NORTHEAST COMMUNITY BANCORP INC - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - NORTHEAST COMMUNITY BANCORP INC	ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - NORTHEAST COMMUNITY BANCORP INC	ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - NORTHEAST COMMUNITY BANCORP INC	ex31-1.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 March 31, 2011

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		(I.R.S. Employer Identification No.)
organization)

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 May 2, 2011, there were 13,004,102 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 March 31, 2011 and December 31, 2010	1

	Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010	2

	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2011 and 2010	3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	28

Part II—Other Information

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	[Removed and Reserved]	29

Item 5.	Other Information	29

Item 6.	Exhibits	29

	Signatures	30

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

	March 31, 2011			December 31, 2010
	(In thousands, except share and per share data)
ASSETS
Cash and amounts due from depository institutions	$	2,861		$	2,494
Interest-bearing deposits		32,877			41,959
Cash and cash equivalents		35,738			44,453

Certificates of deposit		2,988			2,988
Securities available-for-sale		159			162
Securities held-to-maturity		19,789			19,858
Loans receivable, net of allowance for loan losses of $7,908 and $7,647, respectively		362,812			364,798
Premises and equipment, net		6,689			6,784
Federal Home Loan Bank of New York stock, at cost		1,884			1,884
Bank owned life insurance		16,291			16,145
Accrued interest receivable		1,727			1,704
Goodwill		1,310			1,310
Intangible assets		512			527
Real estate owned		933			933
Other assets		3,852			4,462
Total assets	$	454,684		$	466,008
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing	$	9,435		$	9,839
Interest bearing		304,627			316,991
Total deposits		314,062			326,830

Advance payments by borrowers for taxes and insurance		4,244			3,384
Federal Home Loan Bank advances		25,000			25,000
Accounts payable and accrued expenses		2,571			2,487
Note payable		170			168
Total liabilities		346,047			357,869
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; 13,225,000 shares issued; outstanding: 13,071,402 shares in 2011 and 13,114,800 in 2010		132			132
Additional paid-in capital		57,366			57,391
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(3,823	)		(3,888	)
Retained earnings		56,007			55,335
Treasury stock – at cost, 153,598 shares and 110,200 shares respectively		(925	)		(664	)
Accumulated comprehensive loss		(120	)		(167	)
Total stockholders’ equity		108,637			108,139
Total liabilities and stockholders’ equity	$	454,684		$	466,008

See Notes to Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
	March 31,
	2011		2010
	(In thousands, except per share data)

Interest Income:

Loans	$	5,599	$	5,767
Interest-earning deposits		7		48
Securities – taxable		185		202

Total Interest Income		5,791		6,017

Interest Expense:

Deposits		1,185		2,010
Borrowings		175		297

Total Interest Expense		1,360		2,307

Net Interest Income		4,431		3,710

Provision for Loan Losses		328		34

Net Interest Income after Provision for Loan Losses		4,103		3,676

Non-Interest Income:
Other loan fees and service charges		62		58
Loss on disposition of equipment		-		(7	)
Earnings on bank owned life insurance		146		153
Investment advisory fees		210		180
Other		3		4

Total Non-Interest Income		421		388
Non-Interest Expenses:

Salaries and employee benefits		1,690		1,783
Occupancy expense		276		333
Equipment		135		137
Outside data processing		208		208
Advertising		21		22
Real estate owned expense (income)		9		(1	)
FDIC insurance premiums		132		134
Other		709		679

Total Non-Interest Expenses		3,180		3,295

Income before Provision for Income Taxes		1,344		769

Provision for Income Taxes		509		246

Net Income	$	835	$	523
Net Income per Common Share – Basic	$	0.07	$	0.04
Weighted Average Number of Common Shares Outstanding – Basic		12,721		12,814
Dividends Declared per Common Share	$	.03	$	.03

See Notes to Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended March 31, 2011 and 2010

	Common Stock		Additional Paid- in Capital			Unearned ESOP Shares			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Equity			Comprehensive Income
Balance at December 31, 2009	$	132	$	57,496		$	(4,147	)	$	54,121		$	-		$	(154	)	$	107,448
Comprehensive income:
Net income		-		-			-			523			-			-			523		$	523
Unrealized loss on securities available for sale, net of taxes of $1		-		-			-			-			-			1			1			1
Pension liability – DRP, net of taxes of $11		-		-			-			-			-			(4	)		(4	)		(4	)
Cash dividend declared ($.03 per share)		-		-			-			(166	)		-			-			(166	)
ESOP shares earned		-		(22	)		64			-			-			-			42
Total Comprehensive Income																					$	520
Balance - March 31, 2010	$	132	$	57,474		$	(4,083	)	$	54,478		$	-		$	(157	)	$	107,844
Balance at December 31, 2010	$	132	$	57,391		$	(3,888	)	$	55,335		$	(664	)	$	(167	)	$	108,139
Comprehensive income:
Net income		-		-			-			835			-			-			835		$	835
Pension liability – DRP, net of taxes of $16		-		-			-			-			-			47			47			47
Purchase of 43,398 shares of treasury stock		-		-			-			-			(261	)		-			(261	)
Cash dividend declared ($.03 per share)		-		-			-			(163	)		-			-			(163	)
ESOP shares earned		-		(25	)		65			-			-			-			40
Total Comprehensive Income																					$	882
Balance - March 31, 2011	$	132	$	57,366		$	(3,823	)	$	56,007		$	(925	)	$	(120	)	$	108,637

See Notes to Consolidated Financial Statements

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
	March 31,
	2011			2010
	(In Thousands)
Cash Flows from Operating Activities:
Net income	$	835		$	523
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts, net		21			5
Provision for loan losses		328			34
Depreciation		173			200
Net amortization of deferred loan fees and costs		35			28
Amortization of intangible assets		15			19
Deferred income taxes		51			217
Accretion of discount on note payable		2			4
Retirement plan expense		168			173
Loss on disposal of equipment		-			7
Earnings on bank owned life insurance		(146	)		(153	)
ESOP compensation expense		40			42
Increase in accrued interest receivable		(23	)		(47	)
Decrease in other assets		578			107
Decrease in accounts payable and accrued expenses		(56	)		(155	)
Net Cash Provided by Operating Activities		2,021			1,004
Cash Flows from Investing Activities:
Net decrease (increase) in loans		1,623			(1,653	)
Purchase of securities held-to-maturity		(984	)		(22,568	)
Principal repayments on securities available-for-sale		3			3
Principal repayments on securities held-to-maturity		1,032			192
Proceeds from maturities of certificates of deposit		-			4,980
Purchases of premises and equipment		(78	)		(26	)
Purchase of bank owned life insurance		-			(5,000	)
Net Cash Provided by (Used in) Investing Activities		1,596			(24,072	)
Cash Flows from Financing Activities:

