Edgar Filing: NORTHEAST COMMUNITY BANCORP INC

form10k-105969_necb.htm

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

£	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 registered
	Common 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

		Page

Item 1.	Business	1
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	24
Item 3.	Legal Proceedings	25
Item 4.	[Reserved and Removed]	25

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
	Purchases of Equity Securities	25
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 8.	Financial Statements and Supplementary Data	53
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	53
Item 9A(T).	Controls and Procedures	53
Item 9B.	Other Information	54

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	54
Item 11.	Executive Compensation	54
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related 54
	Stockholder Matters	54
Item 13.	Certain Relationships and Related Transactions, and Director Independence	55
Item 14.	Principal Accounting Fees and Services	55

Part IV

Item 15.	Exhibits and Financial Statement Schedules	56

SIGNATURES

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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, all of 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.

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.

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.

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.

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			Position
Kenneth A. Martinek			President and Chief Executive Officer of the MHC, the Company and the Bank

Salvatore Randazzo			Executive Vice President, Chief Operating Officer and Chief Financial Officer of the MHC, the Company and the Bank

Susan 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 Barile has 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.

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.

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.

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.

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.

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.

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	$ 1,146

Branch Offices:

1470 First Avenue New York, NY 10021(1)	2006	04/30/2011	Leased	91

590 East 187th Street Bronx, New York 10458	1972	N/A	Owned	594

2047 86th Street Brooklyn, New York 11214	1988	N/A	Owned	825

242 West 23rd Street (2) New York, NY 10011	1996	N/A	Owned/Leased	917

1751 Second Avenue New York, NY 10128	1978	09/30/2015	Leased	28

87 Elm Street Danvers, MA 01923	2009	N/A	Owned	1,415

8 No. Park Avenue Plymouth, MA 02360	2009	N/A	Owned	1,870

Other 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.

Index

ITEM 3.

LEGAL PROCEEDINGS

Legal Proceedings

ITEM 4.

[RESERVED AND REMOVED]

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		Low

2009:

First Quarter	$	0.03	$	8.14	$	6.85
Second Quarter		0.03		9.49		7.05
Third Quarter		0.03		9.00		6.60
Fourth Quarter		0.03		7.52		6.10

2008:

First Quarter	$	0.03	$	12.50	$	11.40
Second Quarter		0.03		11.98		11.24
Third Quarter		0.03		11.47		8.00
Fourth 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.

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		$	238,821
Cash and cash equivalents		88,718			36,534		39,146		36,749			27,389
Securities held to maturity		11,845			2,078		2,875		27,455			12,228
Securities available for sale		176			182		320		355			362
Loans receivable, net		386,266			363,616		283,133		201,306			190,896
Bank owned life insurance		10,522			8,902		8,515		8,154			–
Deposits		379,518			261,430		225,978		188,592			193,314
Federal Home Loan Bank advances		35,000			40,000		–		–			–
Total stockholders’ equity		107,448			110,502		108,829		96,751			43,120

Operating Data:
Interest income	$	24,373		$	21,947	$	17,602	$	15,348		$	13,652
Interest expense		10,092			8,550		5,918		4,493			3,110
Net interest income		14,281			13,397		11,684		10,855			10,542
Provision for loan losses		7,314			411		338		–			–
Net interest income after provision for loan losses		6,967			12,986		11,346		10,855			10,542
Gain (loss) on sale of premises and equipment		–			–		18,962		(5	)		(19	)
Noninterest income		1,498			1,794		805		624			553
Noninterest expenses		13,893			11,500		9,826		8,870			7,515
Income (loss) before provision for income taxes		(5,428	)		3,280		21,287		2,604			3,561
Provision for income taxes (benefit)		(2,812	)		1,178		9,150		1,046			1,571
Net income (loss)	$	(2,616	)	$	2,102	$	12,137	$	1,558		$	1,990
Net income (loss) per share – basic and diluted (1)	$	(0.20	)	$	0.16	$	0.95	$	0.06			N/A
Dividends declared per share	$	0.12		$	0.12	$	0.06	$	–		$	–

