Edgar Filing: NORTHEAST COMMUNITY BANCORP INC

form10k-91181_necb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2007

¨	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		The NASDAQ Stock Market LLC

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

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

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

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

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

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

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

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

Yes No x

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

INDEX

Part I

		Page

Item 1.	Business	1
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	21
Item 3.	Legal Proceedings	22
Item 4.	Submission of Matters to a Vote of Security Holders	22

	Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	46
Item 9A(T).	Controls and Procedures	47
Item 9B.	Other Information	47

	Part III

Item 10.	Directors, Executive Officers and Corporate Governance	47
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accounting Fees and Services	48

	Part IV

Item 15.	Exhibits and Financial Statement Schedules	49

SIGNATURES

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

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

PART I

Item 1.

BUSINESS

General

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

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

Northeast Community Bank has been conducting business throughout the New York metropolitan area for more than 74 years. Northeast Community Bank was originally chartered in 1934. In 2006, Northeast Community Bank changed its name from “Fourth Federal Savings Bank” to “Northeast Community Bank.”

We operate as a community-oriented financial institution offering traditional financial services to consumers and businesses in our market area and our lending territory. We attract deposits from the general public and use those funds to originate multi-family residential, mixed-use and non-residential real estate and consumer loans, which we hold for investment. We have been originating multi-family and mixed-use real estate loans in the New York metropolitan area for more than 50 years and expanded our lending territory to include all of New York, Massachusetts, New Jersey, Connecticut, Pennsylvania, New Hampshire, Rhode Island, Delaware, Maryland, Maine and Vermont, which we refer to collectively in this Form 10-K as the “Northeastern United States”. We do not offer one- to four-family residential loans.

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

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

Available Information

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

Market Area

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

Our primary market area includes a population base with a broad cross section of wealth, employment and ethnicity. We operate in markets that generally have experienced relatively slow demographic growth, a characteristic typical of mature urban markets located throughout the Northeast region. New York County is a relatively affluent market, reflecting the influence of Wall Street along with the presence of a broad spectrum of Fortune 500 companies. Comparatively, Kings County and Bronx County are home to a broad socioeconomic spectrum, with a significant portion of the respective populations employed in relatively low wage blue collar jobs. Westchester County is also an affluent market, serving as a desired suburban location for commuting into New York City as well as reflecting growth of higher paying jobs in the county, particularly in White Plains.

While each of the states in our lending area has different economic characteristics, our customer base in these states tends to be similar to our customer base in New York and is comprised mostly of owners of low to moderate income apartment buildings or non-residential real estate in low to moderate income areas. Outside the State of New York, our largest concentration of real estate loans is in Massachusetts.

Competition

We face significant competition for the attraction of deposits. The New York metropolitan area has a significant concentration of financial institutions, including large money center and regional banks, community banks and credit unions. Over the past 10 years, consolidation of the banking industry in the New York metropolitan area has continued, resulting in larger and increasingly efficient competitors. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities. At June 30, 2007, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held 0.07% or less of the deposits in each of Westchester, Kings and New York counties, New York, and approximately 0.61% of the deposits in Bronx County, New York.

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

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

Lending Activities

General. We originate loans primarily for investment purposes. The largest segment of our loan portfolio is multi-family residential real estate loans. We also originate mixed-use real estate loans and non-residential real estate loans, and in 2007 we began originating commercial loans. To a limited degree, we make consumer loans and purchase participation interests in construction loans. We currently do not originate one- to four-family residential loans and have no present intention to do so in the future. We consider our lending territory to be the Northeastern United States, including New York, Massachusetts, New Jersey, Connecticut, Pennsylvania, New Hampshire, Rhode Island, Delaware, Maryland, Maine and Vermont. We do not originate or purchase subprime loans.

Multi-family and Mixed-use Real Estate Loans. We offer adjustable rate mortgage loans secured by multi-family and mixed-use real estate. These loans are comprised primarily of loans on low to moderate income apartment buildings located in our lending territory and include, to a limited degree, loans on cooperative apartment buildings (in the New York area), loans for Section 8 multi-family housing and loans for single room occupancy (“SRO”) multi-family housing properties. In New York, most of the apartment buildings that we lend on are rent-stabilized. Mixed-use real estate loans are secured by properties that are intended for both residential and business use. Until 2004, our policy had been to originate multi-family and mixed-use real estate loans primarily in the New York metropolitan area. In January 2004, we opened a loan production office in Wellesley, Massachusetts and currently originate multi-family and mixed-use real estate loans throughout the Northeastern United States.

For the year ended December 31, 2007, originations of multi-family real estate loans in states other than New York represented 60.8% of our total multi-family mortgage loan originations, and originations of mixed-use real estate loans in states other than New York represented 16.7% of our total mixed-use mortgage loan originations. For the year ended December 31, 2006, originations of multi-family real estate loans in states other than New York represented 55.7% of our total multi-family mortgage loan originations, and originations of mixed-use real estate loans in states other than New York represented 39.3% of our total mixed-use mortgage loan originations. We intend to continue to increase our originations of multi-family and mixed-use real estate loans in the eleven states in which we are currently lending.

We originate a variety of adjustable-rate and balloon multi-family and mixed-use real estate loans. The adjustable-rate loans have fixed rates for a period of up to five years and then adjust every three to five years thereafter, based on the terms of the loan. Maturities on these loans can be up to 15 years, and typically they amortize over a 20 to 30-year period. Interest rates on our adjustable-rate loans are adjusted to a rate that equals the applicable three-year or five-year constant maturity treasury index plus a margin. The balloon loans have a maximum maturity of five years. The lifetime interest rate cap is five percentage points over the initial interest rate of the loan (four percentage points for loans with three-year terms). For a mixed-use property with commercial space accounting for over 30% of the gross operating income of the building, competition permitting, the rate offered is generally based on the rate we offer for non-residential real estate loans. Due to the nature of our borrowers and our lending niche, the typical multi-family or mixed-use real estate loan refinances within the first five-year period and, in doing so, generates prepayment penalties ranging from five points to one point of the outstanding loan balance. Under our loan-refinancing program, borrowers who are current under the terms and conditions of their contractual obligations can apply to refinance their existing loans to the rates and terms then offered on new loans after the payment of their contractual prepayment penalties.

In making multi-family and mixed-use real estate loans, we primarily consider the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and our lending experience with the borrower. We do

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not typically require a personal guarantee of the borrower, but may do so depending on the location, building condition or credit profile. We rate the property underlying the loan as Class A, B or C. Our current policy is to require a minimum debt service coverage ratio (the ratio of earnings after subtracting all operating expenses to debt service payments) of 1.20% to 1.35% depending on the rating of the underlying property. On multi-family and mixed-use real estate loans, our current policy is to finance up to 75% of the lesser of the appraised value or purchase price of the property securing the loan on purchases and refinances of Class A and B properties and up to 70% of the lesser of the appraised value or purchase price for properties that are rated Class C. Properties securing multi-family and mixed-use real estate loans are appraised by independent appraisers, inspected by us and generally require Phase 1 environmental surveys.

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

The majority of the multi-family real estate loans in our portfolio are secured by twenty unit to one hundred unit apartment buildings. At December 31, 2007, the majority of our mixed-use real estate loans are secured by properties that are at least 70% residential, but contain some non-residential space.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Consumer Loans. We offer loans secured by savings accounts or certificates of deposit (share loans) and overdraft protection for checking accounts which is linked to statement savings accounts and has the ability to transfer funds from the statement savings account to the checking account when needed to cover overdrafts. At December 31, 2007, our portfolio of consumer loans was $88,000, or 0.03% of total loans.

Loan Underwriting Risks

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

Multi-family, Mixed-use and Non-residential Real Estate Loans. Loans secured by multi-family, mixed-use and non-residential real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family, mixed-use and non-residential real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. To monitor cash flows on income producing properties, we require borrowers to provide annual financial statements for all multi-family, mixed-use and non-residential real estate loans. In reaching a decision on whether to make a multi-family, mixed-use or non-residential real estate loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. In addition, with respect to non-residential real estate properties, we also consider the term of the lease and the quality of the tenants. An appraisal of the real estate used as collateral for the real estate loan is also obtained as part of the underwriting process. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings after subtracting all operating expenses to debt service payments) of at least 1.20%. In underwriting these loans, we take into account projected increases in interest rates in determining whether a loan meets our debt service coverage ratios at the higher interest rate under the adjustable rate mortgage. Environmental surveys and property inspections are utilized for all loans.

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

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

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

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

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

During 2007, we purchased participation interests in loans to finance the construction of multi-family, mixed-use and non-residential properties. The outstanding balance of the construction loan participation interests purchased totaled $9.5 million at December 31, 2007. We perform our own underwriting analysis on each of our participation interests before purchasing such loans and therefore believe there is no greater risk of default on these obligations. However, in a purchased participation loan, we do not service the loan and thus are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings, all of which are reviewed and approved in advance of any participation transaction. We review all of the documentation relating to any loan in which we participate, including annual financial statements provided by a borrower. Additionally, we receive monthly statements on the loan from the lead lender.

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

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

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

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

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

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Mortgage and construction loans in amounts between $1.0 million and $2.0 million, in addition to being approved by the Loan Origination Group, must be approved by the president. Mortgage and construction loans in amounts greater than $2.0 million, in addition to being approved by the Loan Origination Group, must be approved by the president, the chief financial officer and a majority of the non-employee directors. At each monthly meeting of the board of directors, the board ratifies all commitments issued, regardless of size.

Commercial Loan Approval Procedures and Authority. Our commercial lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors and management. The board has granted the Commercial Loan Origination Group (which is comprised of our commercial loan officer, our commercial loan underwriter, our chief financial officer and our president) with loan approval authority for commercial loans up to $2.0 million.