Net decrease in deposits		(12,768	)		(11,914	)
Proceeds from FHLB of NY advances		10,000			-
Repayment of FHLB of NY advances		(10,000	)		-
Purchase of treasury stock		(261	)		-
Increase in advance payments by borrowers for taxes and insurance		860			1,402
Cash dividends paid to minority shareholders		(163	)		(166	)

Net Cash Used in Financing Activities		(12,332	)		(10,678	)

Net Decrease in Cash and Cash Equivalents		(8,715	)		(33,746	)

Cash and Cash Equivalents - Beginning		44,453			88,718

Cash and Cash Equivalents - Ending	$	35,738		$	54,972

SUPPLEMENTARY CASH FLOWS INFORMATION

Income taxes paid (refunded)	$	(304	)	$	-
Interest paid	$	1,360		$	2,307

See Notes to Consolidated Financial Statements

Table of Contents

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 March 31, 2011, NECP had title to two multi-family properties. The Bank accepted a deed-in-lieu of foreclosure and transferred the first property to NECP on November 19, 2008. In addition, the Bank accepted a deed-in-lieu of foreclosure and transferred the second property to NECP on November 30, 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 period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the full year or any other interim period. The December 31, 2010 consolidated statement of financial condition data was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles. That data, along with the interim financial information presented in the consolidated statements of financial condition, income, 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, 2010.

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 March 31, 2011 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 three-month periods ended March 31, 2011 and 2010, 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.

NOTE 3 – EMPLOYEE STOCK OWNERSHIP PLAN

As of December 31, 2010 and March 31, 2011, 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, 2010, the Company had allocated 103,684 shares to participants, and an additional 25,921 shares had been committed to be released. As of March 31, 2011, the Company had allocated 129,605 shares to participants, and an additional 6,480 shares had been committed to be released. The Company recognized compensation expense of $40,000 and $42,000 during the three-month periods ended March 31, 2011 and 2010, respectively, which equals the fair value of the ESOP shares when they became committed to be released.

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

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

	Three Months Ended
	March 31,
	2011		2010
	(In thousands)

Service cost	$	13	$	14
Interest cost		10		10
Amortization of prior service cost		5		5
Amortization of actuarial loss		1		2
Total	$	29	$	31

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 three-month periods ended March 31, 2011 and 2010 is also reflected as a reduction in other comprehensive income during the period.

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
March 31, 2011
Securities available for sale:
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation	$	101	$	2	$	-	$	103
Federal National Mortgage Association		54		2		-		56
Total	$	155	$	4	$	-	$	159

Securities held to maturity:
Mortgage-backed securities – residential:
Government National Mortgage Association	$	13,811	$	215	$	-	$	14,026
Federal Home Loan Mortgage Corporation		335		7		1		341
Federal National Mortgage Association		335		8		-		343
Collateralized mortgage obligations-GSE		4,322		112		-		4,434
Other		1		-		-		1
Total Mortgage-backed securities - residential		18,804		342		1		19,145
U.S. Government agencies		985		-		3		982
Total	$	19,789	$	342	$	4	$	20,127

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2010
Securities available for sale:
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation	$	102	$	4	$	-	$	106
Federal National Mortgage Association		55		1		-		56
Total	$	157	$	5	$	-	$	162

Securities held to maturity:
Mortgage-backed securities – residential:
Government National Mortgage Association	$	14,521	$	355	$	-	$	14,876
Federal Home Loan Mortgage Corporation		345		11		-		356
Federal National Mortgage Association		352		9		-		361
Collateralized mortgage obligations-GSE		4,639		109		-		4,748
Other		1		-		-		1
Total	$	19,858	$	484	$	-	$	20,342

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NOTE 5 – INVESTMENTS (Continued)

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

	March 31, 2011
	Amortized Cost		Fair Value
	(In Thousands)
Due after ten years	$	155	$	159

	$	155	$	159

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

	March 31, 2011
	Amortized Cost		Fair Value
	(In Thousands)
Due after one but within five years	$	5	$	5
Due after five but within ten years		284		289
Due after ten years		18,515		18,851

	$	18,804	$	19,145

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:

	March 31, 2011
	Amortized Cost		Fair Value
	(In Thousands)
Due after five but within ten years	$	985	$	982

	$	985	$	982

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

March 31, 2011
U.S. Government agencies	$	982	$	3	$	-	$	-	$	982	$	3
Mortgage-backed Securities-FHLMC		225		1		-		-		225		1
	$	1,207	$	4	$	-	$	-	$	1,207	$	4

December 31, 2010

Mortgage backed

Securities-FHLMC

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NOTE 5 – INVESTMENTS (Continued)

At March 31, 2011, six mortgage-backed securities and one U.S. Government agency security had unrealized losses. Management concluded that the unrealized losses reflected above for these securities were temporary in nature since they were primarily related to market interest rates and not related to the underlying credit quality of the issuers of the securities. Additionally, as the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market recovery, these investments are not considered to be other-than-temporarily impaired.

NOTE 6 – FAIR VALUE DISCLOSURES

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets and liabilities on a non-recurring basis, such as securities held to maturity, impaired loans and other real estate owned. U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:

Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
March 31, 2011:	(In Thousands)
Mortgage-backed securities - residential:
Federal Home Loan Mortgage Corporation	$	103	$	-	$	103	$	-
Federal National Mortgage Association		56		-		56		-
December 31, 2010:
Mortgage-backed securities - residential:
Federal Home Loan Mortgage Corporation	$	106	$	-	$	106	$	-
Federal National Mortgage Association		56		-		56		-

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NOTE 6 – FAIR VALUE DISCLOSURES (Continued)

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis at March 31, 2011 and December 31, 2010 are as follows:

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(In Thousands)
March 31, 2011:
Impaired loans	$	9,989	$	-	$	-	$	9,989
December 31, 2010:
Impaired loans	$	10,953	$	-	$	-	$	10,953

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

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2011 and December 31, 2010:

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

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

Securities

Fair values for securities available for sale and held to maturity are determined utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

Loans

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

For performing loans, fair value is calculated by discounting scheduled future cash flows through estimated maturity using a current market rate. The discounted value of the cash flows is reduced by a credit risk adjustment based on internal loan classifications.

For non-performing loans, fair value is calculated by first reducing the carrying value by a credit risk adjustment based on internal loan classifications, and then discounting the estimated future cash flows from the remaining carrying value at a market rate.

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NOTE 6 – FAIR VALUE DISCLOSURES (Continued)

For impaired loans which the Company has measured and recorded impairment generally based on the fair value of the loan’s collateral, fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are typically included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

FHLB of New York Stock

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

Deposit Liabilities

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, money market accounts, interest checking accounts, and savings accounts is equal to the amount payable on demand. Time deposits are segregated by type, size, and remaining maturity. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is based on rates currently offered in the market.

