Edgar Filing: NORTHEAST COMMUNITY BANCORP INC

form10q-109984_necb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2010

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

For the transition period from ______________ to _____________

Commission file number: 0-51852

Northeast Community Bancorp, Inc.

(Exact name of registrant as specified in its charter)

United States of America		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)

(914) 684-2500

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

As of August 13, 2010, there were 13,225,000 shares of the registrant’s common stock outstanding.

NORTHEAST COMMUNITY BANCORP, INC.

Table of Contents

		Page No.
Part I—Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Financial Condition at June 30, 2010 and December 31, 2009	1

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009	2

	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2010 and 2009	3

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	29

Part II—Other Information

Item 1.	Legal Proceedings	29

Item1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Removed and Reserved	30

Item 5.	Other Information	30

Item 6.	Exhibits	30

	Signatures	31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

	June 30, 2010			December 31, 2009
	(In thousands, except share and per share data)
ASSETS
Cash and amounts due from depository institutions	$	4,798		$	3,441
Interest-bearing deposits		66,694			85,277

Cash and cash equivalents		71,492			88,718

Certificates of deposit		996			8,715
Securities available for sale		174			176
Securities held to maturity		28,909			11,845
Loans receivable, net of allowance for loan losses of $5,501 and $6,733, respectively		378,759			386,266
Premises and equipment, net		7,849			8,220
Federal Home Loan Bank of New York stock, at cost		2,334			2,277
Bank owned life insurance		15,833			10,522
Accrued interest receivable		2,015			1,924
Goodwill		1,310			1,310
Intangible assets		558			588
Real estate owned		986			636
Other assets		5,760			6,079

Total assets	$	516,975		$	527,276

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing	$	12,578		$	11,594
Interest bearing		355,797			367,924

Total deposits		368,375			379,518

Advance payments by borrowers for taxes and insurance		3,293			3,153
Federal Home Loan Bank advances		35,000			35,000
Accounts payable and accrued expenses		2,133			1,829
Note payable		336			328

Total liabilities		409,137			419,828

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		57,446			57,496
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(4,018	)		(4,147	)
Retained earnings		54,438			54,121
Accumulated comprehensive loss		(160	)		(154	)

Total stockholders’ equity		107,838			107,448
Total liabilities and stockholders’ equity	$	516,975		$	527,276

See Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(In thousands, except per share data)

INTEREST INCOME:
Loans	$	5,658		$	6,050		$	11,425		$	11,882
Interest-earning deposits		27			27			75			58
Securities – taxable		315			58			517			100

Total Interest Income		6,000			6,135			12,017			12,040

INTEREST EXPENSE:
Deposits		1,924			2,247			3,934			4,227
Borrowings		301			382			598			716

Total Interest Expense		2,225			2,629			4,532			4,943

Net Interest Income		3,775			3,506			7,485			7,097

PROVISION FOR LOAN LOSSES		860			336			893			386

Net Interest Income after Provision for Loan Losses		2,915			3,170			6,592			6,711

NON-INTEREST INCOME:
Other loan fees and service charges		93			77			150			160
Impairment loss on equity security		-			-			-			(4	)
Loss on disposition of equipment		-			-			(7	)		-
Earnings on bank owned life insurance		158			113			311			199
Investment advisory fees		201			181			381			349
Other		2			3			6			3

Total Non-Interest Income		454			374			841			707

NON-INTEREST EXPENSES:
Salaries and employee benefits		1,775			1,766			3,558			3,300
Net occupancy expense		304			374			637			659
Equipment		141			190			278			345
Outside data processing		225			192			433			390
Advertising		14			165			36			231
Real estate owned expense		13			35			12			145
FDIC insurance premiums		109			216			243			227
Other		707			922			1,386			1,590

Total Non-Interest Expenses		3,288			3,860			6,583			6,887

Income (Loss) before Provision for Income Taxes		81			(316	)		850			531

PROVISION (BENEFIT) FOR INCOME TAXES		(45	)		(181	)		201			160

Net Income (Loss)	$	126		$	(135	)	$	649		$	371
Net Income (Loss) per Common Share – Basic	$	0.01		$	(0.01	)	$	0.05		$	0.03
Weighted Average Number of Common Shares Outstanding – Basic		12,820			12,794			12,817			12,791
Dividends paid per common share	$	0.03		$	0.03		$	0.06		$	0.06

See Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Six Months Ended June 30, 2010 and 2009

	Common Stock		Additional Paid-in Capital			Unearned ESOP Shares			Retained Earnings			Accumulated Other Comprehensive (Loss)			Total Stockholders’ Equity			Comprehensive Income


Balance at December 31, 2008	$	132	$	57,560		$	(4,407	)	$	57,399		$	(182	)	$	110,502
Comprehensive income:
Net income		-		-			-			371			-			371		$	371
Unrealized loss on securities available for sale, net of taxes of $2		-		-			-			-			5			5			5
Prior Service Cost and Actuarial Loss– DRP, net of taxes of $6		-		-			-			-			8			8			8
Cash dividend declared ($.06 per share) to minority stockholders		-		-			-			(331	)		-			(331	)
ESOP shares earned		-		(28	)		130			-			-			102

Total comprehensive income																		$	384

Balance at June 30, 2009	$	132	$	57,532		$	(4,277	)	$	57,439		$	(169	)	$	110,657



Balance at December 31, 2009	$	132	$	57,496		$	(4,147	)	$	54,121		$	(154	)	$	107,448
Comprehensive income:
Net income		-		-			-			649			-			649		$	649
Change in unrealized gain on securities available for sale, net of taxes of $1		-		-			-			-			2			2			2
Prior Service Cost and Actuarial Loss– DRP, net of taxes of $6		-		-			-			-			(8	)		(8	)		(8	)
Cash dividend declared ($.06 per share) to minority stockholders										(332	)		-			(332	)
ESOP shares earned		-		(50	)		129			-			-			79

Total comprehensive income																		$	643

Balance at June 30, 2010	$	132	$	57,446		$	(4,018	)	$	54,438		$	(160	)	$	107,838

See Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Six Months Ended June 30,
		2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:		(In thousands)
Net income	$	649		$	371
Adjustments to reconcile net income to net cash (used in) operating activities:
Net amortization of securities premiums and discounts, net		12			1
Provision for loan losses		893			386
Provision for depreciation		401			317
Net (accretion) amortization of deferred loan discounts, fees and costs		70			(163	)
Amortization other		38			41
Deferred income taxes		177			-
Impairment loss on securities		-			4
Loss on disposal of equipment		7			3
Loss on sale of real estate owned		-			86
Earnings on bank owned life insurance		(311	)		(199	)
ESOP compensation expense		79			102
(Increase) in accrued interest receivable		(91	)		(149	)
Decrease (Increase) in other assets		97			(2,148	)
Increase in accrued interest payable		1			1
Increase (Decrease) in other accounts payable and accrued expenses		341			(1,938	)
Net Cash Provided by (Used in) Operating Activities		2,363			(3,285	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans		-			(1,529	)
Net decreases (increase) in loans		6,194			(28,189	)
Purchase of securities held to maturity		(22,568	)		-
Principal repayments on securities available for sale		4			4
Principal repayments and calls on securities held to maturity		5,492			198
Proceeds from maturities of certificates of deposit		7,719			-
Purchase of Federal Home Loan Bank of New York Stock		(57	)		(602	)
Purchases of premises and equipment		(37	)		(4,190	)
Purchases of certificates of deposit		-			(15,438	)
Proceeds from sale of real estate owned		-			283
Capitalized costs on real estate owned		-			(168	)
Purchase of bank owned life insurance		(5,000	)		(1,200	)
Net Cash (Used in) Investing Activities		(8,253	)		(50,831	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits		(11,144	)		88,382
Proceeds from FHLB of New York advances		-			10,000
Increase (decrease) in advance payments by borrowers for taxes and insurance		140			(3,458	)
Cash dividends paid to minority stockholders		(332	)		(331	)
Net Cash (Used in) Provided by Financing Activities		(11,336	)		94,593
Net (Decrease) Increase in Cash and Cash Equivalents		(17,226	)		40,477
Cash and Cash Equivalents - Beginning		88,718			36,534
Cash and Cash Equivalents - Ending	$	71,492		$	77,011
SUPPLEMENTARY CASH FLOWS INFORMATION
Income taxes paid	$	-		$	3,862
Interest paid	$	4,531		$	4,942
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
Loan transferred to Real Estate Owned	$	350		$	-

See Notes to Consolidated Financial Statements

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NORTHEAST COMMUNITY BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

Northeast Community Bancorp, Inc. (the “Company”) is a Federally-chartered corporation organized as a mid-tier holding company for Northeast Community Bank (the “Bank”), in conjunction with the Bank’s reorganization from a mutual savings bank to the mutual holding company structure on July 5, 2006. The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank and the Bank’s wholly owned subsidiary, New England Commercial Properties, LLC (“NECP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

NECP, a New York limited liability company, was formed in October 2007 to facilitate the purchase or lease of real property by the Bank. As of June 30, 2010, NECP had title to one multi-family property located in Newark, New Jersey and two gasoline stations located in Putnam and Westchester Counties, New York. The Bank accepted a deed-in-lieu of foreclosure and transferred the multi-family property to NECP on November 19, 2008. In addition, the Bank completed foreclosure action on the two gasoline stations and transferred the two properties to NECP on April 19, 2010.