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

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities generally is limited, by regulation, to 15% of our stated capital and reserves. At December 31, 2007, our general regulatory limit on loans to one borrower was approximately $11.7 million. On December 31, 2007, our largest lending relationship consists of five loans totaling $9.0 million secured by an office building located in New York and four shopping centers located in New York and Connecticut. These loans were performing according to their terms at December 31, 2007. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sale of New York City Branch Office.”

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

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

Investment Activities

We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and municipal governments, deposits at the Federal Home Loan Bank of New York and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in mutual funds. While we have the authority under applicable law to invest in derivative securities, we had no investments in derivative securities at December 31, 2007.

At December 31, 2007, our securities and short-term investments totaled $40.4 million and consisted primarily of $36.8 million in interest-earning deposits with the Federal Home Loan Bank of New York, $3.2 million in mortgage-backed securities issued primarily by Fannie Mae, Freddie Mac and Ginnie Mae, and $414,000 in Federal Home Loan Bank of New York stock. At December 31, 2007, we had no investments in callable securities.

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

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Deposit Activities and Other Sources of Funds

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

Deposit Accounts. Except for certificates of deposit obtained through two nationwide listing services, as described below, substantially all of our depositors are residents of the State of New York. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposits principally consist of interest-bearing demand accounts (such as NOW and money market accounts), regular savings accounts, noninterest-bearing demand accounts (such as checking accounts) and certificates of deposit. At December 31, 2007, we did not utilize brokered deposits. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, maturity matching deposit and loan products, and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our current strategy is to offer competitive rates and to be in the middle of the market for rates on all types of deposit products.

Our deposits are typically obtained from customers residing in or working in the communities in which our branch offices are located, and we rely on our long-standing relationships with our customers and competitive interest rates to retain these deposits. In the future, as we open new branches in other states, we expect our deposits will also be obtained from those states. We may also, in the future, utilize our website to attract deposits.

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

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

Investment Advisory and Financial Planning Activities

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

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

Personnel

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

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Legal Proceedings

From time to time, we may be party to various legal proceedings incident to our business. At December 31, 2007, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Subsidiaries

Northeast Community Bancorp’s only subsidiary is Northeast Community Bank. The Bank has one wholly owned subsidiary, New England Commercial Properties LLC, a New York limited liability company. New England Commercial Properties was formed in October 2007 to facilitate the purchase or lease of real property by the Bank. As of December 31, 2007, New England Commercial Properties, LLC had been inactive since its formation and had no assets or employees. In the future, we may also use New England Commercial Properties to hold real estate owned acquired by the Bank through foreclosure or deed-in-lieu of foreclosure.

REGULATION AND SUPERVISION

General

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

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

Regulation of Federal Savings Associations

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

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

The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is defined as core capital and supplementary capital, less certain specified deductions from total capital such as reciprocal holdings of depository institution capital, instruments and equity investments) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is generally defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary (Tier 2) capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The Office of Thrift Supervision also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular circumstances. At December 31, 2007, Northeast Community Bank met each of these capital requirements.

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

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

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Standards for Safety and Soundness. The federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness in various areas such as internal controls and information systems, internal audit, loan documentation and credit underwriting, interest rate exposure, asset growth and quality, earnings and compensation, fees and benefits. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the Office of Thrift Supervision determines that a savings institution fails to meet any standard prescribed by the guidelines, the Office of Thrift Supervision may require the institution to submit an acceptable plan to achieve compliance with the standard.

Limitation on Capital Distributions. Office of Thrift Supervision regulations impose limitations upon all capital distributions by a savings institution, including cash dividends, payments to repurchase its shares and payments to stockholders of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the Office of Thrift Supervision is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under Office of Thrift Supervision regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the Office of Thrift Supervision. If an application is not required, the institution must still provide prior notice to the Office of Thrift Supervision of the capital distribution if, like Northeast Community Bank, it is a subsidiary of a holding company. If Northeast Community Bank’s capital were ever to fall below its regulatory requirements or the Office of Thrift Supervision notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines that such distribution would constitute an unsafe or unsound practice.

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

A savings institution that fails the qualified thrift lender test is subject to certain operating restrictions and may be required to convert to a bank charter. As of December 31, 2007, Northeast Community Bank maintained 88.1% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

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

The Sarbanes-Oxley Act generally prohibits loans by Northeast Community Bancorp to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans by Northeast Community Bank to its executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk

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of repayment or present other unfavorable features. Northeast Community Bank is therefore prohibited from making any new loans or extensions of credit to executive officers and directors at different rates or terms than those offered to the general public. Notwithstanding this rule, federal regulations permit Northeast Community Bank to make loans to executive officers and directors at reduced interest rates if the loan is made under a benefit program generally available to all other employees and does not give preference to any executive officer or director over any other employee. Loans to executive officers are subject to additional limitations based on the type of loan involved.

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

Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over federal savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal Deposit Insurance Corporation has authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

Assessments. Federal savings banks are required to pay assessments to the Office of Thrift Supervision to fund its operations. The general assessments, paid on a semi-annual basis, are based upon the savings institution’s total assets, including consolidated subsidiaries, financial condition and complexity of its portfolio. The Office of Thrift Supervision assessments paid by Northeast Community Bank for the year ended December 31, 2007 totaled $78,000.

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

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

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

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

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

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

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

Federal Home Loan Bank System. Northeast Community Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Northeast Community Bank, as a member of the Federal Home Loan Bank of New York, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. Northeast Community Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2007 of $414,000. Federal Home Loan Bank advances must be secured by specified types of collateral.

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

Federal Reserve System. The Federal Reserve Board regulations require savings institutions to maintain non-interest earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal (NOW) and regular checking accounts). The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $43.9 million; a 10% reserve ratio is applied above $43.9 million. The first $9.3 million of otherwise reservable balances are exempted from the reserve requirements. The amounts are adjusted annually. Northeast Community Bank complies with the foregoing requirements.

Holding Company Regulation

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

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

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(4) any activity approved by the Federal Reserve Board for a bank holding company or financial holding company or previously approved by Office of Thrift Supervision for multiple savings and loan holding companies. In addition, mutual holding companies may engage in activities permitted for financial holding companies. Financial holding companies may engage in a broad array of financial service activities including insurance and securities.

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

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

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

Waivers of Dividends by Northeast Community Bancorp, MHC. Office of Thrift Supervision regulations require Northeast Community Bancorp, MHC to notify the Office of Thrift Supervision if it proposes to waive receipt of dividends from Northeast Community Bancorp. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to any such waiver if: (i) the waiver would not be detrimental to the safe and sound operation of the savings association; and (ii) the mutual holding company’s board of directors determines that such waiver is consistent with such directors’ fiduciary duties to the mutual holding company’s members. Northeast Community Bancorp, MHC waived receipt of dividends from Northeast Community Bancorp in 2007.

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

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

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

Federal Securities Laws

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

EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

Salvatore Randazzo		Executive Vice President 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, 2007.

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 42.

ITEM 1A.

RISK FACTORS

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

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

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

Our primary business strategy centers on continuing our emphasis on multi-family, mixed-use and non-residential real estate loans. We have grown our loan portfolio in recent years with respect to these types of loans and intend to continue to emphasize these types of lending. At December 31, 2007, $270.9 million, or 95.6%, of our loan portfolio consisted of multi-family residential, mixed-use and non-residential real estate loans. As a result, our credit risk profile will be higher than traditional thrift institutions that have higher concentrations of one- to four-family residential loans.

Loans secured by multi-family, mixed-use and non-residential real estate generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the underlying property. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Accordingly, an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. We seek to minimize these risks through our underwriting policies, which require such loans to be qualified on the basis of the property’s net income and debt service ratio; however, there is no assurance that our underwriting policies will protect us from credit-related losses.

As with loans secured by multi-family, mixed-use and non-residential real estate, commercial loans tend to be of higher risk than one- to-four family residential mortgage loans. We seek to minimize the risks involved in commercial lending by underwriting such loans on the basis of the cash flows produced by the business; by requiring that such loans be collateralized by various business assets, including inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees, whenever possible. However, the capacity of a borrower to repay a commercial loan is substantially dependent on the degree to which his or her business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to appraisal, or may fluctuate in value, based upon the business’ results. At December 31, 2007, $3.0 million, or 1.1%, of our loan portfolio consisted of commercial loans.

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

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

We have expanded our lending territory beyond the New York metropolitan area to include all of New York, Massachusetts, New Jersey, Connecticut, Pennsylvania, New Hampshire, Rhode Island, Delaware, Maryland, Maine and Vermont. In January 2004, we opened a loan production office in Wellesley, Massachusetts which serves Massachusetts, New Hampshire, Rhode Island, Maine and Vermont. In 2007, approximately 41.2% of our total loan originations were outside the state of New York. In 2006, approximately 44.0% of our total loan originations were outside the state of New York. While we have over fifty years of experience in multi-family and mixed-use real estate lending in the New York metropolitan area and have significant expertise in non-residential real estate lending, our experience in our expanded lending territory is more limited. We have experienced loan officers throughout our lending area and we apply the same underwriting standards to all of our loans, regardless of their location. However, there is no assurance that our loss experience in the New York metropolitan area will be the same in our expanded lending territory. Because we only recently increased the number of out-of-state real estate loans in our portfolio, the lack of delinquencies and defaults in our loan portfolio over the past five years might not be representative of the level of delinquencies and defaults that could occur as we continue to expand our real estate loan originations outside of the New York metropolitan area.