___________________________

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

Index

	At or For the Years Ended December 31,
	2009			2008			2007			2006			2005
Performance 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			4.69
Interest rate spread (2)		2.49			2.73			3.13			3.65			4.27
Net interest margin (3)		3.08			3.63			4.09			4.24			4.55
Noninterest expense to average assets		2.86			2.96			3.19			3.26			3.13
Efficiency ratio (1) (4)		88.05			75.70			31.24			77.31			67.85
Average interest-earning assets to
average interest-bearing liabilities		127.33			138.82			146.61			133.99			120.33
Average equity to average assets		22.77			28.35			33.67			25.57			17.65

Capital Ratios - Bank:
Tangible capital		15.66			19.45			24.18			25.46			17.92
Core capital		15.66			19.45			24.18			25.46			17.92
Total risk-based capital		27.01			30.65			37.50			44.58			33.08

Asset Quality Ratios:
Allowance for loan losses as a percent of
total loans		1.72			0.51			0.53			0.60			0.63
Allowance for loan losses as a percent of
nonperforming loans		33.41			57.92			65.48			N/M			N/M
Net charge-offs to average outstanding
loans during the period		0.62			0.01			0.02			0.00			0.00
Non-performing loans as a percent
of total loans		5.14			0.88			0.80			0.00			0.00

Other Data:
Number of:
Real estate loans outstanding		497			491			485			400			399
Deposit accounts		15,781			14,449			15,025			15,898			17,243
Offices (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.

Index

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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

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

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

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

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

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

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

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

Critical Accounting Policies

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

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio.

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.

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-residential segment 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.

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.

Index

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

	At December 31,
	2009						2008						2007						2006						2005
	Amount			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			52.43
Mixed-use (1)		59,779			15.25			58,317			16.00			52,559			18.54			42,576			21.12			43,919			22.94
Total residential real estate
loans		261,082			66.61			244,791			67.19			191,630			67.60			153,370			76.08			144,866			75.68

Non-residential real estate (1)		105,194			26.84			102,785			28.21			79,305			27.98			47,802			23.71			46,219			24.14
Total real estate		366,276			93.45			347,576			95.40			270,935			95.58			201,172			99.79			191,085			99.82

Construction 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			0.04
Passbook loans		90			0.02			57			0.01			19			0.01			348			0.17			268			0.14
Total consumer loans		150			0.04			114			0.03			88			0.03			419			0.21			351			0.18
Total 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						660
Allowance 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.

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, 2009
	Residential 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	$	83,566
More than one year to five years		226,516		66,441		580		-		-		293,537
More than five years		10,811		3,908		125		-		-		14,844
Total	$	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	$	-	$	65
Multi-family		5,524		174,781		180,305
Mixed-use		3,210		53,746		56,956
Non-residential real estate		2,512		67,837		70,349
Construction loans		-		-		-
Commercial loans		706		-		706
Consumer and other loans		-		-		-
Total	$	12,017	$	296,364	$	308,381

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 beginning
of period	$	364,335	$	283,456		$	201,591	$	191,436	$	168,675
Loans originated:
Residential real estate:
One- to four-family		–		–			–		–		–
Multi-family		22,423		70,450			43,376		19,409		24,551
Mixed-use		7,922		6,616			16,098		7,304		9,794
Non-residential real estate		6,920		42,954			24,451		9,010		23,831
Construction 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		58,176
Construction loan participation
purchased		5,198		5,406			11,695		–		–
Permanent loan participation
purchased		–		2,971			–		–		–
Loan from sale of building		–		–			16,341		–		–
Deduct:
Loan principal repayments		20,029		44,069			32,109		25,648		35,415
Loan sales		–		7,045			1,505		–		–
Total deductions		20,029		51,114			33,614		25,648		35,415
Other 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				2007
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities available for sale:
Fannie Mae common stock	$	-	$	-	$	4	$	1	$	4	$	46
Mortgage-backed securities- residential		174		176		183		181		273		274
Total	$	174	$	176	$	187	$	182	$	277	$	320

Securities held to maturity:
Mortgage-backed securities - residential		11,845		11,875		2,078		2,050		2,875		2,890
Total	$	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.