The accompanying unaudited consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial information as well as instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information or footnotes necessary for the presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the full year or any other interim period. The December 31, 2009 consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. That data, along with the interim financial information presented in the consolidated statements of financial condition, income, changes in stockholders’ equity, and cash flows should be read in conjunction with the consolidated financial statements and notes thereto, included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.

The preparation of consolidated financial statements in conformity with 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. In preparing these consolidated financial statements, the Company evaluated the events that occurred after June 30, 2010 and through the date these consolidated financial statements were issued.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing the net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed in a manner similar to basic earnings 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. Anti-dilutive shares are common stock equivalents with weighted-average exercise prices in excess of the weighted-average market value for the periods presented. The Company has not granted any restricted stock awards or stock options and, during the six-month periods ended June 30, 2010 and 2009, 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 earnings per common share until they are committed to be released.

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NOTE 3 – EMPLOYEE STOCK OWNERSHIP PLAN

As of December 31, 2009 and June 30, 2010, the ESOP trust held 518,420 shares of the Company’s common stock, which represents all allocated and unallocated shares held by the plan. As of December 31, 2009, the Company had allocated 77,763 shares to participants, and an additional 25,921 shares had been committed to be released. As of June 30, 2010, the Company had allocated 103,684 shares to participants, and an additional 12,960 shares had committed to be released. The Company recognized compensation expense of $37,000 and $54,000 during the three-month periods ended June 30, 2010 and 2009, respectively, and $79,000 and $102,000 during the six-month periods ended June 30, 2010 and 2009, respectively, which equals the fair value of the ESOP shares when they became committed to be released.

NOTE 4 – OUTSIDE DIRECTOR RETIREMENT PLAN (“DRP”)

Periodic expenses for the Company’s DRP were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	(In thousands)
	2010		2009		2010		2009
Service cost	$	14	$	13	$	28	$	26
Interest cost		10		9		20		18
Amortization of Prior Service Cost		5		5		10		10
Amortization of actuarial loss		2		2		4		4
Total	$	31	$	29	$	62	$	58

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 amortization of prior service cost and actuarial loss in the six-month periods ended June 30, 2010 and 2009 is also reflected as a reduction in other comprehensive income during each period.

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NOTE 5 – INVESTMENTS

The following table sets forth the amortized cost and fair values of our securities portfolio at the dates indicated (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2010
Securities available for sale:
Mortgage-backed securities-GSE	$	169	$	5	$	-	$	174
Total	$	169	$	5	$	-	$	174

Securities held to maturity:
Mortgage-backed securities-GSE	$	16,537	$	240	$	-	$	16,777
U.S. Government agencies		7,401		25		1		7,425
Collateralized mortgage obligations-GSE		4,970		195		-		5,165
Private pass-through securities		1		-		-		1
Total	$	28,909	$	460	$	1	$	29,368

December 31, 2009
Securities available for sale:
Mortgage-backed securities-GSE	$	174	$	2	$	-	$	176
Total	$	174	$	2	$	-	$	176

Securities held to maturity:
Mortgage-backed securities-GSE	$	11,796	$	30	$	1	$	11,825
Collateralized mortgage obligations-GSE		46		1		-		47
Private pass-through securities		3		-		-		3
Total	$	11,845	$	31	$	1	$	11,875

Contractual final maturities of mortgage-backed securities available for sale were as follows:

	June 30, 2010
	Amortized Cost		Fair Value
	(In Thousands)
Due within one year	$	-	$	-
Due after ten years		169		174

	$	169	$	174

Contractual final maturities of mortgage-backed securities held to maturity were as follows:

	June 30, 2010
	Amortized Cost		Fair Value
	(In Thousands)
Due within one year	$	-	$	-
Due after one but within five years		18		19
Due after five but within ten years		302		308
Due after ten years		21,188		21,616

	$	21,508	$	21,943

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NOTE 5 – INVESTMENTS (Continued)

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

Contractual final maturities of U.S. Government Agency securities held to maturity were as follows:

	June 30, 2010
	Amortized Cost		Fair Value
	(In Thousands)
Due within one year	$	-	$	-
Due after one but within five years		-		-
Due after five but within ten years		2,406		2,405
Due after ten years		4,995		5,020

	$	7,401	$	7,425

The maturities shown above are based upon contractual final maturity. Actual maturities will differ from contractual maturities due to potential calling of these securities by the issuers.

The age of unrealized losses and the fair value of related securities available for sale and held to maturity were as follows (in thousands):

	Less than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
June 30, 2010
U.S Government agencies	$	2,405	$	1	$	-	$	-	$	2,405	$	1
	$	2,405	$	1	$	-	$	-	$	2,405	$	1


December 31, 2009
Mortgage backed securities-GSE	$	-	$	-	$	127	$	1	$	127	$	1
	$	-	$	-	$	127	$	1	$	127	$	1

At June 30, 2010, one U.S. Government agency security had an unrealized loss. Management concluded that the unrealized loss reflected above for the one security was temporary in nature since it was primarily related to market interest rates and not related to the underlying credit quality of the issuer of the security. Additionally, as the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before a market recovery, the investment is not considered to be other-than-temporarily impaired.

NOTE 6 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

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NOTE 6 – FAIR VALUE MEASUREMENTS (Continued)

Fair value accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied.

Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, fair value accounting guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability; either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correction or other means.

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counter-party credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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NOTE 6 – FAIR VALUE MEASUREMENTS (Continued)

Securities Available for Sale. Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things.

The following table summarizes financial assets measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
June 30, 2010
Securities available for sale:
Mortgage-backed securities-GSE	$	-	$	174	$	-	$	174
Total	$	-	$	174	$	-	$	174

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2009
Securities available for sale:
Mortgage-backed securities-GSE	$	-	$	176	$	-	$	176
Total	$	-	$	176	$	-	$	176

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a nonrecurring basis were as follows:

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Impaired loans:
June 30, 2010	$	-	$	-	$	4,615	$	4,615
December 31, 2009		-		-		4,122		4,122

Fair value is generally determined based upon independent third-party appraisals of the underlying collateral properties, or discounted cash flows based upon the expected proceeds.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2010 and December 31, 2009.

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NOTE 6 – FAIR VALUE MEASUREMENTS (Continued)

Cash and Cash Equivalents, Certificates of Deposit and Accrued Interest Receivable and Payable

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

Securities

Securities available for sale are measured as described above. The fair value of held to maturity securities is determined using the same methodology as used for securities available for sale.

Loans

Fair value is calculated by discounting scheduled future cash flows through estimated maturity using a market rate that reflects the credit and interest-rate risks inherent in the loans.

Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are typically included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

FHLB of New York Stock

The carrying amount of FHLB of New York stock is equal to its fair value and considers the limited marketability of this security.

Deposit Liabilities

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, money market accounts, interest checking accounts, and savings accounts is equal to the amount payable on demand. Time deposits are segregated by type, size, and remaining maturity. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is based on rates currently offered in the market. At June 30, 2010 and December 31, 2009, accrued interest payable of $9,000 and $8,000, respectively, is included in deposit liabilities.

