities:Interest-bearing
      demand
            
            $
            37,253
            
            
            $
            423
            
            
            
            1.14
            %
            
            $
            21,817
            
            
            $
            144
            
            
            
            0.66
            %
            
            $
            20,704
            
            
            $
            117
            
            
            
            0.57
            %Savings
      and club accounts
            
            
            63,737
            
            
            
            461
            
            
            
            0.72
            
            
            
            59,392
            
            
            
            450
            
            
            
            0.76
            
            
            
            58,963
            
            
            
            415
            
            
            
            0.70Certificates
      of deposit
            
            
            219,125
            
            
            
            7,796
            
            
            
            3.56
            
            
            
            164,196
            
            
            
            7,224
            
            
            
            4.50
            
            
            
            115,032
            
            
            
            5,365
            
            
            
            4.66Total
      interest-bearing deposits
            
            
            320,115
            
            
            
            8,680
            
            
            
            2.71
            
            
            
            245,405
            
            
            
            7,818
            
            
            
            3.19
            
            
            
            194,699
            
            
            
            5,897
            
            
            
            3.03Borrowings
            
            
            43,622
            
            
            
            1,412
            
            
            
            3.24
            
            
            
            20,620
            
            
            
            732
            
            
            
            3.55
            
            
            
            352
            
            
            
            21
            
            
            
            5.97Total
      interest-bearing liabilities
            
            
            363,737
            
            
            
            10,092
            
            
            
            2.77
            
            
            
            266,025
            
            
            
            8,550
            
            
            
            3.21
            
            
            
            195,051
            
            
            
            5,918
            
            
            
            3.03Noninterest-bearing
      demand
            
            
            2,920
            
            
            
            
            
            
            
            
            
            
            
            2,646
            
            
            
            
            
            
            
            
            
            
            
            1,753Other
      liabilities
            
            
            8,410
            
            
            
            
            
            
            
            
            
            
            
            9,850
            
            
            
            
            
            
            
            
            
            
            
            7,583Total
      liabilities
            
            
            375,067
            
            
            
            
            
            
            
            
            
            
            
            278,521
            
            
            
            
            
            
            
            
            
            
            
            204,387Stockholders’
      equity
            
            
            110,566
            
            
            
            
            
            
            
            
            
            
            
            110,183
            
            
            
            
            
            
            
            
            
            
            
            103,759Total
      liabilities andStockholders’
      equity
            
            $
            485,633
            
            
            
            
            
            
            
            
            
            
            $
            388,704
            
            
            
            
            
            
            
            
            
            
            $
            308,146Net
      interest income
            
            
            
            
            
            $
            14,281
            
            
            
            
            
            
            
            
            
            
            $
            13,397
            
            
            
            
            
            
            
            
            
            
            $
            11,684Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            2.49
            
            
            
            
            
            
            
            
            
            
            
            2.73
            
            
            
            
            
            
            
            
            
            
            
            3.13Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            3.08
            
            
            
            
            
            
            
            
            
            
            
            3.63
            
            
            
            
            
            
            
            
            
            
            
            4.09Net
      interest-earning assets
            
            $
            99,416
            
            
            
            
            
            
            
            
            
            
            $
            103,270
            
            
            
            
            
            
            
            
            
            
            $
            90,922Interest-earning
      assets to interest-bearing
      liabilities
            
            
            127.33
            %
            
            
            
            
            
            
            
            
            
            
            138.82
            %
            
            
            
            
            
            
            
            
            
            
            146.61
            %





39
 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.





2009 Compared to 2008
            
            
            2008 Compared to 2007Increase (Decrease)
              Due to
            
            
            
            
            
            Increase (Decrease)
              Due toVolume
            
            
            Rate
            
            
            Net
            
            
            Volume
            
            
            Rate
            
            
            Net(In
      thousands)Interest
      and dividend income:Loans
      receivable
            
            $
            3,909
            
            
            $
            (992
            )
            
            $
            2,917
            
            
            $
            6,047
            
            
            $
            67
            
            
            $
            6,114Investment
      securities
            
            
            44
            
            
            
            (27
            )
            
            
            17
            
            
            
            (621
            )
            
            
            (17
            )
            
            
            (638
            )Other
      interest-earning assets
            
            
            342
            
            
            
            (850
            )
            
            
            (508
            )
            
            
            94
            
            
            
            (1,225
            )
            
            
            (1,131
            )Total
      interest-earning assets
            
            
            4,295
            
            
            
            (1,869
            )
            
            
            2,426
            
            
            
            5,520
            
            
            
            (1,175
            )
            
            
            4,345Interest
      expense:Interest-bearing
      demand deposits
            
            
            138
            
            
            
            141
            
            
            
            279
            
            
            
            7
            
            
            
            20
            
            
            
            27Savings
      accounts
            
            
            32
            
            
            
            (21
            )
            
            
            11
            
            
            
            3
            
            
            
            32
            
            
            
            35Certificates
      of deposit
            
            
            2,123
            
            
            
            (1,551
            )
            
            
            572
            
            
            
            2,179
            
            
            
            (320
            )
            
            
            1,859Borrowings
            
            
            750
            
            
            
            (70
            )
            
            
            680
            
            
            
            723
            
            
            
            (12
            )
            
            
            711Total
      interest-bearing liabilities
            
            
            3,043
            
            
            
            (1,501
            )
            
            
            1,542
            
            
            
            2,912
            
            
            
            (280
            )
            
            
            2,632Net
      change in interest income
            
            $
            1,252
            
            
            $
            (368
            )
            
            $
            884
            
            
            $
            2,608
            
            
            $
            (895
            )
            
            $
            1,713





Provision for
Loan Losses.  We recorded provisions for loan losses of $7.3
million and $411,000 for 2009 and 2008, respectively.  During 2009, we
charged-off $2.4 million against five non-performing non-residential mortgage
loans and three non-performing multi-family mortgage loans to reduce the
aggregate carrying value to $4.1 million as of December 31,
2009.  During 2008, we charged-off $35,000 on a mixed-used mortgage
loan that was subsequently foreclosed and sold in 2008.  The primary
reason for the increased provision during 2009 was the continued deterioration
of the national and local economies and the continuing decline in the market
value of commercial and multi-family real estate collateral, as reflected in the
increase in our non-performing loans and non-performing
assets.  Recognizing this deterioration, the Bank slowed loan growth
subsequent to the first quarter of 2009 leading to a modest increase in the
total loan portfolio of $5.4 million or 1.4% to $391.9 million at December 31,
2009 from $386.5 million at March 31, 2009.  An analysis of the
changes in the allowance for loan losses is presented under “Risk Management – Analysis and
Determination of the Allowance for Loan Losses.”





There
were no recoveries during the years ended December 31, 2009
and  2008.





Noninterest
Income.  The following table shows the components of
noninterest income for the years ended December 31, 2009 and 2008.





2009
            
            
            2008
            
            
            % Change
              2009/2008(Dollars
      in thousands)Service
      charges
            
            $
            371
            
            
            $
            478
            
            
            
            (22.4
            )%Impairment
      loss on securities
            
            
            (4
            )
            
            
            -
            
            
            N.A.Net
      loss from premises and equipment
            
            
            (18
            )
            
            
            -
            
            
            N.A.Earnings
      on bank owned life insurance
            
            
            420
            
            
            
            386
            
            
            
            8.8Investment
      advisory fees
            
            
            713
            
            
            
            878
            
            
            
            (18.8
            )Other
            
            
            16
            
            
            
            52
            
            
            
            (69.2
            )Total
            
            $
            1,498
            
            
            $
            1,794
            
            
            
            (16.5
            )





40
 Index





The
decrease in noninterest income was primarily due to a $165,000 decrease in fee
income generated by Hayden Wealth Management Group, the Bank’s investment
advisory and financial planning services division and a $107,000 decrease in
other loan fees and service charges.





Noninterest
Expense.
The following table shows the components of noninterest expense and the
percentage changes for the years ended December 31, 2009 and 2008.





Year Ended December 31,2009
            
            
            2008
            
            
            % Change
              2009/2008(Dollars
      in thousands)Salaries
      and employee benefits
            
            $
            6,816
            
            
            $
            5,872
            
            
            
            16.1
            %Net
      occupancy expense of premises
            
            
            1,375
            
            
            
            1,140
            
            
            
            20.6Equipment
            
            
            730
            
            
            
            517
            
            
            
            41.2Outside
      data processing
            
            
            776
            
            
            
            826
            
            
            
            (6.1
            )Advertising
            
            
            348
            
            
            
            225
            
            
            
            54.7REO
      expenses
            
            
            177
            
            
            
            381
            
            
            
            (53.5
            )FDIC
      insurance premiums
            
            
            541
            
            
            
            33
            
            
            
            1,539.4Service
      contracts
            
            
            268
            
            
            
            212
            
            
            
            26.9Insurance
            
            
            200
            
            
            
            163
            
            
            
            22.6Audit
      and accounting
            
            
            310
            
            
            
            267
            
            
            
            16.3Directors
      compensation
            
            
            297
            
            
            
            287
            
            
            
            3.6Telephone
            
            
            270
            
            
            
            165
            
            
            
            63.5Office
      supplies and stationary
            
            
            221
            
            
            
            218
            
            
            
            1.1Director,
      officer, and employee expenses
            
            
            292
            
            
            
            269
            
            
            
            8.7Legal
      fees
            
            
            381
            
            
            
            290
            
            
            
            31.3Other
            
            
            891
            
            
            
            635
            
            
            
            33.3Total
      noninterest expenses
            
            $
            13,893
            
            
            $
            11,500
            
            
            
            20.8





Non-interest
expense increased by $2.4 million, or 20.8%, to $13.9 million for the year ended
December 31, 2009 from $11.5 million for the year ended December 31,
2008.  The increase resulted primarily from increases relating to the
opening of two new branch locations in Massachusetts and FDIC deposit insurance
premiums.  Specifically, the Company recorded increases of $944,000 in
salaries and employee benefits, $508,000 in FDIC insurance expense, $235,000 in
occupancy expense, $213,000 in equipment expense, and $123,000 in advertising
expense.  These increases were partially offset by a decrease of
$204,000 in real estate owned expenses.  All other expense categories
increased in the aggregate by $697,000, or 19.6%, an increase which is in line
with noninterest expense as a whole and reflects the growth of the
Bank.





Salaries
and employee benefits, which represented 49.1% of the Company’s non-interest
expense for the year ended December 31, 2009, increased by $944,000, or 16.1%,
to $6.8 million in 2009 from $5.9 million in 2008 due to an increase in the
number of full time equivalent employees from 89 at December 31, 2008 to 100 at
September 30, 2009.  The increase was due to the additional staff for
the two new branch offices in Massachusetts.





FDIC
insurance expense increased by $508,000, or 1,539.4%, to $541,000 in 2009 from
$33,000 in 2008 due to increased deposit insurance rates in the current period
and the special assessment of $205,000 charged as of June 30, 2009.





Occupancy
expense increased by $235,000, or 20.6%, to $1.4 million in 2009 from $1.1
million in 2008 due to the addition of two new branch offices and increases in
utility expense and real estate tax expense.





Equipment
expense increased by $213,000, or 41.2%, to $730,000 in 2009 from $517,000 in
2008 due to the addition of two new branch offices and the upgrade of
equipment.





41
 Index





Advertising
expense increased by $123,000, or 54.7%, to $348,000 in 2009 from $225,000 in
2008 due to a marketing campaign in connection with the opening of the two new
branch offices in Massachusetts and an increased effort to market the Bank’s
deposit and investment products and services.