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

We currently operate out of our main office, our five other full-service branch offices in the New York metropolitan area, and our loan production office in Wellesley, Massachusetts, which we opened in 2004. Recently, we began to implement a growth strategy that expands our presence in other select markets in the Northeastern United States. We are currently exploring the feasibility of opening several retail branch offices in the Wellesley, Massachusetts market area. We also intend to open de novo or purchase at least two additional retail branch offices in locations yet to be determined. At this time, we are not able to estimate the costs associated with or the timing of the opening of new branch offices. We anticipate that we will incur approximately $90,000 in expenses relating to our search for possible locations. In addition, we intend to open additional loan production offices in the next several years, one likely in Pennsylvania and one in a location yet to be determined. We anticipate that the setup and operating expenses of the loan production office in Pennsylvania will be approximately $235,000 in the first twelve months of operations. The estimate includes the expense of office space, equipment, communications, marketing and personnel for the loan production office. We intend to continue to pursue opportunities to expand our branch network and our lending operations. In connection with the expansion of our branch network and lending operations, we would need to hire new mortgage lending, mortgage servicing and other employees to support our expanded infrastructure. Our ability to operate successfully in new markets will be dependent, in part, on our ability to identify and retain personnel familiar with the new markets. There is no assurance that we will be successful in implementing our expansion plans or that we will be able to hire the employees necessary to implement our plans.

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

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

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

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

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

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

We face intense competition both in making loans in our lending territory and attracting deposits in our primary market area. This competition has made it more difficult for us to make new loans and at times has forced us to offer higher deposit rates. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits. As of June 30, 2007, the most recent date for which information is available from the Federal Deposit Insurance Corporation, we held less than 0.07% of the deposits in each of Westchester, Kings and New York counties, New York, and approximately 0.61% of the deposits in Bronx County, New York. Competition also makes it more difficult to hire and retain experienced employees. Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our primary market area and our lending territory.

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

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

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

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

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

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

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

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

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

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

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.

PROPERTIES

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

Location	Year Opened	Date of Lease Expiration	Owned/ Leased	Net Book Value
	(Dollars in thousands)
Corporate Headquarters and Main Office:

325 Hamilton Avenue White Plains, New York 10601	1994	N/A	Owned	$ 1,085

Branch Offices:

1470 First Avenue New York, NY 10021(1)	2006	04/30/2011	Leased	213

590 East 187th Street Bronx, New York 10458	1972	N/A	Owned	520

2047 86th Street Brooklyn, New York 11214	1988	N/A	Owned	940

242 West 23rd Street New York, NY 10011	1996	N/A	Owned/Leased(2)	1,017

1751 Second Avenue New York, NY 10128	1978	09/30/2015	Leased	44

Other Properties:

300 Hamilton Avenue White Plains, New York 10601	2000	05/31/2010	Leased	60

1355 First Avenue New York, NY 10021(3)	1946	2109	Leased	-

40 Grove Street Wellesley, Massachusetts 02482	2004	02/28/2009	Leased	2

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 1355 First Avenue. See footnote 3 below.

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

(3)

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

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ITEM 3.

LEGAL PROCEEDINGS

Legal Proceedings

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5.

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

The Company’s common stock is listed on the Nasdaq Global Market (“NASDAQ”) under the trading symbol “NECB.” The Company completed its initial public offering on July 5, 2006 and commenced trading on July 6, 2006. The following table sets forth the high and low sales prices of the common stock, as reported by NASDAQ, and the dividends paid by the Company during each quarter since trading commenced. See Item 1, “Business—Regulation and Supervision—Regulation of Federal Savings Institutions—Limitation on Capital Distributions” and Note 2 in the Notes to the Consolidated Financial Statements for more information relating to restrictions on dividends.

	Dividends		High		Low

2007:

First Quarter		N/A	$	12.47	$	11.50
Second Quarter		N/A		12.60		11.35
Third Quarter	$	0.03		12.18		9.25
Fourth Quarter		0.03		12.89		10.00

2006:

Third Quarter		N/A	$	11.45	$	10.75
Fourth Quarter		N/A		12.35		11.25

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

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

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

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ITEM 6.

SELECTED FINANCIAL DATA

	At or For the Years Ended December 31,
	2007		2006			2005			2004			2003
	(Dollars in thousands, except per share data)
Financial Condition Data:
Total assets	$	343,895	$	288,417		$	238,821		$	237,300		$	231,788
Cash and cash equivalents		39,146		36,749			27,389			48,555			57,824
Securities held to maturity		2,875		27,455			12,228			11,395			9,452
Securities available for sale		320		355			362			473			649
Loans receivable, net		283,133		201,306			190,896			167,690			154,546
Bank owned life insurance		8,515		8,154			–			–			–
Deposits		225,978		188,592			193,314			193,617			190,037
Total stockholders’ equity		108,829		96,751			43,120			41,146			39,589

Operating Data:
Interest income	$	17,602	$	15,348		$	13,652		$	12,885		$	14,513
Interest expense		5,918		4,493			3,110			2,494			2,620
Net interest income		11,684		10,855			10,542			10,391			11,893
Provision for loan losses		338		–			–			–			–
Net interest income after provision for loan losses		11,346		10,855			10,542			10,391			11,893
Gain (loss) on sale of premises and equipment		18,962		(5	)		(19	)		(136	)		(52	)
Other income		805		624			553			559			543
Other expenses		9,826		8,870			7,515			8,078			7,400
Income before income taxes		21,287		2,604			3,561			2,736			4,984
Provision for income taxes		9,150		1,046			1,571			1,173			2,592
Net income	$	12,137	$	1,558		$	1,990		$	1,563		$	2,392
Net income per share – basic and diluted (1)	$	0.95	$	0.06			N/A			N/A			N/A
Dividends declared per share	$	0.06	$	–		$	–		$	–		$	–

____________________________________

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

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	At or For the Years Ended December 31,
	2007			2006			2005			2004			2003
Performance Ratios:
Return on average assets (1)		3.94	%		0.57	%		0.83	%		0.66	%		1.02	%
Return on average equity (1)		11.70			2.24			4.69			3.80			6.13
Interest rate spread (2)		3.13			3.65			4.27			4.36			5.07
Net interest margin (3)		4.09			4.24			4.55			4.58			5.30
Noninterest expense to average assets		3.19			3.26			3.13			3.42			3.16
Efficiency ratio (1) (4)		31.24			77.31			67.85			74.70			59.75
Average interest-earning assets to average interest-bearing liabilities		146.61			133.99			120.33			119.73			118.82
Average equity to average assets		33.67			25.57			17.65			17.45			16.66

Capital Ratios - Bank:
Tangible capital		24.18			25.46			17.92			17.05			16.92
Core capital		24.18			25.46			17.92			17.05			16.92
Total risk-based capital		37.50			44.58			33.08			35.71			36.33

Asset Quality Ratios:
Allowance for loan losses as a percent of total loans		0.53			0.60			0.63			0.71			0.77
Allowance for loan losses as a percent of nonperforming loans		65.48			N/M			N/M			N/M			N/M
Net charge-offs to average outstanding loans during the period		0.02			0.00			0.00			0.00			0.01
Non-performing loans as a percent of total loans		0.80			0.00			0.00			0.00			0.00

Other Data:
Number of:
Real estate loans outstanding		485			400			399			364			381
Deposit accounts		15,025			15,898			17,243			18,251			19,528
Offices (5)		9			8			8			7			7

____________________________________

(1)

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

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

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

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

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

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

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ITEM 7.

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

Overview

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

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

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

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

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

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

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

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

Critical Accounting Policies

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

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

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

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

Sale of New York City Branch Office

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

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

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

Acquisition of the Business Assets of Hayden Financial Group LLC

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

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

Balance Sheet Analysis

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

Loans. Our primary lending activity is the origination of loans secured by real estate. We originate real estate loans secured by multi-family residential real estate, mixed-use real estate and non-residential real estate. To a much lesser extent, we originate commercial and consumer loans and purchase participation interests in construction loans. At December 31, 2007, loans receivable, net, totaled $283.1 million, an increase of $81.8 million, or 40.6%, from total loans receivable, net, of $201.3 million at December 31, 2006. The promissory note that the Bank received in connection with the sale of the Bank’s branch office building located at 1353-55 First Avenue, which had a $16.9 million balance at December 31, 2007, is included in the non-residential segment of our real estate loan portfolio for 2007.

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

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

In addition, we also originate several types of consumer loans secured by savings accounts or certificates of deposit (share loans) and overdraft protection for checking accounts which is linked to statement savings accounts and has the ability to transfer funds from the statement savings account to the checking account when needed to cover overdrafts. Consumer loans totaled $88,000 and represented 0.03% of total loans at December 31, 2007, compared to $419,000, or 0.21%, of total loans at December 31, 2006.

Index

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

	At December 31,
	2007						2006						2005						2004						2003
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate:
Residential Real Estate:
One- to four-family	$	304			0.11	%	$	405			0.20	%	$	587			0.31	%	$	837			0.49	%	$	985			0.63	%
Multi-family (1)		138,767			48.95			110,389			54.76			100,360			52.43			99,400			58.93			86,000			55.29
Mixed-use (1)		52,559			18.54			42,576			21.12			43,919			22.94			38,287			22.70			40,457			26.01
Total residential real estate loans		191,630			67.60			153,370			76.08			144,866			75.68			138,524			82.12			127,442			81.93

Non-residential real estate (1)		79,305			27.98			47,802			23.71			46,219			24.14			29,785			17.66			27,795			17.87
Total real estate		270,935			95.58			201,172			99.79			191,085			99.82			168,309			99.78			155,237			99.80

Construction loans		9,456			3.34			-			-			-			-			-			-			-			-
Commercial loans		2,977			1.05			-			-			-			-			-			-			-			-

Consumer:
Overdraft lines of credit		69			0.02			71			0.04			83			0.04			96			0.06			113			0.07
Passbook loans		19			0.01			348			0.17			268			0.14			270			0.16			207			0.13
Total consumer loans		88			0.03			419			0.21			351			0.18			366			0.22			320			0.20
Total loans		283,456			100.00	%		201,591			100.00	%		191,436			100.00	%		168,675			100.00	%		155,557			100.00	%

Net deferred loan costs		1,166						915						660						215						189
Allowance for losses		(1,489	)					(1,200	)					(1,200	)					(1,200	)					(1,200	)
Loans, net	$	283,133					$	201,306					$	190,896					$	167,690					$	154,546

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

Index

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

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

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

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

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

Index

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

	At December 31,
	2007				2006				2005
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities available for sale:
Fannie Mae common stock	$	4	$	46	$	4	$	72	$	4	$	58
Mortgage-backed securities		273		274		281		283		302		304
Total	$	277	$	320	$	285	$	355	$	306	$	362

Securities held to maturity:
U.S. Government and agency securities	$	-	$	-	$	22,904	$	22,904	$	4,999	$	4,950
Mortgage-backed securities		2,875		2,890		4,551		4,564		7,229		7,232
Total	$	2,875	$	2,890	$	27,455	$	27,468	$	12,228	$	12,182

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

Index

The following table sets forth the stated maturities and weighted average yields of debt securities at December 31, 2007. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. At December 31, 2007, mortgage-backed securities with adjustable rates totaled $3.1 million. Weighted average yields are on a tax-equivalent basis.