FHLB of New York Advances and Note Payable

The fair value of FHLB advances and note payable are estimated based on the discounted value of future contractual payments. The discount rate is equivalent to the estimated rate at which the Company 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 June 30, 2010 and December 31, 2009, the estimated fair values of these off-balance-sheet financial instruments were immaterial.

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NOTE 6 – FAIR VALUE MEASUREMENTS (Continued)

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

	At June 30, 2010				At December 31, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	71,492	$	71,492	$	88,718	$	88,718
Certificates of deposit		996		996		8,715		8,715
Securities available for sale		174		174		176		176
Securities held to maturity		28,909		29,368		11,845		11,875
Loans receivable		378,759		396,860		386,266		395,366
FHLB stock		2,334		2,334		2,277		2,277
Accrued interest receivable		2,015		2,015		1,924		1,924

Financial liabilities:
Deposits		368,375		377,615		379,518		385,820
FHLB advances		35,000		36,932		35,000		36,805
Note payable		336		345		328		335

NOTE 7 – EFFECT OF SALE OF OUR NEW YORK CITY BRANCH OFFICE

On June 29, 2007, the Bank completed the sale of its branch office building located at 1353-55 First Avenue, New York, New York (the “Property”). The sale price for the Property was $28.0 million. At closing, the Bank received $10.0 million in cash and an $18.0 million zero coupon promissory note recorded at its then present value of $16.3 million (the “Original Note”). The Original Note was payable in two $9.0 million installments due on the first and second anniversaries of the Original Note. On July 31, 2008, as payment of the first installment due under the Original Note, the Bank received $2.0 million in cash and a new $7.0 million note bearing interest at 7% per annum and payable over a five-month period ending on December 31, 2008 (the “New Note”). On December 31, 2008, the Original Note and the remaining $1.9 million balance on the New Note were rolled into a new $10.9 million note payable on July 31, 2009 (the “Combined Note”). On July 29, 2009, prior to the due date, the $10.9 million Combined Note was extended to January 31, 2010. The amount due on such date includes interest and expenses. The Combined Note is secured by 100% of the interests in the companies owning the Property. In addition, the Combined Note is secured by a first mortgage on the Property. Based on a recent appraisal, the loan to value is less than 40%. This loan is included in loans receivable, however, it is not included in the calculation of the regulatory limits on loans to one borrower. The Company is currently negotiating with the borrower to extend the terms of the Combined Note.

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NOTE 8 – COMPREHENSIVE INCOME

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009

Net income (loss)	$	126		$	(135	)	$	649		$	371
Other comprehensive income (loss): Gross unrealized holding gain (loss) on securities available for sale, net of income tax (benefit), of $-, $-, $1, and $2, respectively.		1			-			2			5

Benefit plan amounts (amortization of prior service costs and actuarial gains, net of income tax effect of $3, $2, $6, and $6, respectively).		(4	)		4			(8	)		8
Other comprehensive income (loss)		(3	)		4			(6	)		13
Comprehensive income (loss)	$	123		$	(131	)	$	643		$	384

NOTE 9 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-16, Transfers and Servicing (Topic 860) - Accounting for Transfers of Financial Assets. The ASU improves financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. This ASU is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009. Early application is not permitted. The adoption did not have a material effect on the Company’s consolidated financial condition.

The FASB has issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require: (1) A reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and (2) In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures: (1) For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and (2) A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption did not have a material effect on the Company’s consolidated financial condition.

ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, will help investors assess the credit risk of a company’s receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures.

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NOTE 9 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

This ASU requires more information about the credit quality of financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.

The amendments in this Update apply to all entities with financing receivables. Financing receivables include loans and trade accounts receivable. However, short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from these disclosure amendments.

The effective date of ASU 2010-20 differs for public and nonpublic companies. For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010.

NOTE 10 – PENDING BRANCH SALE

On June 30, 2010, the Company announced a definitive agreement for Ponce De Leon Federal Bank to purchase the Bank's branch office located at 2047 86th Street, Brooklyn, NY. The purchase includes the assumption of approximately $28.6 million in deposits and the transfer of the fixtures, equipment and the real property at which the branch is located. No loans are being sold as part of the transaction. The completion of the transaction is expected in the fourth quarter of 2010, subject to regulatory approval and the satisfaction of certain other conditions described in the agreement.

NOTE 11 – STOCK REPURCHASE

On July 22, 2010, the Company announced that the Company’s board of directors approved the repurchase for up to 297,563 shares, or approximately 5.0% of the Company’s outstanding common stock held by persons other than NorthEast Community Bancorp MHC. These repurchases will be conducted solely through a Rule 10b5-1 repurchase plan. Repurchased shares will be held in treasury.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Bank’s market area, changes in real estate market values in the Bank’s market area, and changes in relevant accounting principles and guidelines. Additional factors that may affect the Company’s results are discussed in the Company’s Annual Report on Form 10-K under “Item 1A. Risk Factors.” These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

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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 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 or a series of losses 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 in the Company’s Annual Report on Form 10-K for 2009.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings.

Second Quarter Performance Highlights

The Company’s net income for the quarter ended June 30, 2010 increased by $261,000 over the same period in 2009. Net interest income increased from period to period primarily as a result of the cost of our interest-bearing liabilities decreasing more than the corresponding decrease in the yield on our interest-earning assets.

Reflecting the impact of the economic downturn on our market area and the continuing decline in the market value of collateral for commercial real estate and multi-family loans, our non-performing loans increased to $31.4 million at June 30, 2010 from $20.2 million at December 31, 2009. Non-performing loans at June 30, 2010 consisted of 16 loans in the aggregate (eight non-residential mortgage loans and eight multi-family mortgage loans).

The increase of $11.2 million in non-performing loans during the second quarter of 2010 was primarily due to the addition of three non-performing non-residential mortgage loans totaling $12.7 million and five non-performing multi-family mortgage loans totaling $3.5 million, offset by the foreclosure action and transfer into real estate owned of one non-performing non-residential mortgage loan totaling $350,000 (Net of charge-off of $350,000) and the removal from non-performing status of one non-performing multi-family mortgage loan totaling $2.9 million and one non-performing non-residential mortgage loan totaling $1.1 million both of which were current at June 30, 2010.

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In connection with the resulting impact of the economic downturn on the performance of the Company’s loan portfolio and, in connection with the Company’s quarterly in-depth analysis of its non-performing and potential non-performing loans, the Company significantly increased the allowance for loan losses during the third and fourth quarter of 2009 and the second quarter of 2010. Consequently, the Company’s allowance for loan losses was sufficient to absorb the $2.1 million in charge-offs during the fourth quarter of 2009 and the $2.1 million in charge-offs during the six months ended June 30, 2010.

As demonstrated by the increase in our non-performing loans, real estate values have continued to decline in our market areas with many borrowers experiencing increasing financial stress from vacancies and collection problems. Industry wide increases of troubled commercial real estate loans have prompted heightened levels of regulatory scrutiny and increased pressure from regulators to reduce exposure to these types of loans.

In 2009 and continuing into 2010, we proactively reduced mortgage origination levels for multi-family, mixed-use and non-residential real estate loans, based on our unwillingness to offer rates and terms on loan products that, in our opinion, do not accurately reflect the risk associated with particular loan types in the current economic and real estate environment. In 2009 we ceased originating all construction loans due to prevailing conditions in the real estate market.

Until such time as the real estate markets stabilize, we will focus our attention on maintaining the health and performance of our existing mortgage portfolio.

Comparison of Financial Condition at June 30, 2010 and December 31, 2009

Total assets decreased by $10.3 million, or 2.0%, to $517.0 million at June 30, 2010 from $527.3 million at December 31, 2009. The decrease in total assets was primarily due to decreases of $17.2 million in cash and cash equivalents, $7.7 million in certificates of deposits at other financial institutions, and $7.5 million in loans receivable, net, partially offset by increases of $17.1 million in investments held-to-maturity and $5.3 million in bank owned life insurance.

Cash and cash equivalents decreased by $17.2 million, or 19.4%, to $71.5 million at June 30, 2010, from $88.7 million at December 31, 2009. In addition, certificates of deposits at other financial institutions decreased by $7.7 million, or 88.6%, to $996,000 at June 30, 2010, from $8.7 million at December 31, 2009. The decrease in short-term liquidity funded an increase of $17.1 million in investment securities held-to-maturity and an increase of $5.3 million in bank owned life insurance.