The real
estate owned expense of $177,000 in 2009 was due to the Bank’s recognition of a
$98,000 loss on the disposition of two foreclosed multi-family properties
located in Hampton, New Hampshire and Mamaroneck, New York and net operating
expenses of $79,000 in connection with the maintenance and operation of a
foreclosed property located in Newark, New Jersey.  This compared to
real estate owned expense of $381,000 in 2008 due primarily to an impairment
loss of $369,000 on a foreclosed multi-family property due to a fair value
calculation based on an appraisal.





Income
Taxes.
Income tax expense decreased by $4.0 million to a benefit of $2.8 million for
the year ended December 31, 2009 from an expense of $1.2 million for the year
ended December 31, 2008.  The decrease resulted primarily from a $8.7
million decrease in pre-tax income in 2009 compared to 2008.  The
effective tax rate was a benefit of 51.8% for the year ended December 31, 2009
and an expense of 35.9% for the year ended December 31, 2008.





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 may 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.





In
addition, nonperforming loans and potential nonperforming loans are reviewed on
a regular basis by management’s Special Assets Group that is comprised of two
trouble debt officers, one loan department personnel and one loan workout
specialist.  The President and the Chief Operating Officer also
participate in regular meetings of the Special Assets Group.  Members
of the Special Assets Group maintain regular contact with delinquent borrowers
in an effort to determine the reason for nonperformance, to discuss potential
restructuring of monthly mortgage payment obligations, and to ensure the
underlying security property is adequately maintained.





42
 Index





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 as management
determines that these loans are well secured and in the process of
collection.  When a loan is placed on nonaccrual status, the accrual
of interest ceases and the allowance for any uncollectible accrued interest is
established and charged against operations.  Typically, payments
received on a nonaccrual loan are applied in the following order; to interest,
late charges, 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.





43
 Index





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





At December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(Dollars
      in thousands)Nonaccrual
      loans:Residential
      real estate:One-
      to four-family
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –Multi-family
            
            
            5,806
            
            
            
            261
            
            
            
            666
            
            
            
            –
            
            
            
            –Mixed-use
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            14,344
            
            
            
            1,614
            
            
            
            1,200
            
            
            
            –
            
            
            
            –Construction
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            –
            
            
            
            –
            
            
            
            1
            
            
            
            –
            
            
            
            –Total
            
            
            20,150
            
            
            
            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 ormore
      past due loans
            
            
            20,150
            
            
            
            1,875
            
            
            
            2,274
            
            
            
            2
            
            
            
            –Foreclosed
      real estate
            
            
            636
            
            
            
            832
            
            
            
            –
            
            
            
            –
            
            
            
            –Other
      nonperforming loans
            
            
            –
            
            
            
            1,345
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      nonperforming assets
            
            
            20,786
            
            
            
            4,052
            
            
            
            2,274
            
            
            
            2
            
            
            
            –Troubled
      debt restructurings
            
            
            13,175
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Troubled
      debt restructurings andtotal
      nonperforming assets
            
            $
            33,961
            
            
            $
            4,052
            
            
            $
            2,274
            
            
            $
            2
            
            
            $
            –Total
      nonperforming loans to total loans
            
            
            5.14
            %
            
            
            0.88
            %
            
            
            0.80
            %
            
            
            0.00
            %
            
            
            0.00
            %Total
      nonperforming assets to total assets
            
            
            3.94
            %
            
            
            0.96
            %
            
            
            0.66
            %
            
            
            0.00
            %
            
            
            0.00
            %Total
      nonperforming assets and troubleddebt
      restructurings to total assets
            
            
            6.44
            %
            
            
            0.96
            %
            
            
            0.66
            %
            
            
            0.00
            %
            
            
            0.00
            %





Non-accrual
loans at December 31, 2009 consisted of thirteen loans in the aggregate – seven
multi-family mortgage loans and six non-residential mortgage loans.





The seven
non-accrual multi-family mortgage loans, net of charge-off of $857,000, totaled
$5.8 million at December 31, 2009, consisting of the
following:  multi-family mortgage loans with an outstanding balance of
$2.9 million secured by an apartment building located in New York, New York; an
outstanding balance of $1.2 million secured by an apartment building located in
Cambridge, Massachusetts; an outstanding balance of $903,000, net of a
charge-off of $231,000, secured by an apartment building located in Paterson,
New Jersey; an outstanding balance of $320,000 secured by an apartment building
located in Elizabeth, New Jersey; an outstanding balance of $275,000, net of a
charge-off of $187,000, secured by an apartment building located in Herkimer,
New York; an outstanding balance of $197,000 secured by an apartment building
located in Southbridge, Massachusetts; and an outstanding balance of zero, net
of a charge-off of $439,000, secured by an apartment building located in
Poughkeepsie, New York.





44
 Index





The six non-accrual non-residential
mortgage loans, net of charge-offs of $707,000, totaled $14.3 million at
December 31, 2009.  One of the non-accrual non-residential mortgage
loans had an outstanding balance of $10.9 million and is related to the sale of
the 1353-55 First Avenue, New York, New York branch office building (the
“Property”).  The loan is secured by the interests in the companies
owning the Property and a first mortgage on the Property.  Based on a
current appraisal, the loan to value is significantly less than
50%.  The second non-accrual non-residential mortgage loan had an
outstanding balance of $1.1 million and is secured by an office building located
in Newburgh, New York.  The third non-accrual non-residential mortgage
loan had an outstanding balance of $770,000, net of a charge-off of $58,000, and
is secured by an office/warehouse industrial facility located in Portland,
Connecticut.  The fourth non-accrual non-residential mortgage loan had
an outstanding balance of $700,000, net of a charge-off of $249,000, and is
secured by two gasoline stations located in Putnam and Westchester Counties, New
York.  The fifth non-accrual non-residential mortgage loan had an
outstanding balance of $448,000 and is secured by a restaurant with 23 boat
slips located in Far Rockaway, New York.  The sixth non-accrual
non-residential mortgage loan had an outstanding balance of $437,000, net of a
charge-off of $400,000,  and is secured by a strip shopping center and
warehouse located in Tobyhanna, Pennsylvania.





We are in the process of foreclosing on
five of the seven multi-family and four of the six non-residential
properties.  Based on recent fair value analyses of these properties,
the Bank does not expect any losses beyond the amounts already charged off on
the disposition of the properties.  Twelve of the above-mentioned
thirteen loans have been classified as substandard.  The $10.9 million
loan secured by the Property has been classified as special
mention.





Interest income that would have been
recorded for the year ended December 31, 2009 had non-accruing loans been
current to their original terms amounted to approximately $1.2
million.  During the year ended December 31, 2009, the Bank recognized
interest income of approximately $453,000 on the nonaccrual loans.





At December 31, 2009, the foreclosed
property had a net balance of $636,000 and consisted of a six unit multi-family
building located in Newark, New Jersey.  We renovated this property
and have leased all the units, with the eventual goal of marketing the property
when the real estate market has stabilized.





The troubled debt restructured loans
consisted of 18 loans, all of which are current, totaling $13.2 million, net of
a charge-off of $553,000.  The largest troubled debt restructured loan
had an outstanding balance of $2.1 million and is secured by 14 unit office
building located in Pittsburgh, Pennsylvania.





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.





45
 Index





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





At December 31,2009
            
            
            2008
            
            
            2007(In
      thousands)Special
      mention assets
            
            $
            33,221
            
            
            $
            –
            
            
            $
            865Substandard
      assets
            
            
            12,160
            
            
            
            3,220
            
            
            
            1,866Doubtful
      and loss assets
            
            
            –
            
            
            
            –
            
            
            
            –Total
      classified assets
            
            $
            45,381
            
            
            $
            3,220
            
            
            $
            2,731





The increase in classified assets was
due to the recent deterioration in the real estate market that has resulted in a
deterioration of the Bank’s loan portfolio and that has in turn caused increases
in non-performing loans.  On the basis of management’s review of
assets, we classified $33.2 million of our assets at December 31, 2009 as
special mention or potential problem loans compared to none classified as
special mention at December 31, 2008.  In addition, we classified
$12.2 million at December 31, 2009 as substandard compared to $3.2 million at
December 31, 2008.





We have
charged off $2.1 million in losses on these classified assets.  In
this regard, we have charged off $1.8 million in losses for seven substandard
loans with total outstanding balances of $5.2 million, resulting in a net total
balance of $3.4 million.  These seven substandard loans comprised of
four non-residential real estate loans totaling $2.2 million (net) and three
multi-family real estate loans totaling $1.2 million (net).  In
addition, we have charged off $230,000 in loss for one special mention
non-residential real estate loan with an outstanding balance of $924,000,
resulting in a net balance of $694,000.





The
substandard loans at December 31, 2009 consisted of fourteen loans in the
aggregate – seven multi-family mortgage loans and seven non-residential mortgage
loans.  See the non-accrual loan discussion above for a description of
the seven substandard multi-family mortgage loans and five of the substandard
non-residential mortgage loans.





The sixth
substandard non-residential mortgage loan is current and accruing, has an
outstanding balance of $1.9 million, and is secured by a commercial condominium
unit in a six story residential condominium building located in Brooklyn, New
York.  The seventh substandard non-residential mortgage loan is
current and accruing, has an outstanding balance of $342,000, net of a
charge-off of $323,000, and is secured by a commercial loft/industrial building
located in Kingston, New York.





46
 Index





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





At December 31,2009
            
            
            2008
            
            
            200730-59
              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
            
            
            –
            
            
            
            477
            
            
            
            –
            
            
            
            1,345
            
            
            
            –
            
            
            
            458Mixed-use
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            –
            
            
            
            1,285
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Construction
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Commercial
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            4
            
            
            
            –Total
            
            $
            –
            
            
            $
            1,762
            
            
            $
            –
            
            
            $
            1,345
            
            
            $
            4
            
            
            $
            458





Delinquent  loans
at December 31, 2009 consisted of four loans in the aggregate – two multi-family
mortgage loans and two non-residential mortgage loans.  The Bank has
placed all the delinquent loans at December 31, 2009 on non-accrual status and
they are included in the non-performing loan schedule listed above.





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 value of the underlying collateral and when collection of the
full amount outstanding becomes improbable.


General Valuation Allowance on the
Remainder of the Loan Portfolio.  We establish a general
allowance for loans that are not impaired and subject to specific allowances 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.





47
 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, 2009, our allowance for
loan losses was $6.7 million and represented 1.72% of total gross
loans.  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.  The primary reason for the increased provision
during 2009 was the continued deterioration of the national and local economies
and the continuing decline in the market value of commercial and multi-family
real estate collateral.





