[LOGO]
NOTICE OF 2017 ANNUAL MEETING,
PROXY STATEMENT AND
2016 ANNUAL REPORT
NORTHEAST COMMUNITY BANCORP, INC.
Corporate Profile
Northeast Community Bancorp, Inc., headquartered in White Plains, New York, is the holding company for
Northeast Community Bank. Established in 1934, Northeast Community Bank is a community-oriented
financial institution offering traditional financial services to consumers and businesses in its market area.
We conduct our lending activities throughout the Northeastern United States, including New York,
Massachusetts, New Jersey and Connecticut. We attract deposits from the general public and use those funds
to originate multi-family residential, mixed-use and non-residential real estate and consumer loans, which we
hold for investment.
Transfer Agent
Computershare
P.O. Box 30170
College Station, TX 77842-3170
1-800-368-5948
www.computershare.com/investor
Stock Listing
Northeast Community Bancorp, Inc.’s
common stock is quoted over the counter
on the OTC Pink marketplace under the symbol “NECB.”
Locations
Corporate Headquarters and Main Office Annex
325 Hamilton Avenue
White Plains, New York 10601
Bank Branches
325 Hamilton Avenue
White Plains, New York 10601
590 East 187th Street
Bronx, New York 10458
242 West 23rd Street
New York, New York 10011
8 No. Park Avenue
Plymouth, Massachusetts 02360
281 Quincy Avenue
Quincy, Massachussetts 02169
Loan Production Office
301 North Main Street, Suite 5
New City, New York 10956
Other Properties
830 Post Road East
Westport, Connecticut 06880
55 Church Street
White Plains, New York 10601
1355 First Avenue
New York, New York 10021
72 West Eckerson Road
Spring Valley, New York 10977
87 Elm Street
Danvers, Massachusetts 01923
35 Edgell Road
Framingham, Massachusetts 01017
April 7, 2017
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of NorthEast Community
Bancorp, Inc. The meeting will be held at the Marriott Hotel, 670 White Plains Road, Tarrytown, New
York on Wednesday, May 17, 2017 at 9:00 a.m., local time.
The notice of annual meeting and proxy statement appearing on the following pages describe the
formal business to be transacted at the meeting. Officers and directors of the Company, as well as a
representative of BDO USA, LLP, the Company’s independent registered public accountants, will be
present to respond to appropriate questions of stockholders.
It is important that your shares are represented at this meeting, whether or not you attend the
meeting in person and regardless of the number of shares you own. To make sure your shares are
represented, we urge you to complete and mail the enclosed proxy card. If you attend the meeting, you
may vote in person even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
Kenneth A. Martinek
Chairman and Chief Executive Officer
IMPORTANT NOTICE REGARDING ATTENDING THE MEETING
AND VOTING SHARES HELD IN STREET NAME
If your shares are registered directly in your name at our transfer agent, Computershare,
Inc., you will need photo identification to be admitted to the annual meeting.
If you hold your shares in street name, you will need photo identification and proof of
ownership to be admitted to the annual meeting. Examples of proof of ownership include a recent
brokerage statement or letter from a bank or broker. If you want to vote your shares of NorthEast
Community Bancorp common stock held in street name in person at the annual meeting, you must
obtain a written proxy in your name from the broker, bank or other holder of record of your
shares.
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325 Hamilton Avenue
White Plains, New York 10601
(914) 684-2500
____________________
NOTICE OF 2017 ANNUAL MEETING OF STOCKHOLDERS
____________________
TIME AND DATE . . . . . . . . . . . . . . . 9:00 a.m. on Wednesday, May 17, 2017
PLACE . . . . . . . . . . . . . . . . . . . . . . . . Marriott Hotel
670 White Plains Road
Tarrytown, New York 10591
ITEMS OF BUSINESS . . . . . . . . . . .
(1)
To elect two directors to serve for a term of three years;
(2)
(3)
To ratify the appointment of BDO USA, LLP as our
independent auditors for fiscal year 2017; and
To transact other business as may properly come before
the meeting and any adjournment or postponement
thereof.
RECORD DATE . . . . . . . . . . . . . . . .
In order to vote, you must have been a stockholder at the close of
business on March 24, 2017.
PROXY VOTING . . . . . . . . . . . . . . .
It is important that your shares be represented and voted at the
meeting. You can vote your shares by completing and returning
the proxy card or voting instruction card sent to you. Voting
instructions are printed on your proxy card or voting instruction
card. You can revoke a proxy at any time prior to its exercise at
the meeting by following the instructions in the proxy statement.
Anne Stevenson-DeBlasi
Corporate Secretary
April 7, 2017
IMPORTANT: Whether or not you plan to attend the annual meeting, please vote by marking,
signing, dating and promptly returning the enclosed proxy card in the enclosed envelope.
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NORTHEAST COMMUNITY BANCORP, INC.
PROXY STATEMENT
GENERAL INFORMATION
We are providing this proxy statement to you in connection with the solicitation of proxies by the
Board of Directors of NorthEast Community Bancorp, Inc. for the 2017 annual meeting of stockholders
and for any adjournment or postponement of the meeting. NorthEast Community Bancorp is the holding
company for NorthEast Community Bank.