Investment securities increased by $17.1 million, or 144.1%, to $28.9 million at June 30, 2010, from $11.8 million at December 31, 2009 due to an effort to increase yield and earnings through the purchases of $12.4 million in U.S. Government agency securities, $5.1 million in mortgage-backed securities and $5.1 million in collateralized mortgage obligations. One U.S. Government agency security totaling $5.0 million was called by its issuer during the second quarter of 2010.

Loans receivable, net, decreased by $7.5 million, or 1.9%, to $378.8 million at June 30, 2010 from $386.3 million at December 31, 2009, due primarily to loan repayments totaling $10.8 million and loan charge-offs totaling $2.1 million that exceeded loan originations aggregating $5.2 million.

Bank owned life insurance increased by $5.3 million, or 50.5%, to $15.8 million at June 30, 2010 from $10.5 million at December 31, 2009 due primarily to the purchase of $5.0 million in additional bank owned life insurance.

Premises and equipment decreased by $371,000, or 4.5%, to $7.8 million at June 30, 2010 from $8.2 million at December 31, 2009 due primarily to depreciation of existing premises and equipment.

Real estate owned increased by $350,000, or 55.0%, to $986,000 at June 30, 2010 from $636,000 at December 31, 2009 due to the successful foreclosure action on two gasoline stations located in Putnam and Westchester Counties, New York whereby the Bank took title to the two properties in April 2010.

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Deposits decreased by $11.1 million, or 2.9%, to $368.4 million at June 30, 2010 from $379.5 million at December 31, 2009. The decrease in deposits was primarily attributable to a decrease of $23.2 million in certificates of deposits, offset by increases of $10.6 million in NOW and money market accounts, $1.0 million in non-interest bearing accounts and $477,000 in our regular savings accounts.

Accounts payable and accrued expenses increased by $304,000, or 16.6%, to $2.1 million at June 30, 2010 from $1.8 million at December 31, 2009 due to an increase of $334,000 in the Senior Executive Retirement Plan and Directors Retirement Plan deferred compensation.

Stockholders’ equity increased by $390,000, or 0.4%, to $107.8 million at June 30, 2010, from $107.4 million at December 31, 2009. This increase was primarily the result of net income of $649,000 and the amortization of $79,000 for ESOP shares earned during the period, partially offset by cash dividends declared of $332,000.

Comparison of Operating Results for the Three Months Ended June 30, 2010 and 2009

General. Net income increased by $261,000, or 196.3%, to $126,000 for the quarter ended June 30, 2010, from a net loss of $135,000 for the quarter ended June 30, 2009. The increase was primarily the result of an increase of $269,000 in net interest income, an increase of $80,000 in non-interest income, a decrease of $572,000 in non-interest expense, and an increase of $136,000 in the provision for income taxes, offset by an increase of $524,000 in provision for loan losses.

Net Interest Income. Net interest income increased by $269,000, or 7.7%, to $3.8 million for the three months ended June 30, 2010 from $3.5 million for the three months ended June 30, 2009. The increase in net interest income resulted primarily from a decrease of $404,000 in interest expense that exceeded a decrease of $135,000 in interest income. The increase in net interest income occurred despite a decrease of $5.0 million in average net interest-earning assets.

The net interest spread increased by 24 basis points to 2.66% for the three months ended June 30, 2010 from 2.42% for the three months ended June 30, 2009. The net interest margin increased by 4 basis points between these periods from 3.06% for the quarter ended June 30, 2009 to 3.10% for the quarter ended June 30, 2010. The increase in the interest rate spread and the net interest margin in the second quarter of 2010 compared to the same period in 2009 was due to the cost of our interest-bearing liabilities decreasing more than a corresponding decrease in the yield on our interest-earning assets.

The cost of our interest-bearing liabilities decreased by 67 basis points to 2.27% for the three months ended June 30, 2010 from 2.94% for the three months ended June 30, 2009. The yield on our interest-bearing assets decreased by 43 basis points to 4.93% for the three months ended June 30, 2010 from 5.36% for the three months ended June 30, 2009. The decrease in both the yield on our interest-earning assets and the cost of our interest-bearing liabilities was due to the low interest rate environment in 2010.

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The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2010 and 2009.

	Three Months Ended June 30,
	2010								2009
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	390,751		$	5,658		5.79	%	$	389,627		$	6,050		6.21	%
Securities (including FHLB stock)		33,214			315		3.79			5,090			58		4.56
Other interest-earning assets		62,502			27		0.17			62,950			27		0.17
Total interest-earning assets		486,467			6,000		4.93			457,667			6,135		5.36
Allowance for loan losses		(5,817	)							(1,919	)
Non-interest-earning assets		37,217								29,313
Total assets	$	517,867							$	485,061

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand	$	79,571		$	280		1.41	%	$	27,066		$	62		0.92	%
Savings and club accounts		60,913			106		0.70			59,020			120		0.81
Certificates of deposit		216,024			1,538		2.85			221,501			2,065		3.73
Total interest-bearing deposits		356,508			1,924		2.16			307,587			2,247		2.92

Borrowings		35,333			301		3.41			50,489			382		3.03
Total interest-bearing liabilities		391,841			2,225		2.27			358,076			2,629		2.94

Noninterest-bearing demand		10,111								6,503
Other liabilities		7,314								9,529
Total liabilities		409,266								374,108

Stockholders’ equity		108,601								110,953
Total liabilities and Stockholders’ equity	$	517,867							$	485,061
Net interest income				$	3,775							$	3,506
Interest rate spread							2.66	%							2.42	%
Net interest margin							3.10	%							3.06	%
Net interest-earning assets	$	94,626							$	99,591
Interest-earning assets to interest-bearing liabilities		124.15	%							127.81	%

Total interest income decreased by $135,000, or 2.2%, to $6.0 million for the three months ended June 30, 2010, from $6.1 million for the three months ended June 30, 2009. Interest income on loans decreased by $392,000, or 6.5%, to $5.7 million for the three months ended June 30, 2010 from $6.1 million for the three months ended June 30, 2009. The average balance of the loan portfolio increased by $1.1 million to $390.8 million for the three months ended June 30, 2010 from $389.6 million for the three months ended June 30, 2009 as originations outpaced repayments. The average yield on loans decreased by 42 basis points to 5.79% for the three months ended June 30, 2010 from 6.21% for the three months ended June 30, 2009.

Interest income on securities increased by $257,000, or 443.1%, to $315,000 for the three months ended June 30, 2010 from $58,000 for the three months ended June 30, 2009. The increase was primarily due to an increase of $28.1 million, or 552.5%, in the average balance of securities to $33.2 million for the three months ended June 30, 2010 from $5.1 million for the three months ended June 30, 2009. The increase in the average balance was due to purchases of additional investment securities, offset by a decrease in FHLB New York stock. The increase in the average balance was offset by a decrease of 77 basis points in the average yield on securities to 3.79% for the three months ended June 30, 2010 from 4.56% for the three months ended June 30, 2009. The decline in the yield was due to the re-pricing of the yield of our adjustable rate investment securities and to the decline in interest rates from June 30, 2009 to June 30, 2010.

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Interest income on other interest-earning assets (consisting solely of interest-earning deposits) was unchanged at $27,000 for the three months ended June 30, 2010 and June 30, 2009. The yield also remained unchanged at 0.17% for the three months ended June 30, 2010 and June 30, 2009. The average balance of other interest-earning assets decreased by $448,000, or 0.7% to $62.5 million for the three months ended June 30, 2010 from $63.0 million for the three months ended June 30, 2009. The decrease in the average balance of other interest-earning assets was due to the decrease in cash and cash equivalents and certificates of deposit.

Total interest expense decreased by $404,000, or 15.4%, to $2.2 million for the three months ended June 30, 2010 from $2.6 million for the three months ended June 30, 2009. Interest expense on deposits decreased by $323,000, or 14.4%, to $1.9 million for the three months ended June 30, 2010 from $2.2 million for the three months ended June 30, 2009. During this same period, the average cost of deposits decreased by 76 basis points to 2.16% for the three months ended June 30, 2010 from 2.92% for the three months ended June 30, 2009.