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					Total
	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield
	(Dollars in thousands)
Securities available for sale:
Mortgage-backed securities		-		-			-		-			-		-			176		3.02	%		176		3.02
Total 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	%

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					2007
	Amount		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		25.4
Noninterest bearing demand deposits		11,594		3.0			6,209		2.4			1,745		0.8
Certificates of deposit		235,136		62.0			173,639		66.4			145,048		64.2

Total	$	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	$	7,002
Over three through six months		15,985
Over six through twelve months		54,121
Over twelve months		22,838
Total	$	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.

Index

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

	Amount		Weighted Average Interest Rate
Advances 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.

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 increase in 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.

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								2007
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans	$	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		5.03
Other interest-earning assets		68,564			230		0.34			38,749			738		1.90			36,813			1,869		5.08
Total interest-earning assets		463,153			24,373		5.26			369,295			21,947		5.94			285,973			17,602		6.16
Allowance for loan losses		(2,546	)							(1,558	)							(1,362	)
Noninterest-earning assets		25,026								20,967								23,535
Total assets	$	485,633							$	388,704							$	308,146

Liabilities 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		0.70
Certificates of deposit		219,125			7,796		3.56			164,196			7,224		4.50			115,032			5,365		4.66
Total interest-bearing deposits		320,115			8,680		2.71			245,405			7,818		3.19			194,699			5,897		3.03

Borrowings		43,622			1,412		3.24			20,620			732		3.55			352			21		5.97
Total interest-bearing liabilities		363,737			10,092		2.77			266,025			8,550		3.21			195,051			5,918		3.03

Noninterest-bearing demand		2,920								2,646								1,753
Other liabilities		8,410								9,850								7,583
Total liabilities		375,067								278,521								204,387

Stockholders’ equity		110,566								110,183								103,759
Total liabilities and
Stockholders’ equity	$	485,633							$	388,704							$	308,146
Net interest income				$	14,281							$	13,397							$	11,684
Interest rate spread							2.49								2.73								3.13
Net interest margin							3.08								3.63								4.09
Net interest-earning assets	$	99,416							$	103,270							$	90,922
Interest-earning assets to interest-
bearing liabilities		127.33	%							138.82	%							146.61	%

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 2007
	Increase (Decrease) Due to								Increase (Decrease) Due to
	Volume		Rate			Net			Volume			Rate			Net
	(In thousands)
Interest and dividend income:
Loans receivable	$	3,909	$	(992	)	$	2,917		$	6,047		$	67		$	6,114
Investment 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	)		4,345

Interest expense:
Interest-bearing demand deposits		138		141			279			7			20			27
Savings accounts		32		(21	)		11			3			32			35
Certificates of deposit		2,123		(1,551	)		572			2,179			(320	)		1,859
Borrowings		750		(70	)		680			723			(12	)		711
Total interest-bearing liabilities		3,043		(1,501	)		1,542			2,912			(280	)		2,632
Net 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		8.8
Investment advisory fees		713			878		(18.8	)
Other		16			52		(69.2	)
Total	$	1,498		$	1,794		(16.5	)

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		20.6
Equipment		730		517		41.2
Outside data processing		776		826		(6.1	)
Advertising		348		225		54.7
REO expenses		177		381		(53.5	)
FDIC insurance premiums		541		33		1,539.4
Service contracts		268		212		26.9
Insurance		200		163		22.6
Audit and accounting		310		267		16.3
Directors compensation		297		287		3.6
Telephone		270		165		63.5
Office supplies and stationary		221		218		1.1
Director, officer, and employee expenses		292		269		8.7
Legal fees		381		290		31.3
Other		891		635		33.3
Total 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.

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.

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.