	One Year or Less					More than One Year to Five Years					More than Five Years to Ten Years					More than Ten Years					Total
	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield
	(Dollars in thousands)
Securities available for sale:
Fannie Mae common stock	$	46		0.00	%	$	-		-		$	-		-		$	-		-		$	46		-
Mortgage-backed securities		4		4.80			-		-			-		-			270		6.76	%		274		6.73	%
Total securities available for sale	$	50		0.38	%	$	-		-		$	-		-		$	270		6.76	%	$	320		5.76	%

Securities held to maturity:
U.S. Government and agency securities	$	-		-		$	-		-		$	-		-		$	-		-		$	-		-
Mortgage-backed securities		50		5.29	%		46		8.25	%		303		6.63	%		2,476		6.08	%		2,875		6.16	%
Total securities held to maturity	$	50		5.29	%	$	46		8.25	%	$	303		6.63	%	$	2,476		6.08	%	$	2,875		6.16	%

Index

Deposits. Our primary source of funds is retail deposit accounts which are comprised of savings accounts, demand deposits and certificates of deposit held primarily by individuals and businesses within our primary market area and non-broker certificates of deposit gathered through two nationwide certificate of deposit listing services. The non-broker certificates of deposits are accepted from banks, credit unions, non-profit organizations and certain corporations in amounts greater then $75,000 and less then $100,000.

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

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

	At December 31,
	2007					2006					2005
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)

Now and money market deposit accounts	$	21,839		9.6	%	$	21,137		11.2	%	$	22,731		11.8	%
Savings accounts		57,346		25.4			60,755		32.2			73,133		37.8
Noninterest bearing demand deposits		1,745		0.8			1,439		0.8			1,499		0.8
Certificates of deposit		145,048		64.2			105,261		55.8			95,951		49.6

Total	$	225,978		100.0	%	$	188,592		100.0	%	$	193,314		100.0	%

The following table indicates the amount of certificates of deposit with balances of $100,000 or greater by time remaining until maturity as of December 31, 2007. We do not solicit jumbo certificates of deposit nor do we offer special rates for jumbo certificates. The minimum deposit to open a certificate of deposit ranges from $500 to $2,500.

Maturity Period	Certificates of Deposit
	(In thousands)
Three months or less	$	7,483
Over three through six months		3,838
Over six through twelve months		7,890
Over twelve months		9,035
Total	$	28,246

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

	At December 31,
	2007		2006		2005
	(In thousands)
0.00 - 1.00%	$	40	$	32	$	567
1.01 - 2.00%		1		329		10,350
2.01 - 3.00%		988		9,407		33,683
3.01 - 4.00%		16,551		26,025		28,680
4.01 - 5.00%		65,554		47,212		22,284
5.01 - 6.00%		61,914		22,249		338
Over 6.00%		-		7		49
Total	$	145,048	$	105,261	$	95,951

Index

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

	Amount Due
	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years to Four Years		More Than Four Years to Five Years		Total		Percent of Total Certificate Accounts
	(Dollars in thousands)
0.00 - 1.00%	$	40	$	-	$	-	$	-	$	-	$	40		0.03	%
1.01 - 2.00%		1		-		-		-		-		1		0.00
2.01 - 3.00%		942		46		-		-		-		988		0.68
3.01 - 4.00%		12,264		3,692		565		30		-		16,551		11.41
4.01 - 5.00%		44,328		9,070		8,876		1,279		2,001		65,554		45.19
5.01 - 6.00%		37,766		11,723		4,971		3,790		3,664		61,914		42.69
Over 6.00%		-		-		-		-		-		-		0.00
Total	$	95,341	$	24,531	$	14,412	$	5,099	$	5,665	$	145,048		100.0	%

Borrowings. We may utilize borrowings from a variety of sources to supplement our supply of funds for loans and investments and to meet deposit withdrawal requirements. As of December 31, 2007, we had no FHLB advances outstanding. In conjunction with the Hayden acquisition on November 16, 2007, the Company incurred a four-year zero-coupon note payable of $700,000. The note is payable in four annual installments, one on each succeeding note anniversary date, of $175,000. The note was initially recorded at $625,000, assuming a 4.60% discount rate. The note payable balance at December 31, 2007 was $627,000 and note discount accreted during 2007 totaled $2,000. We had no borrowings as of or during the year ended December 31, 2006.

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

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

Overview.

	2007			2006			% Change 2007/2006
	(Dollars in thousands)

Net income	$	12,137		$	1,558			679.0	%
Return on average assets		3.94	%		0.57	%		591.2
Return on average equity		11.70			2.24			422.3
Average equity to average assets		33.67			25.57			31.7

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

Index

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

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

Index

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

	Year Ended December 31,
	2007								2006								2005
	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	$	232,496		$	14,894		6.41	%	$	200,683		$	12,771		6.36	%	$	179,129		$	11,987		6.69	%
Securities		16,664			839		5.03			22,913			1,064		4.64			13,764			496		3.60
Other interest-earning assets		36,813			1,869		5.08			32,390			1,513		4.67			38,707			1,169		3.02
Total interest-earning assets		285,973			17,602		6.16			255,986			15,348		6.00			231,600			13,652		5.89
Allowance for loan losses		(1,362	)							(1,200	)							(1,200	)
Noninterest-earning assets		23,535								17,145								9,879
Total assets	$	308,146							$	271,931							$	240,279

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand	$	20,704			117		0.57	%	$	22,363			111		0.50	%	$	22,825			62		0.27
Savings and club accounts		58,963			415		0.70			66,951			469		0.70			76,607			373		0.49
Certificates of deposit		115,032			5,365		4.66			101,732			3,913		3.85			93,039			2,675		2.88
Total interest-bearing deposits		194,699			5,897		3.03			191,046			4,493		2.35			192,471			3,110		1.62

Borrowings		352			21		5.97			-			-		0.00			-			-		0.00
Total interest-bearing liabilities		195,051			5,918		3.03			191,046			4,493		2.35			192,471			3,110		1.62

Noninterest-bearing demand		1,753								7,806								1,663
Other liabilities		7,583								3,559								3,735
Total liabilities		204,387								202,411								197,869

Stockholders’ equity		103,759								69,520								42,410
Total liabilities and Stockholders’ equity	$	308,146							$	271,931							$	240,279
Net interest income				$	11,684							$	10,855							$	10,542
Interest rate spread							3.13								3.65								4.27
Net interest margin							4.09								4.24								4.55
Net interest-earning assets	$	90,922							$	64,940							$	39,129
Interest-earning assets to interest- bearing liabilities		146.61	%							133.99	%							120.33	%

Index

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

	2007 Compared to 2006									2006 Compared to 2005
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest and dividend income:
Loans receivable	$	2,037		$	86		$	2,123		$	1,392		$	(608	)	$	784
Investment securities		(309	)		84			(225	)		396			172			568
Other interest-earning assets		218			138			356			(215	)		559			344
Total interest-earning assets		1,946			308		$	2,254			1,573			123			1,696

Interest expense:
Interest-bearing demand deposits		(9	)		15			6			(1	)		50			49
Savings accounts		(56	)		2			(54	)		(52	)		148			96
Certificates of deposit		553			900			1,453			268			970			1,238
Borrowings		-			21			21			–			–			–
Total interest-bearing liabilities		488			938			1,426			215			1,168			1,383
Net change in interest income	$	1,458		$	(630	)	$	828		$	1,358		$	(1,045	)	$	313

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

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

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

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

N/M Not meaningful.

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

Index

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

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

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

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

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

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

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

Risk Management

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

Index

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

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

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

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

Analysis of Nonperforming and Classified Assets. We generally consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. It is generally our policy to continue to accrue interest on past-due loans and loans in foreclosure as long management determines that there is a reasonable expectation of collection. When a loan is placed on nonaccrual status, the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against operations. Typically, payments received on a nonaccrual loan are applied in the following order to late charges, interest, escrow and outstanding principal.

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

Index

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

At December 31,

2007

2006

2005

2004

2003

(Dollars in thousands)

Nonaccrual loans:

Residential real estate:

One- to four-family

–

Multi-family

666

–

Mixed-use

–

Non-residential real estate

1,200

–

Construction

–

Consumer and other loans

–

Total

1,867

–

Accruing loans past due 90 days or more:

Residential real estate:

One- to four-family

–

Multi-family

407

–

Mixed-use

–

Non-residential real estate

–

Consumer and other loans

–

Total

407

–

Total of nonaccrual and 90 days or more past due loans

2,274

–

Foreclosed real estate

–

Other nonperforming assets

–

Total nonperforming assets

2,274

–

Troubled debt restructurings

–

Troubled debt restructurings and total nonperforming assets

2,274

–

Total nonperforming loans to total loans

0.80

0.00

Total nonperforming loans to total assets

0.66

0.00

Total nonperforming assets and troubled debt restructurings to total assets

0.66

0.00

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

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

Index

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

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

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

	At December 31,
	2007		2006		2005
	(In thousands)

Special mention assets	$	865	$	–	$	–
Substandard assets		1,866		–		–
Doubtful and loss assets		-		–		–
Total classified assets	$	2,731	$	–	$	–

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

At December 31,

2007

2006

2005

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

–

458

–

Mixed-use

–

Non-residential real estate

–

Construction

–

Commercial

–

Consumer and other loans

–

Total

458

–

Index

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

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

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

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

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

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

At December 31, 2007, our allowance for loan losses was $1.5 million and represented 0.53% of total gross loans. At December 31, 2006, our allowance for loan losses was $1.2 million and represented 0.60% of total gross loans. At December 31, 2005, our allowance for loan losses was $1.2 million and represented 0.63% of total gross loans. The increase in our general valuation allowance is due primarily to the increase in mortgage loan balances outstanding as of December 31, 2007.