Due to an effort by the Bank to decrease reliance on two nationwide certificates of deposit listing services, partially offset by the opening of two new branch offices in Massachusetts during the second quarter of 2009, the average balance of certificates of deposits decreased by $5.5 million, or 2.5%, to $216.0 million for the three months ended June 30, 2010 from $221.5 million for the three months ended June 30, 2009. Concurrent with the decrease in the average balance of certificates of deposits, interest expense on our certificates of deposits decreased by $527,000, or 25.5%, to $1.5 million for the three months ended June 30, 2010 from $2.1 million for the three months ended June 30, 2009. The decrease in interest expense on our certificates of deposits was also due to a decrease of 88 basis points in the average cost of our certificates of deposits to 2.85% for the three months ended June 30, 2010 from 3.73% for the three months ended June 30, 2009.

Interest expense on our other deposit products increased by $204,000, or 112.1%, to $386,000 for the three months ended June 30, 2010 from $182,000 for the three months ended June 30, 2009. The increase was due to an increase of 49 basis points in the cost of our interest-bearing demand deposits to 1.41% for the three months ended June 30, 2010 from 0.92% for the three months ended June 30, 2009, offset by a decrease of 11 basis points in the cost of our savings and holiday club deposits to 0.70% for the three months ended June 30, 2010 from 0.81% for the three months ended June 30, 2009. The increase in interest expense was also due to an increase of $52.5 million, or 194.0%, in the average balance of interest-bearing demand deposits to $79.6 million for the three months ended June 30, 2010 from $27.1 million for the three months ended June 30, 2009 and an increase of $1.9 million, or 3.2%, in the average balance of our savings and holiday club deposits to $60.9 million for the three months ended June 30, 2010 from $59.0 million for the three months ended June 30, 2009.

Interest expense on borrowings decreased by $81,000, or 21.2%, to $301,000 for the three months ended June 30, 2010 from $382,000 for the three months ended June 30, 2009. The decrease was primarily due to a decrease of $15.2 million, or 30.0%, in the average balance of borrowed money to $35.3 million for the three months ended June 30, 2010 from $50.5 million for the three months ended June 30, 2009. Interest expense on borrowed money for the three months ended June 30, 2010 was comprised of $297,000 in interest expense on an average balance of $35.0 million in FHLB advances and $4,000 in interest expense on an average balance of $333,000 on a note payable incurred in connection with the acquisition of the operating assets of Hayden Financial Group LLC (now operating as Hayden Wealth Management Group, the Bank’s investment advisory and financial planning service division) in the fourth quarter of 2007. This compared to interest expense from FHLB advances of $377,000 on an average balance of $50.0 million in FHLB advances and $5,000 in interest expense on an average balance of $489,000 on the Hayden acquisition note for the three months ended June 30, 2009.

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Allowance for Loan Losses. The following table summarizes the activity in the allowance for loan losses for the three months ended June 30, 2010 and 2009.

	Three Months Ended June 30,
	2010			2009
	(Dollars in thousands)
Allowance at beginning of period	$	6,374		$	1,915
Provision for loan losses		860			336
Charge-offs		1,736			166
Recoveries		3			–
Net charge-offs		1,733			166
Allowance at end of period	$	5,501		$	2,085

Allowance to non-performing loans		17.51	%		39.77	%
Allowance to total loans outstanding at the end of the period		1.45	%		0.53	%
Net charge-offs to average loans outstanding during the period (annualized)		1.77	%		0.09	%

The allowance to non-performing loans ratio decreased to 17.51% at June 30, 2010 from 39.77% at June 30, 2009 due primarily to the increase in non-performing loans to $31.4 million at June 30, 2010 from $5.2 million at June 30, 2009. As noted previously in the Second Quarter Performance Highlights section, the increase in non-performing loans was due to the impact of the economic downturn on the performance of the Company’s loan portfolio. The Company significantly increased the allowance for loan losses during the third and fourth quarter of 2009 and the second quarter of 2010. As a result, the allowance for loan losses was sufficient to absorb the increase in non-performing loans and the resulting charge-offs that occurred during the fourth quarter of 2009 and continued into the first half of 2010.

In conjunction with the increase in the allowance for loan losses, the Company completed fair value analyses from the third quarter of 2009 to the second quarter of 2010 on all non-performing and potential non-performing loans. As indicated by the fair value analyses, the Company believes the favourable low loan to value ratios provide adequate protection against further potential losses, thereby precluding further increases in the allowance for loan losses during the second quarter of 2010 (See discussion on Non-Performing Assets).

The allowance for loan losses was $5.50 million at June 30, 2010, $6.73 million at December 31, 2009, and $2.09 million at June 30, 2009. We recorded provisions for loan losses of $860,000 for the three month period ended June 30, 2010 compared to a provision for loan losses of $336,000 for the three month period ended June 30, 2009.

We charged-off $1.7 million against seven non-performing multi-family mortgage loans, two non-performing non-residential mortgage loans and two performing multi-family mortgage loans during the three months ended June 30, 2010. We recorded $3,000 in recoveries during the three months ended June 30, 2010. We charged-off $166,000 against two non-performing non-residential mortgage loans during the three months ended June 30, 2009 and we did not have any recoveries during the three months ended June 30, 2009.

Non-interest Income. Non-interest income increased by $80,000, or 21.4%, to $454,000 for the three months ended June 30, 2010 from $374,000 for the three months ended June 30, 2009. The increase was primarily due to increases of $45,000 in earnings on bank owned life insurance, $20,000 in fee income generated by Hayden Wealth Management Group, the Bank’s investment advisory and financial planning services division, and $16,000 in other loan fees and service charges.

Non-interest Expense. Non-interest expense decreased by $572,000, or 14.8%, to $3.3 million for the three months ended June 30, 2010 from $3.9 million for the three months ended June 30, 2009. The decrease resulted primarily from decreases of $215,000 in other non-interest expense, $151,000 in advertising expense, $107,000 in FDIC insurance expense, $70,000 in occupancy expense, $49,000 in equipment expense, and $22,000 in real estate owned expenses, offset by increases of $33,000 in outside data processing expense and $9,000 in salaries and employee benefits.

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Other non-interest expense decreased by $215,000, or 23.3%, to $707,000 in 2010 from $992,000 in 2009 due mainly to a decrease of $230,000 in expenses related to the opening of two branch offices in Massachusetts during the second quarter of 2009, offset by increases of $24,000 in legal fees, $21,000 in audit and accounting fees and $6,000 in service contracts.

Advertising expense decreased by $151,000, or 91.5%, to $14,000 in 2010 from $165,000 in 2009 due to efforts to contain expense.

FDIC insurance expense decreased by $107,000, or 49.5%, to $109,000 in 2010 from $216,000 in 2009 due to increased deposit insurance rates in the current period, offset by a special assessment of $205,000 incurred as of June 30, 2009.

Occupancy expense decreased by $70,000, or 18.7%, to $304,000 in 2010 from $374,000 in 2009 and equipment expense decreased by $49,000, or 25.8%, to $141,000 in 2010 from $190,000 in 2009 due to efforts to contain expense.

Real estate owned expense decreased by $22,000, or 62.9%, to $13,000 in 2010 from $35,000 in 2009 due to increased rental income during the current period.

Outside data processing expense increased by $33,000, or 17.2%, to $225,000 in 2010 from $192,000 in 2009 due to additional services provided in 2010 by the Company’s core data processing vendor.

Salaries and employee benefits, which represented 54.0% of the Company’s non-interest expense during the quarter ended June 30, 2010, increased by $9,000, or 0.5%, to $1.78 million in 2010 from $1.77 million in 2009 due to an increase in the Senior Executive Retirement Plan expense and the addition of employees to staff the two new branch offices in Massachusetts, offset by a reduction in staff in various departments.

Income Taxes. Income tax expense increased by $136,000, or 75.1%, to a benefit of $45,000 for the three months ended June 30, 2010 from a benefit of $181,000 for the three months ended June 30, 2009. The increase resulted primarily from a $397,000 increase in pre-tax income in 2010 compared to 2009. The effective tax rate was a benefit of 55.6% for the three months ended June 30, 2010 and 57.3% for the three months ended June 30, 2009.