FHLB of New York Advances

The fair value of the FHLB advances is estimated based on the discounted value of future contractual payments. The discount rate is equivalent to the estimated rate at which the Company could currently obtain similar financing.

Note Payable

The fair value of the note payable is 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 March 31, 2011 and December 31, 2010, the estimated fair values of these off-balance-sheet financial instruments were immaterial.

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

	At March 31, 2011				At December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	35,738	$	35,738	$	44,453	$	44,453
Certificates of deposit		2,988		2,988		2,988		2,988
Securities available for sale		159		159		162		162
Securities held to maturity		19,789		20,127		19,858		20,342
Loans receivable		362,812		367,953		364,798		372,322
FHLB stock		1,884		1,884		1,884		1,884
Accrued interest receivable		1,727		1,727		1,704		1,704

Financial liabilities:
Deposits, including accrued interest		314,062		317,118		326,830		330,471
FHLB advances		25,000		27,562		25,000		26,759
Note payable		170		187		168		173

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NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES

	March 31, 2011			December 31, 2010
	(In Thousands)
Residential real estate:
One-to-four family	$	203		$	211
Multi-family		193,370			190,042
Mixed use		53,275			55,244

		246,848			245,497
Non-residential real estate		97,151			100,925
Construction		13,031			12,913
Commercial		12,746			12,140
Consumer		70			63

Total Loans		369,846			371,538

Allowance for loan losses		(7,908	)		(7,647	)
Deferred loan fees and costs		874			907

Net Loans	$	362,812		$	364,798

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

Allowance for Loan Losses as of and for the Three Months Ended March 31, 2011 (in thousands)

	Residential Real Estate			Non- residential Real Estate			Construction		Commercial			Consumer		Total
Allowance for credit losses:
Beginning balance	$	3,924		$	1,560		$	2,083	$	80		$	-	$	7,647
Charge-offs		(67	)		-			-		-			-		(67	)
Recoveries		-			-			-		-			-		-
Provision		448			(139	)		49		(30	)		-		328
Ending balance	$	4,305		$	1,421		$	2,132	$	50		$	-	$	7,908
Ending balance: individually evaluated for impairment	$	628		$	-		$	1,839	$	-		$	-	$	2,467

Ending balance: collectively evaluated for impairment	$	3,677		$	1,421		$	293	$	50		$	-	$	5,441

Loan receivables:
Ending balance	$	246,848		$	97,151		$	13,031	$	12,746		$	70	$	369,846

Ending balance: individually evaluated for impairment	$	8,081		$	8,533		$	10,284	$	-		$	-	$	26,898

Ending balance: collectively evaluated for impairment	$	238,767		$	88,618		$	2,747	$	12,746		$	70	$	342,948

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NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

Allowance for Loan Losses for the Year Ended December 31, 2010 (in thousands)

	Residential Real Estate			Non- residential Real Estate			Construction		Commercial			Consumer		Total
Allowance for credit losses:
Beginning balance	$	3,948		$	2,495		$	186	$	104		$	-	$	6,733
Charge-offs		(1,211	)		(1,407	)		-		-			-		(2,618	)
Recoveries		45			-			-		-			-		45
Provision		1,142			472			1,897		(24	)		-		3,487
Ending balance	$	3,924		$	1,560		$	2,083	$	80		$	-	$	7,647

Ending balance: individually evaluated for impairment	$	368		$	82		$	1,756	$	-		$	-	$	2,206

Ending balance: collectively evaluated for impairment	$	3,556		$	1,478		$	327	$	80		$	-	$	5,441

Loan receivables:
Ending balance	$	245,497		$	100,925		$	12,913	$	12,140		$	63	$	371,538

Ending balance: individually evaluated for impairment	$	7,696		$	10,399		$	11,575	$	-		$	-	$	29,670

Ending balance: collectively evaluated for impairment	$	237,801		$	90,526		$	1,338	$	12,140		$	63	$	341,868

The following is an analysis of the Company’s impaired loans.

Impaired Loans as of March 31, 2011 (in thousands)

2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate-Multi-family	$	5,909	$	5,909	$	-	$	5,866	$	40
Non-residential real estate		8,533		8,533		-		8,526		28
Construction		-		-		-		-		-
Subtotal		14,442		14,442		-		14,392		68
With an allowance recorded:
Residential real estate-Multi-family		2,172		2,172		628		2,112		-
Non-residential real estate		-		-		-		-		-
Construction		10,284		10,284		1,839		10,227		-
Subtotal		12,456		12,456		2,467		12,339		-
Total:
Residential real estate-Multi-family		8,081		8,081		628		7,978		40
Non-residential real estate		8,533		8,533		-		8,526		28
Construction		10,284		10,284		1,839		10,227
Total	$	26,898	$	26,898	$	2,467	$	26,731	$	68

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NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

The following is an analysis of the Company’s impaired loans.

Impaired Loans for the Year Ended December 31, 2010 (in thousands)

2010	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate-Multi-family	$	6,608	$	6,608	$	-	$	6,505	$	246
Non-residential real estate		9,903		9,903		-		10,086		268
Construction		-		-		-		-		-
Subtotal		16,511		16,511		-		16,591		514
With an allowance recorded:
Residential real estate-Multi-family		1,088		1,088		368		1,147		-
Non-residential real estate		496		496		82		414		5
Construction		11,575		11,575		1,756		11,696		464
Subtotal		13,159		13,159		2,206		13,257		469
Total:
Residential real estate-Multi-family		7,696		7,696		368		7,652		246
Non-residential real estate		10,399		10,399		82		10,500		273
Construction		11,575		11,575		1,756		11,696		464
Total	$	29,670	$	29,670	$	2,206	$	29,848	$	983

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NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

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

Age Analysis of Past Due Loans as of March 31, 2011 (in Thousands)

	30-59 Days Past Due		60 – 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing

Residential real estate:
One- to four-family	$	-	$	-	$	-	$	-	$	203	$	203	$	-
Multi-family		-		257		6,047		6,304		187,066		193,370		-
Mixed-use		-		-		851		851		52,424		53,275		-
Non-residential real estate		-		-		5,463		5,463		91,688		97,151		-
Construction loans		-		1,666		10,284		11,950		1,081		13,031		-
Commercial loans		-		-		-		-		12,746		12,746		-
Consumer		-		-		-		-		70		70		-
Total loans	$	-	$	1,923	$	22,645	$	24,568	$	345,278	$	369,846	$	-

Age Analysis of Past Due Loans as of December 31, 2010 (in Thousands)

	30-59 Days Past Due		60 – 89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days and Accruing

Residential real estate:
One- to four-family	$	-	$	-	$	-	$	-	$	211	$	211	$	-
Multi-family		1,450		-		4,774		6,224		183,818		190,042		2,555
Mixed-use		-		-		-		-		55,244		55,244		-
Non-residential real estate		-		-		5,457		5,457		95,468		100,925		-
Construction loans		-		-		11,575		11,575		1,338		12,913		-
Commercial loans		-		-		-		-		12,140		12,140		-
Consumer		2		-		-		2		61		63		-
Total loans	$	1,452	$	-	$	21,806	$	23,258	$	348,280	$	371,538	$	2,555

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NOTE 7 – LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

The following tables provide certain information related to the credit quality of the loan portfolio.