We are holding the 2017 annual meeting at Marriott Hotel, 670 White Plains Road, Tarrytown,
New York on Wednesday, May 17, 2017 at 9:00 a.m., local time.
We intend to mail this proxy statement and the enclosed proxy card to stockholders of record
beginning on or about April 7, 2017.
INFORMATION ABOUT VOTING
Who Can Vote at the Meeting
You are entitled to vote the shares of NorthEast Community Bancorp common stock that you
owned as of the close of business on March 24, 2017. As of the close of business on March 24, 2017, a
total of 12,215,830 shares of NorthEast Community Bancorp common stock were outstanding, including
7,273,750 shares of common stock held by NorthEast Community Bancorp, MHC (the “MHC”). Each
share of common stock has one vote.
Ownership of Shares; Attending the Meeting
You may own shares of NorthEast Community Bancorp in one or more of the following ways:
Directly in your name as the stockholder of record; or
Indirectly through a broker, bank or other holder of record in “street name;” or
If your shares are registered directly in your name at our transfer agent, Computershare Trust
Company, N.A., you are the holder of record of these shares and we are sending these proxy materials
directly to you. As the holder of record, you have the right to give your proxy directly to us or to vote in
person at the annual meeting. If you plan to attend the annual meeting you must bring photo
identification to be admitted to the meeting.
If you hold your shares in street name, your broker, bank or other holder of record is sending
these proxy materials to you. As the beneficial owner, you have the right to direct your broker, bank or
other holder of record how to vote by filling out a voting instruction form that accompanies your proxy
materials. Your broker, bank or other holder of record may allow you to provide voting instructions by
telephone or by the Internet. Please see the voting instruction form provided by your broker, bank or
other holder of record that accompanies this proxy statement. If you hold your shares in street name,
you will need photo identification and proof of ownership to be admitted to the annual meeting.
Examples of proof of ownership include a recent brokerage statement or letter from a bank or broker. If
you want to vote your shares of NorthEast Community Bancorp common stock held in street name in
person at the annual meeting, you must obtain a written proxy in your name from the broker, bank or
other holder of record of your shares.
If you hold shares through the NorthEast Community Bank Employee Stock Ownership Plan (the
“ESOP”) or the NorthEast Community Bank 401(k) Plan (the “401(k) Plan”), you will receive a voting
instruction card for each plan in which you participate that reflects all shares that you may direct the
trustee to vote on your behalf under such plan.
For information on your voting rights as a participant under the ESOP or the 401(k) Plan, see “—
Participants in the Bank’s ESOP or 401(k) Plan.”
Quorum and Votes Required
Quorum. We will have a quorum and will be able to conduct the business of the annual meeting
if the holders of a majority of the outstanding shares of common stock entitled to vote are present at the
meeting, either in person or by proxy.
Vote Required for Proposals. At this year’s annual meeting, stockholders will elect two directors
to each serve a term of three years. In voting on the election of directors, you may vote in favor of all the
nominees for director, withhold votes as to all nominees, or withhold votes as to specific nominees.
There is no cumulative voting for the election of directors. Directors must be elected by a plurality of the
votes cast at the annual meeting. This means that the two nominees receiving the greatest number of
votes will be elected.
In voting on the ratification of the appointment of BDO USA, LLP as the Company’s
independent auditors, you may vote in favor of the proposal, vote against the proposal or abstain from
voting. To approve this matter, the affirmative vote of the majority of the shares represented at the
meeting and entitled to vote at the annual meeting is required.
Effect of Not Casting Your Vote. If you hold your shares in street name it is critical that you cast
your vote if you want it to count in the election of directors (Item 1 of this Proxy Statement). Current
regulation restricts the ability of your bank or broker to vote your uninstructed shares on this matter on a
discretionary basis. Thus, if you hold your shares in street name and you do not instruct your bank or
broker how to vote on this matter, no votes will be cast on your behalf. These are referred to as broker
non-votes. Your bank or broker does, however, have discretion to vote any uninstructed shares on the
ratification of the appointment of the Company’s independent auditors (Item 2 of this Proxy Statement).
How We Count Votes. If you return valid proxy instructions or attend the meeting in person, we
will count your shares for purposes of determining whether there is a quorum, even if you abstain from
voting. Broker non-votes, if any, also will be counted for purposes of determining the existence of a
quorum.
In the election of directors, votes withheld and broker non-votes will have no effect on the
outcome of the election. In counting votes on the proposal to ratify the appointment of the independent
auditors, abstentions and broker non-votes will have the same effect as a vote against the proposal.
Because NorthEast Community Bancorp, MHC owns in excess of 50% of the outstanding shares
of NorthEast Community Bancorp, Inc. common stock, the votes it casts will ensure the presence of a
quorum and control the outcome of the vote on all proposals.
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Voting by Proxy
The Company’s Board of Directors is sending you this proxy statement to request that you allow
your shares of Company common stock to be represented at the annual meeting by the persons named on
the enclosed proxy card. All shares of Company common stock represented at the meeting by properly
executed and dated proxy cards will be voted according to the instructions indicated on the proxy card. If
you sign, date and return a proxy card without giving voting instructions, your shares will be voted as
recommended by the Company’s Board of Directors.