Index

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

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

	At December 31,
	2004								2003
	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	$	2		0.2	%		0.5	%	$	3		0.3	%		0.6	%
Multi-family		520		43.3			58.9			497		41.4			55.3
Mixed-use		290		24.2			22.7			329		27.4			26.0
Non-residential real estate		388		32.3			17.7			371		30.9			17.9
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	%

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

Index

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

Year Ended December 31,

2007

2006

2005

2004

2003

(Dollars in thousands)

Allowance at beginning of period

1,200

1,219

Provision for loan losses

338

–

Charge offs:

Residential real estate:

One- to four-family

–

(19

)

Multi-family

–

Mixed-use

(49

)

–

Non-residential real estate

–

Construction

Consumer and other loans

–

Total charge-offs

(49

)

–

(19

)

Recoveries:

Residential real estate:

One- to four-family

–

Multi-family

–

Mixed-use

–

Non-residential real estate

–

Construction

–

Consumer and other loans

–

Total recoveries

–

Net charge-offsNet charge-offs

(49

)

–

(19

)

Allowance at end of period

1,489

1,200

Allowance to nonperforming loans

65.48

N/M

Allowance to total loans outstanding at the end of the period

0.53

0.60

0.63

0.71

0.77

Net charge-offs (recoveries) to average loans outstanding during the period

0.02

0.00

0.01

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

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

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

Index

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

The following table presents the change in our net portfolio value at December 31, 2007 that would occur in the event of an immediate change in interest rates based on the Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change.

			Net Portfolio Value (Dollars in thousands)								Net Portfolio Value as % of Portfolio Value of Assets
Basis Point (“bp”) Change in Rates			$ Amount		$ Change			% Change			NPV Ratio			Change

	300		$	82,817	$	(3,604	)		(4	)%		25.88	%		(29	) bp
	200			84,092		(2,329	)		(3	)%		26.01	%		(16	) bp
	100			85,318		(1,103	)		(1	)%		26.11	%		( 6	) bp
	0			86,420		-			-			26.17	%
	(100	)		87,479		1,059			1	%		26.21	%		4	bp
	(200	)		88,377		1,956			2	%		26.20	%		3	bp

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

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. Cash and cash equivalents totaled $39.1 million at December 31, 2007 and consist primarily of deposits at other financial institutions (Predominantly the Federal Home Loan Bank of New York) and miscellaneous cash items. Securities classified as available-for-sale and whose market value exceeds our cost provide an additional source of liquidity. Total securities classified as available-for-sale were $320,000 at December 31, 2007 and $355,000 at December 31, 2006.

Index

At December 31, 2007, we had $50.2 million in loan commitments outstanding. At December 31, 2007, this consisted of $36.1 million of real estate loan origination commitments, $8.0 million in commercial loan commitments, $2.9 million in unused real estate equity lines of credit, $2.5 million in unused commercial loan lines, $582,000 in construction loans in process, and $191,000 in unused consumer lines of credit. Certificates of deposit due within one year of December 31, 2007 totaled $95.3 million. This represented 65.7% of certificates of deposit at December 31, 2007. We believe the large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the current low interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2008. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts. At December 31, 2007, we had the ability to borrow $11.2 million from the Federal Home Loan Bank of New York, which included two available overnight lines of credit of $5.6 million each. At December 31, 2007, we had no overnight advances outstanding. Subsequent to December 31, 2007, we increased our borrowing line with the Federal Home Loan Bank of New York to $72.7 million dollars. During the first quarter of 2008, we borrowed $15.0 million through advances from the FHLB, of which $15.0 million was outstanding as of March 31, 2008. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to maintain or increase our core deposit relationships depending on our level of real estate loan and commercial loan commitments outstanding. Occasionally, we offer promotional rates on certain deposit products to attract deposits or to lengthen repricing time frames.

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

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

Financing activities:
Increase (decrease) in deposits		37,386			(4,727	)		(302	)
Initial stock offering, net of ESOP shares		-			52,444			–

Index

Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2007, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

The capital from our initial public offering increased our liquidity and capital resources. In addition, the sale of our First Avenue branch office building in the second quarter of 2007 further increased our capital. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering and the sale of the branch office building are used for general corporate purposes, including the funding of lending activities. Our financial condition has been enhanced by the capital from the offering, resulting in increased net interest-earning assets. However, the large increase in equity resulting from the capital raised in the offering and the branch office building sale will, initially, have an adverse impact on our return on equity. From time to time, we may consider capital management tools such as cash dividends and common stock repurchases.

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

For the years ended December 31, 2007 and 2006, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Effect of Inflation and Changing Prices

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

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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.

Index

ITEM 9A(T).

CONTROLS AND PROCEDURES

(a)

Disclosure Controls and Procedures

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

(b)

Internal Controls Over Financial Reporting

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

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

(c)

Changes to Internal Control Over Financial Reporting

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

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE

The information relating to the directors and officers of Northeast Community Bancorp and information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to Northeast Community Bancorp’s Proxy Statement for the 2008 Annual Meeting of Stockholders (the “Proxy Statement”) and to Part I, Item 1, “Business — Executive Officers of the Registrant” to this Annual Report on Form 10-K.

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

ITEM 11.

EXECUTIVE COMPENSATION

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

Index

ITEM 12.

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

(a)

Security Ownership of Certain Beneficial Owners

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

(b)

Security Ownership of Management

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

(c)

Changes in Control

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

(d)

Equity Compensation Plan Information

None.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

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

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

Index

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(1)

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

(2)

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

(3)

Exhibits

3.1	Amended and Restated Charter of Northeast Community Bancorp, Inc. (1)
3.2	Amended and Restated Bylaws of Northeast Community Bancorp, Inc. (2)
4.1	Specimen Stock Certificate of Northeast Community Bancorp, Inc. (1)
10.1	Northeast Community Bank Employee Severance Compensation Plan (1)
10.2	Northeast Community Bank Supplemental Executive Retirement Plan and Participation Agreements with Kenneth A. Martinek and Salvatore Randazzo (1)*
10.3	Northeast Community Bancorp, Inc. Employment Agreement for Kenneth A. Martinek and Salvatore Randazzo (1)*
10.4	Northeast Community Bank Employment Agreement for Kenneth A. Martinek and Salvatore Randazzo (1)*
10.5	Employment Agreement between Northeast Community Bancorp, Inc., Northeast Community Bank and Susan Barile (3)*
10.6	Northeast Community Bank Directors’ Retirement Plan (1)*
10.7	Northeast Community Bank Directors’ Deferred Compensation Plan (1)*
10.8	Employment Agreement between Northeast Community Bancorp, Inc., Northeast Community Bank and Michael N. Gallina*(4)
21.0	List of Subsidiaries
23.0	Consent of Beard Miller Company LLP
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

______________________________

Management contract or compensatory plan, contract or arrangement.

(1)

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

(2)

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

(3)

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

(4)

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

Index

SIGNATURES

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

	NORTHEAST COMMUNITY BANCORP, INC.


Date: March 31, 2008	By:	/s/ Kenneth A. 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 31, 2008
Kenneth A. Martinek	and Director
	(principal executive officer)


/s/ Salvatore Randazzo	Executive Vice President, Chief	March 31, 2008
Salvatore Randazzo	Financial Officer and Director
	(principal accounting and financial officer)


/s/ Diane B. Cavanaugh	Director	March 31, 2008
Diane B. Cavanaugh


/s/ Arthur M. Levine	Director	March 31, 2008
Arthur M. Levine


/s/ Charles A. Martinek	Director	March 31, 2008
Charles A. Martinek


/s/ John F. McKenzie	Director	March 31, 2008
John F. McKenzie


/s/ Linda M. Swan	Director	March 31, 2008
Linda M. Swan


/s/ Harry (Jeff) A.S. Read	Director	March 31, 2008
Harry (Jeff) A.S. Read


/s/ Kenneth H. Thomas	Director	March 31, 2008
Kenneth H. Thomas

Index

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page

Management’s Report on Internal Control over Financial Reporting	F-1

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Statements of Financial Condition as of December 31, 2007 and 2006	F-3

Consolidated Statements of Income for the Years Ended December 31, 2007 and 2006	F-4

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007 and 2006	F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2007 and 2006	F-6

Notes to Consolidated Financial Statements	F-8

Index

Management’s Report on Internal Control Over Financial Reporting

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

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

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

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

F-1

Index

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Northeast Community Bancorp, Inc. and Subsidiary

White Plains, New York

We have audited the accompanying consolidated statements of financial condition of Northeast Community Bancorp, Inc. and Subsidiary (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Northeast Community Bancorp, Inc. and Subsidiary as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

	/s/ Beard Miller Company LLP
Beard Miller Company LLP
Pine Brook, New Jersey
March 19, 2008

F-2

Index

Consolidated Statements of Financial Condition

	December 31,
	2007			2006
	(In thousands, except share and per share data)

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

See notes to consolidated financial statements

F-3

Index

Consolidated Statements of Income

	Years Ended December 31,
	2007		2006
	(In thousands, except share and per share data)
Interest Income:
Loans	$	14,894	$	12,771
Interest-earning deposits		1,869		1,513
Securities - taxable		839		1,064