Credit Quality Indicators as of March 31, 2011 (in thousands)

Credit Risk Profile by Internally Assigned Grade

	Residential Real Estate		Non- residential Real Estate		Construction		Commercial		Consumer		Total
Grade:
Pass	$	238,767	$	88,618	$	2,747	$	12,746	$	70	$	342,948
Special Mention		2,337		2,023		-		-		-		4,360
Substandard		5,744		6,510		10,284		-		-		22,538
Total	$	246,848	$	97,151	$	13,031	$	12,746	$	70	$	369,846

Credit Quality Indicators as of December 31, 2010 (in thousands)

Credit Risk Profile by Internally Assigned Grade

	Residential Real Estate		Non- residential Real Estate		Construction		Commercial		Consumer		Total
Grade:
Pass	$	237,801	$	90,526	$	1,338	$	12,140	$	63	$	341,868
Special Mention		2,625		4,942		-		-		-		7,567
Substandard		5,071		5,457		11,575		-		-		22,103
Total	$	245,497	$	100,925	$	12,913	$	12,140	$	63	$	371,538

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NOTE 7 - LOANS RECEIVABLE AND THE ALLOWANCE FOR LOAN LOSSES (Continued)

The following table sets forth the composition of our nonaccrual loans at the dates indicated.

Loans Receivable on Nonaccrual Status as of March 31, 2011 and December 31, 2010 (in thousands)

	2011		2010

Residential real estate-Multi-family	$	6,898	$	2,219
Non-residential real estate		5,463		5,457
Construction loans		10,284		11,575
Total	$	22,645	$	19,251

NOTE 8 – EFFECT OF SALE OF OUR NEW YORK CITY BRANCH OFFICE

On June 29, 2007, the Company 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 Company 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 Company 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 included interest and expenses. The Company and the borrower agreed in December 2010 to extend the term of the Combined Note to June 30, 2011 after the borrower paid $1.9 million in cash to the Company in the fourth quarter of 2010. The payment represents $1.5 million in interest income for 2009 and 2010 and $377,000 in pre-paid interest for the six months ending June 30, 2011. The Combined Note is secured by 100% of the interests in the companies owning the Property. In addition, the Combined Note is secured by a first mortgage on the Property. Based on a current appraisal, the loan to value is approximately 35%. The Company recognized interest income of $188,000 during the three months ended March 31, 2011 and $1.5 million in interest income in 2010 since it believes the collection of the principal balance is assured. This note is not treated as a loan or extension of credit for purposes of the regulatory limits on loans to one borrower.

In connection with the sale of the branch office building, the Company entered into a 99-year lease agreement to enable the Company to retain a branch office at 1353-55 First Avenue. This lease will be effective upon the completion of the renovation of the property. The Company has temporarily relocated our First Avenue branch office to 1470 First Avenue while 1353-55 First Avenue is being renovated.

NOTE 9 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

The FASB has issued Accounting Standards Update (“ASU”) 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, to clarify the accounting principles applied to loan modifications, as defined by FASB ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors. This ASU clarifies guidance on a creditor’s evaluation of whether or not a concession has been granted, with an emphasis on evaluating all aspects of the modification rather than a focus on specific criteria, such as the effective interest rate test, to determine a concession. This ASU provides guidance on specific types of modifications such as changes in the interest rate of the borrowing, and insignificant delays in payments, as well as guidance on the creditor’s evaluation of whether or not a debtor is experiencing financial difficulties. For public entities, the amendments in this ASU are effective for the first interim or annual periods beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The entity should also disclose information required by ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which had previously been deferred by ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. Early adoption is permitted. The Company is currently reviewing the effect on the Company’s consolidated financial statements.

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NOTE 10 – 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 (the “MHC”). These repurchases will be conducted solely through a Rule 10b5-1 repurchase plan. Repurchased shares will be held in treasury. Through March 31, 2011, the Company has purchased 153,598 shares at a cost of $925,000.

NOTE 11 – DIVIDEND RESTRICTION

The MHC held 7,273,750 shares, or 55.6%, of the Company’s issued and outstanding common stock, and the minority public shareholders held 44.4% of outstanding stock, at March 31, 2011. The MHC filed notice with, and received approval by, the Office of Thrift Supervision (“OTS”) to waive its right to receive cash dividends for the four fiscal quarters ending June 30, 2011.

The MHC has waived receipt of past dividends paid by the Company. The dividends waived are considered as a restriction on the retained earnings of the Company. As of March 31, 2011 and December 31, 2010, the aggregate retained earnings restricted for cash dividends waived were $3,273,000 and $3,055,000, respectively.

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 Company’s market area, changes in real estate market values in the Company’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.

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 2010.

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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.

First Quarter Performance Highlights

The Company’s earnings for the quarter ended March 31, 2011 increased by $312,000 over the same period in 2010. 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.

Non-performing loans increased by $809,000, or 3.7%, to $22.6 million as of March 31, 2011 from $21.8 million as of December 31, 2010. The increase in non-performing loans is primarily attributable to the addition of four non-performing multi-family mortgage loans and one non-performing mixed-use mortgage loan totaling $3.1 million, offset by the resolution of one multi-family mortgage loan and two construction mortgage loans totaling $2.5 million that became performing as of March 31, 2011.

We will continue to monitor these loans closely and adjust the level of allowance for loan losses appropriately as updated information becomes available. In this regard, the Company’s Special Assets Group reviews all non-performing loans, potential non-performing loans, and restructured loans each month. The monitoring of these loans by the Special Assets Group allows the Company to adjust its level of loan loss allowances quickly in response to even modest changes in the loan portfolio’s performance.

In an effort to reduce our loan concentration and risk exposure, we have proactively discontinued offering new nonresidential real estate loans and construction loans effective the first quarter of 2009 and are not currently offering such loans.

In light of recent consolidation in the banking industry in Massachusetts and consistent with the Company’s business plan, the Company intends to aggressively pursue opportunities to expand its business in Massachusetts, particularly in and around the I-495 corridor. In 2009, NorthEast Community Bank opened two branches in Massachusetts, one in Danvers and one in Plymouth, and we continue to look for other branch sites within our Massachusetts market area and recently entered into a real estate contract to purchase a branch located in Malden, which is subject to certain closing conditions. At this time, the Company is also focusing on opportunities to increase its loan production in Massachusetts in the areas of commercial real estate lending and commercial and industrial lending in a manner consistent with our conservative underwriting standards. We are also exploring expanding our product offerings to include one- to four- family lending within our market area in Massachusetts and insurance products. Beyond potential branch expansion, such growth in our product offerings may include the hiring of experienced lending professionals. There is no assurance that we will be successful in implementing our expansion plans or that we will be able to hire the employees necessary to implement our plans.