The Board of Directors recommends that you vote:
“FOR” each of the nominees for director; and
“FOR” ratification of the appointment of BDO USA, LLP as the Company’s
independent auditors.
If any matters not described in this proxy statement are properly presented at the annual meeting,
the persons named in the proxy card will use their judgment to determine how to vote your shares. This
includes a motion to adjourn or postpone the annual meeting in order to solicit additional proxies. If the
annual meeting is postponed or adjourned, your Company common stock may be voted by the persons
named in the proxy card on the new annual meeting date, provided you have not revoked your proxy. We
do not know of any other matters to be presented at the annual meeting.
You may revoke your proxy at any time before the vote is taken at the meeting. To revoke your
proxy, you must either advise the Corporate Secretary of the Company in writing before your common
stock has been voted at the annual meeting, deliver a later dated proxy or attend the meeting and vote
your shares in person. Attendance at the annual meeting will not itself constitute revocation of your
proxy.
Participants in the Bank’s ESOP or 401(k) Plan
If you participate in the NorthEast Community Bank Employee Stock Ownership Plan (the
“ESOP”), or if you hold Company common stock through the NorthEast Community Bank 401(k) Plan
(the “401(k) Plan”), you will receive a voting instruction card for each plan in which you participate that
reflects all shares that you may direct the trustee to vote on your behalf under such plan. Under the terms
of the ESOP, the ESOP trustee votes all shares held by the ESOP, but each ESOP participant may direct
the trustee how to vote the shares of common stock allocated to his or her account. The ESOP trustee,
subject to the exercise of its fiduciary duties, will vote all unallocated shares of Company common stock
held by the ESOP and all allocated shares for which no voting instructions are received in the same
proportion as shares for which the trustee has received timely voting instructions. Under the terms of the
401(k) Plan, a participant is entitled to direct the trustee how to vote the shares in the NorthEast
Community Bancorp, Inc. Stock Fund credited to his or her account. If the 401(k) Plan trustee does not
receive timely voting instructions for the shares of Company common stock held in the 401(k) Plan, the
shares will not be voted. The deadline for returning your voting instructions to each plan’s trustee is
May 10, 2017.
3
CORPORATE GOVERNANCE AND BOARD MATTERS
Director Independence
The Company’s Board of Directors currently consists of nine members, all of whom are
independent under the listing requirements of The NASDAQ Stock Market, except for Kenneth A.
Martinek, Chief Executive Officer of the Company and the Bank, Jose M. Collazo, President and Chief
Operating Officer of the Company, and the Bank and Charles A. Martinek, Vice President and Chief
Compliance Officer of the Bank and brother of Kenneth A. Martinek. Although the Company is no
longer listed on The NASDAQ Stock Market, the Company has chosen to continue to apply the current
listing requirements of The NASDAQ Stock Market related to director independence.
In determining the independence of its directors, the Board considered transactions, relationships
and arrangements between the Company and its directors that are not required to be disclosed in this
proxy statement under the heading “Transactions with Related Persons,” including: (i) consultant
services provided to the Bank by director Kenneth H. Thomas; and (ii) legal services provided to the
Bank by each of Eugene M. Magier and Kevin P. O’Malley.
The Board’s Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately
determine its success. We face a number of risks, including credit risk, interest rate risk, liquidity risk,
operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day
management of risks the Company faces, while the Board, as a whole and through its committees, has
responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors has
the responsibility to satisfy itself that the risk management processes designed and implemented by
management are adequate and functioning as designed. To do this, the Board meets regularly with
management to discuss strategy and risks facing the Company. Senior management attends the Board
meetings and is available to address any questions or concerns raised by the Board on risk management
and any other matters. The independent members of the Board work together to provide strong,
independent oversight of the Company’s management and affairs through its standing committees and,
when necessary, special meetings of independent directors.
Committees of the Board of Directors
The
table
following
the members of our Audit, Compensation, and
Nominating/Corporate Governance Committees as of March 24, 2017. Each of the committees operates
under a written charter that is approved by the Board of Directors. Each committee reviews and
reassesses the adequacy of its charter at least annually. The charters of all three committees are available
in the Investor Relations section of the Company’s website, www.necb.com.
identifies
4
Director
Diane B. Cavanaugh ........................
Arthur M. Levine .............................
Eugene M. Magier ............................
John F. McKenzie ............................
Kevin P. O’Malley ...........................
Kenneth H. Thomas .........................
Number of Meetings in 2016 ...........
* Denotes Chairperson
Audit
Committee
X*
X
X
Compensation
Committee
X*
X
X
3
1
Nominating/
Corporate
Governance
Committee
X
X
X*
3
Audit Committee
The Audit Committee assists the Board of Directors in its oversight of the Company’s accounting
and reporting practices, the quality and integrity of the Company’s financial reports and the Company’s
compliance with applicable laws and regulations. The Audit Committee is also responsible for engaging
the Company’s independent auditors and monitoring its conduct and independence. The Board of
Directors has determined that Arthur M. Levine is an audit committee financial expert as defined under
the rules of the Securities and Exchange Commission.