Total Interest Income		17,602		15,348

Interest Expense:
Deposits		5,897		4,493
Borrowings		21		-
Total Interest Expense		5,918		4,493
Net Interest Income before Provision for Loan Losses		11,684		10,855
Provision for Loan Losses		338		-
Net Interest Income after Provision for Loan Losses		11,346		10,855
Non-Interest Income:
Other loan fees and service charges		358		443
Net gain (loss) from premises and equipment		18,962		(5	)
Earnings on bank owned life insurance		361		154
Other		86		27
Total Non-Interest Income		19,767		619

Non-Interest Expenses:
Salaries and employee benefits		5,189		4,604
Net occupancy expense		1,107		1,072
Equipment		462		480
Outside data processing		650		608
Advertising		84		135
Other		2,334		1,971
Total Non-Interest Expenses		9,826		8,870
Income before Provision for Income Taxes		21,287		2,604
Provision for Income Taxes		9,150		1,046
Net Income	$	12,137	$	1,558
Net Income per Common Share – Basic	$	0.95	$	0.06	(A)
Weighted Average Number of Common Shares Outstanding – Basic		12,745		12,726	(A)
Dividends Declared per Common Share	$	0.06	$	-

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

See notes to consolidated financial statements

F-4

Index

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2007 and 2006

	Common Stock		Additional Paid- in Capital		Unearned ESOP Shares			Retained Earnings			Accumu-lated Other Compre-hensive Income (Loss)			Total Equity			Comprehensive Income
	(In thousands)
Balance - December 31, 2005	$	-	$	-	$	-		$	43,089		$	31		$	43,120

Comprehensive income:
Net income		-		-		-			1,558			-			1,558		$	1,558
Unrealized gain on securities available for sale, net of deferred income taxes of $(3)		-		-		-			-			11			11			11
ESOP shares earned		-		17		259			-			-			276
Adjustment to initially apply SFAS 158, net of deferred income taxes of $129		-		-		-			-			(158	)		(158	)
Capitalization of Mutual Holding Company		-		-		-			(500	)		-			(500	)
Issuance of common stock		132		57,496		-			-			-			57,628
Common stock acquired by ESOP		-		-		(5,184	)		-			-			(5,184	)
Total Comprehensive Income																	$	1,569
Balance - December 31, 2006		132		57,513		(4,925	)		44,147			(116	)		96,751

Comprehensive income:
Net income		-		-		-			12,137			-			12,137		$	12,137
Unrealized loss on securities available for sale, net of taxes of $(10)		-		-		-			-			(17	)		(17	)		(17	)
Prior Service Cost – DRP, net of taxes of $(13)		-		-		-			-			(16	)		(16	)		(16	)
Cash dividend declared ($0.06 per share)		-		-		-			(328	)		-			(328	)
ESOP shares earned		-		42		260			-			-			302
Total Comprehensive Income																	$	12,104
Balance - December 31, 2007	$	132	$	57,555	$	(4,665	)	$	55,956		$	(149	)	$	108,829

See notes to consolidated financial statements

F-5

Index

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2007			2006
	(In Thousands)
Cash Flows from Operating Activities:
Net income	$	12,137		$	1,558
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion of securities premiums and (discounts)		(88	)		(553	)
Provision for loan losses		338			-
Provision for depreciation		589			589
Net (accretion) amortization of deferred discounts, fees and costs		(424	)		76
Deferred income tax expense (benefit)		5,053			(214	)
(Gain) loss from dispositions of premises and equipment		(18,962	)		5
Earnings on bank owned life insurance		(361	)		(154	)
(Increase) in accrued interest receivable		(239	)		(98	)
(Increase) decrease in other assets		(1,080	)		143
Increase in accrued interest payable		8			5
Increase in other liabilities		184			174
ESOP shares earned		302			276
Net Cash Provided by (Used in) Operating Activities		(2,543	)		1,807

Cash Flows from Investing Activities:
Purchase of loans		(11,695	)		-
Sale of loan participation interest		1,505			-
Net increase in loans		(55,208	)		(10,486	)
Purchase of securities held-to-maturity		(5,000	)		(50,335	)
Principal repayments on securities available-for-sale		8			21
Principal repayments on securities held-to-maturity		29,668			35,661
Purchase of Federal Home Loan Bank of New York stock		(15	)		(42	)
Purchases of premises and equipment		(198	)		(6,726	)
Proceeds from sale of premises and equipment		9,082			17
Purchase of business		(1,384	)		-
Purchase of bank owned life insurance		-			(8,000	)
Net Cash (Used in) Investing Activities		(33,237	)		(39,890	)

Cash Flows from Financing Activities:
Net increase (decrease) in deposits		37,386			(4,727	)
Increase in advance payments by borrowers for taxes and insurance		955			226
Net proceeds of initial public stock offering		-			57,628
Common stock acquired by the ESOP		-			(5,184	)
Cash dividends paid to minority shareholders		(164	)		-
Initial capitalization of mutual holding company		-			(500	)
Net Cash Provided by Financing Activities		38,177			47,443

Net Increase in Cash and Cash Equivalents		2,397			9,360

Cash and Cash Equivalents - Beginning		36,749			27,389

Cash and Cash Equivalents - Ending	$	39,146		$	36,749

See notes to consolidated financial statements

F-6

Index

Consolidated Statements of Cash Flows (Continued)

	Years Ended December 31,
	2007			2006
	(In Thousands)
Supplementary Cash Flows Information:
Income taxes paid	$	4,865		$	1,093
Interest paid	$	5,908		$	4,488

Supplementary Disclosure of Non-Cash Investing and Financing Activities:
Loan receivable originated in connection with building sale	$	16,341		$	-
Assets acquired (liabilities incurred) in connection with the acquisition of a business:
Intangible Assets	$	710		$	-
Goodwill		1,310			-
Note Payable		(625	)		-

See notes to consolidated financial statements

F-7

Index

Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

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

Nature of Business and Significant Estimates

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

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

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

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

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

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

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

F-8

Index

Note 1 - Summary of Significant Accounting Policies (Continued)

Nature of Business and Significant Estimates (Continued)

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

Cash and Cash Equivalents

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

Securities

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

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

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

Loans and Allowance for Loan Losses

Loans are stated at unpaid principle balances plus net deferred loan origination costs less an allowance for loan losses which is maintained at a level that represents management’s best estimate of losses known and inherent in the loan portfolio that are both probable and reasonable to estimate. The allowance is decreased by loan charge-offs, increased by subsequent recoveries of loans previously charged off, and then adjusted, via either a charge or credit to operations, to an amount determined by management to be necessary. Loans or portions thereof, are charged off when, after collection efforts are exhausted, they are determined to be un-collectible. Management of the Bank, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume inherent in its loan activities, along with the general economic and

F-9

Index

Note 1 – Summary of Significant Accounting Policies (Continued)

Loans and Allowance for Loan Losses (Continued)

real estate market conditions. The Bank utilizes a two tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Bank maintains a loan review system, which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan losses are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management’s judgment. Although management believes that specific and general loan losses are established in accordance with management’s best estimate, actual losses are dependent upon future events and, as such, further additions to the level of loan loss allowances may be necessary.

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

Loan Origination Fees and Costs

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

Loan Interest and the Allowance for Uncollected Interest

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

Concentration of Risk

The Bank’s lending activity is concentrated in loans secured by multi-family and non-residential real estate located primarily in the Northeast and Mid-Atlantic regions of the United States. The Bank also had deposits in excess of the FDIC insurance limit at other financial institutions. At December 31, 2007, such deposits totaled $37.0 million, of which $36.8 million was held by the Federal Home Loan Bank of New York. Generally, deposits in excess of $100,000 are not insured by the FDIC.

F-10

Index

Note 1 - Summary of Significant Accounting Policies (Continued)

Premises and Equipment

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

	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. Our BOLI is invested in a General Account Portfolio and a Yield Portfolio account and is managed by an independent investment firm.

Federal Home Loan Bank of New York Stock

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

Business Combinations

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

Intangible Assets

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

F-11

Index

Note 1 - Summary of Significant Accounting Policies (Continued)

Intangible Assets (Continued)

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

Goodwill

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

Income Taxes

The Company and the Bank file a consolidated federal income tax return. Income taxes are allocated to the Company and Bank based upon their respective income or loss included in the consolidated income tax return. The Company and the Bank file combined or separate state and city income tax returns depending on the particular requirements of each jurisdiction.

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

F-12

Index

Note 1 - Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

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

Advertising Costs

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

Other Comprehensive Income

The Company records in accumulated other comprehensive income, net of related deferred income taxes, unrealized gains and losses on available for sale securities and the prior service cost of the Outside Directors Retirement Plan (“DRP”) that has not yet been recognized in expense. Realized gains and losses, if any, are reclassified to non-interest income upon the sale of the related securities or upon the recognition of a security impairment loss. A portion of the prior service cost of the DRP is recorded in expense annually. At December 31, 2007, accumulated other comprehensive loss totaled $(149,000) and included $43,000 of net gains on available for sale securities less $(18,000) of related deferred income taxes and $(316,000) in prior service cost of the DRP less $142,000 of related deferred income taxes. At December 31, 2006, accumulated other comprehensive loss totaled $(116,000) and included $70,000 of net gains on available for sale securities less $(28,000) of related deferred income taxes and $(287,000) in prior service cost of the DRP less $129,000 of related deferred income taxes. The Company has elected to report the effects of other comprehensive income in the consolidated statements of stockholders’ equity.

Net Income Per Common Share

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

Interest Rate Risk

The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to purchase securities and to make loans secured by

F-13

Index

Note 1 - Summary of Significant Accounting Policies (Continued)

Interest Rate Risk (Continued)

real estate. The potential for interest-rate risk exists as a result of the generally shorter duration of interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will re-price faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Bank’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Off-Balance-Sheet Financial Instruments

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

Reclassification

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

Note 2 – Mutual Holding Company Reorganization and Regulatory Matters

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

The MHC, which owned 55.0% of the Company’s common stock as of December 31, 2007, must hold at least 50.1% of the Company’s stock so long as the MHC exists. In addition to owning shares of the Company’s common stock, the MHC was capitalized in 2006 with $500,000 in cash from the Bank.