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Comparison of Financial Condition at March 31, 2011 and December 31, 2010

Total assets decreased by $11.3 million, or 2.4%, to $454.7 million at March 31, 2011 from $466.0 million at December 31, 2010. The decrease in total assets was due to decreases of $8.7 million in cash and cash equivalents, $2.0 million in loans receivable, net, and $610,000 in other assets, offset by an increase of $146,000 in bank owned life insurance. These decreases primarily resulted from a decrease of $12.8 million in deposits, partially offset by an increase of $860,000 in advance payments by borrowers for taxes and insurance.

Cash and cash equivalents decreased by $8.7 million, or 19.6%, to $35.7 million at March 31, 2011, from $44.5 million at December 31, 2010. The decrease in short-term liquidity funded a decrease of $12.8 million in deposits, offset by an increase of $860,000 in advance payments by borrowers for taxes and insurance.

Loans receivable, net, decreased by $2.0 million, or 0.5%, to $362.8 million at March 31, 2011 from $364.8 million at December 31, 2010 due primarily to loan repayments totaling $9.6 million and provision for loan losses, net of charge-offs, totaling $261,000 that exceeded loan originations of $7.9 million.

Other assets decreased by $610,000, or 13.7%, to $3.9 million at March 31, 2011 from $4.5 million at December 31, 2010 due primarily to reductions in various income tax accounts and the amortization of prepaid FDIC premiums during the March 31, 2011 quarter. Bank owned life insurance increased by $146,000, or 0.9%, to $16.3 million at March 31, 2011 from $16.1 million at December 31, 2010 due primarily to accrued earnings during the March 31, 2011 quarter.

Deposits decreased by $12.8 million, or 3.9%, to $314.1 million at March 31, 2011 from $326.8 million at December 31, 2010. The decrease in deposits was primarily attributable to decreases of $7.9 million in certificates of deposits, $6.0 million in our NOW and money market accounts, and $404,000 in non-interest bearing accounts, offset by increases of $1.5 million in our regular savings accounts.

Advance payments by borrowers for taxes and insurance increased by $860,000, or 25.4%, to $4.2 million at March 31, 2011 from $3.4 million at December 31, 2010 due primarily to accumulating balances paid into escrow accounts by borrowers.

Stockholders’ equity increased by $498,000, or 0.5%, to $108.6 million at March 31, 2011, from $108.1 million at December 31, 2010. This increase was primarily the result of comprehensive net income of $882,000 and the amortization of $40,000 for the ESOP for the period, partially offset by treasury stock purchases of $261,000 and cash dividend declared of $163,000.

Comparison of Operating Results for the Three Months Ended March 31, 2011 and 2010

General. Net income increased by $312,000, or 59.7%, to $835,000 for the quarter ended March 31, 2011, from $523,000 for the quarter ended March 31, 2010. The increase was primarily the result of an increase of $721,000 in net interest income, an increase of $33,000 in non-interest income, and a decrease of $115,000 in non-interest expense, offset by an increase of $294,000 in provision for loan losses and an increase of $263,000 in the provision for income taxes.

Net Interest Income. Net interest income increased by $721,000, or 19.4%, to $4.4 million for the three months ended March 31, 2011 from $3.7 million for the three months ended March 31, 2010. The increase in net interest income resulted primarily from a decrease of $947,000 in interest expense that exceeded a decrease of $226,000 in interest income. The increase in net interest income was also due to an increase of $6.6 million in average net interest-earning assets that resulted from decreases of $64.4 million in average deposits and borrowings that exceeded decreases of $57.8 million in average loans, securities, and other interest-earning assets.

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The net interest spread increased by 113 basis points to 3.73% for the three months ended March 31, 2011 from 2.60% for the three months ended March 31, 2010. The net interest margin increased by 107 basis points between these periods from 3.03% for the quarter ended March 31, 2010 to 4.10% for the quarter ended March 31, 2011. The increase in the interest rate spread and the net interest margin in the first quarter of 2011 compared to the same period in 2010 was due to an increase in the yield on our interest-earning assets coupled with a decrease in the cost of our interest-bearing liabilities.

The yield on our interest-earning assets increased by 44 basis points to 5.36% for the three months ended March 31, 2011 from 4.92% for the three months ended March 31, 2010 and the cost of our interest-bearing liabilities decreased by 69 basis points to 1.63% for the three months ended March 31, 2011 from 2.32% for the three months ended March 31, 2010. The increase in the yield on our interest-earning assets was due to an increase in the yield on loans as a result of a $13.0 million, or 36.4%, decrease in total non-performing loans to $22.6 million as of March 31, 2011 from $35.6 million as of March 31, 2010. The decrease in the cost of our interest-bearing liabilities was due to the low interest rate environment in 2010 which continued into the first quarter of 2011.

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended March 31, 2011 and 2010.

Net Interest Income.

The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three months ended March 31, 2011 and 2010.

	Three Months Ended March 31,
	2011								2010
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	370,918		$	5,599		6.04	%	$	394,366		$	5,767		5.85	%
Securities (including FHLB stock)		22,083			185		3.35			23,594			202		3.42
Other interest-earning assets		38,843			7		0.07			71,683			48		0.27
Total interest-earning assets		431,844			5,791		5.36			489,643			6,017		4.92
Allowance for loan losses		(7,638	)							(6,726	)
Non-interest-earning assets		34,052								37,729
Total assets	$	458,258							$	520,646

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand	$	80,509		$	160		0.79		$	74,029		$	240		1.30
Savings and club accounts		56,728			84		0.59			60,092			107		0.71
Certificates of deposit		174,269			941		2.16			228,874			1,663		2.91
Total interest-bearing deposits		311,506			1,185		1.52			362,995			2,010		2.21

Borrowings		22,446			175		3.12			35,329			297		3.36
Total interest-bearing liabilities		333,952			1,360		1.63			398,324			2,307		2.32

Noninterest-bearing demand		9,507								9,350
Other liabilities		5,812								5,382
Total liabilities		349,271								413,056

Stockholders’ equity		108,987								107,590
Total liabilities and Stockholders’ equity	$	458,258							$	520,646
Net interest income				$	4,431							$	3,710
Interest rate spread							3.73								2.60
Net interest margin							4.10								3.03
Net interest-earning assets	$	97,892							$	91,319
Interest-earning assets to interest-bearing liabilities		129.3	%							122.9	%

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Total interest income decreased by $226,000, or 3.8%, to $5.8 million for the three months ended March 31, 2011, from $6.0 million for the three months ended March 31, 2010. Interest income on loans decreased by $168,000, or 2.9%, to $5.6 million for the three months ended March 31, 2011 from $5.8 million for the three months ended March 31, 2010. The average balance of the loan portfolio decreased by $23.4 million to $370.9 million for the three months ended March 31, 2011 from $394.4 million for the three months ended March 31, 2010 as repayments outpaced originations. The average yield on loans increased by 19 basis points to 6.04% for the three months ended March 31, 2011 from 5.85% for the three months ended March 31, 2010 as a result of a $13.0 million, or 36.4%, decrease in total non-performing loans to $22.6 million as of March 31, 2011 from $35.6 million as of March 31, 2010.