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 or
more 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 and
total 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 troubled
debt 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.

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.

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	$	–	$	865
Substandard assets		12,160		3,220		1,866
Doubtful 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.

Index

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

At December 31,

2009

2008

2007

30-59

Days

Past Due

60-89

Days

Past Due

30-59

Days

Past Due

60-89

Days

Past Due

30-59

Days

Past Due

60-89

Days

Past Due

(In thousands)

Residential real estate:

One- to four-family

–

Multi-family

–

477

–

1,345

–

458

Mixed-use

–

Non-residential real estate

–

1,285

–

Construction

–

Commercial

–

Consumer and other loans

–

Total

–

1,762

–

1,345

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.

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								2007
	Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans
	(Dollars in thousands)
Residential real estate:
One- to four-family	$	–		0.0	%		0.1	%	$	–		0.0	%		0.1	%	$	–		0.0	%		0.1	%
Multi-family		3,351		49.8			51.3			604		32.4			51.1			472		31.7			49.0
Mixed-use		598		8.9			15.3			319		17.1			16.0			250		16.8			18.5
Non-residential real estate		2,494		37.0			26.8			841		45.1			28.2			691		46.4			28.0
Construction		186		2.8			3.9			21		1.1			2.5			50		3.4			3.3
Commercial		104		1.5			2.6			80		4.3			2.1			25		1.7			1.1
Consumer and other loans		–		0.0			0.0			–		0.0			0.0			–		0.0			0.0
Total 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								2005
	Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans			Amount		% of Allowance to Total Allowance			% of Loans in Category to Total Loans
	(Dollars in thousands)
Residential real estate:
One- to four-family	$	–		0.0	%		0.2	%	$	–		0.0	%		0.3	%
Multi-family		395		32.9			54.8			443		36.9			52.4
Mixed-use		251		20.9			21.1			277		23.1			22.9
Non-residential real estate		554		46.2			23.7			480		40.0			24.2
Construction		–		0.0			0.0			–		0.0			0.0
Commercial		–		0.0			0.0			–		0.0			0.0
Consumer and other loans		–		0.0			0.2			–		0.0			0.2
Total allowance for loan losses	$	1,200		100.0	%		100.0	%	$	1,200		100.0	%		100.0	%

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		$	1,200
Provision 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		$	1,200

Allowance to nonperforming loans		33.41	%		57.92	%		65.48	%		N/M			N/M
Allowance to total loans outstanding
at the end of the period		1.72	%		0.51	%		0.53	%		0.60	%		0.63	%
Net charge-offs to average
loans 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.

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 Assets
Basis Point (“bp”) Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change

300	$	87,122	$	(3,093	)		(3	)%		17.12	%		(15	) bp
200		88,359		(1,856	)		(2	)%		17.21	%		( 7	) bp
100		89,377		(839	)		(1	)%		17.26	%		( 2	) bp
50		89,803		(412	)		0	%		17.27	%		( 2	) bp
0		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.

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.

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			32,109
Sale of loans		–			7,045			1,505
Proceeds from maturities and principal
repayments of securities		392			882			29,676
Purchases of securities		(10,151	)		–			(5,000	)
Purchase of bank owned life insurance		(1,200	)		–			–
Proceeds from sale of premises and
equipment		–			–			9,082
Purchases of premises and equipment		(4,552	)		(396	)		(198	)

Financing activities:
Increase (decrease) in deposits		118,088			35,452			37,386
Proceeds 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.

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.

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 AND CORPORATE 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 OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

(a)

Security Ownership of Certain Beneficial Owners

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 RELATED TRANSACTIONS 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 AND SERVICES

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.

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.