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





At December 31,2009
            
            
            2008
            
            
            2007Amount
            
            
            % 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
            %
            
            
            0.1
            %Multi-family
            
            
            3,351
            
            
            
            49.8
            
            
            
            51.3
            
            
            
            604
            
            
            
            32.4
            
            
            
            51.1
            
            
            
            472
            
            
            
            31.7
            
            
            
            49.0Mixed-use
            
            
            598
            
            
            
            8.9
            
            
            
            15.3
            
            
            
            319
            
            
            
            17.1
            
            
            
            16.0
            
            
            
            250
            
            
            
            16.8
            
            
            
            18.5Non-residential
      real estate
            
            
            2,494
            
            
            
            37.0
            
            
            
            26.8
            
            
            
            841
            
            
            
            45.1
            
            
            
            28.2
            
            
            
            691
            
            
            
            46.4
            
            
            
            28.0Construction
            
            
            186
            
            
            
            2.8
            
            
            
            3.9
            
            
            
            21
            
            
            
            1.1
            
            
            
            2.5
            
            
            
            50
            
            
            
            3.4
            
            
            
            3.3Commercial
            
            
            104
            
            
            
            1.5
            
            
            
            2.6
            
            
            
            80
            
            
            
            4.3
            
            
            
            2.1
            
            
            
            25
            
            
            
            1.7
            
            
            
            1.1Consumer
      and other loans
            
            
            –
            
            
            
            0.0
            
            
            
            0.0
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0
            
            
            
            –
            
            
            
            0.0
            
            
            
            0.0Total
      allowance for loan losses
            
            $
            6,733
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            1,865
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            1,489
            
            
            
            100.0
            %
            
            
            100.0
            %








At December 31,2006
            
            
            2005Amount
            
            
            % of
              Allowance
              to Total
              Allowance
            
            
            % of
              Loans in
              Category
              to Total
              Loans
            
            
            Amount
            
            
            % of
              Allowance
              to Total
              Allowance
            
            
            % of
              Loans in
              Category
              to Total
              Loans(Dollars
      in thousands)Residential
      real estate:One-
      to four-family
            
            $
            –
            
            
            
            0.0
            %
            
            
            0.2
            %
            
            $
            –
            
            
            
            0.0
            %
            
            
            0.3
            %Multi-family
            
            
            395
            
            
            
            32.9
            
            
            
            54.8
            
            
            
            443
            
            
            
            36.9
            
            
            
            52.4Mixed-use
            
            
            251
            
            
            
            20.9
            
            
            
            21.1
            
            
            
            277
            
            
            
            23.1
            
            
            
            22.9Non-residential
      real estate
            
            
            554
            
            
            
            46.2
            
            
            
            23.7
            
            
            
            480
            
            
            
            40.0
            
            
            
            24.2Construction
            
            
            –
            
            
            
            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
            %





48
 Index





Although we believe that we use the
best information available to establish the allowance for loan losses, future
adjustments to the allowance for loan losses may be necessary and our results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used in making the determinations.  Furthermore,
while we believe we have established our allowance for loan losses in conformity
with U.S. generally accepted accounting principles, there can be no assurance
that the Office of Thrift Supervision, in reviewing our loan portfolio, will not
request us to increase our allowance for loan losses.  The Office of
Thrift Supervision may require us to increase our allowance for loan losses
based on judgments different from ours.  In addition, because future
events affecting borrowers and collateral cannot be predicted with certainty,
there can be no assurance that increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed
above.  Any material increase in the allowance for loan losses may
adversely affect our consolidated 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 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005(Dollars
      in thousands)Allowance
      at beginning of period
            
            $
            1,865
            
            
            $
            1,489
            
            
            $
            1,200
            
            
            $
            1,200
            
            
            $
            1,200Provision
      for loan losses
            
            
            7,314
            
            
            
            411
            
            
            
            338
            
            
            
            –
            
            
            
            –Charge
      offs:Residential
      real estate:One-
      to four-family
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Multi-family
            
            
            (857
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Mixed-use
            
            
            –
            
            
            
            (35
            )
            
            
            (49
            )
            
            
            –
            
            
            
            –Non-residential
      real estate
            
            
            (1,589
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Construction
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Consumer
      and other loans
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –Total
      charge-offs
            
            
            (2,446
            )
            
            
            (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-offs
            
            
            (2,446
            )
            
            
            (35
            )
            
            
            (49
            )
            
            
            –
            
            
            
            –Allowance
      at end of period
            
            $
            6,733
            
            
            $
            1,865
            
            
            $
            1,489
            
            
            $
            1,200
            
            
            $
            1,200Allowance
      to nonperforming loans
            
            
            33.41
            %
            
            
            57.92
            %
            
            
            65.48
            %
            
            
            N/M
            
            
            
            N/MAllowance
      to total loans outstandingat
      the end of the period
            
            
            1.72
            %
            
            
            0.51
            %
            
            
            0.53
            %
            
            
            0.60
            %
            
            
            0.63
            %Net
      charge-offs to averageloans
      outstanding during the period
            
            
            0.62
            %
            
            
            0.01
            %
            
            
            0.02
            %
            
            
            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 re-price to
market interest rates in three to five years; purchasing securities that
typically re-price 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 re-pricing 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.





49
 Index











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





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





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 the net portfolio value of the Bank at December 31, 2009 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
            
            
            $
            87,122
            
            
            $
            (3,093
            )
            
            
            (3
            )%
            
            
            17.12
            %
            
            
            (15
            )
      bp200
            
            
            
            88,359
            
            
            
            (1,856
            )
            
            
            (2
            )%
            
            
            17.21
            %
            
            
            (
      7
            )
      bp100
            
            
            
            89,377
            
            
            
            (839
            )
            
            
            (1
            )%
            
            
            17.26
            %
            
            
            (
      2
            )
      bp50
            
            
            
            89,803
            
            
            
            (412
            )
            
            
            0
            %
            
            
            17.27
            %
            
            
            (
      2
            )
      bp0
            
            
            
            90,215
            
            
            
            
            
            
            
            
            
            
            
            17.28
            %(50)
            
            
            
            90,777
            
            
            
            561
            
            
            
            1
            %
            
            
            17.31
            %
            
            
            3
            bp(100)
            
            
            
            91,787
            
            
            
            1,572
            
            
            
            2
            %
            
            
            17.42
            %
            
            
            14
            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 re-pricing, 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.





50
 Index











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





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





Our most liquid assets are cash and
cash equivalents.  The levels of these assets depend on our operating,
financing, lending and investing activities during any given
period.  Cash and cash equivalents totaled $88.7 million at December
31, 2009 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 $176,000 at December 31, 2009
and $182,000 at December 31, 2008.





At December 31, 2009, we had $21.6
million in loan commitments outstanding.  At December 31, 2009, this
consisted of $13.1 million in unused commercial loan lines of credit, $4.4
million of real estate loan origination commitments, $3.0 million in unused real
estate equity lines of credit, $763,000 in construction loans in process, and
$165,000 in unused consumer lines of credit.  Certificates of deposit
due within one year of December 31, 2009 totaled $180.5 million.  This
represented 76.8% of certificates of deposit at December 31, 2009.  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, 2010.  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, 2009, we had the ability to borrow $96.1 million, net of $35.0
million in outstanding advances, from the Federal Home Loan Bank of New
York.  Deposit flows are affected by the overall level of interest
rates, the interest rates and products offered by us and our local competitors
and other factors.  We generally manage the pricing of our deposits to
be competitive and to maintain or increase our core deposit relationships
depending on our level of real estate loan and commercial loan commitments
outstanding.  Occasionally, we offer promotional rates on certain
deposit products to attract deposits or to lengthen repricing time
frames.





The Company is a separate legal entity
from the Bank and must provide for its own liquidity.  In addition to
its operating expenses, the Company is responsible for paying any dividends
declared to its shareholders.  The Company’s liquidity may depend, in
part, upon its receipt of dividends from the Bank because the Company has no
source of income other than earnings from the investment of the net proceeds
from its initial public offering.  The amount of dividends that the
Bank may declare and pay to the Company in any calendar year, without the
receipt of prior approval from the OTS but with prior notice to the OTS, cannot
exceed net income for that year to date plus retained net income (as defined)
for the preceding two calendar years.  At December 31, 2009, the
Company had liquid assets of $19.9 million.





51
 Index





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





Year Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands)Investing
      activities:Loans
      disbursed or closed
              
              $
              (40,326
              )
              
              $
              (124,901
              )
              
              $
              (86,954
              )Purchase
      of loan participations
              
              
              (5,198
              )
              
              
              (8,377
              )
              
              
              (11,695
              )Loan
      principal repayments
              
              
              20,029
              
              
              
              44,069
              
              
              
              32,109Sale
      of loans
              
              
              –
              
              
              
              7,045
              
              
              
              1,505Proceeds
      from maturities and principalrepayments
      of securities
              
              
              392
              
              
              
              882
              
              
              
              29,676Purchases
      of securities
              
              
              (10,151
              )
              
              
              –
              
              
              
              (5,000
              )Purchase
      of bank owned life insurance
              
              
              (1,200
              )
              
              
              –
              
              
              
              –Proceeds
      from sale of premises andequipment
              
              
              –
              
              
              
              –
              
              
              
              9,082Purchases
      of premises and equipment
              
              
              (4,552
              )
              
              
              (396
              )
              
              
              (198
              )Financing
      activities:Increase
      (decrease) in deposits
              
              
              118,088
              
              
              
              35,452
              
              
              
              37,386Proceeds
      from FHLB-NY advances
              
              
              10,000
              
              
              
              40,000
              
              
              
              –Repayment
      of FHLB-NY advances
              
              
              (15,000
              )
              
              
              –
              
              
              
              –





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, 2009, 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, 2009
and 2008, we engaged in no off-balance sheet transactions reasonably likely to
have a material effect on our consolidated financial condition, results of
operations or cash flows.





52
 Index





Effect
of Inflation and Changing Prices





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





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK





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





ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY
DATA





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





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





None.





ITEM
      9A(T).
            CONTROLS
      AND PROCEDURES





(a)
            Disclosure
      Controls and Procedures





The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”).  Based upon their evaluation, the principal executive
officer and principal financial officer concluded that, as of the end of the
period covered by this report, the Company’s disclosure controls and procedures
were effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.





(b)
            Internal
      Controls Over Financial Reporting





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





This
annual report does not include an audit report of the Company’s independent
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to audit 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.





53
 Index





(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, 2009 that have materially affected,
or are reasonable likely to materially affect, the Company’s internal control
over financial reporting.





ITEM
      9B.
            OTHER
      INFORMATION





None.





PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS ANDCORPORATE
  GOVERNANCE





Directors





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 2010
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.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





The information regarding executive
compensation is set forth under the section captioned “Executive Compensation” in
the Proxy Statement and is incorporated herein by reference.





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND
      RELATED STOCKHOLDERS MATTERS





(a)
            Security
      Ownership of Certain Beneficial
Owners





54
 Index





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





(b)
            Security
      Ownership of Management





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





(c)
            Changes
      in Control





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





(d)
            Equity
      Compensation Plan Information





None.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATEDTRANSACTIONS AND DIRECTOR
      INDEPENDENCE





The information relating to certain
relationships and related transactions and director independence is set forth
under the sections captioned “Transactions with Related
Persons” and “Corporate
Governance and Board Matters – Director Independence” in the Proxy
Statement and is incorporated herein by reference.





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES ANDSERVICES





The information relating to the
principal accountant fees and services is set forth under the section captioned
“Ratification of the
Independent Registered Public Accounting Firm” in the Proxy Statement and
is incorporated herein by reference.





55
 Index





PART
IV





ITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT
SCHEDULES





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





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





(3)
            Exhibits





3.1
            Amended
      and Restated Charter of Northeast Community Bancorp, Inc.
    (1)


3.2
            Amended
      and Restated Bylaws of Northeast Community Bancorp, Inc.
    (2)


4.1
            Specimen
      Stock Certificate of Northeast Community Bancorp, Inc.
  (1)


10.1
            Northeast
      Community Bank Employee Severance Compensation Plan
  (1)


10.2
            Northeast
      Community Bank Supplemental Executive Retirement Plan and Participation
      Agreement with 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)*


10.9
            Participation
      Agreement under the Northeast Community Bank Supplemental Executive
      Retirement Plan for Susan Barile
(5)*


10.10
            Northeast
      Community Bank Supplemental Executive Retirement Plan, as amended, and
      Participation Agreement with Kenneth A.
  Martinek*


21.0
            List
      of Subsidiaries


23.0
            Consent
      of ParenteBeard LLC


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.


(5)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on
      Form 10-Q for the quarter ended June 30,
2009.