Compensation Committee
The Compensation Committee approves the compensation objectives for the Company and the
Bank and establishes the compensation for the Chief Executive Officer and other executives. Our Chief
Executive Officer makes recommendations to the Compensation Committee from time to time regarding
the appropriate mix and level of compensation for other executives. Those recommendations consider the
objectives of our compensation philosophy and the range of compensation programs authorized by the
Compensation Committee. The Compensation Committee reviews all compensation components for the
Company’s Chief Executive Officer and other highly compensated executive officers’ compensation
including base salary, annual incentive, long-term incentives and other perquisites. In addition to
reviewing competitive market values, the Compensation Committee also examines the total compensation
mix, pay-for-performance relationship, and how all elements, in the aggregate, comprise the executive’s
total compensation package. Decisions by the Compensation Committee with respect to the
compensation of executive officers are approved by the full Board of Directors. The Compensation
Committee also assists the Board of Directors in evaluating potential candidates for executive positions.
Nominating/Corporate Governance Committee
The Company’s Nominating/Corporate Governance Committee assists the Board of Directors in
identifying qualified individuals to serve as Board members, in determining the composition of the Board
of Directors and its committees, in monitoring a process to assess Board effectiveness and in developing
and implementing the Company’s corporate governance guidelines. The Nominating/Corporate
Governance Committee also considers and recommends the nominees for director to stand for election at
the Company’s annual meeting of stockholders. Further, when identifying nominees to serve as director,
the Nominating/Corporate Governance Committee seeks to create a Board that is strong in its collective
knowledge and has a diversity of skills and experience with respect to accounting and finance,
management and leadership, vision and strategy, business operations, business judgment, industry
knowledge and corporate governance. The procedures of the Nominating/Corporate Governance
5
Committee required to be disclosed by the rules of the Securities and Exchange Commission are set forth
below.
Minimum Qualifications For Director Nominees. The Nominating/Corporate Governance
Committee has adopted a set of criteria that it considers when it selects individuals to be nominated for
election to the Board of Directors. A candidate must meet the eligibility requirements set forth in the
Company’s bylaws, which include a minimum stock ownership requirement and a requirement that the
candidate not have been subject to certain criminal or regulatory actions. A candidate also must meet any
qualification requirements set forth in any Board or committee governing documents.
Candidates deemed eligible for election to the Board of Directors are evaluated by the
Nominating/Corporate Governance Committee using the following criteria for selecting nominees:
financial, regulatory and business experience and skills;
familiarity with and participation in the local community;
integrity, honesty and reputation in connection with upholding a position of trust with
respect to customers;
ability to devote sufficient time and energy to diligently perform duties; and
independence.
The Nominating/Corporate Governance Committee will also consider any other factors the
Committee deems relevant, including age, diversity, size of the Board of Directors and regulatory
disclosure obligations.
In addition, before nominating an existing director for re-election to the Board of Directors, the
Nominating/Corporate Governance Committee will consider and review an existing director’s integrity;
Board and committee attendance and performance; length of Board service; experience, skills and
contributions that the existing director brings to the Board; and independence.
Director Nomination Process. The process that the Nominating/Corporate Governance
Committee follows to identify and evaluate individuals to be nominated for election to the Board of
Directors is as follows:
Identification. For purposes of identifying nominees for the Board of Directors, the
Nominating/Corporate Governance Committee relies on personal contacts of the committee members and
other members of the Board of Directors, as well as its knowledge of members of the communities served
by the Bank. The Nominating/Corporate Governance Committee will also consider director candidates
recommended by stockholders in accordance with the policy and procedures set forth below. The
Nominating/Corporate Governance Committee has not previously used an independent search firm to
identify nominees.
Evaluation. In evaluating potential nominees, the Nominating/Corporate Governance Committee
determines whether the candidate is eligible and qualified for service on the Board of Directors by
evaluating the candidate under the selection criteria described above. If such individual fulfills these
criteria, the Nominating/Corporate Governance Committee will conduct a check of the individual’s
background and interview the candidate to further assess the qualities of the prospective nominee and the
contributions he or she would make to the Board.
6
Consideration of Recommendations by Stockholders.
the
Nominating/Corporate Governance Committee of the Board of Directors of the Company to consider
director candidates recommended by stockholders who appear to be qualified to serve on the Company’s
Board of Directors. The Nominating/Corporate Governance Committee may choose not to consider an
unsolicited recommendation if no vacancy exists on the Board of Directors and the Nominating/Corporate
Governance Committee does not perceive a need to increase the size of the Board of Directors. To avoid
the unnecessary use of
the
Nominating/Corporate Governance Committee will consider only those director candidates recommended
in accordance with the procedures set forth below.
the Nominating/Corporate Governance Committee’s
the policy of
resources,
is
It
Procedures to be Followed by Stockholders. To submit a recommendation of a director
candidate to the Nominating/Corporate Governance Committee, a stockholder should submit the
following information in writing, addressed to the Chairman of the Nominating/Corporate Governance
Committee, care of the Corporate Secretary, at the main office of the Company:
1.
2.
3.
4.
The name of the person recommended as a director candidate;
All information relating to such person that is required to be disclosed in solicitations of
proxies for election of directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended;
The written consent of the person being recommended as a director candidate to being
named in the proxy statement as a nominee and to serving as a director if elected;
As to the stockholder making the recommendation, the name and address of such
stockholder as they appear on the Company’s books; provided, however, that if the
stockholder is not a registered holder of the Company’s common stock, the stockholder
should submit his or her name and address along with a current written statement from
the record holder of the shares that reflects ownership of the Company’s common stock;
and
5.