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. Martinek
			Kenneth A. Martinek
			President 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, 2010
Kenneth A. Martinek	and Director
	(principal executive officer)


/s/ Salvatore Randazzo	Executive Vice President, Chief	March 25, 2010
Salvatore Randazzo	Operating Officer and Chief
	Financial Officer and Director
	(principal accounting and
	financial officer)


/s/ Diane B. Cavanaugh	Director	March 25, 2010
Diane B. Cavanaugh


/s/ Arthur M. Levine	Director	March 25, 2010
Arthur M. Levine


/s/ Charles A. Martinek	Director	March 25, 2010
Charles A. Martinek


/s/ John F. McKenzie	Director	March 25, 2010
John F. McKenzie


/s/ Linda M. Swan	Director	March 25, 2010
Linda M. Swan


/s/ Harry (Jeff) A.S Read	Director	March 25, 2010
Harry (Jeff) A.S. Read


/s/ Kenneth H. Thomas	Director	March 25, 2010
Kenneth 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 LLC
Clark, 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)
Assets
Cash and amounts due from depository institutions	$	3,441		$	2,368
Interest-bearing deposits		85,277			34,166
Cash and cash equivalents		88,718			36,534
Certificates of deposit		8,715			498
Securities available-for-sale		176			182
Securities held-to-maturity		11,845			2,078
Loans receivable, net of allowance for loan losses $6,733 and $1,865,
respectively		386,266			363,616
Premises and equipment, net		8,220			4,365
Federal Home Loan Bank of New York stock, at cost		2,277			2,350
Bank owned life insurance		10,522			8,902
Accrued interest receivable		1,924			1,785
Goodwill		1,310			1,310
Intangible assets		588			649
Real estate owned		636			832
Other assets		6,079			1,127
Total Assets	$	527,276		$	424,228

Liabilities and Stockholders’ Equity

Liabilities:

Deposits:
Non-interest-bearing deposits	$	11,594		$	6,209
Interest-bearing deposits		367,924			255,221
Total deposits		379,518			261,430
Advance payments by borrowers for taxes and insurance		3,153			6,624
Federal Home Loan Bank Advances		35,000			40,000
Accounts payable and accrued expenses		1,829			5,191
Note payable		328			481
Total Liabilities		419,828			313,726

Commitments and Contingencies		-			-

Stockholders’ Equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued		-			-
Common stock, $0.01 par value; 19,000,000 shares authorized; issued and
outstanding: 13,225,000 shares		132			132
Additional paid-in capital		57,496			57,560
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(4,147	)		(4,407	)
Retained earnings		54,121			57,399
Accumulated comprehensive loss		(154	)		(182	)
Total Stockholders’ Equity		107,448			110,502
Total 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		$	21,008
Interest-earning deposits		230			738
Securities - taxable		218			201

Total Interest Income		24,373			21,947

Interest Expense:
Deposits		8,680			7,818
Borrowings		1,412			732

Total Interest Expense		10,092			8,550

Net Interest Income		14,281			13,397

Provision for Loan Losses		7,314			411

Net Interest Income after Provision for Loan Losses		6,967			12,986

Non-Interest Income:
Other loan fees and service charges		371			478
Impairment loss on equity security		(4	)		-
Loss on disposition of equipment		(18	)		-
Earnings on bank owned life insurance		420			386
Investment advisory fees		713			878
Other		16			52

Total Non-Interest Income		1,498			1,794

Non-Interest Expenses:
Salaries and employee benefits		6,816			5,872
Net occupancy expense		1,375			1,140
Equipment		730			517
Outside data processing		776			826
Advertising		348			225
Real estate owned expenses		177			381
FDIC insurance premiums		541			33
Other		3,130			2,506

Total Non-Interest Expenses		13,893			11,500

Income (loss) before Provision for Income Taxes		(5,428	)		3,280

Provision for Income Taxes (benefit)		(2,812	)		1,178

Net Income (loss)	$	(2,616	)	$	2,102

Net Income (loss) per Common Share – Basic	$	(0.20	)	$	0.16

Weighted Average Number of Common Shares
Outstanding – Basic		12,797			12,771

Dividends 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	)	$	108,829

Comprehensive income:
Net income		-		-			-			2,102			-			2,102		$	2,102
Unrealized loss on securities
available for sale, net of taxes of
$(10)		-		-			-			-			(30	)		(30	)		(30	)
Pension liability – DRP, net of
taxes of $(13)		-		-			-			-			(3	)		(3	)		(3	)
Cash dividends declared ($0.12 per
share)		-		-			-			(659	)		-			(659	)
ESOP shares earned		-		5			258			-			-			263
Total Comprehensive Income																		$	2,069
Balance - December 31, 2008		132		57,560			(4,407	)		57,399			(182	)		110,502