56
 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 25, 2010
              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
      25, 2010Kenneth
      A. Martinek
            
            and
      Director(principal
      executive officer)/s/ Salvatore Randazzo
            
            Executive
      Vice President,  Chief
            March
      25, 2010Salvatore
      Randazzo
            
            Operating
      Officer and ChiefFinancial
      Officer and Director(principal
      accounting andfinancial
      officer)/s/ Diane B. Cavanaugh
            
            Director
            March
      25, 2010Diane
      B. Cavanaugh/s/ Arthur M. Levine
            
            Director
            March
      25, 2010Arthur
      M. Levine/s/ Charles A. Martinek
            
            Director
            March
      25, 2010Charles
      A. Martinek/s/ John F. McKenzie
            
            Director
            March
      25, 2010John
      F. McKenzie/s/ Linda M. Swan
            
            Director
            March
      25, 2010Linda
      M. Swan/s/ Harry (Jeff) A.S Read
            
            Director
            March
      25, 2010Harry
      (Jeff) A.S. Read/s/ Kenneth H. Thomas
            
            Director
            March
      25, 2010Kenneth
      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 consolidated
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, 2009, 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, 2009 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 consolidated 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 consolidated 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
audit report of the Company’s registered public accounting firm regarding
internal control over financial reporting.  Management’s report was
not subject to audit 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, 2009 and 2008, and the related consolidated statements of
operations, 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, 2009 and 2008, 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/ Parente Beard
LLC
 Parente
Beard LLCClark, New Jersey
 March 29,
2010
  F-1
 Index
  Northeast
Community Bancorp, Inc.
 Consolidated
Statements of Financial Condition
 
 December 31,2009
              
              
              2008(In
      thousands, except share and per share data)AssetsCash
      and amounts due from depository institutions
              
              $
              3,441
              
              
              $
              2,368Interest-bearing
      deposits
              
              
              85,277
              
              
              
              34,166Cash
      and cash equivalents
              
              
              88,718
              
              
              
              36,534Certificates
      of deposit
              
              
              8,715
              
              
              
              498Securities
      available-for-sale
              
              
              176
              
              
              
              182Securities
      held-to-maturity
              
              
              11,845
              
              
              
              2,078Loans
      receivable, net of allowance for loan losses $6,733 and
      $1,865,respectively
              
              
              386,266
              
              
              
              363,616Premises
      and equipment, net
              
              
              8,220
              
              
              
              4,365Federal
      Home Loan Bank of New York stock, at cost
              
              
              2,277
              
              
              
              2,350Bank
      owned life insurance
              
              
              10,522
              
              
              
              8,902Accrued
      interest receivable
              
              
              1,924
              
              
              
              1,785Goodwill
              
              
              1,310
              
              
              
              1,310Intangible
      assets
              
              
              588
              
              
              
              649Real
      estate owned
              
              
              636
              
              
              
              832Other
      assets
              
              
              6,079
              
              
              
              1,127Total
      Assets
              
              $
              527,276
              
              
              $
              424,228Liabilities
      and Stockholders’ EquityLiabilities:Deposits:Non-interest-bearing
      deposits
              
              $
              11,594
              
              
              $
              6,209Interest-bearing
      deposits
              
              
              367,924
              
              
              
              255,221Total
      deposits
              
              
              379,518
              
              
              
              261,430Advance
      payments by borrowers for taxes and insurance
              
              
              3,153
              
              
              
              6,624Federal
      Home Loan Bank Advances
              
              
              35,000
              
              
              
              40,000Accounts
      payable and accrued expenses
              
              
              1,829
              
              
              
              5,191Note
      payable
              
              
              328
              
              
              
              481Total
      Liabilities
              
              
              419,828
              
              
              
              313,726Commitments
      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
      andoutstanding:
      13,225,000 shares
              
              
              132
              
              
              
              132Additional
      paid-in capital
              
              
              57,496
              
              
              
              57,560Unearned
      Employee Stock Ownership Plan (“ESOP”) shares
              
              
              (4,147
              )
              
              
              (4,407
              )Retained
      earnings
              
              
              54,121
              
              
              
              57,399Accumulated
      comprehensive loss
              
              
              (154
              )
              
              
              (182
              )Total
      Stockholders’ Equity
              
              
              107,448
              
              
              
              110,502Total
      Liabilities and Stockholders’ Equity
              
              $
              527,276
              
              
              $
              424,228
  See
notes to consolidated financial statements.
 F-2
 Index
  Northeast
Community Bancorp, Inc.
 Consolidated
Statements of Operations
 
 Years Ended December 31,2009
              
              
              2008(In
      thousands, except per share data)Interest
      Income:Loans
              
              $
              23,925
              
              
              $
              21,008Interest-earning
      deposits
              
              
              230
              
              
              
              738Securities
      - taxable
              
              
              218
              
              
              
              201Total
      Interest Income
              
              
              24,373
              
              
              
              21,947Interest
      Expense:Deposits
              
              
              8,680
              
              
              
              7,818Borrowings
              
              
              1,412
              
              
              
              732Total
      Interest Expense
              
              
              10,092
              
              
              
              8,550Net
      Interest Income
              
              
              14,281
              
              
              
              13,397Provision
      for Loan Losses
              
              
              7,314
              
              
              
              411Net
      Interest Income after Provision for Loan Losses
              
              
              6,967
              
              
              
              12,986Non-Interest
      Income:Other
      loan fees and service charges
              
              
              371
              
              
              
              478Impairment
      loss on equity security
              
              
              (4
              )
              
              
              -Loss
      on disposition of equipment
              
              
              (18
              )
              
              
              -Earnings
      on bank owned life insurance
              
              
              420
              
              
              
              386Investment
      advisory fees
              
              
              713
              
              
              
              878Other
              
              
              16
              
              
              
              52Total
      Non-Interest Income
              
              
              1,498
              
              
              
              1,794Non-Interest
      Expenses:Salaries
      and employee benefits
              
              
              6,816
              
              
              
              5,872Net
      occupancy expense
              
              
              1,375
              
              
              
              1,140Equipment
              
              
              730
              
              
              
              517Outside
      data processing
              
              
              776
              
              
              
              826Advertising
              
              
              348
              
              
              
              225Real
      estate owned expenses
              
              
              177
              
              
              
              381FDIC
      insurance premiums
              
              
              541
              
              
              
              33Other
              
              
              3,130
              
              
              
              2,506Total
      Non-Interest Expenses
              
              
              13,893
              
              
              
              11,500Income
      (loss) before Provision for Income Taxes
              
              
              (5,428
              )
              
              
              3,280Provision
      for Income Taxes (benefit)
              
              
              (2,812
              )
              
              
              1,178Net
      Income (loss)
              
              $
              (2,616
              )
              
              $
              2,102Net
      Income (loss) per Common Share – Basic
              
              $
              (0.20
              )
              
              $
              0.16Weighted
      Average Number of Common SharesOutstanding
      – Basic
              
              
              12,797
              
              
              
              12,771Dividends
      Declared per Common Share
              
              $
              0.12
              
              
              $
              0.12
  See
notes to consolidated financial statements.
 F-3
 Index
  Northeast
Community Bancorp, Inc.
 Consolidated
Statements of Stockholders’ Equity
 Years
Ended December 31, 2009 and 2008
 
 Common
                Stock
              
              
              Additional
                  Paid- in
                  Capital
              
              
              Unearned
                  ESOP
                  Shares
              
              
              Retained
                  Earnings
              
              
              Accumu-
                lated
                Other
                Compre-
                hensive
                Loss
              
              
              Total
                Equity
              
              
              Comprehensive
                Income(In
      thousands)Balance
      - December 31, 2007
              
              $
              132
              
              
              $
              57,555
              
              
              $
              (4,665
              )
              
              $
              55,956
              
              
              $
              (149
              )
              
              $
              108,829Comprehensive
      income:Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,102
              
              
              
              -
              
              
              
              2,102
              
              
              $
              2,102Unrealized
      loss on securitiesavailable
      for sale, net of taxes of$(10)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (30
              )
              
              
              (30
              )
              
              
              (30
              )Pension
      liability – DRP, net oftaxes
      of $(13)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3
              )
              
              
              (3
              )
              
              
              (3
              )Cash
      dividends declared ($0.12 pershare)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (659
              )
              
              
              -
              
              
              
              (659
              )ESOP
      shares earned
              
              
              -
              
              
              
              5
              
              
              
              258
              
              
              
              -
              
              
              
              -
              
              
              
              263Total
      Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              2,069Balance
      - December 31, 2008
              
              
              132
              
              
              
              57,560
              
              
              
              (4,407
              )
              
              
              57,399
              
              
              
              (182
              )
              
              
              110,502Comprehensive
      loss:Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,616
              )
              
              
              -
              
              
              
              (2,616
              )
              
              
              (2,616
              )Unrealized
      gain on securitiesavailable
      for sale, net of taxes of$(1)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              1
              
              
              
              1Pension
      liability – DRP, net oftaxes
      of $(18)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              27
              
              
              
              27
              
              
              
              27Cash
      dividends declared ($0.12 pershare)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (662
              )
              
              
              -
              
              
              
              (662
              )ESOP
      shares earned
              
              
              -
              
              
              
              (64
              )
              
              
              260
              
              
              
              -
              
              
              
              -
              
              
              
              196Total
      Comprehensive Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (2,588
              )Balance
      - December 31, 2009
              
              $
              132
              
              
              $
              57,496
              
              
              $
              (4,147
              )
              
              $
              54,121
              
              
              $
              (154
              )
              
              $
              107,448
  See
notes to consolidated financial statements.
 F-4
 Index
  Northeast
Community Bancorp, Inc.
 Consolidated
Statements of Cash Flows
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Cash
      Flows from Operating Activities:Net
      income (loss)
              
              $
              (2,616
              )
              
              $
              2,102Adjustments
      to reconcile net income (loss) to net cash provided by(used
      in) operating activities:Net
      amortization of securities premiums and discounts
              
              
              1
              
              
              
              5Provision
      for loan losses
              
              
              7,314
              
              
              
              411Provision
      for depreciation
              
              
              679
              
              
              
              560Net
      amortization of deferred discounts, fees and costs
              
              
              137
              
              
              
              151Amortization
      other
              
              
              83
              
              
              
              90Deferred
      income tax (benefit)
              
              
              (2,484
              )
              
              
              (2,679
              )Impairment
      loss on equity security
              
              
              4
              
              
              
              -Losses
      on real estate owned
              
              
              98
              
              
              
              369Earnings
      on bank owned life insurance
              
              
              (420
              )
              
              
              (386
              )Loss
      on disposal of equipment
              
              
              18
              
              
              
              -(Increase)
      in accrued interest receivable
              
              
              (139
              )
              
              
              (445
              )(Increase)
      decrease in other assets
              
              
              (3,812
              )
              
              
              474(Decrease)
      in accrued interest payable
              
              
              (12
              )
              
              
              (7
              )Increase
      (decrease) in other liabilities
              
              
              (1,985
              )
              
              
              2,317ESOP
      shares earned
              
              
              196
              
              
              
              263Net
      Cash Provided by (Used in) Operating Activities
              
              
              (2,938
              )
              
              
              3,225Cash
      Flows from Investing Activities:Purchase
      of loans
              
              
              (5,198
              )
              
              
              (8,377
              )Net
      increase in loans
              
              
              (25,516
              )
              
              
              (73,787
              )Purchase
      of securities held-to-maturity
              
              
              (10,151
              )
              
              
              -Principal
      repayments on securities available-for-sale
              
              
              7
              
              
              
              89Principal
      repayments on securities held-to-maturity
              
              
              385
              
              
              
              793Purchases
      of certificates of deposit
              
              
              (18,177
              )
              
              
              (498
              )Proceeds
      from maturities of Certificates of Deposit
              
              
              9,960
              
              
              
              -Proceeds
      from sale of real estate owned
              
              
              884
              
              
              
              -Net
      purchase (redemption) of Federal Home Loan Bank of NewYork
      stock
              