A statement disclosing whether such stockholder is acting with or on behalf of any other
person and, if applicable, the identity of such person.
In order for a director candidate to be considered for nomination at the Company’s annual
meeting of stockholders, the recommendation must be received by the Nominating/Corporate Governance
Committee at least 120 calendar days before the date the Company’s proxy statement was released to
stockholders in connection with the previous year’s annual meeting, advanced by one year.
Director Compensation
Each non-employee director of the Bank receives a $4,125 quarterly retainer plus $1,375 per
meeting attended. Non-employee directors also receive a $750 quarterly retainer plus $750 per meeting
attended for their service on the Board of Directors of the Company, $500 per meeting attended for
service on the Audit, Compensation, and Nominating/Corporate Governance Committees of the Board of
the Company, and $1,000 per meeting attended for service on the Strategic Planning Committee. In
addition, the Chairperson of the Audit Committee receives a $3,000 quarterly retainer and the
Chairpersons of the Compensation and Nominating/Corporate Governance Committee each receive a
$1,250 quarterly retainer. Directors do not receive any fees for their service on the Board of Directors of
NorthEast Community Bancorp, MHC.
7
Board and Committee Meetings
During 2016, the Board of Directors of the Bank held 17 meetings and the Board of Directors of
the Company held seven meetings. Each of our current directors attended at least 95% of the Board
meetings and the committee meetings on which such director served during 2016.
Director Attendance at Annual Meeting of Stockholders
The Board of Directors encourages each director to attend annual meetings of stockholders. All
of the Company’s directors then in office attended the 2016 annual meeting of stockholders.
Code of Ethics and Business Conduct
The Company has adopted a Code of Ethics and Business Conduct that is designed to promote the
highest standards of ethical conduct by the Company’s directors, executive officers and employees. The
Code of Ethics and Business Conduct requires that the Company’s directors, executive officers and
employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business
in an honest and ethical manner and otherwise act with integrity and in the Company’s best interest.
Under the terms of the Code of Ethics and Business Conduct, directors, executive officers and employees
are required to report any conduct that they believe in good faith to be an actual or apparent violation of
the Code of Ethics and Business Conduct. A copy of the Code of Ethics and Business Conduct can be
found in the Investor Relations section of the Company’s website, www.necb.com.
REPORT OF THE AUDIT COMMITTEE
The Company’s management is responsible for the Company’s internal controls and financial
reporting process. The independent auditors (“independent accountants”) are responsible for performing
an independent audit of the Company’s consolidated financial statements and issuing an opinion on the
conformity of those financial statements with generally accepted accounting principles. The Audit
Committee oversees the Company’s internal controls and financial reporting process on behalf of the
Board of Directors.
In this context, the Audit Committee has met and held discussions with management and the
independent accountants. Management represented to the Audit Committee that the Company’s
consolidated financial statements were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed the consolidated financial statements
with management and the independent accountants. The Audit Committee discussed with the
independent auditors matters required to be discussed pursuant to U.S. Auditing Standards No. 16
(Communications with Audit Committees). In addition, the Audit Committee has received the written
disclosures and the letter from the independent accountants required by applicable requirements of the
Public Company Accounting Oversight Board regarding the independent accountant’s communications
with the Audit Committee concerning independence and has discussed with the independent accountants
the independent accountants’ independence. In concluding that the auditors are independent, the Audit
Committee considered, among other factors, whether the non-audit services provided by the auditors were
compatible with their independence.
The Audit Committee discussed with the Company’s independent accountants the overall scope
and plans for their audit. The Audit Committee meets with the independent accountants, with and
without management present, to discuss the results of their examination, their evaluation of the
Company’s internal controls, and the overall quality of the Company’s financial reporting.
8
In performing all of these functions, the Audit Committee acts only in an oversight capacity. In
its oversight role, the Audit Committee relies on the work and assurances of the Company’s management,
which has the primary responsibility for financial statements and reports, and of the independent
accountants who, in their report, express an opinion on the conformity of the Company’s financial
statements to generally accepted accounting principles. The Audit Committee’s oversight does not
provide it with an independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or policies, or appropriate internal controls and procedures
designed to assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee’s considerations and discussions with management and the
independent accountants do not assure that the Company’s financial statements are presented in
accordance with generally accepted accounting principles, that the audit of the Company’s consolidated
financial statements has been carried out in accordance with the standards of the Public Company
Accounting Oversight Board (United States) or that the Company’s independent accountants are in fact
“independent.”
In reliance on the reviews and discussions referred to above, the Audit Committee recommended
to the Board of Directors, and the Board has approved, the audited consolidated financial statements for
the year ended December 31, 2016.
Audit Committee of the Board of Directors of
NorthEast Community Bancorp, Inc.
Arthur M. Levine (Chairperson)
John F. McKenzie
Kevin P. O’Malley
9
STOCK OWNERSHIP
The following table provides information as of March 24, 2017, with respect to persons known by
the Company to be the beneficial owners of more than 5% of the Company’s outstanding common stock.