Comprehensive loss:
Net loss		-		-			-			(2,616	)		-			(2,616	)		(2,616	)
Unrealized gain on securities
available for sale, net of taxes of
$(1)		-		-			-			-			1			1			1
Pension liability – DRP, net of
taxes of $(18)		-		-			-			-			27			27			27
Cash dividends declared ($0.12 per
share)		-		-			-			(662	)		-			(662	)
ESOP shares earned		-		(64	)		260			-			-			196
Total 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	)	$	2,102
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Net amortization of securities premiums and discounts		1			5
Provision for loan losses		7,314			411
Provision for depreciation		679			560
Net amortization of deferred discounts, fees and costs		137			151
Amortization other		83			90
Deferred income tax (benefit)		(2,484	)		(2,679	)
Impairment loss on equity security		4			-
Losses on real estate owned		98			369
Earnings 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	)		2,317
ESOP shares earned		196			263
Net Cash Provided by (Used in) Operating Activities		(2,938	)		3,225

Cash 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			89
Principal repayments on securities held-to-maturity		385			793
Purchases 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 New
York 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			35,452
Proceeds from FHLB of NY advances		10,000			40,000
Repayment 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	)		3,740
Cash dividends paid to minority shareholders		(662	)		(659	)
Net Cash Provided by Financing Activities		108,780			78,358

Net Increase (Decrease) in Cash and Cash Equivalents		52,184			(2,612	)

Cash and Cash Equivalents - Beginning		36,534			39,146

Cash 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	$	1,195

Interest paid	$	10,104	$	8,557

Supplementary Disclosure of Non-Cash Investing
and Financing Activities:
Loan made to facilitate the sale of real estate owned	$	-	$	311
Real estate owned received in settlement of loans	$	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:

	Years
Buildings		30 - 50
Building improvements		10 - 50
Leasehold improvements		1 - 15
Furnishings 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		$	81,312
Less: Goodwill and intangible assets		(1,898	)		(1,959	)
Directors retirement plan AOCI		155			177
Unrealized loss (gain) on securities available for sale		(1	)		5
Disallowed deferred tax assets		(1,140	)		(64	)

Core and Tangible Capital		80,827			79,471

Add: Allowable general valuation allowances		3,819			1,865

Total Capital	$	84,646		$	81,336

	Actual					For Capital Adequacy Purposes							To be Well Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio			Amount			Ratio				Amount			Ratio
	(Dollars in Thousands)

As of December 31, 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		>	6.00
Core (Tier 1) capital (to adjusted total
assets		80,827		16.01			>	20,200		>	4.00			>	25,250		>	5.00
Tangible 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		>	6.00
Core (Tier 1) capital (to adjusted total
assets		79,471		19.45			>	16,339		>	4.00			>	20,424		>	5.00
Tangible 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	$	32,348
Construction loans in process		763		1,471
Commitments to fund unused lines of credit:
Commercial lines		16,243		19,256
Consumer 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, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Mortgage-backed securities - residential:
Federal Home Loan Mortgage
Corporation	$	117	$	1	$	-	$	118
Federal National Mortgage Association		57		1		-		58

		174		2		-		176

	$	174	$	2	$	-	$	176

	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)

Federal National Mortgage Association
common stock	$	4	$	-	$	3	$	1

Mortgage-backed securities - residential:
Federal Home Loan Mortgage
Corporation		124		-		1		123
Federal National Mortgage Association		59		-		1		58

		183		-		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				2008
	Amortized 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, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)