              
              73
              
              
              
              (1,937
              )Purchases
      of premises and equipment
              
              
              (4,552
              )
              
              
              (396
              )Purchase
      of bank owned life insurance
              
              
              (1,200
              )
              
              
              -Capitalized
      costs on real estate owned
              
              
              (173
              )
              
              
              (82
              )Net
      Cash (Used in) Investing Activities
              
              
              (53,658
              )
              
              
              (84,195
              )Cash
      Flows from Financing Activities:Net
      increase in deposits
              
              
              118,088
              
              
              
              35,452Proceeds
      from FHLB of NY advances
              
              
              10,000
              
              
              
              40,000Repayment
      of FHLB of NY advances
              
              
              (15,000
              )
              
              
              -Repayment
      of note payable
              
              
              (175
              )
              
              
              (175
              )Increase
      in advance payments by borrowers for taxes and insurance
              
              
              (3,471
              )
              
              
              3,740Cash
      dividends paid to minority shareholders
              
              
              (662
              )
              
              
              (659
              )Net
      Cash Provided by Financing Activities
              
              
              108,780
              
              
              
              78,358Net
      Increase (Decrease) in Cash and Cash Equivalents
              
              
              52,184
              
              
              
              (2,612
              )Cash
      and Cash Equivalents - Beginning
              
              
              36,534
              
              
              
              39,146Cash
      and Cash Equivalents - Ending
              
              $
              88,718
              
              
              $
              36,534
  See
notes to consolidated financial statements.
 F-5
 Index
  Northeast
Community Bancorp, Inc.
 Consolidated
Statements of Cash Flows (Continued)
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Supplementary
      Cash Flows Information:Income
      taxes paid
              
              $
              3,862
              
              
              $
              1,195Interest
      paid
              
              $
              10,104
              
              
              $
              8,557Supplementary
      Disclosure of Non-Cash Investingand
      Financing Activities:Loan
      made to facilitate the sale of  real estate
owned
              
              $
              -
              
              
              $
              311Real
      estate owned received in settlement of loans
              
              $
              613
              
              
              $
              1,430
  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
 
 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, its
five full service branches in New York City, New York and its two full service
branches in Danvers and Plymouth, Massachusetts, gathering deposits nationwide
and lending from Pittsburgh, Pennsylvania to southern New
Hampshire.
 
 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 one foreclosed multi-family property 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 (“U.S. GAAP”).  All
significant inter-company accounts and transactions have been eliminated in
consolidation.  In the opinion of management, all adjustments
(including normal recurring adjustments) considered necessary for a fair
presentation of the Company’s consolidated financial statements for the years
ended December 31, 2009 and 2008, have been included.
 
 The
Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Codification (“ASC” or “Codification”) became effective on July 1,
2009.  On that date, the FASB’s ASC became the official source of
authoritative accounting principles recognized by the FASB to be applied by
non-governmental entities in the preparation of financial statements in
conformity with U.S. GAAP.  The ASC supersedes all existing FASB,
American Institute of Certified Public Accountants (“AICPA”), Emerging Issues
Task Force (“EITF”) and related literature.  Rules and interpretive
releases of the Securities and Exchange Commission (“SEC”) under authority of
federal securities laws are also sources of authoritative guidance for SEC
registrants.  All guidance contained in the ASC carries an equal level
of authority.  All non-grandfathered, non-SEC accounting literature
not included in the ASC is superseded and deemed
non-authoritative.  While the conversion to the ASC affects the way
companies refer to U.S. GAAP in financial statements and accounting policies, it
does not change U.S. GAAP.  Citing particular content in the ASC
involves specifying the unique numeric path to the content through the Topic,
Subtopic, Section and Paragraph structure.
 
 The
preparation of consolidated financial statements, in conformity with U.S. GAAP,
requires management to make estimates and assumptions that affect certain
recorded amounts and disclosures.  Accordingly, actual results could
differ from those estimates.
  F-7
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
 
 Nature
of Business (Continued)
 
 The most
significant estimate pertains to the allowance for loan losses.  The
borrowers’ abilities 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’ abilities 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.
 
 Effective
April 1, 2009, the Company adopted ASC 855, Subsequent Events.  ASC
855 establishes general standards for accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued.  ASC 855 sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition in the financial
statements, identifies the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements, and the disclosures that should be made about events or transactions
that occur after the balance sheet date.  In preparing these
consolidated financial statements, the Company evaluated the events and
transactions that occurred after December 31, 2009 through the date these
consolidated financial statements were issued.
 
 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
 
 The
Company is required 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.
 
 If the
fair value of a security is less than its amortized cost, the security is deemed
to be impaired. Management evaluates all securities with unrealized losses
quarterly to determine if such impairments are temporary or other-than-temporary
in accordance with the ASC Topic 320. Temporary impairments on available for
sale securities are recognized, on a tax-
  F-8
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
 
 Securities
(Continued)
 
 effected
basis, through other comprehensive income (“OCI”) with offsetting adjustments to
the carrying value of the security and the balance of related deferred
taxes.  Temporary impairments of held to maturity are not recorded in
the consolidated financial statements; however, information concerning the
amount and duration of impairments on held to maturity securities is
disclosed.
 
 Other-than-temporary
impairments on all equity securities and on debt securities that the Company has
decided to sell, or will, more likely than not, be required to sell prior to the
full recovery of fair value to a level equal to or exceeding amortized cost, are
recognized in earnings.  If neither of these conditions regarding the
likelihood of sale apply for a debt security, the other-than-temporary
impairment is bifurcated into credit-related and noncredit-related
components.  Credit-related impairment generally represents the amount
by which the present value of the cash flows that are expected to be collected
on a debt security fall below its amortized cost.  The
noncredit-related component represents the remaining portion of the impairment
not otherwise designated as credit-related.  The Company recognizes
credit-related other-than-temporary impairments in
earnings.  Noncredit-related other-than-temporary impairments on debt
securities are recognized in OCI.
 
 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.
 
 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.
  F-9
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
 
 Loan
Origination Fees and Costs
 
 Net loan
origination fees and costs are deferred and amortized into income over the
contractual lives of the related loans by use of the level yield
method.
 
 Loan
Interest and the Allowance for Uncollected Interest
 
 Interest
on loans receivable is recorded on the accrual basis.  An allowance
for uncollected interest is established on loans where management has determined
that the borrowers may be unable to meet contractual principal and/or interest
obligations or where interest or principal is 90 days or more past due, unless
the loans are well secured and 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, 2009, such deposits totaled $74.9 million, of which $74.6 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.
 
 
 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.
  F-10
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
 
 Intangible
Assets
 
 Intangible
assets at December 31, 2009 and 2008, totaled $588,000 and $649,000,
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.  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.  No impairment charges were
recorded in 2009 or 2008.
 
 Goodwill
 
 Goodwill
at December 31, 2009 and 2008, 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, impairment exists
and the Company will perform the second step of the goodwill impairment test to
measure the amount of impairment loss, if any.  The second step of the
goodwill impairment test compares the implied fair value of a reporting unit’s
goodwill with its carrying value.
 
 The
implied fair value of goodwill is determined in the same manner that the amount
of goodwill recognized in a business combination is determined.  The
Company allocates the fair value of the reporting unit to all of the assets and
liabilities of that unit, including identifiable 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.  No impairment
charges were recorded in 2009 or 2008.
 
 Real
Estate Owned
 
 Real
estate owned is carried at the fair value of the related property, as determined
by current appraisals less estimated costs to sell.  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.
  F-11
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
 
 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
consolidated 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 accounts for uncertainty in income taxes recognized in its consolidated
financial statements in accordance with ASC Topic 740, Income Taxes, which
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return, and also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.  The Company has not identified any
significant income tax uncertainties through the evaluation of its income tax
positions for the years ended December 31, 2009 and 2008, and has not recognized
any liabilities for tax uncertainties as of December 31, 2009.  Our
policy is to recognize income tax related interest and penalties in income tax
expense; such amounts were not significant during the years ended December 31,
2009 and 2008.  The tax years subject to examination by the taxing
authorities are, for federal and state purposes, the years ended after December
31, 2005.
 
 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 Operations.
 
 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.
 
 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, 2009,
accumulated other comprehensive loss totaled $(154,000) and included $2,000 of
net gains on available for sale securities less $(1,000) of related deferred
income taxes and $(278,000) in prior service cost and actuarial losses of the
DRP less $123,000 of related deferred income taxes.  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.
  F-12
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
1 - Summary of Significant Accounting Policies (Continued)
 
 Other
Comprehensive Income (Continued)
 
 The
Company has elected to report the effects of other comprehensive income in the
consolidated statements of stockholders’ equity.
 
 Net
Income (Loss) Per Common Share
 
 Basic net
income (loss) 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 (loss) per common
share is computed in a manner similar to basic net income (loss) 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 (loss) 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.
 
 Reclassifications
 
 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, 2009, must hold at least 50.1% of the
Company’s stock so long as the MHC exists.
  F-13
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
2 – Mutual Holding Company Reorganization and Regulatory Matters
(Continued)
 
 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
2009 and 2008, 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 2009 applies also to quarterly cash dividends, if any, to
be paid for the first and second quarters of 2010.  Dividends declared
by the Company in 2009 and 2008 and waived by the MHC totaled approximately
$873,000 and $873,000, respectively.  As of December 31, 2009, total
dividends waived by the MHC aggregated $2,182,000.  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.
  F-14
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
2 – Mutual Holding Company Reorganization and Regulatory Matters
(Continued)
 
 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, 2009.
 
 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 31,2009
              
              
              2008(In
      Thousands)GAAP
      capital
              
              $
              83,711
              
              
              $
              81,312Less:  Goodwill
      and intangible assets
              
              
              (1,898
              )
              
              
              (1,959
              )Directors
      retirement plan AOCI
              
              
              155
              
              
              
              177Unrealized
      loss (gain) on securities available for sale
              
              
              (1
              )
              
              
              5Disallowed
      deferred tax assets
              
              
              (1,140
              )
              
              
              (64
              )Core
      and Tangible Capital
              
              
              80,827
              
              
              
              79,471Add:  Allowable
      general valuation allowances
              
              
              3,819
              
              
              
              1,865Total
      Capital
              
              $
              84,646
              
              
              $
              81,336
 
 
 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, 2009:Total
      capital (to risk-weighted assets)
              
              $
              84,646
              
              
              
              27.70
              %
              
              $
              >
              24,443
              
              
              
              >
              8.00
              %
              
              $
              >
              30,553
              
              
              
              >
              10.00
              %Tier
      1 capital (to risk-weighted assets)
              
              
              80,827
              
              
              
              26.45
              
              
              
              >
              12,221
              
              
              
              >
              4.00
              
              
              
              >
              18,332
              
              
              
              >
              6.00Core
      (Tier 1) capital (to adjusted totalassets
              
              
              80,827
              
              
              
              16.01
              
              
              
              >
              20,200
              
              
              
              >
              4.00
              
              
              
              >
              25,250
              
              
              
              >
              5.00Tangible
      capital (to adjusted total assets)
              
              
              80,827
              
              
              
              16.01
              
              
              
              >
              7,575
              
              
              
              >
              1.50
              
              
              
              >
              -
              
              
              
              >
              -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
              
              
              
              >
              10,615
              
              
              
              >
              4.00
              
              
              
              >
              15,923
              
              
              
              >
              6.00Core
      (Tier 1) capital (to adjusted totalassets
              
              
              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
              
              
              
              >
              -
              
              
              
              >
              -
  F-15
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
2 – Mutual Holding Company Reorganization and Regulatory Matters
(Continued)
 
 Based on
the most recent notification by the OTS, the Bank was categorized as well
capitalized under the regulatory framework for prompt corrective
action.  There have been no conditions or events that have occurred
since notification that management believes have changed the Bank’s
category.
 