Comparison of Operating Results For The Six Months Ended June 30, 2010 and 2009

General. Net income increased by $278,000, or 74.9%, to $649,000 for the six months ended June 30, 2010 from $371,000 for the six months ended June 30, 2009. The increase was primarily the result of an increase of $388,000 in net interest income, an increase of $134,000 in non-interest income, and a decrease of $304,000 in non-interest expense, offset by an increase of $507,000 in provision for loan losses and an increase of $41,000 in the provision for income taxes.

Net Interest Income. Net interest income increased by $388,000, or 5.5%, to $7.5 million for the six months ended June 30, 2010 from $7.1 million for the six months ended June 30, 2009. The increase in net interest income resulted primarily from a decrease of $411,000 in interest expense that exceeded a decrease of $23,000 in interest income. The increase in net interest income occurred despite a decrease of $9.3 million in average net interest-earning assets.

The net interest spread increased by 7 basis points to 2.63% for the six months ended June 30, 2010 from 2.56% for the six months ended June 30, 2009. The increase in the interest rate spread in 2010 compared to the same period in 2009 was due to the cost of our interest-bearing liabilities decreasing more than a corresponding decrease in the yield on our interest-earning assets. The cost of our interest-bearing liabilities decreased by 67 basis points to 2.29% for the six months ended June 30, 2010 from 2.96% for the six months ended June 30, 2009. The yield on our interest-bearing assets decreased by 60 basis points to 4.92% for the six months ended June 30, 2010 from 5.52% for the six months ended June 30, 2009. The net interest margin decreased by 18 basis points between these periods to 3.07% for the quarter ended June 30, 2010 from 3.25% for the quarter ended June 30, 2009.

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The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the six months ended June 30, 2010 and 2009.

	Six Months Ended June 30,
	2010								2009
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	392,552		$	11,425		5.82	%	$	381,745		$	11,882		6.23	%
Securities		28,431			517		3.64			4,929			100		4.06
Other interest-earning assets		67,037			75		0.22			49,690			58		0.23
Total interest-earning assets		488,020			12,017		4.92			436,364			12,040		5.52
Allowance for loan losses		(6,272	)							(1,892	)
Non-interest-earning assets		37,961								26,276
Total assets	$	519,709							$	460,748

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand	$	76,816		$	519		1.35	%	$	26,041		$	105		0.81	%
Savings and club accounts		60,505			213		0.70			58,301			238		0.82
Certificates of deposit		222,413			3,202		2.88			202,189			3,884		3.84
Total interest-bearing deposits		359,734			3,934		2.19			286,531			4,227		2.95

Borrowings		35,331			598		3.39			47,530			716		3.01
Total interest-bearing liabilities		395,065			4,532		2.29			334,061			4,943		2.96

Noninterest-bearing demand		9,732								6,372
Other liabilities		6,327								9,446
Total liabilities		349,879								349,879

Stockholders’ equity		108,585								110,869
Total liabilities and Stockholders’ equity	$	519,709							$	460,748
Net interest income				$	7,485							$	7,097
Interest rate spread							2.63	%							2.56	%
Net interest margin							3.07	%							3.25	%
Net interest-earning assets	$	92,955							$	102,303
Average interest-earning assets to average interest-bearing liabilities		123.53	%							130.62	%

Total interest income decreased by $23,000, or 0.2%, to $12.02 million for the six months ended June 30, 2010, from $12.04 million for the six months ended June 30, 2009. Interest income on loans decreased by $457,000, or 3.8%, to $11.4 million for the six months ended June 30, 2010 from $11.9 million for the six months ended June 30, 2009. The average balance of the loan portfolio increased by $10.8 million to $392.6 million for the six months ended June 30, 2010 from $381.7 million for the six months ended June 30, 2009 as originations outpaced repayments. The average yield on loans decreased by 41 basis points to 5.82% for the six months ended June 30, 2010 from 6.23% for the six months ended June 30, 2009.

Interest income on securities increased by $417,000, or 417.0%, to $517,000 for the six months ended June 30, 2010 from $100,000 for the six months ended June 30, 2009. The increase was primarily due to an increase of $23.5 million, or 476.8%, in the average balance of securities to $28.4 million for the six months ended June 30, 2010 from $4.9 million for the six months ended June 30, 2009. The increase in the average balance was due to purchases of additional investment securities, offset by a decrease in FHLB New York stock. The increase in the average balance was offset by a decrease of 42 basis points in the average yield on securities to 3.64% for the six months ended June 30, 2010 from 4.06% for the six months ended June 30, 2009. The decline in the yield was due to the re-pricing of the yield of our adjustable rate investment securities and the decline in interest rates from June 30, 2009 to June 30, 2010.

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Interest income on other interest-earning assets (consisting solely of interest-earning deposits) increased by $17,000, or 29.3%, to $75,000 for the six months ended June 30, 2010 from $58,000 for the six months ended June 30, 2009. The increase was primarily the result of an increase of $17.4 million, or 34.9%, in the average balance of other interest-earning assets to $67.0 million for the six months ended June 30, 2010 from $49.7 million for the six months ended June 30, 2009, offset by a decrease of 1 basis points in the yield to 0.22% for the six months ended June 30, 2010 from 0.23% for the six months ended June 30, 2009. The increase in the average balance of other interest-earning assets was due to increased levels of cash and cash equivalents.

Total interest expense decreased by $411,000, or 8.3%, to $4.5 million for the six months ended June 30, 2010 from $4.9 million for the six months ended June 30, 2009. Interest expense on deposits decreased by $293,000, or 6.9%, to $3.9 million for the six months ended June 30, 2010 from $4.2 million for the six months ended June 30, 2009. During this same period, the average interest cost of deposits decreased by 76 basis points to 2.19% for the six months ended June 30, 2010 from 2.95% for the six months ended June 30, 2009.

Due to an effort by the Bank to increase deposits through the opening of two new branch offices in Massachusetts during the second quarter of 2009, partially offset by a decreased reliance on two nationwide certificate of deposit listing services, the average balance of certificates of deposits increased by $20.2 million, or 10.0%, to $222.4 million for the six months ended June 30, 2010 from $202.2 million for the six months ended June 30, 2009. Despite the increase in the average balance of certificates of deposit, interest expense on our certificates of deposit decreased by $682,000, or 17.6%, to $3.2 million for the six months ended June 30, 2010 from $3.9 million for the six months ended June 30, 2009. The increase in the average balance of certificates of deposit was also offset by a decrease in the average cost of our certificates of deposit by 96 basis points to 2.88% for the six months ended June 30, 2010 from 3.84% for the six months ended June 30, 2009.

Interest expense on our other deposit products increased by $389,000, or 113.4%, to $732,000 for the six months ended June 30, 2010 from $343,000 for the six months ended June 30, 2009. The increase was due to an increase of 54 basis points in the cost of our interest-bearing demand deposits to 1.35% for the six months ended June 30, 2010 from 0.81% for the six months ended June 30, 2009, offset by a decrease of 12 basis points in the cost of our savings and holiday club deposits to 0.70% for the six months ended June 30, 2010 from 0.82% for the six months ended June 30, 2009. The increase in interest expense was also due to an increase of $50.8 million, or 195.0%, in the average balance of interest-bearing demand deposits to $76.8 million for the six months ended June 30, 2010 from $26.0 million for the six months ended June 30, 2009 and an increase of $2.2 million, or 3.8%, in the average balance of our savings and holiday club deposits to $60.5 million for the six months ended June 30, 2010 from $58.3 million for the six months ended June 30, 2009.

Interest expense on borrowings decreased by $118,000, or 16.5%, to $598,000 for the six months ended June 30, 2010 from $716,000 for the six months ended June 30, 2009. The decrease was primarily due to a decrease of $12.2 million, or 25.7%, in the average balance of borrowed money to $35.3 million for the six months ended June 30, 2010 from $47.5 million for the six months ended June 30, 2009. Interest expense on borrowed money for the six months ended June 30, 2010 was comprised of $590,000 in interest expense on an average balance of $35.0 million in FHLB advances and $8,000 in interest expense on an average balance of $331,000 on a note payable incurred in connection with the acquisition of the operating assets of Hayden Financial Group LLC (now operating as Hayden Wealth Management Group, the Bank’s investment advisory and financial planning service division) in the fourth quarter of 2007. This compared to interest expense from FHLB advances of $705,000 on an average balance of $47.0 million in FHLB advances and $11,000 in interest expense on an average balance of $486,000 on the note incurred in connection with the acquisition of Hayden Financial Group LLC during the six months ended June 30, 2009.