Interest income on securities decreased by $17,000, or 8.4%, to $185,000 for the three months ended March 31, 2011 from $202,000 for the three months ended March 31, 2010. The decrease was primarily due to a decrease of $1.5 million, or 6.4%, in the average balance of securities to $22.1 million for the three months ended March 31, 2011 from $23.6 million for the three months ended March 31, 2010. The decrease in the average balance was due to the principal repayments on investment securities and a decrease in FHLB New York stock. The decrease in interest income on securities was also due to a decrease of 7 basis points in the average yield on securities to 3.35% for the three months ended March 31, 2011 from 3.42% for the three months ended March 31, 2010. The decline in the yield was due to the re-pricing of the yield of our adjustable rate investment securities from March 31, 2010 to March 31, 2011.

Interest income on other interest-earning assets (consisting solely of interest-earning deposits) decreased by $41,000, or 85.4%, to $7,000 for the three months ended March 31, 2011 from $48,000 for the three months ended March 31, 2010. The decrease was primarily due to a decrease of 20 basis points in the average yield on other interest-earning assets to 0.07% for the three months ended March 31, 2011 from 0.27% for the three months ended March 31, 2010. The decline in the yield was due to the maturity of higher yielding certificates of deposits at other financial institutions. The decline in interest income on other interest-earning assets was also due to a decrease of $32.9 million, or 45.8%, in the average balance of other interest-earning assets to $38.8 million for the three months ended March 31, 2011 from $71.7 million for the three months ended March 31, 2010. The decrease in the average balance of other interest-earning assets was due to the decrease in cash and cash equivalents and certificates of deposits at other financial institutions.

Total interest expense decreased by $947,000, or 41.0%, to $1.4 million for the three months ended March 31, 2011 from $2.3 million for the three months ended March 31, 2010. Interest expense on deposits decreased by $825,000, or 41.0%, to $1.2 million for the three months ended March 31, 2011 from $2.0 million for the three months ended March 31, 2010. During this same period, the average interest cost of deposits decreased by 69 basis points to 1.52% for the three months ended March 31, 2011 from 2.21% for the three months ended March 31, 2010.

Due to an effort by the Company to decrease reliance on high cost certificates of deposits, the average balance of certificates of deposits decreased by $54.6 million, or 23.9%, to $174.3 million for the three months ended March 31, 2011 from $228.9 million for the three months ended March 31, 2010. As a result of the decrease in the average balance of certificates of deposits, interest expense on our certificates of deposits decreased by $722,000, or 43.4%, to $941,000 for the three months ended March 31, 2011 from $1.7 million for the three months ended March 31, 2010. The decrease in interest expense on our certificates of deposits was also due to a decrease in the interest cost of our certificates of deposits of 75 basis points to 2.16% for the three months ended March 31, 2011 from 2.91% for the three months ended March 31, 2010.

Interest expense on our other deposit products decreased by $103,000, or 29.7%, to $244,000 for the three months ended March 31, 2011 from $347,000 for the three months ended March 31, 2010. The decrease was due to a decrease of 51 basis points in the cost of our interest-bearing demand deposits to 0.79% for the three months ended March 31, 2011 from 1.30% for the three months ended March 31, 2010 and a decrease of 12 basis points in the cost of our savings and holiday club deposits to 0.59% for the three months ended March 31, 2011 from 0.71% for the three months ended March 31, 2010. The decrease was also due to a decrease of $3.4 million, or 5.6%, in the average balance of our savings and holiday club deposits to $56.7 million for the three months ended March 31, 2011 from $60.1 million for the three months ended March 31, 2010, offset by an increase of $6.5 million, or 8.8%, in our interest-bearing demand deposits to $80.5 million for the three months ended March 31, 2011 from $74.0 million for the three months ended March 31, 2010.

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Interest expense on borrowings decreased by $122,000, or 41.1%, to $175,000 for the three months ended March 31, 2011 from $297,000 for the three months ended March 31, 2010. The decrease was primarily due to a decrease of $12.9 million, or 36.5%, in the average balance of borrowed money to $22.4 million for the three months ended March 31, 2011 from $35.3 million for the three months ended March 31, 2010.

Interest expense on borrowings for the three months ended March 31, 2011 consisted of $173,000 in interest expense on an average balance of $22.3 million in FHLB advances and $2,000 in interest expense on an average balance of $168,000 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 $293,000 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 $329,000 on the note incurred in connection with the acquisition of Hayden Financial Group LLC for the three months ended March 31, 2010.

Provision for Loan Losses. The following table summarizes the activity in the allowance for loan losses and provision for loan losses for the three months ended March 31, 2011 and 2010.

	Three Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Allowance at beginning of period	$	7,647		$	6,733
Provision for loan losses		328			34
Charge-offs		(67	)		(393	)
Recoveries		-			-
Net charge-offs		(67	)		(393	)
Allowance at end of period	$	7,908		$	6,374

Allowance to nonperforming loans		34.92	%		17.90	%
Allowance to total loans outstanding at the end of the period		2.14	%		1.62	%
Net charge-offs (recoveries) to average loans outstanding during the period		0.02	%		0.10	%

The allowance to nonperforming loans ratio increased to 34.92% at March 31, 2011 from 17.90% at March 31, 2010 due primarily to the decrease in nonperforming loans to $22.6 million at March 31, 2011 from $35.6 million at March 31, 2010. The decrease in nonperforming loans was due to the identification, monitoring and resolution of several nonperforming loans that eventually were paid-off, became foreclosed properties and sold off, or became performing as of March 31, 2011.

The allowance for loan losses was $7.9 million at March 31, 2011, $7.7 million at December 31, 2010, and $6.4 million at March 31, 2010. We recorded a provision for loan losses of $328,000 for the three-month period ended March 31, 2011 compared to a provision for loan losses of $34,000 for the three-month period ended March 31, 2010.

We charged-off $67,000 against one non-performing multi-family mortgage loan during the three months ended March 31, 2011 compared to charge-offs of $393,000 against five non-performing multi-family mortgage loans, two non-performing non-residential mortgage loans, and one performing multi-family mortgage loan during the three months ended March 31, 2010. We did not have any recoveries during the three months ended March 31, 2011 and March 31, 2010.