A person may be considered to own any shares of common stock over which he or she has, directly or
indirectly, sole or shared voting or investing power.
Name and Address
NorthEast Community Bancorp, MHC( 2) .................................
325 Hamilton Avenue
White Plains, New York 10601
Stilwell Value Partners IV, L.P., Stilwell Activist Fund, L.P.,
Stilwell Activist Investments, L.P., Stilwell Associates, L.P.,
Stilwell Partners, L.P., Stilwell Value LLC, and Joseph
Stilwell ......................................................................................
111 Broadway, 12th Floor
New York, New York 10006
Number of Shares
Owned
Percent of Common
Stock Outstanding (1)
7,273,750
59.54%
1,236,102 (3)
10.12%
(1) Based on 12,215,830 shares of the Company’s common stock outstanding and entitled to vote as of March 24,
2017.
(2) The members of the Board of Directors of NorthEast Community Bancorp and NorthEast Community Bank
also constitute the Board of Directors of NorthEast Community Bancorp, MHC.
(3) Based on information contained in a Schedule 13D/A filed with the Securities and Exchange Commission on
April 17, 2014, which indicates that Stilwell Value Partners IV, L.P., Stilwell Activist Fund, L.P., Stilwell
Activist Investments, L.P., Stilwell Associates, L.P., Stilwell Partners, L.P., Stilwell Value LLC, and Joseph
Stilwell have shared voting and dispositive power over 1,236,102 shares. This is the most recent information
that is publicly available and the amount held by this shareholder as of March 24, 2017 may be more or less
than the amount stated above.
10
The following table provides information as of March 24, 2017 about the shares of Company
common stock that may be considered to be beneficially owned by each director, nominee for director,
executive officers named in the Summary Compensation Table and by all directors, nominees for director
and executive officers of the Company as a group. A person may be considered to beneficially own any
shares of common stock over which he or she has, directly or indirectly, sole or shared voting or
investment power. Unless otherwise indicated, none of the shares listed are pledged as security, and each
of the named individuals has sole voting power and sole investment power with respect to the shares
shown. All directors and executive officers as a group do not own over 1% of the Company’s outstanding
shares based on 12,215,830 shares of the Company’s common stock outstanding and entitled to vote as of
March 24, 2017.
Name
Diane B. Cavanaugh ............................................................................................
Jose M. Collazo ...................................................................................................
Donald Hom ........................................................................................................
Arthur M. Levine .................................................................................................
Eugene M. Magier ...............................................................................................
Charles A. Martinek.............................................................................................
Kenneth A. Martinek ...........................................................................................
John F. McKenzie ................................................................................................
Kevin P. O’Malley ...............................................................................................
Kenneth H. Thomas .............................................................................................
Number of Shares
Owned (1)(2)
500
19,761
6,117
2,076 (3)
9,000 (4)
11,268
67,229
5,000
20
10,000 (5)
All Executive Officers, Directors and
Director Nominees, as a Group (10 persons) ....................................................
(1) Includes shares allocated to the account of individuals under the Bank’s ESOP with respect to which
individuals have voting but not investment power as follows: Mr. Charles Martinek – 6,997 shares, Mr.
Kenneth Martinek – 21,339 shares (including 3,384 shares allocated to Mr. Martinek’s spouse), Mr. Collazo
– 13,337 shares (including 4,006 shares allocated to Mr. Collazo’s spouse) and Mr. Hom – 6,117 shares.
(2) Includes shares held in trust in the 401(k) Plan as to which each individual has investment and voting power
as follows: Mr. Charles Martinek – 4,241 shares, Mr. Kenneth Martinek – 45,890 shares, Mr. Collazo – 2,240
shares and Mr. Collazo’s spouse – 4,134. These amounts reflect ownership units in the employer stock fund
of the 401(k) Plan, which consists of both issuer stock and a reserve of cash. The actual number of shares
held by the individual may vary when such units are actually converted into shares upon distribution of the
units to the individual.
130,971
(3) Includes 1,000 shares held by Mr. Levine’s spouse as trustee.
(4) Includes 1,900 shares held by Mr. Magier’s spouse’s IRA.
(5) Includes 370 shares held by Mr. Thomas’ spouse’s IRA.
ITEMS TO BE VOTED ON BY STOCKHOLDERS
Item 1 — Election of Directors
The Board of Directors of NorthEast Community Bancorp is presently composed of nine
members. The Board is divided into three classes, each with three-year staggered terms, with
approximately one-third of the directors elected each year. The nominees for election this year are Jose
M. Collazo and Kevin P. O’Malley, all of whom are current directors of the Company and the Bank.
Unless you indicate on your proxy card that your shares should not be voted for certain directors,
the Board of Directors intends that the proxies solicited by it will be voted for the election of all of the
Board’s nominees. If any nominee is unable to serve, the persons named in the proxy card will vote your
shares to approve the election of any substitute proposed by the Board of Directors. Alternatively, the
11
Board of Directors may adopt a resolution to reduce the size of the Board. At this time, the Board of
Directors knows of no reason why any nominee might be unable to serve. The Board of Directors
recommends a vote “FOR” the election of all nominees.