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Allowance for Loan Losses. The following table summarizes the activity in the allowance for loan losses for the six months ended June 30, 2010 and 2009.

	Six Months Ended June 30,
	2010		2009
	(Dollars in thousands)
Allowance at beginning of period	$	6,733	$	1,865
Provision for loan losses		893		386
Charge-offs		2,128		166
Recoveries		3		–
Net charge-offs		2,125		166
Allowance at end of period	$	5,501	$	2,085

We recorded provisions for loan losses of $893,000 and $386,000 for the six-month periods ended June 30, 2010 and 2009. During the six months ended June 30, 2010, we charged-off $2.1 million against thirteen non-performing multi-family mortgage loans, six non-performing non-residential mortgage loans and two performing multi-family mortgage loans. We recorded recoveries of $3,000 during the six months ended June 30, 2010.

During the six months ended June 30, 2009, we charged-off $166,000 against two non-performing non-residential mortgage loans. We did not have any recoveries during the six months ended June 30, 2009.

Non-interest Income. Non-interest income increased by $134,000, or 19.0%, to $841,000 for the six months ended June 30, 2010 from $707,000 for the six months ended June 30, 2009. The increase was primarily due to increases of $112,000 in earnings on bank owned life insurance, $32,000 in fee income generated by Hayden Wealth Management Group, the Bank’s investment advisory and financial planning services division, and $3,000 in other non-interest income, offset by a decrease of $10,000 in other loan fees and service charges, a decrease of $4,000 on impairment loss on equity security and an increase of $7,000 in loss on disposition of equipment.

Non-interest Expense. Non-interest expense decreased by $304,000, or 4.4%, to $6.6 million for the six months ended June 30, 2010 from $6.9 million for the six months ended June 30, 2009. The decrease resulted primarily from decreases of $204,000 in other non-interest expense, $195,000 in advertising expense, $133,000 in real estate owned expenses, $67,000 in equipment expense and $22,000 in occupancy expense, offset by increases of $258,000 in salaries and employee benefits, $43,000 in outside data processing expense and $16,000 in FDIC insurance expense.

Other non-interest expense decreased by $204,000, or 12.8%, to $1.4 million in 2010 from $1.6 million in 2009 due mainly to decreases of $169,000 in other non-interest expense primarily related to the opening of two branch offices in Massachusetts during the second quarter of 2009, $74,000 in directors, officers and employee expense, $27,000 in office supplies and stationery expense, and $6,000 in telephone expense, offset by increases of $25,000 in service contracts expense, $25,000 in audit and accounting fees, $11,000 in legal fees, $7,000 in insurance expense, and $4,000 in directors compensation expense.

Advertising expense decreased by $195,000, or 84.4%, to $36,000 in 2010 from $231,000 in 2009 due to efforts to contain expense. Real estate owned expense decreased by $133,000, or 91.7%, to $12,000 in 2010 from $145,000 in 2009 due to increased rental income during the current period.

Equipment expense decreased by $67,000, or 19.4%, to $278,000 in 2010 from $345,000 in 2009 and occupancy expense decreased by $22,000, or 3.3%, to $637,000 in 2010 from $659,000 in 2009 due to efforts to contain expense.

Salaries and employee benefits, which represented 54.0% of the Company’s non-interest expense during the six months ended June 30, 2010, increased by $258,000, or 7.8%, to $3.6 million in 2010 from $3.3 million in 2009 due to an increase in the Senior Executive Retirement Plan expense and an increase in the number of full time equivalent employees from 90 at June 30, 2009 to 95 at June 30, 2010, primarily due to the addition of employees to staff the two new branch offices in Massachusetts, offset by a reduction in staff in various departments.

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Outside data processing expense increased by $43,000, or 11.0%, to $433,000 in 2010 from $390,000 in 2009 due to additional services provided in 2010 by the Company’s core data processing vendor.

FDIC insurance expense increased by $16,000, or 7.0%, to $243,000 in 2010 from $227,000 in 2009 due to increased deposit insurance rates in the current period, offset by a special assessment of $205,000 incurred as of June 30, 2009.

Income Taxes. Income tax expense increased by $41,000, or 25.6%, to $201,000 for the six months ended June 30, 2010 from $160,000 for the six months ended June 30, 2009. The increase resulted primarily from a $319,000 increase in pre-tax income in 2010 compared to 2009. The effective tax rate was 23.6% for the six months ended June 30, 2010 and 30.1% for the six months ended June 30, 2009. The decrease in effective tax rate was primarily due to the increased portion of pre-tax income during 2010 from tax-exempt earnings on bank-owned life insurance.

NON PERFORMING ASSETS

The following table provides information with respect to our non-performing assets at the dates indicated.

	At June 30, 2010			At December 31, 2009
	(Dollars in thousands)

Non-accrual loans	$	28,163		$	20,150
Loans past due 90 days or more and accruing		1,193			-
Total nonaccrual and 90 days or more past due loans		29,356			20,150
Other non-performing loans		2,052			-
Total non-performing loans		31,408			20,150
Real estate owned		986			636
Total non-performing assets		32,394			20,786
Troubled debt restructurings		9,964			13,175
Total troubled debt restructurings and non-performing assets	$	42,358		$	33,961

Total non-performing loans to total loans		8.17	%		5.14	%
Total non-performing loans to total assets		6.08	%		3.94	%
Total non-performing assets and troubled debt restructurings to total assets		8.19	%		6.44	%

Non-accrual loans at June 30, 2010 consisted of thirteen loans in the aggregate – six multi-family mortgage loans and seven non-residential mortgage loans.

The six non-accrual multi-family mortgage loans totaled $2.9 million at June 30, 2010, consisting of the following multi-family mortgage loans: an outstanding balance of $1.1 million secured by an apartment building located in Boston, Massachusetts; an outstanding balance of $700,000 secured by an apartment building located in Paterson, New Jersey; an outstanding balance of $355,000 secured by an apartment building located in Holyoke, Massachusetts; an outstanding balance of $334,000 secured by an apartment building located in Elizabeth, New Jersey; an outstanding balance of $284,000 secured by an apartment building located in Herkimer, New York; and an outstanding balance of $161,000 secured by an apartment building located in Southbridge, Massachusetts.

The seven non-accrual non-residential mortgage loans totaled $25.2 million at June 30, 2010. One of the non-accrual non-residential mortgage loans had an outstanding balance of $10.9 million and is related to the sale of the 1353-55 First Avenue, New York, New York branch office building (the “Property”). The loan is secured by the interests in the companies owning the Property and a first mortgage on the Property. Based on a current appraisal, the loan to value ratio is less than 40% on this loan. The second non-accrual non-residential mortgage loan had an outstanding balance of $733,000 and consists of capitalized legal fees related to the Property.

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The third non-accrual non-residential mortgage loan had an outstanding balance of $7.5 million and is secured by a hotel located in Long Beach, New York. The fourth non-accrual non-residential mortgage loan had an outstanding balance of $4.5 million and is secured by an office building located in Lawrenceville, New Jersey. The fifth non-accrual non-residential mortgage loan had an outstanding balance of $702,000 and is secured by an office/warehouse industrial facility located in Portland, Connecticut. The sixth non-accrual non-residential mortgage loan had an outstanding balance of $479,000 and is secured by a restaurant and 23 boat slips located in Far Rockaway, New York. The seventh non-accrual non-residential mortgage loan had an outstanding balance of $437,000 and is secured by a strip shopping center and warehouse located in Tobyhanna, Pennsylvania.

We are in the process of foreclosing on four of the six multi-family and two of the seven non-residential properties. The Bank successfully completed foreclosure action on the apartment building located in Holyoke, Massachusetts and took title to the property on July 29, 2010. In addition, we are negotiating accepting a deed-in-lieu of foreclosure on a mortgage loan secured by an apartment building located in Herkimer, New York. The owners of the apartment building located in Southbridge, Massachusetts sold the property on August 5, 2010 and satisfied the loan, resulting in a loss of $6,000 to the Bank. We have entered into a forbearance agreement with the owners of the non-residential property located in Long Beach, New York. Based on recent fair value analyses of the non-accrual properties, the Bank does not expect any losses beyond the amounts already charged off on the properties.