Mortgage-backed securities - residential:
Government National Mortgage
Association	$	10,928	$	15	$	-	$	10,943
Federal Home Loan Mortgage
Corporation		410		5		1		414
Federal National Mortgage Association		458		10		-		468
Collateralized Mortgage Obligations		46		1		-		47
Private Pass-through Securities		3		-		-		3

	$	11,845	$	31	$	1	$	11,875

	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)

Mortgage-backed securities - residential:
Government National Mortgage
Association	$	960	$	1	$	19	$	942
Federal Home Loan Mortgage
Corporation		495		1		8		488
Federal National Mortgage Association		562		4		5		561
Collateralized Mortgage Obligations		57		-		1		56
Private 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				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)

Due within one year	$	-	$	-	$	-	$	-
Due after one but within five years		21		21		15		15
Due after five but within ten years		336		338		339		337
Due after ten years		11,488		11,516		1,724		1,698

	$	11,845	$	11,875	$	2,078	$	2,050

The age of unrealized losses and the fair value of related securities held to maturity were as follows:

	Less than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In Thousands)
December 31, 2009:
Mortgage-backed
securities	$	-	$	-	$	127	$	1	$	127	$	1

December 31, 2008:
Mortgage-backed
securities	$	-	$	-	$	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		$	275
Multi-family		201,059			186,199
Mixed use		59,779			58,317
Commercial		105,194			102,785

		366,276			347,576

Construction:
Multi-family		7,642			9,025
Commercial		7,479			-

		15,121			9,025

Commercial Business:
Lines of Credit		9,214			6,398
Term		1,186			1,222

		10,400			7,620

Consumer:
Line of credit		60			57
Passbook or certificate		90			57

		150			114

Total Loans		391,947			364,335

Allowance 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		$	1,489
Provision charged to operations		7,314			411
Losses 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		3,220

		33,325		3,220
Specific loss allowance		-		-

Net impaired loans at year end	$	33,325	$	3,220
Average investment in impaired loans during the year	$	24,164	$	2,517
Interest recorded on impaired loans during the year	$	960	$	76

Note 9 - Premises and Equipment, Net

	December 31,
	2009			2008
	(In Thousands)

Land	$	1,549		$	534
Buildings and improvements		9,844			7,234
Leasehold improvements		736			736
Furnishings and equipment		6,164			5,301

		18,293			13,805
Accumulated 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		$	1,998
Securities		30			8
		2,555			2,006
Allowance 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		2008
Goodwill	$	1,310	$	1,310
Customer relationships intangible		588		649
Total	$	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	$	61
2011		61
2012		61
2013		61
2014		61
Thereafter		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					2008
	Amount		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	$	144
Savings accounts		461		450
Certificates 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					2008
	Amount		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	)	$	3,857
Deferred 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	)	$	1,115
State and City tax, net of federal income tax
effect		(651	)		172
Non-taxable income on bank owned life
insurance		(143	)		(131	)
Other		(172	)		22

Income Tax Expense (Benefit)	$	(2,812	)	$	1,178

Effective 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	$	788
Reserve for uncollected interest		263		93
Unrealized losses on REO		-		151
Depreciation		258		183
Benefit plans		568		381
Accumulated other comprehensive loss - DRP		123		141
Other		26		-

Total Deferred Tax Assets		4,048		1,737

Deferred tax liability:
Unrealized gain on securities available for sale		1		-
Goodwill		73		37
Gain on sale of building		2,834		2,926
Other		-		99

Total Deferred Tax Liabilities		2,908		3,062

Net 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	$	212
Insurance		200		163
Audit and accounting		310		267
Directors compensation		297		287
Telephone		270		165
Office supplies and stationary		221		218
Director, officer, and employee expenses		292		269
Legal fees		381		290
Other		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		$	476
Service cost		51			49
Interest cost		34			31
Actuarial loss (Gain)		(11	)		29

Benefit Obligation – ending	$	659		$	585

Funded Status – Accrued liability included in Accounts Payable and
Accrued Expenses	$	659		$	585