 The
Bank’s management believes that, with respect to regulations under FIRREA, the
Bank will continue to meet its minimum capital requirements in the foreseeable
future.  However, events beyond the control of the Bank, such as
increased interest rates or a downturn in the economy in areas where the Bank
has most of its loans, could adversely affect future earnings and, consequently,
the ability of the Bank to meet its future minimum capital
requirements.
 
 Note
3 - Acquisition
 
 On
November 16, 2007, the Company acquired the operating assets of Hayden Financial
Group LLC (“Hayden”), an investment advisory firm located in Connecticut, at a
cost of $2,020,000, including $95,000 of expenses directly related to the
transaction.  The acquisition of these business assets has enabled the
Bank to expand the services it provides to include investment advisory and
financial planning services to the then-existing Hayden customer base as well as
future customers.  In connection with this transaction, the Company
recorded intangible assets related to customer relationships of $710,000,
goodwill of $1,310,000 and a note payable with a present value of
$625,000.  The acquired business is being operated as a division of
the Bank and, during 2009 and 2008, generated total revenues of approximately
$713,000 and $878,000, respectively.
 
 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
consolidated 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 31,2009
              
              
              2008(In
      Thousands)Financial
      instruments whose contract amounts represent credit risk:Commitments
      to extend credit
              
              $
              4,450
              
              
              $
              32,348Construction
      loans in process
              
              
              763
              
              
              
              1,471Commitments
      to fund unused lines of credit:Commercial
      lines
              
              
              16,243
              
              
              
              19,256Consumer
      lines
              
              
              165
              
              
              
              181$
              21,621
              
              
              $
              53,256
  F-16
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
4 - Financial Instruments with Off-Balance Sheet Risk
(Continued)
 
 At
December 31, 2009, 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 31,2009
              
              
              2008(In
      Thousands)Due
      within one year
              
              $
              8,715
              
              
              $
              498$
              8,715
              
              
              $
              498
  F-17
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
6 - Securities Available for Sale
 
 December 31, 2009Amortized
                  Cost
              
              
              Gross
                  Unrealized
                  Gains
              
              
              Gross
                  Unrealized
                  Losses
              
              
              Fair Value(In
      Thousands)Mortgage-backed
      securities - residential:Federal
      Home Loan MortgageCorporation
              
              $
              117
              
              
              $
              1
              
              
              $
              -
              
              
              $
              118Federal
      National Mortgage Association
              
              
              57
              
              
              
              1
              
              
              
              -
              
              
              
              58174
              
              
              
              2
              
              
              
              -
              
              
              
              176$
              174
              
              
              $
              2
              
              
              $
              -
              
              
              $
              176
 
 
 December 31, 2008Amortized
                  Cost
              
              
              Gross
                  Unrealized
                  Gains
              
              
              Gross
                  Unrealized
                  Losses
              
              
              Fair Value(In
      Thousands)Federal
      National Mortgage Associationcommon
      stock
              
              $
              4
              
              
              $
              -
              
              
              $
              3
              
              
              $
              1Mortgage-backed
      securities - residential:Federal
      Home Loan MortgageCorporation
              
              
              124
              
              
              
              -
              
              
              
              1
              
              
              
              123Federal
      National Mortgage Association
              
              
              59
              
              
              
              -
              
              
              
              1
              
              
              
              58183
              
              
              
              -
              
              
              
              2
              
              
              
              181$
              187
              
              
              $
              -
              
              
              $
              5
              
              
              $
              182
 
 There
were no sales of securities available for sale during the years ended December
31, 2009 and 2008.
 
 During
2009, the Company determined that its investment in Federal National Mortgage
Association common stock was other-than-temporarily impaired and wrote off the
Company’s entire $4,000 investment.
  F-18
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
6 - Securities Available for Sale (Continued)
 
 Contractual
final maturities of mortgage-backed securities were as follows:
 
 December 31,2009
              
              
              2008Amortized
                  Cost
              
              
              Fair Value
              
              
              Amortized
                  Cost
              
              
              Fair Value(In
      Thousands)Due
      within one year
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Due
      after ten years
              
              
              174
              
              
              
              176
              
              
              
              183
              
              
              
              181$
              174
              
              
              $
              176
              
              
              $
              183
              
              
              $
              181
 
 The
maturities shown above are based upon contractual final
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.
  F-19
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
7 - Securities Held to Maturity
 
 December 31, 2009Amortized
                  Cost
              
              
              Gross
                  Unrealized
                  Gains
              
              
              Gross
                  Unrealized
                  Losses
              
              
              Fair Value(In
      Thousands)Mortgage-backed
      securities - residential:Government
      National MortgageAssociation
              
              $
              10,928
              
              
              $
              15
              
              
              $
              -
              
              
              $
              10,943Federal
      Home Loan MortgageCorporation
              
              
              410
              
              
              
              5
              
              
              
              1
              
              
              
              414Federal
      National Mortgage Association
              
              
              458
              
              
              
              10
              
              
              
              -
              
              
              
              468Collateralized
      Mortgage Obligations
              
              
              46
              
              
              
              1
              
              
              
              -
              
              
              
              47Private
      Pass-through Securities
              
              
              3
              
              
              
              -
              
              
              
              -
              
              
              
              3$
              11,845
              
              
              $
              31
              
              
              $
              1
              
              
              $
              11,875
 
 
 December 31, 2008Amortized
                  Cost
              
              
              Gross
                  Unrealized
                  Gains
              
              
              Gross
                  Unrealized
                  Losses
              
              
              Fair Value(In
      Thousands)Mortgage-backed
      securities - residential:Government
      National MortgageAssociation
              
              $
              960
              
              
              $
              1
              
              
              $
              19
              
              
              $
              942Federal
      Home Loan MortgageCorporation
              
              
              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
 
 There
were no sales of securities held to maturity during the years ended December 31,
2009 and 2008.
  F-20
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
7 - Securities Held to Maturity (Continued)
 
 Contractual
final maturities of mortgage-backed securities were as follows:
 
 December 31,2009
              
              
              2008Amortized
                  Cost
              
              
              Fair Value
              
              
              Amortized
                  Cost
              
              
              Fair Value(In
      Thousands)Due
      within one year
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Due
      after one but within five years
              
              
              21
              
              
              
              21
              
              
              
              15
              
              
              
              15Due
      after five but within ten years
              
              
              336
              
              
              
              338
              
              
              
              339
              
              
              
              337Due
      after ten years
              
              
              11,488
              
              
              
              11,516
              
              
              
              1,724
              
              
              
              1,698$
              11,845
              
              
              $
              11,875
              
              
              $
              2,078
              
              
              $
              2,050
 
 The
maturities shown above are based upon contractual final
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, 2009:Mortgage-backedsecurities
              
              $
              -
              
              
              $
              -
              
              
              $
              127
              
              
              $
              1
              
              
              $
              127
              
              
              $
              1December
      31, 2008:Mortgage-backedsecurities
              
              $
              -
              
              
              $
              -
              
              
              $
              1,656
              
              
              $
              34
              
              
              $
              1,656
              
              
              $
              34
 
 
 At
December 31, 2009, 11 mortgage-backed securities had unrealized
losses.  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 Company has not decided to sell
these securities and will not, more likely than not, be required to sell these
securities prior to full recovery of fair value to a level equal to or exceeding
amortized cost.
  F-21
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
8 - Loans Receivable, Net
 
 December 31,2009
              
              
              2008(In
      Thousands)Real
      estate mortgage:One-to-four
      family
              
              $
              244
              
              
              $
              275Multi-family
              
              
              201,059
              
              
              
              186,199Mixed
      use
              
              
              59,779
              
              
              
              58,317Commercial
              
              
              105,194
              
              
              
              102,785366,276
              
              
              
              347,576Construction:Multi-family
              
              
              7,642
              
              
              
              9,025Commercial
              
              
              7,479
              
              
              
              -15,121
              
              
              
              9,025Commercial
      Business:Lines
      of Credit
              
              
              9,214
              
              
              
              6,398Term
              
              
              1,186
              
              
              
              1,22210,400
              
              
              
              7,620Consumer:Line
      of credit
              
              
              60
              
              
              
              57Passbook
      or certificate
              
              
              90
              
              
              
              57150
              
              
              
              114Total
      Loans
              
              
              391,947
              
              
              
              364,335Allowance
      for loan losses
              
              
              (6,733
              )
              
              
              (1,865
              )Deferred
      loan fees and costs
              
              
              1,052
              
              
              
              1,146$
              386,266
              
              
              $
              363,616
 
 Loans
serviced for the benefit of others totaled approximately $11,200,000 and
$11,346,000 at December 31, 2009 and 2008, respectively.
 
 At
December 31, 2009 and 2008, we had thirteen non-accrual loans totaling
$20,150,000 and three non-accrual loans totaling $1,875,000,
respectively.  Interest income on such loans is recognized only when
actually collected.  During the years ended December 31, 2009 and
2008, the Bank recognized interest income of approximately $453,000 and $1,000,
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 $1,233,000 and $142,000 for the years ended December 31, 2009
and 2008, 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, 2009 and 2008, there were no loans which were
90 days or more delinquent and accruing interest.
  F-22
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
8 - Loans Receivable, Net (Continued)
 
 The
following is an analysis of the allowance for loan losses:
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Balance,
      beginning
              
              $
              1,865
              
              
              $
              1,489Provision
      charged to operations
              
              
              7,314
              
              
              
              411Losses
      charged to allowance
              
              
              (2,446
              )
              
              
              (35
              )Balance,
      ending
              
              $
              6,733
              
              
              $
              1,865
 
 The
following is an analysis of impaired loans:
 
 At or for the Year ended
                  December 31,2009
              
              
              2008(In
      Thousands)Impaired
      loans with specific loss allowances
              
              $
              -
              
              
              $
              -Impaired
      loans without specific loss allowances
              
              
              33,325
              
              
              
              3,22033,325
              
              
              
              3,220Specific
      loss allowance
              
              
              -
              
              
              
              -Net
      impaired loans at year end
              
              $
              33,325
              
              
              $
              3,220Average
      investment in impaired loans during the year
              
              $
              24,164
              
              
              $
              2,517Interest
      recorded on impaired loans during the year
              
              $
              960
              
              
              $
              76
 
 Note
9 - Premises and Equipment, Net
 
 December 31,2009
              
              
              2008(In
      Thousands)Land
              
              $
              1,549
              
              
              $
              534Buildings
      and improvements
              
              
              9,844
              
              
              
              7,234Leasehold
      improvements
              
              
              736
              
              
              
              736Furnishings
      and equipment
              
              
              6,164
              
              
              
              5,30118,293
              
              
              
              13,805Accumulated
      depreciation and amortization
              
              
              (10,073
              )
              
              
              (9,440
              )$
              8,220
              
              
              $
              4,365
  F-23
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
10 - Accrued Interest Receivable, Net
 
 December 31,2009
              
              
              2008(In
      Thousands)Loans
              
              $
              2,525
              
              
              $
              1,998Securities
              
              
              30
              
              
              
              82,555
              
              
              
              2,006Allowance
      for uncollected interest
              
              
              (631
              )
              
              
              (221
              )$
              1,924
              
              
              $
              1,785
 
 Note
11 - Goodwill and Intangible Assets
 
 Goodwill
and intangible assets at December 31 are summarized as follows (in
thousands):
 
 2009
              
              
              2008Goodwill
              
              $
              1,310
              
              
              $
              1,310Customer
      relationships intangible
              
              
              588
              
              
              
              649Total
              
              $
              1,898
              
              
              $
              1,959
 
 The gross
amount of intangible assets was $710,000 at both December 31, 2009 and
2008.  Amortization expense of intangible assets was $61,000 during
each of the years ended December 31, 2009 and 2008.  Scheduled
amortization for each of the next five years and thereafter is as follows (in
thousands):
 
 2010
              
              $
              612011
              
              
              612012
              
              
              612013
              
              
              612014
              
              
              61Thereafter
              
              
              283
 
 Note
12 - Real Estate Owned (“REO”)
 
 The
Company held one property valued at approximately $636,000 at December 31,
2009.  Further declines in real estate values may result in 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 2009 amounted to
$177,000, including a loss of $98,000 on the sale of two properties located in
Hampton, New Hampshire and Mamaroneck, New York and net holding expenses of
$79,000.
 