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

Office of Thrift Supervision (“OTS”) regulations impose limitations upon all capital distributions, including cash dividends, by savings institutions such as the Bank. Under these regulations, an application to and a prior approval of the OTS are required before any capital distribution if (1) the institution does not meet the criteria for “expedited treatment” of applications under OTS regulations; (2) total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years; (3) the institution would be undercapitalized

F-14

Index

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

following the distribution; or (4) the distribution would otherwise be contrary to statute, regulation or agreement with the OTS. If an application is not required, the Bank would still be required to provide the OTS with prior notification. The Company’s ability to pay dividends, should any be declared, may depend on the ability of the Bank to pay dividends to the Company.

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

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

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

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

Under the prompt corrective action rule issued by the federal banking authorities, an institution must have a leverage ratio of 4% or greater, a tier 1 capital ratio of 4% or greater and a total risk-based capital ratio of 8% or greater in order to be considered adequately capitalized. The Bank is in compliance with these requirements at December 31, 2007.

F-15

Index

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

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

	December 31,
	2007			2006
	(In Thousands)
GAAP capital	$	79,456		$	67,662
Less: Goodwill and intangible assets		(2,020	)		-
Unrealized gain on securities available for sale		(25	)		(42	)
Disallowed deferred tax assets		(1,003	)		(667	)

Core and Tangible Capital		76,408			66,953

Add: General valuation allowances		1,489			1,200

Total Capital	$	77,897		$	68,153

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, 2007:

Total capital (to risk-weighted assets)

77,897

37.50

≥16,617

≥8.00

20,772

≥10.00

Tier 1 capital (to risk-weighted assets)

76,408

36.78

≥ -

≥12,463

≥ 6.00

Core (Tier 1) capital (to adjusted total assets)

76,408

24.18

≥12,641

≥4.00

≥15,801

≥ 5.00

Tangible capital (to adjusted total assets)

76,408

24.18

≥ 4,740

≥1.50

≥ -

As of December 31, 2006:

Total capital (to risk-weighted assets)

68,153

44.58

≥12,229

≥8.00

≥15,286

≥10.00

Tier 1 capital (to risk-weighted assets)

66,953

43.80

≥ -

≥ 9,172

≥ 6.00

Core (Tier 1) capital (to adjusted total assets)

66,953

25.46

≥10,520

≥4.00

≥13,150

≥ 5.00

Tangible capital (to adjusted total assets)

66,953

25.46

≥ 3,945

≥1.50

≥ -

F-16

Index

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

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

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

Note 3 - Acquisition

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

Note 4 - Financial Instruments with Off-Balance Sheet Risk

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

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

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

	$	50,223	$	7,794

F-17

Index

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

At December 31, 2007, all of the financial instruments noted above carry adjustable or floating interest rates. Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained, if deemed necessary by the Bank, is based on management’s credit evaluation of the borrower.

Note 5 - Securities Available for Sale

	December 31, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Federal National Mortgage Association common stock	$	4	$	42	$	-	$	46
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation		187		1		-		188
Federal National Mortgage Association		82		-		-		82
Collateralized Mortgage Obligations		4		-		-		4
		273		1		-		274
	$	277	$	43	$	-	$	320

	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Federal National Mortgage Association common stock	$	4	$	68	$	-	$	72

Mortgage-backed securities:
Federal Home Loan Mortgage Corporation		193		2		-		195
Federal National Mortgage Association		84		-		-		84
Collateralized Mortgage Obligations		4		-		-		4
		281		2		-		283
	$	285	$	70	$	-	$	355

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

F-18

Index

Note 5 - Securities Available for Sale (Continued)

Contractual maturities of mortgage-backed securities were as follows:

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

	$	273	$	274	$	281	$	283

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

Note 6 - Securities Held to Maturity

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

	$	2,875	$	23	$	8	$	2,890

F-19

Index

Note 6 - Securities Held to Maturity (Continued)

	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
U.S. Government (including Agencies) maturing:
Within one year	$	21,904	$	11	$	2	$	21,913
After one but within five years		1,000		-		9		991

		22,904		11		11		22,904
Mortgage-backed securities:
Government National Mortgage Association		2,190		6		13		2,183
Federal Home Loan Mortgage Corporation		1,135		12		3		1,144
Federal National Mortgage Association		995		12		2		1,005
Collateralized Mortgage Obligations		222		1		-		223
Private Pass-through Securities		9		-		-		9

		4,551		31		18		4,564

	$	27,455	$	42	$	29	$	27,468

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

Contractual maturities of mortgage-backed securities were as follows:

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

	$	2,875	$	2,890	$	4,551	$	4,564

F-20

Index

Note 6 - Securities Held to Maturity (Continued)

The 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, 2007:
Mortgage-backed securities	$	74	$	1	$	961	$	7	$	1,035	$	8

December 31, 2006:
U. S. Government (including Agencies)	$	997	$	2	$	991	$	9	$	1,988	$	11
Mortgage-backed securities		-		-		2,372		18		2,372		18

	$	997	$	2	$	3,363	$	27	$	4,360	$	29

At December 31, 2007, 27 mortgage-backed securities had unrealized losses. As of December 31, 2007 and 2006, management concluded that the unrealized losses reflected above were temporary in nature since they were primarily related to market interest rates and not related to the underlying credit quality of the issuers of the securities. Additionally, the Bank has the ability and intent to hold these securities for the time necessary to recover the amortized cost.

F-21

Index

Note 7 - Loans Receivable, Net

	December 31,
	2007			2006
	(In Thousands)
Real estate mortgage:
One-to-four family	$	304		$	405
Multi-family		138,767			110,389
Mixed use		52,559			42,576
Commercial		79,305			47,802

		270,935			201,172

Construction:
Multi-family		7,538			-
Commercial		1,918			-

		9,456			-

Commercial Business:
Lines of Credit		2,322			-
Term		655			-

		2,977			-

Consumer:
Line of credit		69			71
Passbook or certificate		19			348

		88			419

Total Loans		283,456			201,591

Allowance for loan losses		(1,489	)		(1,200	)
Deferred loan fees and costs		1,166			915

	$	283,133		$	201,306

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

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

F-22

Index

Note 7 - Loans Receivable, Net (Continued)

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

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

	Years Ended December 31,
	2007			2006
	(In Thousands)

Balance, beginning	$	1,200		$	1,200
Provision charged to operations		338			-
Losses charged to allowance		(49	)		-

Balance, ending	$	1,489		$	1,200

Note 8 - Premises and Equipment, Net

	December 31,
	2007			2006
	(In Thousands)
Land	$	534		$	587
Air rights acquired		-			6,088
Buildings and improvements		7,183			7,592
Leasehold improvements		736			725
Furnishings and equipment		4,977			4,823

		13,430			19,815
Accumulated depreciation and amortization		(8,901	)		(8,698	)

	$	4,529		$	11,117

Included in property and equipment at December 31, 2006, were $6,187,000 in assets, which were held for sale. These assets relate to a branch located in New York City and consisted of the following: land of $52,000, air rights of $6,088,000, building of $5,000 and furnishings and equipment of $42,000. The Bank closed on the sale of these assets on June 29, 2007, receiving net proceeds of $25,157,000 and recognizing a net gain of $18,962,000.

F-23

Index

Note 9 - Accrued Interest Receivable, Net

	December 31,
	2007			2006
	(In Thousands)
Loans	$	1,456		$	1,041
Securities		16			64
		1,472			1,105
Allowance for uncollected interest		(132	)		(4	)
	$	1,340		$	1,101

Note 10 - Deposits

	December 31,
	2007					2006
	Amount		Weighted Average Interest Rate			Amount		Weighted Average Interest Rate
	(Dollars in Thousands)
Demand deposits:
Non-interest bearing	$	1,745		0.00	%	$	1,439		0.00	%
NOW and money market		21,839		0.84	%		21,137		0.49	%
		23,584		0.77	%		22,576		0.46	%

Savings accounts		57,346		0.73	%		60,755		0.70	%

Certificates of deposit maturing in:
One year or less		95,341		4.83	%		68,033		4.40	%
After one to two years		24,531		4.76	%		13,537		4.17	%
After two to three years		14,412		4.78	%		9,630		4.28	%
After three to four years		5,099		5.27	%		9,339		4.57	%
After four to five years		5,665		5.15	%		4,722		5.27	%

		145,048		4.84	%		105,261		4.41	%

	$	225,978		3.37	%	$	188,592		2.74	%

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

F-24

Index

Note 10 – Deposits (Continued)

Interest expense on deposits consists of the following:

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

	$	5,897	$	4,493

Note 11 - Note Payable

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

Note 12 - Income Taxes

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

The components of income taxes are summarized as follows:

	Years Ended December 31,
	2007		2006
	(In Thousands)
Current tax expense	$	4,097	$	1,260
Deferred tax expense		5,053		(214	)

Income Tax Expense	$	9,150	$	1,046

F-25

Index

Note 12 - Income Taxes (Continued)

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

	Years Ended December 31,
	2007			2006
	(Dollars In Thousands)
Federal income tax at statutory rates	$	7,238		$	886
State and City tax, net of federal income tax effect		1,945			202
Non-taxable income on bank owned life insurance		(123	)		(52	)
Other		90			10

Income Tax Expense	$	9,150		$	1,046

Effective Income Tax Rate		43.0	%		40.2	%

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

	December 31,
	2007			2006
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	657		$	514
Depreciation		168			264
Benefit plans		223			63
Accumulated other comprehensive loss - DRP		142			129
Deferred loan fees and discounts		-			67

Total Deferred Tax Assets		1,190			1,037

Deferred tax liability:
Unrealized gain on securities available for sale		18			28
Deferred loan fees and discounts		14			-
Gain on sale of building		5,179			-

Total Deferred Tax Liabilities		5,211			28

Net Deferred Tax (Liability) Asset	$	( 4,021	)	$	1,009

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

F-26

Index

Note 13 - Other Non-Interest Expenses

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

	Years Ended December 31,
	2007		2006
	(In Thousands)

Service contracts	$	205	$	191
Insurance		165		162
Audit and accounting		214		208
Directors compensation		219		214
Telephone		167		161
Office supplies and stationary		209		252
Director, officer, and employee expenses		235		158
Legal fees		277		185
Other		642		440

	$	2,334	$	1,971

Note 14 - Benefits Plans

Outside Director Retirement Plan (“DRP”)

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

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

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Index

Note 14 - Benefits Plans (Continued)

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

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

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

2008	$	-
2009		-
2010		-
2011		29
2012		60
2013 – 2017		393

Supplemental Executive Retirement Plan (“SERP”)

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

During the years ended December 31, 2007 and 2006, expenses of $135,000 and 114,000, respectively, were recorded for this plan and are reflected in the Consolidated Statements of Income under Salaries and Employee Benefits. At December 31, 2007 and 2006, a liability for this plan of $249,000 and $114,000, respectively, is included in the Consolidated Statements of Financial Condition under Accounts Payable and Accrued Expenses.