The one 90 days or more past due and still accruing loan is a multi-family mortgage loan with an outstanding balance of $1.2 million secured by an apartment building located in Cambridge, Massachusetts. The borrower is making payments under terms arranged by the Bankruptcy Court.

The other non-performing loans consisted of three mortgage loans where management had doubts about the borrowers’ abilities to comply with contractual loan terms. The first had an outstanding balance of $1.8 million, was 30 days delinquent at June 30, 2010, and is secured by a commercial condominium located in Brooklyn, New York. The second non-performing loan had an outstanding balance of $67,000, was current at June 30, 2010, and is secured by an apartment building located in Fall River, Massachusetts. We do not anticipate any loss on these two loans based on recent appraisals on these properties. The third non-performing loan had an outstanding balance of $112,000, was current at June 30, 2010, and is secured by an apartment building located in New London, Connecticut. This loan was sold for $106,000 on August 5, 2010 and we incurred an additional loss of $6,000.

At June 30, 2010, we owned foreclosed property with a net balance of $986,000, consisting of a six unit multi-family building (net balance of $636,000) located in Newark, New Jersey and two gasoline stations (net balance of $350,000) located in Putnam and Westchester Counties, New York. We renovated the Newark, New Jersey property and have leased all the units, with the eventual goal of marketing the property when the real estate market has stabilized. The Bank successfully completed foreclosure action on the two gasoline stations and took title to the two properties in April 2010. The Bank sold the gasoline station located in Westchester County, New York on August 4, 2010 for $200,000.

The troubled debt restructured loans consisted of 14 loans, all of which are current, totaling $10.0 million. The largest troubled debt restructured loan had an outstanding balance of $1.7 million and is secured by an apartment building located in Brooklyn, New York.

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 demands; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset/liability management policy.

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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 $71.5 million at June 30, 2010 and consist primarily of interest-bearing deposits at other financial institutions and miscellaneous cash items. In addition, certificates of deposits at other financial institutions totaled $996,000 at June 30, 2010. Securities classified as available for sale provide an additional source of liquidity. Total securities classified as available for sale were $174,000 at June 30, 2010.

At June 30, 2010, we had $17.0 million in loan commitments outstanding, consisting of $13.7 million in unused commercial business lines of credit, $2.8 million in unused real estate equity lines of credit, $700,000 of real estate loan commitments, $421,000 in unused loans in process, and $165,000 in consumer lines of credit. Certificates of deposit due within one year of June 30, 2010 totaled $160.3 million. This represented 75.6% of certificates of deposit at June 30, 2010. We believe a large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the current 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 June 30, 2010. We believe, however, based on past experience, 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 deposit accounts and FHLB advances. At June 30, 2010, we had the ability to borrow $63.2 million, net of $35.0 million in outstanding advances, from the FHLB of New York. At June 30, 2010, we had no overnight advances outstanding. 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 commitments outstanding. Occasionally, we offer promotional rates on certain deposit products to attract deposits or to lengthen repricing time frames.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders and for the repurchase, if any, of its shares of common stock. At June 30, 2010, the Company had liquid assets of $19.0 million.

Capital Management. The Bank is 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 June 30, 2010, the Bank exceeded all regulatory capital requirements. The Bank is considered “well capitalized” under regulatory guidelines.

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, letters of credit and lines of credit.

For the three months ended June 30, 2010 and the year ended December 31, 2009, 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.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Qualitative Aspects of Market Risk. The Company’s most significant form of market risk is interest rate risk. 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.

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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.

Quantitative Aspects of Market Risk. We use an interest rate sensitivity 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 the net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 50 to 300 basis point increase or 50 and 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement.

The following table presents the change in our net portfolio value at June 30, 2010 that would occur in the event of an immediate change in interest rates based on Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change.

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

300	$	87,410	$	(7,587	)		(8)	%		17.46	%		(95)	bp
200		90,238		(4,759	)		(5)	%		17.84	%		(57)	bp
100		92,743		(2,255	)		(2)	%		18.15	%		(26)	bp
50		93,833		(1,165	)		(1)	%		18.27	%		(14)	bp
0		94,997								18.41	%
(50)		96,076		1,078			1	%		18.53	%		12	bp
(100)		96,475		1,477			2	%		18.56	%		15	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 speedso f 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.

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Item 4.

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.

There were no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, we may be party to various legal proceedings incident to our business. At June 30, 2010, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.

Risk Factors

Recently enacted regulatory reform may have a material impact on our operations.

On July 21, 2010, the President signed into law The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act restructures the regulation of depository institutions. Under the Dodd-Frank Act, the Office of Thrift Supervision will be merged into the Office of the Comptroller of the Currency, which regulates national banks. Savings and loan holding companies will be regulated by the Federal Reserve Board. The Dodd-Frank Act contains various provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as occurred in 2008-2009. Also included is the creation of a new federal agency to administer and enforce consumer and fair lending laws, a function that is now performed by the depository institution regulators. The federal preemption of state laws currently accorded federally chartered depository institutions will be reduced as well. The Dodd-Frank Act also will impose consolidated capital requirements on savings and loan holding companies effective in five years, which will limit our ability to borrow at the holding company and invest the proceeds from such borrowings as capital in the Bank that could be leveraged to support additional growth. The full impact of the Dodd-Frank Act on our business and operations will not be known for years until regulations implementing the statute are written and adopted. The Dodd-Frank Act may have a material impact on our operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations.

The recently enacted financial reform legislation may have an adverse effect on our ability to pay dividends, which would adversely affect the value of our common stock.

The value of our common stock is significantly affected by our ability to pay dividends to our shareholders. Our ability to pay dividends to our shareholders is subject to the ability of the Bank to make capital distributions to the Company, and also to the availability of cash at the stock holding company level in the event earnings are not sufficient to pay dividends. Moreover, our ability to pay dividends and the amount of such dividends is affected by the ability of Northeast Community Bancorp MHC, our mutual holding company parent, to waive the receipt of dividends declared on our common stock. Northeast Community Bancorp MHC currently waives its right to receive its dividends on its shares of our common stock, which means that we have more cash resources to pay dividends to our public stockholders than if Northeast Community Bancorp MHC accepted such dividends.

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Office of Thrift Supervision regulations allow federally chartered mutual holding companies to waive dividends without taking into account the amount of waived dividends in determining an appropriate exchange ratio in the event of a conversion of a mutual holding company to stock form. However, the recently enacted Dodd-Frank Act will change our primary bank and holding company regulator which would likely result in changes in regulations applicable to us, including regulations governing mutual holding companies and conversions to stock form. Under the Dodd-Frank Act, the Federal Reserve Board will become the sole federal regulator of all holding companies, including mutual holding companies, and will be the regulator that must approve any future dividend waivers by Northeast Community Bancorp MHC after July 2011. The Federal Reserve Board historically has not allowed mutual holding companies to waive the receipt of dividends from their mid-tier holding company subsidiaries. While Northeast Community Bancorp MHC is grandfathered for purposes of the dividend waiver provisions of the recently enacted legislation, there can be no assurance as to the conditions, if any, the Federal Reserve Board will place on future dividend waiver requests by grandfathered mutual holding companies such as Northeast Community Bancorp MHC. Even if it does allow dividend waivers, the Federal Reserve Board could take the position that any future any waived dividends to be taken into account in determining an appropriate exchange ratio, which would result in dilution to the ownership interests of minority stockholders in the event of a “second-step” conversion to stock form.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3.

Defaults Upon Senior Securities

Not applicable

Item 4.

Removed and Reserved

None

Item 5.

Other Information

None

Item 6.

Exhibits

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

	31.1	CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	CFO certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

	32.1	CEO and CFO certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	____________________________
	* Management contract or compensatory plan, contract or arrangement.

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Signatures

Pursuant to the requirements 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: August 13, 2010	By:	/s/ Kenneth A. Martinek
		Kenneth A. Martinek
		President and Chief Executive Officer


Date: August 13, 2010	By:	/s/ Salvatore Randazzo
		Salvatore Randazzo
		Executive Vice President, Chief Operating Officer
		and Chief Financial Officer