Information regarding the Board of Director’s nominees and the directors continuing in office is
provided below. Unless otherwise stated, each individual has held his or her current occupation for the
last five years. The age indicated for each individual is as of December 31, 2016 and the indicated period
of service as a director includes service as a director of the Bank. Based on their respective experiences,
qualifications, attributes and skills set forth below, the Board of Directors determined that each current
director and nominee should serve as a director.
Board Nominees for Terms Ending in 2020
Jose M. Collazo has served as President of the Company and the Bank since January 2013 and
Chief Operating Officer of the Company and the Bank since February 2012. Prior to being appointed
Chief Operating Officer Mr. Collazo served as Senior Vice President and Chief Information Officer from
2002 to February 2012. Mr. Collazo joined the Bank in January 1986. Age 51. Director since 2013.
Mr. Collazo’s extensive knowledge of all aspects of the Bank’s and the Company’s business and
history, combined with his strategic vision, position him well to continue to serve as our Director,
President and Chief Operating Officer.
Kevin P. O’Malley is an attorney and is president of the Kevin P. O’Malley, P.C., a law firm
located in Tappan, New York. Age 71. Director since 2016.
Mr. O’Malley is a critical member of a well-rounded Board of Directors. As a practicing
attorney, Mr. O’Malley provides knowledge and expertise directly related to the various legal matters
affecting the Company and the Bank.
Directors with Terms Ending in 2018
Diane B. Cavanaugh is an attorney with Lyons McGovern, LLP. Age 60. Director since 1992.
As an attorney specializing in commercial litigation, Ms. Cavanaugh has the ability to provide the
Board with the legal knowledge necessary to assess issues facing the Board effectively.
Charles A. Martinek has served as Vice President and Chief Compliance Officer of NorthEast
Community Bank since September, 2013. Prior to that time, Mr. Martinek served as Internal Loan
Review and Community Reinvestment Officer of the Bank since May, 2007, commercial loan officer
with the Bank since 2001, and as an assistant vice president since 2002. Before serving with the Bank,
Mr. Martinek was a quality control analyst with C. Cowles & Co. Mr. Martinek is also the owner of
Martinek Investment Properties, LLC. Mr. Martinek’s brother, Kenneth Martinek, also serves on the
Board of Directors. Age 55. Director since 2002.
Mr. Martinek’s commercial loan and compliance experience is crucial to the Board’s ability to
comprehend the complex compliance issues facing the Company.
Kenneth H. Thomas has been an independent bank analyst and consultant since 1969 and has
been President of K.H. Thomas Associates, LLC since 1975. Mr. Thomas is also a registered investment
advisor and President of Community Development Advisors, LLC. Dr. Thomas holds a Ph.D. in Finance
12
from the Wharton School and has written extensively on the Community Reinvestment Act of 1977. He
has been a consultant to the Bank since 1978. Age 69. Director since 2001.
As an independent bank analyst for over 40 years, Dr. Thomas offers the Board essential industry
experience. In addition, Dr. Thomas is a critical advisor to the Bank for operational, branching and
Community Reinvestment Act matters.
Directors With Terms Ending in 2019
Arthur M. Levine is a certified public accountant and Managing Member of the accounting firm
A.L. Wellen LLC. Age 82. Director since 1995.
Mr. Levine’s accounting and business experience for over 50 years provides the Board with
valuable insight and expertise with regard to various financial and accounting matters affecting the
Company.
Eugene M. Magier is an attorney and has been President of the Law Offices of Eugene M.
Magier, P.C. since 1994. Mr. Magier is a licensed Massachusetts Real Estate Broker and has managed
residential and commercial real estate. Prior to starting his own law firm, Mr. Magier served as Legal
Counsel for CVS Corporation. Age 55. Director since 2012.
Mr. Magier’s experience and background as an attorney specializing in commercial real estate,
acquisitions, workouts and contracts provides the Board with valuable knowledge and expertise directly
related to the business issues facing the Company and the Bank.
Kenneth A. Martinek has served as Chairman of the Board and Chief Executive Officer of
NorthEast Community Bancorp since its formation in 2006 and previously served as President from 2006
until January 2013. He has served with NorthEast Community Bank since 1976 and has been the Chief
Executive Officer of the Bank since 1991 and was the President from 1991 until January 2013. Mr.
Martinek was first elected as a director of the Bank in 1983 and was appointed Chairman of the Board in
2002. Mr. Martinek’s brother, Charles A. Martinek, also serves on the Board of Directors. Age 64.
Since becoming Chief Executive Officer of the Bank in 1991, Mr. Martinek has successfully
completed a mutual holding company reorganization and minority stock offering and navigated the issues
facing a public company in the banking sector. Mr. Martinek’s knowledge of all aspects of the business
and its history, combined with his success and strategic vision, position him well to continue to serve as
our Chairman and Chief Executive Officer.
John F. McKenzie is a retired insurance executive. Prior to his retirement in early 2008, Mr.
McKenzie was the owner of an insurance agency in Orange, Connecticut, providing multiline personal
and commercial insurance products. Age 73. Director since November 2006.
Mr. McKenzie provides the Board with significant management, strategic and operational
knowledge through his previous experience as owner of an insurance agency.