 The
Company owned 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.  REO expenses
during 2008 amounted to $381,000, including net holding expenses of
$12,000.
  F-24
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
13 – Deposits
 
 December 31,2009
              
              
              2008Amount
              
              
              Weighted
                  Average
                  Interest
                  Rate
              
              
              Amount
              
              
              Weighted
                  Average
                  Interest
                  Rate(Dollars
      in Thousands)Demand
      deposits:Non-interest
      bearing
              
              $
              11,594
              
              
              
              0.00
              %
              
              $
              6,209
              
              
              
              0.00
              %NOW
      and money market
              
              
              72,755
              
              
              
              1.55
              %
              
              
              24,595
              
              
              
              0.57
              %84,349
              
              
              
              1.33
              %
              
              
              30,804
              
              
              
              0.45
              %Savings
      accounts
              
              
              60,033
              
              
              
              0.73
              %
              
              
              56,987
              
              
              
              0.68
              %Certificates
      of deposit maturing in:One
      year or less
              
              
              180,470
              
              
              
              2.79
              %
              
              
              138,934
              
              
              
              3.96
              %After
      one to two years
              
              
              28,884
              
              
              
              3.51
              %
              
              
              20,331
              
              
              
              4.46
              %After
      two to three years
              
              
              19,460
              
              
              
              4.06
              %
              
              
              6,645
              
              
              
              5.03
              %After
      three to four years
              
              
              3,277
              
              
              
              3.27
              %
              
              
              5,907
              
              
              
              5.11
              %After
      four to five years
              
              
              3,045
              
              
              
              3.06
              %
              
              
              1,822
              
              
              
              3.33
              %235,136
              
              
              
              3.00
              %
              
              
              173,639
              
              
              
              4.09
              %$
              379,518
              
              
              
              2.27
              %
              
              $
              261,430
              
              
              
              2.93
              %
 
 As of
December 31, 2009 and 2008, certificates of deposits over $100,000 totaled
$97,246,000 and $33,061,000, respectively.
 
 Interest
expense on deposits consists of the following:
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Demand
      deposits
              
              $
              423
              
              
              $
              144Savings
      accounts
              
              
              461
              
              
              
              450Certificates
      of deposit
              
              
              7,796
              
              
              
              7,224$
              8,680
              
              
              $
              7,818
  F-25
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
14 – Federal Home Loan Bank of New York (“FHLB”) Advances
 
 December 31,2009
              
              
              2008Amount
              
              
              Weighted
                  Average
                  Interest
                  Rate
              
              
              Amount
              
              
              Weighted
                  Average
                  Interest
                  Rate(Dollars
      in Thousands)Advances
      maturing in:One
      year or less
              
              $
              10,000
              
              
              
              3.58
              %
              
              $
              15,000
              
              
              
              2.14
              %After
      one to two years
              
              
              10,000
              
              
              
              2.80
              %
              
              
              10,000
              
              
              
              3.58
              %After
      two to three years
              
              
              -
              
              
              
              -
              %
              
              
              5,000
              
              
              
              3.30
              %After
      four to five years
              
              
              15,000
              
              
              
              3.68
              %
              
              
              10,000
              
              
              
              3.70
              %$
              35,000
              
              
              
              3.40
              %
              
              $
              40,000
              
              
              
              3.04
              %
 
 At
December 31, 2009, none of the above advances were subject to early call or
redemption features.
 
 At
December 31, 2009, 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 otherwise unpledged qualifying mortgage loans.
 
 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, 2009 and 2008, was $328,000 and $481,000, respectively, and the note
discount accreted during 2009 and 2008 totaled $22,000 and $29,000,
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, 2009 and 2008, include approximately $4.1 million of
such bad debt deductions which, in accordance with U.S. GAAP is considered a
permanent difference between the book and income tax basis of loans receivable,
and for which deferred 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.
  F-26
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
16 - Income Taxes (Continued)
 
 The
components of income taxes (benefit) are summarized as follows:
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Current
      tax expense (benefit)
              
              $
              (328
              )
              
              $
              3,857Deferred
      tax expense (benefit)
              
              
              (2,484
              )
              
              
              (2,679
              )Income
      Tax Expense (Benefit)
              
              $
              (2,812
              )
              
              $
              1,178
 
 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 31,2009
              
              
              2008(Dollars
      In Thousands)Federal
      income tax at statutory rates
              
              $
              (1,846
              )
              
              $
              1,115State
      and City tax, net of federal income taxeffect
              
              
              (651
              )
              
              
              172Non-taxable
      income on bank owned lifeinsurance
              
              
              (143
              )
              
              
              (131
              )Other
              
              
              (172
              )
              
              
              22Income
      Tax Expense (Benefit)
              
              $
              (2,812
              )
              
              $
              1,178Effective
      Income Tax Rate
              
              
              (51.8
              %)
              
              
              35.9
              %
  F-27
 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 31,2009
              
              
              2008(In
      Thousands)Deferred
      tax assets:Allowance
      for loan losses
              
              $
              2,810
              
              
              $
              788Reserve
      for uncollected interest
              
              
              263
              
              
              
              93Unrealized
      losses on REO
              
              
              -
              
              
              
              151Depreciation
              
              
              258
              
              
              
              183Benefit
      plans
              
              
              568
              
              
              
              381Accumulated
      other comprehensive loss - DRP
              
              
              123
              
              
              
              141Other
              
              
              26
              
              
              
              -Total
      Deferred Tax Assets
              
              
              4,048
              
              
              
              1,737Deferred
      tax liability:Unrealized
      gain on securities available for sale
              
              
              1
              
              
              
              -Goodwill
              
              
              73
              
              
              
              37Gain
      on sale of building
              
              
              2,834
              
              
              
              2,926Other
              
              
              -
              
              
              
              99Total
      Deferred Tax Liabilities
              
              
              2,908
              
              
              
              3,062Net
      Deferred Tax Asset (Liability)
              
              $
              1,140
              
              
              $
              (1,325
              )
 
 Note
17 - Other Non-Interest Expenses
 
 The
following is an analysis of other non-interest expenses:
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Service
      contracts
              
              $
              268
              
              
              $
              212Insurance
              
              
              200
              
              
              
              163Audit
      and accounting
              
              
              310
              
              
              
              267Directors
      compensation
              
              
              297
              
              
              
              287Telephone
              
              
              270
              
              
              
              165Office
      supplies and stationary
              
              
              221
              
              
              
              218Director,
      officer, and employee expenses
              
              
              292
              
              
              
              269Legal
      fees
              
              
              381
              
              
              
              290Other
              
              
              891
              
              
              
              635$
              3,130
              
              
              $
              2,506
  F-28
 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
following table sets forth the funded status of the DRP and components of net
periodic expense:
 
 Years Ended December 31,2009
              
              
              2008(Dollars
      In Thousands)Benefit
      Obligation – beginning
              
              $
              585
              
              
              $
              476Service
      cost
              
              
              51
              
              
              
              49Interest
      cost
              
              
              34
              
              
              
              31Actuarial
      loss (Gain)
              
              
              (11
              )
              
              
              29Benefit
      Obligation – ending
              
              $
              659
              
              
              $
              585Funded
      Status – Accrued liability included in Accounts Payable
andAccrued
      Expenses
              
              $
              659
              
              
              $
              585Discount
      rate
              
              
              6.00
              %
              
              
              6.00
              %Salary
      increase rate
              
              
              2.00
              %
              
              
              2.00
              %Net
      pension expense:Service
      cost
              
              $
              51
              
              
              $
              49Interest
      cost
              
              
              34
              
              
              
              31Actuarial
      loss recognized
              
              
              8
              
              
              
              5Prior
      service liability recognized
              
              
              21
              
              
              
              21Total
      pension expense included in Other Non-Interest Expenses
              
              $
              114
              
              
              $
              106Discount
      rate
              
              
              6.00
              %
              
              
              6.00
              %Salary
      increase rate
              
              
              2.00
              %
              
              
              2.00
              %
 
 At
December 31, 2009, prior service cost of $223,000 and actuarial losses of
$55,000 have been recorded in Accumulated Other Comprehensive
Loss.  Approximately $21,000 and $6,000 of those amount are expected
to be included in pension expense in 2010.
  F-29
 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):
 
 2010
              
              $
              -2011
              
              
              302012
              
              
              612013
              
              
              612014
              
              
              612015
      – 2019
              
              
              476
 
 Supplemental
Executive Retirement Plan (“SERP”)
 
 Effective
January 1, 2006, the Bank implemented the SERP.  This plan is a
non-contributory defined benefit plan that covers the Bank’s Chief Executive
Officer, Chief Financial Officer and Chief Mortgage Officer.  Under
the SERP, each of these individuals will be entitled to receive, upon retirement
at age 65 (or 60 in the case of the Bank’s Chief Executive Officer), 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 (or 60 in the case of
the Bank’s Chief Executive Officer)) upon the attainment of both age 60 and 20
years of service (or upon the attainment of 20 years of service in the case of
the Bank’s Chief Executive Officer).  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, 2009 and 2008, expenses of $196,000 and $142,000,
respectively, were recorded for this plan and are reflected in the Consolidated
Statements of Operations under Salaries and Employee Benefits.  At
December 31, 2009 and 2008, a liability for this plan of $587,000 and $391,000,
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.  However, the Bank contributed $36,000 in 2009 to eligible
employees in order to comply with the Employee Retirement Income Security Act
(“ERISA”) requirements.  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 $4,504,000 and $4,638,000 at
December 31, 2009 and 2008, respectively.
  F-30
 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.
 
 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
is 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, 2009 and 2008, totaled approximately
$196,000 and $263,000, respectively.  Dividends on unallocated shares,
which totaled approximately $59,000 and $57,000 during 2009 and 2008,
respectively,  are recorded as a reduction of the ESOP
loan.  Dividends on allocated shares, which totaled approximately
$8,000 and $5,000 during 2009 and 2008, respectively, are charged to retained
earnings.  ESOP shares are summarized as follows:
 
 ESOP
shares are summarized as follows:
 
  December 31,2009
              
              
              2008Allocated
      shares
              
              
              77,763
              
              
              
              51,842Shares
      committed to be released
              
              
              25,921
              
              
              
              25,921Unearned
      shares
              
              
              414,736
              
              
              
              440,657Total
      ESOP Shares
              
              
              518,420
              
              
              
              518,420Fair
      value of unearned shares
              
              $
              2,725,000
              
              
              $
              3,238,000
 
 Note
19 - Commitments and Contingencies
 
 Lease
Commitments
 
 Rentals
under operating leases for certain branch offices and land amounted to $341,000
and $359,000 for the years ended December 31, 2009 and 2008,
respectively.  At December 31, 2009, 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 31,2010
              
              $
              2702011
              
              
              1622012
              
              
              642013
              
              
              642014
              
              
              65Thereafter
              
              
              1,176$
              1,801
  F-31
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
19 - Commitments and Contingencies (Continued)
 
 Available
Credit Facilities
 
 At
December 31, 2009, the Bank had the ability to borrow $96.1 million, net of
$35.0 million in outstanding advances, from the Federal Home Loan Bank of New
York.
 