Non-interest Income. Non-interest income increased by $33,000, or 8.5%, to $421,000 for the three months ended March 31, 2011 from $388,000 for the three months ended March 31, 2010. The increase was due to a $30,000 increase in fee income generated by Hayden Wealth Management Group, the Company’s investment advisory and financial planning services division, a $7,000 loss on the disposition of a fixed asset, and a $4,000 increase in other loan fees and service charges, offset by a $7,000 decrease in earnings on bank owned life insurance and a $1,000 decrease in other non-interest income.

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Non-interest Expense. Non-interest expense decreased by $115,000, or 3.5%, to $3.2 million for the three months ended March 31, 2011 from $3.3 million for the three months ended March 31, 2010. The decrease resulted primarily from decreases of $93,000 in salaries and employee benefits, $57,000 in occupancy expense, $2,000 in equipment expense, $2,000 in FDIC insurance expense, and $1,000 in advertising expense, which were partially offset by increases of $30,000 in other non-interest expense and $10,000 in real estate owned expenses.

Salaries and employee benefits, which represent 53.1% of the Company’s non-interest expense, decreased by $93,000, or 5.2%, to $1.7 million in 2011 from $1.8 million in 2010 due to a decrease in the number of full time equivalent employees to 87 at March 31, 2011 from 100 at March 31, 2010. The decrease was due to the sale of the Brooklyn branch office and a reduction in staff in various departments.

Occupancy expense decreased by $57,000, or 17.1%, to $276,000 in 2011 from $333,000 in 2010 due to the elimination of the occupancy expenses associated with the Brooklyn branch office.

Other non-interest expense increased by $30,000, or 4.4%, to $709,000 in 2011 from $679,000 in 2010 due mainly to increases of $57,000 in legal fees, $18,000 in audit and accounting fees, and $2,000 in telephone expenses. These increases were partially offset by decreases of $17,000 in office supplies and stationery, $16,000 in miscellaneous non-interest expenses, $6,000 in insurance expense, $4,000 in directors compensation, $2,000 in directors, officers and employee expenses, and $2,000 in service contracts.

Real estate owned expenses increased to $9,000 in 2011 compared to income of $1,000 in 2010 due to maintenance and operation of two foreclosed properties (consisting of two multi-family properties) in 2011 compared to one foreclosed property in 2010.

Income Taxes. Income tax expense increased by $263,000, or 106.9%, to $509,000 for the three months ended March 31, 2011 from $246,000 for the three months ended March 31, 2010. The increase resulted primarily from a $575,000 increase in pre-tax income in 2011 compared to 2010. The effective tax rate was 37.8% for the three months ended March 31, 2011 and 32.0% for the three months ended March 31, 2010. The increase in the effective tax rate between periods was due to a lower percentage of our pre-tax income being tax-exempt.

NON PERFORMING ASSETS

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

	At March 31, 2011			At December 31, 2010
	(Dollars in thousands)

Non-accrual loans	$	22,645		$	19,251
Loans past due 90 days or more and accruing		-			2,555
Total nonaccrual and 90 days or more past due loans		22,645			21,806
Other non-performing loans		-			-
Total non-performing loans		22,645			21,806
Real estate owned		933			933
Total non-performing assets		23,578			22,739
Troubled debt restructurings		26,755			30,893
Total troubled debt restructurings and non-performing assets	$	50,333		$	53,632

Total non-performing loans to total loans		6.12	%		5.87	%
Total non-performing loans to total assets		4.98	%		4.88	%
Total non-performing assets and troubled debt restructurings to total assets		11.07	%		11.51	%

Non-accrual loans at March 31, 2011 consisted of eighteen loans in the aggregate – eight multi-family mortgage loans, two mixed-use mortgage loans, three non-residential mortgage loans, and five construction mortgage loans.

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The eight non-accrual multi-family mortgage loans, net of a charge-off of $445,000, totaled $6.0 million at March 31, 2011, consisting of the following mortgage loans:

(1)

A delinquent loan with an outstanding balance of $1.5 million secured by an apartment building. The Company filed a foreclosure action and we are waiting for the court to grant the Company’s request for the appointment of a receiver for the property. We do not anticipate a loss on this loan.

(2)

A delinquent loan with an outstanding balance of $1.2 million secured by an apartment building. The borrower and all his related properties are operating under Chapter 11 bankruptcy protection and are making regularly scheduled payments as approved by the Trustee. A hearing has been scheduled for June 2011 where the debtor will re-present the amended plan to the judge for discussion. Based on the current appraisal and the reorganization plan before the Court, we expect repayment of all principal and interest due on this loan. We do not anticipate a loss on this loan.

(3)

A delinquent loan with an outstanding balance of $1.2 million secured by an apartment building. The delinquency is the result of a lawsuit claiming a title defect that affects the property, filed by the previous owner, claiming that the debtor never owned record title to the mortgage property. The Company filed a lawsuit seeking a declaration that the mortgage is a valid encumbrance against the property. A ruling on the Company’s motion for Preliminary Injunction and Motion for Lis Pendens is expected no later than June 30, 2011. No trial date has been set, but we do not expect a trial date until early 2012. No reservation of rights has been raised by the title company and we and our attorneys are unaware of any defenses to coverage having been asserted by the title insurance company. We do not anticipate a loss on this loan.

(4)

An outstanding balance of $857,000, net of a charge-off of $445,000, secured by an apartment building. The Company has initiated a foreclosure action and a lawsuit on the general guarantee is progressing. Based on a signed contract of sale, the Company established a specific allowance of $327,000 against the loan.

(5)

An outstanding balance of $351,000 secured by an apartment building. Our foreclosure action is in the final stages of completion. We are currently negotiating with the borrower and his attorney for a loan modification, however if the modification discussions with the borrower are not successful in the short term, we will complete our foreclosure action. Based on a current appraisal and projected cash flow analysis, at this time, we do not anticipate a loss on this loan.

(6)

Three mortgage loans with an aggregate outstanding balance of $964,000 secured by three separate apartment buildings. The Company was in the process of filing foreclosure actions which were stayed by the debtor filing for bankruptcy. Subsequent to March 31, 2011, the court expunged the note. As such, the properties are no longer subject of the bankruptcy estate. The Company is beginning foreclosure action on all three mortgages. Based on current appraisals, we do not expect any loss.

The two non-accrual mixed-use mortgage loans totaled $852,000 at March 31, 2011, consisting of the following mortgage loans:

(1)

An outstanding balance of $216,000 secured by a mixed-use apartment building. Following a default by the borrower on the loan, the Company commenced a foreclosure action in October 2010 and during the fourth quarter of 2010 the borrower entered into a sales contract in the amount of $400,000, well in excess of the current debt. Subsequent to March 31, 2011, the borrower sold the apartment building and used a portion of the proceeds to satisfy the outstanding balance of $216,000 owed to the Company.