Discount rate		6.00	%		6.00	%
Salary increase rate		2.00	%		2.00	%

Net pension expense:
Service cost	$	51		$	49
Interest cost		34			31
Actuarial loss recognized		8			5
Prior service liability recognized		21			21

Total pension expense included in Other Non-Interest Expenses	$	114		$	106

Discount 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		30
2012		61
2013		61
2014		61
2015 – 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		2008
Allocated shares		77,763		51,842
Shares committed to be released		25,921		25,921
Unearned shares		414,736		440,657

Total ESOP Shares		518,420		518,420

Fair 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	$	270
2011		162
2012		64
2013		64
2014		65
Thereafter		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 Inputs
Securities 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				2008
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)

Financial assets:
Cash and cash equivalents	$	88,718	$	88,718	$	36,534	$	36,534
Certificates of deposit		8,715		8,715		498		498
Securities available for sale		176		176		182		182
Securities held to maturity		11,845		11,875		2,078		2,050
Loans receivable		386,266		395,366		363,616		381,444
FHLB stock		2,277		2,277		2,350		2,350
Accrued interest receivable		1,924		1,924		1,785		1,785

Financial liabilities:
Deposits		379,518		385,820		261,430		267,168
FHLB advances		35,000		36,805		40,000		42,330
Note 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)
Assets
Cash and due from banks	$	19,910	$	25,104
Investment in subsidiary		83,711		81,312
ESOP loan receivable		4,504		4,638
Other assets		4		2
Total Assets	$	108,129	$	111,056

Liabilities and Stockholders’ Equity

Accounts payable and accrued expense	$	681	$	554
Total Liabilities		681		554

Total Stockholders’ Equity		107,448		110,502

Total 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		$	372
Interest income – ESOP loan		383			394
Operating expenses		(215	)		(262	)

Income before Income Tax Expense and Equity in
Undistributed Earnings (Loss) of Subsidiary		357			504

Income tax expense		147			201

Income before Equity in Undistributed
Earnings (Loss) of Subsidiary		210			303

Equity in undistributed earnings (loss) of subsidiary		(2,826	)		1,799

Net 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 Activities
Net income (loss)	$	(2,616	)	$	2,102
Adjustments 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			151

Net Cash Provided by Operating Activities		335			452

Cash Flows from Investing Activities
Capital infusion to subsidiary		(5,000	)		-
Repayment of ESOP loan		133			124

Net Cash (Used) Provided by Investing Activities		(4,867	)		124

Cash Flows from Financing Activities
Cash 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			25,187

Cash 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 Ended
	March 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		$	6,108
Interest Expense		2,314		2,629			2,718			2,431

Net Interest Income		3,591		3,506			3,507			3,677

Provision for Loan Losses		50		336			2,172			4,756

Net Interest Income (loss) after
Provision for Loan Losses		3,541		3,170			1,335			(1,079	)

Non-Interest Income		333		374			366			425
Non-Interest Expenses		3,027		3,860			3,311			3,695

Income (loss) before Income
Taxes		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 of
common shares outstanding –
basic		12,787		12,794			12,800			12,807
Dividends 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 Ended
	March 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	$	5,798
Interest Expense		2,053		2,087		2,209		2,201

Net Interest Income		3,229		3,217		3,354		3,597

Provision for Loan Losses		-		79		147		185

Net Interest Income after
Provision for Loan Losses		3,229		3,138		3,207		3,412

Non-Interest Income		428		399		430		537
Non-Interest Expenses		2,772		2,821		2,762		3,145

Income before Income Taxes		885		716		875		804

Income Taxes		357		271		333		217

Net Income	$	528	$	445	$	542	$	587
Net Income per common share
– Basic	$	0.04	$	0.03	$	0.04	$	0.05
Weighted average numbers of
common shares outstanding –
basic		12,761		12,768		12,775		12,781
Dividends declared per share	$	0.03	$	0.03	$	0.03	$	0.03

F-40