401(k) Plan

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

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Index

Note 14 - Benefits Plans (Continued)

Employee Stock Ownership Plan (“ESOP”)

In conjunction with the Company’s initial public stock offering, the Bank established an ESOP for all eligible employees (substantially all full-time employees). The ESOP borrowed $5,184,200 from the Company and used those funds to acquire 518,420 shares of Company common stock at $10.00 per share. The loan from the Company carries an interest rate of 8.25% and is repayable in twenty annual installments through 2025. Each year, the Bank intends to make discretionary contributions to the ESOP equal to the principal and interest payment required on the loan from the Company. The ESOP may further pay down the principal balance of the loan by using dividends paid, if any, on the shares of Company common stock it owns. The balance remaining on the ESOP loan was $4,762,000 at December 31, 2007.

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

The ESOP is accounted for in accordance with Statement of Position 93-6, “Accounting for Employee Stock Ownership Plans”, which was issued by the American Institute of Certified Public Accountants. Accordingly, ESOP shares initially pledged as collateral were recorded as unearned ESOP shares in the stockholders’ equity section of the consolidated statement of financial condition. Thereafter, on a monthly basis over a 240 month period, approximately 2,160 shares are committed to be released and compensation expense recorded equal to the shares committed to be released multiplied by the average closing price of the Company’s stock during that month. ESOP expense during the years ended December 31, 2007 and 2006, totaled approximately $302,000 and $276,000, respectively. Dividends on unallocated shares, which totaled approximately $15,000 during 2007, are recorded as a reduction of the ESOP loan. Dividends on allocated shares, which totaled approximately $1,000 during 2007, are charged to retained earnings. ESOP shares are summarized as follows:

ESOP shares are summarized as follows:

	December 31,
	2007		2006
Allocated shares		25,921		-
Shares committed to be released		25,921		25,921
Unearned shares		466,578		492,499

Total ESOP Shares		518,420		518,420

Fair value of unearned shares	$	5,520,000	$	6,053,000

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Index

Note 15 - Commitments and Contingencies

Lease Commitments

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

Year ending December 31,
2008	$	294
2009		274
2010		248
2011		162
2012		64
Thereafter		1,114
	$	2,156

Available Credit Facilities

The Bank has the ability to borrow up to $11.2 million from the Federal Home Loan Bank of New York, consisting of a $5.6 million Overnight Line of Credit and a $5.6 million Companion (DRA) Commitment, both of which expire on July 31, 2008. At December 31, 2007 and 2006, no amounts were outstanding under these credit facilities.

Other

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

Note 16 - Disclosures About Fair Value of Financial Instruments

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

Cash and Cash Equivalents and Accrued Interest Receivable and Payable

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

Securities

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

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Index

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

Loans

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

Certain types, such as commercial loans and loans to individuals, are further segmented by maturity and type of collateral.

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

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

Federal Home Loan Bank of New York Stock

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

Deposit Liabilities

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, money market accounts, interest checking accounts, and savings accounts is equal to the amount payable on demand. Time deposits are segregated by type, size, and remaining maturity. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate currently offered by the Bank for deposits of similar size, type and maturity. At December 31, 2007 and 2006, accrued interest payable of $27,000 and $19,000, respectively, is included in deposit liabilities.

Borrowed Funds

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

Off-Balance-Sheet Financial Instruments

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At December 31, 2007 and 2006, the estimated fair values of these off-balance-sheet financial instruments were immaterial.

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Index

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

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

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

Financial liabilities:
Deposits		225,978		228,605		188,592		187,919

Note 17 – Parent Company Only Financial Information

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

Statements of Financial Condition

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

Total Stockholders’ Equity		108,829		96,751

Total Liabilities and Stockholders’ Equity	$	109,231	$	96,991

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Index

Note 17 - Parent Only Financial Information (Continued)

Statements of Income

	Year Ended December 31, 2007			July 5, 2006 (Inception) to December 31, 2006
	(In Thousands)
Interest income – securities	$	402		$	307
Interest income – interest- earning deposits		780			149
Interest income – ESOP loan		402			210
Operating expenses		(276	)		(90	)

Income before Income Tax Expense and Equity in Undistributed Earnings of Subsidiary		1,308			576

Income tax expense		522			226

Income before Equity in Undistributed Earnings of Subsidiary		786			350

Equity in undistributed earnings of subsidiary		11,351			399

Net Income	$	12,137		$	749

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Index

Note 17 - Parent Only Financial Information (Continued)

Statements of Cash Flow

	Year Ended December 31, 2007			July 5, 2006 (Inception) to December 31, 2006
	(In Thousands)
Cash Flows from Operating Activities
Net income	$	12,137		$	749
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary		(11,351	)		(399	)
Amortization of securities discount		(84	)		(307	)
Decrease (increase) in other assets		3			(3	)
(Decrease) increase in other liabilities		(2	)		240

Net Cash Provided by Operating Activities		703			280

Cash Flows from Investing Activities
Purchase of securities held to maturity		(5,000	)		(29,609	)
Maturities of securities held to maturity		20,000			15,000
Loan to ESOP		-			(5,184	)
Repayment of ESOP loan		115			307
Purchase of Bank capital stock		-			(28,889	)

Net Cash Provided by (Used in) Investing Activities		15,115			(48,375	)

Cash Flows from Financing Activities
Proceeds from issuance of common stock		-			57,628
Cash dividends paid		(164	)		-

Net Cash Provided by (Used in) Financing Activities		(164	)		57,628

Net Increase in Cash and Cash Equivalents		15,654			9,533

Cash and Cash Equivalents - Beginning		9,533			-

Cash and Cash Equivalents - Ending	$	25,187		$	9,533

F-34

Index

Note 18 - Recent Accounting Pronouncements

FASB Statement No. 141(R)

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

FASB Statement No. 157

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The adoption of FASB Statement No. 157 is not expected to have a material effect on our consolidated financial position, results of operations and cash flows.

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

FASB Statement No. 158

On September 29, 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, which amends Statement 87 and Statement 106 to require recognition of the over funded or under funded status of pension and other postretirement benefit plans on the balance sheet. Under Statement 158, gains and losses, prior service costs and credits, and any remaining transition amounts under Statement 87 and Statement 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. The measurement date — the date at which the benefit obligation and plan assets are measured — is required to be the company’s fiscal year end. Statement 158 is effective for publicly-held companies for fiscal years ending after December 15, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The implementation of the measurement date provisions of Statement 158, effective January 1, 2008, did not have a significant impact on the Company’s financial condition or results of operations.

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Index

Note 18 - Recent Accounting Pronouncements (Continued)

FASB Statement No. 158 (Continued)

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

FASB Statement No. 159

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

FASB Statement No. 160

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

Staff Accounting Bulletin (SAB) 110

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

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Index

Note 18 - Recent Accounting Pronouncements (Continued)

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

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

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

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

Emerging Issues Task Force (EITF) 06-11

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

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Index

Note 19 - Quarterly Financial Data (Unaudited)

	Quarter Ended
	March 31, 2007		June 30, 2007		September 30, 2007		December 31, 2007
	(In Thousands, except for per share data)
Interest Income	$	3,969	$	4,126	$	4,562	$	4,945
Interest Expense		1,284		1,332		1,504		1,798
Net Interest Income		2,685		2,794		3,058		3,147

Provision for Loan Losses		-		338		-		-
Net Interest Income after Provision for Loan Losses		2,685		2,456		3,058		3,147

Non-Interest Income		182		19,141		195		249
Non-Interest Expenses		2,259		2,739		2,362		2,466
Income before Income Taxes		608		18,858		891		930

Income Taxes		218		8,235		337		360
Net Income	$	390	$	10,623	$	554	$	570
Net Income per common share – Basic	$	0.03	$	0.83	$	0.04	$	0.04
Weighted average numbers of common shares outstanding – basic		12,736		12,742		12,749		12,758
Dividends declared per share	$	-	$	-	$	0.03	$	0.03

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Index

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

	Quarter Ended
	March 31, 2006		June 30, 2006		September 30, 2006		December 31, 2006
	(In Thousands, except for per share data)
Interest Income	$	3,545	$	3,684	$	4,111	$	4,008
Interest Expense		903		1,072		1,225		1,293
Net Interest Income		2,642		2,612		2,886		2,715

Provision for Loan Losses		-		-		-		-
Net Interest Income after Provision for Loan Losses		2,642		2,612		2,886		2,715

Non-Interest Income		113		119		179		208
Non-Interest Expenses		2,035		2,110		2,354		2,371
Income before Income Taxes		720		621		711		552

Income Taxes		311		271		299		165
Net Income	$	409	$	350	$	412	$	387
Net Income per common share – Basic		N/A		N/A	$	0.03	$	0.03
Weighted average numbers of common shares outstanding – basic		N/A		N/A		12,723		12,729

F-39