(2)

An outstanding balance of $635,000 secured by a mixed-use apartment building. The Company anticipates shortly filing a foreclosure summons and complaint and a motion to appoint a receiver.

The three non-accrual non-residential mortgage loans, net of charge-offs of $400,000, totaled $5.5 million at March 31, 2011, consisting of the following mortgage loans:

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(1)

An outstanding balance of $4.5 million secured by an office building. The managing member of the borrowing entity is the same individual as the managing member of the borrowing entity of the hotel construction loan referenced below. We have recently negotiated an agreement with the borrower to begin making partial payments during the foreclosure action and the suit on the personal guaranty. In return, the Company has agreed to forbear from collecting any judgment obtained in the pending lawsuits until December 31, 2011 (the maturity date) in the absence of a settlement agreement. Also under this agreement, the obligor will be required to make additional monthly payments equal to 100% of the net income from the property during the term of this agreement. While the foreclosure action is progressing, we will monitor the cash flow and require several capital improvements be made to the building to allow it to better compete in its office market. Based on a current appraisal and projected cash flow analysis, at this time, we do not anticipate any additional losses on this loan.

(2)

An outstanding balance of $502,000 secured by a restaurant with 23 boat slips and a general guarantee of the borrower. We have received a Judgment of Foreclosure and Sale which has been scheduled for June 24, 2011. Based on a current appraisal, management anticipates full recovery of all outstanding amounts due on this loan.

(3)

An outstanding balance of $437,000, net of a charge-off of $400,000, secured by a strip shopping center and warehouse. The property was severely damaged by fire and the Company and borrower are currently suing the insurance company and the borrower’s insurance agent as part of the Company’s collection efforts. The borrower is making monthly escrow payments. We do not anticipate any additional losses on this loan and expect to recover all legal and court fees upon resolution of the suit.

The five non-accrual construction mortgage loans, net of loans in process of $85,000, totaled $10.3 million at March 31, 2011, consisting of the following mortgage loans:

(1)

Four construction mortgage loans with an aggregate outstanding balance of $7.6 million (net of loans in process of $85,000), representing a 25% interest in a participation loan, secured by a newly completed boutique hotel. Additional security consists of a general guarantee of the two principals and an assignment of LLC interests in two other properties. The managing member of the borrowing entity is the same individual as the managing member of the borrowing entity of the office building loan referenced above. The loan was restructured in 2010 and was current under the terms of a restructure agreement until October 2010. Although the hotel is now complete and in full operation, the winter season and poor economy has adversely affected the cash flow and the borrower has been unable to continue to meet its obligations based on the restructure agreement. At this time we are evaluating all of the available information, and in concert with the other participants, have been negotiating with several potential purchasers who have expressed an interest in purchasing the notes and mortgages. During the fourth quarter of 2010 and first quarter of 2011, specific allowances in the amount of $1.6 million were recorded to cover the anticipated loss on the sale of the notes and mortgages. We will continue to negotiate with the interested parties and monitor the operations of the hotel.

(2)

A construction mortgage loan with an outstanding balance of $2.7 million, representing a 20% interest in a participation loan, secured by two lots for a planned three phase residential condominium project. Phase one was completed and is not part of this loan. However, the construction project stalled and defaulted when the developer could not obtain construction financing from conventional lenders. The participating banks recently received and approved an all cash offer of $2.5 million for the sale of the note. Based on this offer, we have established a specific allowance of $203,000. Closing on the note sale is pending.

We are in the process of foreclosing on all of the multi-family, mixed-use, non-residential loans, and construction properties discussed above. Based on recent fair value analyses of these properties, the Company does not expect any losses beyond the amounts already charged off or reserved for. All of the above-mentioned thirteen loans have been classified as substandard.

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.

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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.

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 $35.7 million at March 31, 2011 and consist primarily of interest-bearing deposits at other financial institutions and miscellaneous cash items. The Company can also borrow an additional $60.8 million from the FHLB of New York to provide additional liquidity.

At March 31, 2011, we had $25.0 million in loan commitments outstanding, consisting of $14.5 million in unused commercial business lines of credit, $7.9 million of real estate loan commitments, $2.2 million in unused real estate equity lines of credit, $271,000 in unused loans in process, and $161,000 in consumer lines of credit. Certificates of deposit due within one year of March 31, 2011 totaled $134.8 million. This represented 79.6% of certificates of deposit at March 31, 2011. 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 paid on the certificates of deposit due on or before March 31, 2011. 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 March 31, 2011, we had the ability to borrow $60.8 million, net of $25.0 million in outstanding advances, from the FHLB of New York. At March 31, 2011, 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 March 31, 2011, the Company had liquid assets of $17.9 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 March 31, 2011, 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 March 31, 2011 and the year ended December 31, 2010, 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.

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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.

Our strategy for managing interest rate risk emphasizes: originating mortgage real estate loans that re-price to market interest rates in three to five years; purchasing securities that typically re-price within a three year time frame to limit exposure to market fluctuations; and, where appropriate, offering higher rates on long term certificates of deposit to lengthen the re-pricing time frame of our liabilities. We currently do not participate in hedging programs, interest rate swaps or other activities involving the use of derivative financial instruments.

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 March 31, 2011 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		$	85,085	$	(6,479	)		(7	)%		19.61	%		(86	) bp
	200			87,511		(4,053	)		(4	)%		19.96	%		(51	) bp
	100			89,633		(1,931	)		(2	)%		20.24	%		(23	) bp
	50			90,575		( 989	)		(1	)%		20.35	%		(12	) bp
	0			91,564					-			20.47	%
	(50	)		92,604		1,041			1	%		20.60	%		13	bp
	(100	)		94,691		3,127			3	%		20.93	%		46	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.

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Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future loan repayment activity.

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 March 31, 2011 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 March 31, 2011, 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

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, 2010, 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.

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

Purchases of Equity Securities

The following table presents information regarding the Company’s stock repurchases during the three months ended March 31, 2011.

	(a)		(b)		(c)		(d)
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to January 31		7,300	$	5.99		7,300		180,063
February 1 to February 28		200		5.90		200		179,863
March 1 to March 31		35,898		6.04		35,898		143,965
Total		43,398		6.03		43,398		143,965

On July 22, 2010, the Board of Directors of the Company approved the repurchase of up to 297,563 shares of the Company’s outstanding common stock held by persons other than NorthEast Community Bancorp MHC.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. [Removed and Reserved]

Item 5. Other Information

None

Item 6. Exhibits

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.

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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: May 16, 2011	By:	/s/ Kenneth A. Martinek
		Kenneth A. Martinek
		President and Chief Executive Officer



Date: May 16, 2011	By:	/s/ Salvatore Randazzo
		Salvatore Randazzo
		Executive Vice President, Chief Operating Officer and
		Chief Financial Officer

Attached files

NORTHEAST COMMUNITY BANCORP INC Reports

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