 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
 
 We use
fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures.  Our securities
available for sale are recorded at fair value on a recurring
basis.  Additionally, from time to time, we may be required to record
at fair value other assets and liabilities on a non-recurring basis, such as
securities held to maturity, impaired loans and other real estate
owned.  U.S. GAAP has established 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 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.
 
 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.
  F-32
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
20- Fair Value Disclosures (continued)
 
 For
financial assets measured at fair value on a recurring basis, the fair value
measurements by level within the fair value hierarchy used are as
follows:
 
 Description
              
              Total
              
              
              (Level 1)
                  Quoted Prices
                  in Active
                  Markets for
                  Identical Assets
              
              
              (Level 2)
                  Significant
                  Other
                  Observable
                  Inputs
              
              
              (Level 3)
                  Significant
                  Unobservable InputsSecurities
      available for sale:
              
              (In
      Thousands)December
      31, 2009
              
              $
              176
              
              
              $
              -
              
              
              $
              176
              
              
              $
              -December
      31, 2008
              
              $
              182
              
              
              $
              -
              
              
              $
              182
              
              
              $
              -
 
 Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment).  Financial assets and financial liabilities measured at
fair value on a non-recurring basis at December 31, 2009 are as
follows:
 
 Description
              
              December 31,
                  2009
              
              
              (Level 1)
                  Quoted Prices
                  in Active
                  Markets for
                  Identical Assets
              
              
              (Level 2)
                  Significant
                  Other
                  Observable
                  Inputs
              
              
              (Level 3)
                  Significant
                  Unobservable
                  Inputs(In
      Thousands)Impaired
      loans
              
              $
              4,122
              
              
              $
              -
              
              
              $
              -
              
              
              $
              4,122
 
 The eight
impaired loans measured at fair value and included in the above table had a
principal balance of $6,238,000 and were reduced to fair value via charge-offs
totaling $2,116,000.
 
 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, 2009 and 2008:
  F-33
 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
 
 Fair
values for securities available for sale and held to maturity are determined
utilizing Level 2 inputs.  For these securities, the Company obtains
fair value measurements from an independent pricing service.  The fair
value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Treasury yield curve, live trading levels,
trade execution data, market consensus prepayments speeds, credit information
and the security’s terms and conditions, among other things.
 
 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.
 
 For
impaired loans which the Bank has measured and recorded 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, 2009 and 2008, accrued interest payable of
$8,000 and $20,000, respectively, is included in deposit
liabilities.
  F-34
 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, 2009 and 2008, 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 31,2009
              
              
              2008Carrying
                  Amount
              
              
              Estimated
                  Fair Value
              
              
              Carrying
                  Amount
              
              
              Estimated
                  Fair Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
              
              $
              88,718
              
              
              $
              88,718
              
              
              $
              36,534
              
              
              $
              36,534Certificates
      of deposit
              
              
              8,715
              
              
              
              8,715
              
              
              
              498
              
              
              
              498Securities
      available for sale
              
              
              176
              
              
              
              176
              
              
              
              182
              
              
              
              182Securities
      held to maturity
              
              
              11,845
              
              
              
              11,875
              
              
              
              2,078
              
              
              
              2,050Loans
      receivable
              
              
              386,266
              
              
              
              395,366
              
              
              
              363,616
              
              
              
              381,444FHLB
      stock
              
              
              2,277
              
              
              
              2,277
              
              
              
              2,350
              
              
              
              2,350Accrued
      interest receivable
              
              
              1,924
              
              
              
              1,924
              
              
              
              1,785
              
              
              
              1,785Financial
      liabilities:Deposits
              
              
              379,518
              
              
              
              385,820
              
              
              
              261,430
              
              
              
              267,168FHLB
      advances
              
              
              35,000
              
              
              
              36,805
              
              
              
              40,000
              
              
              
              42,330Note
      payable
              
              
              328
              
              
              
              335
              
              
              
              481
              
              
              
              481
  F-35
 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, 2009 and 2008 and for the years then
ended.
 
 Statements
of Financial Condition
 
 December
      31,2009
              
              
              2008(In
      Thousands)AssetsCash
      and due from banks
              
              $
              19,910
              
              
              $
              25,104Investment
      in subsidiary
              
              
              83,711
              
              
              
              81,312ESOP
      loan receivable
              
              
              4,504
              
              
              
              4,638Other
      assets
              
              
              4
              
              
              
              2Total
      Assets
              
              $
              108,129
              
              
              $
              111,056Liabilities
      and Stockholders’ EquityAccounts
      payable and accrued expense
              
              $
              681
              
              
              $
              554Total
      Liabilities
              
              
              681
              
              
              
              554Total
      Stockholders’ Equity
              
              
              107,448
              
              
              
              110,502Total
      Liabilities and Stockholders’ Equity
              
              $
              108,129
              
              
              $
              111,056
 
 Statements
of Income
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Interest
      income – interest- earning deposits
              
              $
              189
              
              
              $
              372Interest
      income – ESOP loan
              
              
              383
              
              
              
              394Operating
      expenses
              
              
              (215
              )
              
              
              (262
              )Income
      before Income Tax Expense and Equity inUndistributed
      Earnings (Loss) of Subsidiary
              
              
              357
              
              
              
              504Income
      tax expense
              
              
              147
              
              
              
              201Income
      before Equity in UndistributedEarnings
      (Loss) of Subsidiary
              
              
              210
              
              
              
              303Equity
      in undistributed earnings (loss) of subsidiary
              
              
              (2,826
              )
              
              
              1,799Net
      Income (loss)
              
              $
              (2,616
              )
              
              $
              2,102
  F-36
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
21 - Parent Only Financial Information (Continued)
 
 Statements
of Cash Flow
 
 Years Ended December 31,2009
              
              
              2008(In
      Thousands)Cash
      Flows from Operating ActivitiesNet
      income (loss)
              
              $
              (2,616
              )
              
              $
              2,102Adjustments
      to reconcile net income (loss) to net cash (used)provided
      by operating activities:Equity
      in undistributed loss (earnings) of subsidiary
              
              
              2,826
              
              
              
              (1,799
              )(Increase)
      in other assets
              
              
              (2
              )
              
              
              (2
              )Increase
      in other liabilities
              
              
              127
              
              
              
              151Net
      Cash Provided by Operating Activities
              
              
              335
              
              
              
              452Cash
      Flows from Investing ActivitiesCapital
      infusion to subsidiary
              
              
              (5,000
              )
              
              
              -Repayment
      of ESOP loan
              
              
              133
              
              
              
              124Net
      Cash (Used) Provided by Investing Activities
              
              
              (4,867
              )
              
              
              124Cash
      Flows from Financing ActivitiesCash
      dividends paid
              
              
              (662
              )
              
              
              (659
              )Net
      Cash Used in Financing Activities
              
              
              (662
              )
              
              
              (659
              )Net
      Decrease in Cash and Cash Equivalents
              
              
              (5,194
              )
              
              
              (83
              )Cash
      and Cash Equivalents - Beginning
              
              
              25,104
              
              
              
              25,187Cash
      and Cash Equivalents - Ending
              
              $
              19,910
              
              
              $
              25,104
  F-37
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
22 - Recent Accounting Pronouncements
 
 In
October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-16,
Transfers and Servicing (Topic 860) - Accounting for Transfers of Financial
Assets.  This ASU amends the Codification for the issuance of FASB
Statement No. 166, Accounting for Transfers of Financial Assets-an amendment of
FASB Statement No. 140.  The amendments in this ASU improve financial
reporting by eliminating the exceptions for qualifying special-purpose entities
from the consolidation guidance and the exception that permitted sale accounting
for certain mortgage securitizations when a transferor has not surrendered
control over the transferred financial assets.  In addition, the
amendments require enhanced disclosures about the risks that a transferor
continues to be exposed to because of its continuing involvement in transferred
financial assets.  Comparability and consistency in accounting for
transferred financial assets will also be improved through clarifications of the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting.  This ASU is effective at the start
of a reporting entity’s first fiscal year beginning after November 15,
2009.  Early application is not permitted.  The Company is
currently reviewing the effect this new guidance will have on its consolidated
financial statements.
 
 The FASB
has issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements.  This ASU
requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement as set forth in Codification Subtopic
820-10. The FASB’s objective is to improve these disclosures and, thus, increase
the transparency in financial reporting. Specifically, ASU 2010-06 amends
Codification Subtopic 820-10 to now require: (1) A reporting entity to disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers; and (2) In
the reconciliation for fair value measurements using significant unobservable
inputs, a reporting entity should present separately information about
purchases, sales, issuances, and settlements.  In addition, ASU
2010-06 clarifies the requirements of the following existing disclosures: (1)
For purposes of reporting fair value measurement for each class of assets and
liabilities, a reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities; and (2) A reporting entity should
provide disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and nonrecurring fair value measurements. ASU
2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years.  The Company is currently reviewing the effect this new
guidance will have on its consolidated financial statements.
  F-38
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
      23 - Quarterly Financial Data
(Unaudited)
 
  Quarter EndedMarch 31,
                2009
              
              
              June 30,
                2009
              
              
              September 30,
                2009
              
              
              December 31,
                2009(In
      Thousands, except for per share data)Interest
      Income
              
              $
              5,905
              
              
              $
              6,135
              
              
              $
              6,225
              
              
              $
              6,108Interest
      Expense
              
              
              2,314
              
              
              
              2,629
              
              
              
              2,718
              
              
              
              2,431Net
      Interest Income
              
              
              3,591
              
              
              
              3,506
              
              
              
              3,507
              
              
              
              3,677Provision
      for Loan Losses
              
              
              50
              
              
              
              336
              
              
              
              2,172
              
              
              
              4,756Net
      Interest Income (loss) afterProvision
      for Loan Losses
              
              
              3,541
              
              
              
              3,170
              
              
              
              1,335
              
              
              
              (1,079
              )Non-Interest
      Income
              
              
              333
              
              
              
              374
              
              
              
              366
              
              
              
              425Non-Interest
      Expenses
              
              
              3,027
              
              
              
              3,860
              
              
              
              3,311
              
              
              
              3,695Income
      (loss) before IncomeTaxes
              
              
              847
              
              
              
              (316
              )
              
              
              (1,610
              )
              
              
              (4,349
              )Income
      Taxes (Benefit)
              
              
              341
              
              
              
              (181
              )
              
              
              (759
              )
              
              
              (2,213
              )Net
      Income (Loss)
              
              $
              506
              
              
              $
              (135
              )
              
              $
              (851
              )
              
              $
              (2,136
              )Net
      Income per common share–
      Basic
              
              $
              0.04
              
              
              $
              (0.01
              )
              
              $
              (0.07
              )
              
              $
              (0.17
              )Weighted
      average numbers ofcommon
      shares outstanding –basic
              
              
              12,787
              
              
              
              12,794
              
              
              
              12,800
              
              
              
              12,807Dividends
      declared per share
              
              $
              0.03
              
              
              $
              0.03
              
              
              $
              0.03
              
              
              $
              0.03
  F-39
 Index
  Northeast
Community Bancorp, Inc.
 Notes
to Consolidated Financial Statements
 
 
 Note
23 - Quarterly Financial Data (Unaudited) (Continued)
 
 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 afterProvision
      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 ofcommon
      shares outstanding –basic
              
              
              12,761
              
              
              
              12,768
              
              
              
              12,775
              
              
              
              12,781Dividends
      declared per share
              
              $
              0.03
              
              
              $
              0.03
              
              
              $
              0.03
              
              
              $
              0.03
  
 F-40