Item 2 — Ratification of the Independent Auditors
The Audit Committee of the Board of Directors has appointed BDO USA, LLP to be the
Company’s independent auditors for 2017, subject to ratification by shareholders. A representative of
BDO USA, LLP is expected to be present at the annual meeting to respond to appropriate questions from
stockholders and will have the opportunity to make a statement should he or she desire to do so.
13
If the ratification of the appointment of the independent auditors is not approved by the
stockholders at the annual meeting, the Audit Committee will consider other independent auditors.
Policy on Pre-Approval of Audit and Permissible Non-Audit Services
The Audit Committee is responsible for appointing and setting the compensation and overseeing
the work of the independent auditor. In accordance with its charter, the Audit Committee approves, in
advance, all audit and permissible non-audit services to be performed by the independent auditor to
ensure that the independent auditor does not provide any non-audit services to the Company that are
prohibited by law or regulation.
In addition, the Audit Committee has established a policy regarding pre-approval of all audit and
permissible non-audit services provided by the independent auditor. Requests for services by the
independent auditor must be specific as to the particular services to be provided. The request may be
made with respect to either specific services or a type of service for predictable or recurring services.
During the year ended December 31, 2016, all services provided by the independent auditor were
approved, in advance, by the Audit Committee in compliance with these procedures.
The Board of Directors recommends that stockholders vote “FOR” the ratification of the
appointment of BDO USA, LLP as the independent auditors.
14
Summary Compensation Table
EXECUTIVE COMPENSATION
The following table provides information concerning total compensation earned or paid to the
Chief Executive Officer and the two other most highly compensated executive officers of the Company
who served in such capacities at December 31, 2016. These three officers are referred to as the “named
executive officers” in this proxy statement.
Name and Principal Position
Year
Salary
Bonus
All Other
Compensation(1)
Kenneth A. Martinek ............................
Chief Executive Officer
Jose M. Collazo ....................................
President and Chief Operating
Officer
Donald S. Hom .....................................
Executive Vice President and
Chief Financial Officer
2016
2015
2016
2015
2016
2015
$317,303
279,169
$200,403
184,993
$ —
—
$ —
—
$177,400
154,064
$ —
—
$ 11,939
—
$ 9,019
—
$ 7,978
—
Total
$329,242
279,169
$209,422
184,993
$185,378
154,064
(1) Represents the value of employee stock ownership plan shares awarded during the year ended December 31,
2016.
Employment Agreements. The Company and the Bank each maintain employment agreements
with Kenneth A. Martinek and Jose M. Collazo. The employment agreements with the Company and the
Bank for each executive, which have essentially identical terms, provide that the Company will make any
payments not made by the Bank, but the executives will not receive any duplicative payments. Messrs.
Martinek and Collazo are also referred to below as the “executives” or the “executive.”
The employment agreements with Messrs. Martinek and Collazo provide for three-year terms,
subject to annual renewal by the Boards of Directors. In connection with a review of the executive
officers’ job performance, the Board of Directors of the Bank and the Company approved the extension of
the employment agreement with Mr. Martinek through July 5, 2020 and the extension of the employment
agreement with Mr. Collazo through May 11, 2020. The agreements also provide for participation in
employee benefit plans and programs maintained for the benefit of senior management personnel,
including discretionary bonuses, participation in stock-based benefit plans, and fringe benefits.
Under the terms of the agreements, the executives are subject to a one year non-compete if they
terminate their employment for good reason (as defined in the agreement) or if they are terminated
without cause (as defined in the agreement). This non-compete provision shall not apply if the executives
are terminated within one year of a change of control.
See “Potential Post-Termination Benefits” for a discussion of the benefits and payments the
executives may receive under their employment agreements upon retirement or termination of
employment.
Supplemental Executive Retirement Plan. The Bank also maintains a supplemental executive
retirement plan in which Kenneth A. Martinek and Jose M. Collazo participate.
15
See “Potential Post-Termination Benefits” for a discussion of the benefits and payments the
executives may receive under the supplemental executive retirement plan upon retirement or termination of
employment.
Potential Post-Termination Benefits
Payments Made Upon Termination for Cause. Under the employment agreements, an executive
who is terminated for cause will receive base salary through the date of termination and retain the rights
to any vested benefits subject to the terms of the plan or agreement under which those benefits are
provided.
Payments Made Upon Retirement. Under the terms of the employment agreements with the
executives, the executives will be entitled to their base salary earned as of the date of retirement, as well
as all vested benefits under the Bank-sponsored tax-qualified retirement plans. In addition, the Bank
maintains supplemental executive retirement plans for Messrs. Martinek and Collazo. Under the terms of the
plans, upon termination of employment on or after the normal retirement age of 60 for Mr. Martinek and 65 for
Mr. Collazo, the executives each receive an annual retirement benefit equal to fifty percent (50%) of average
base salary over the three-year period preceding termination of employment. Upon termination on or after age
60 and upon completing a minimum of 20 years of service Mr. Collazo may receive an early retirement benefit
equal to the normal retirement benefit, reduced by .25% for each month by which Mr. Collazo’s age at
termination is less than age 65. The early or normal retirement benefit is payable in equal monthly installments
for the greater of the executive’s lifetime or 15 years following retirement. All unvested equity awards granted
to the executives will be forfeited upon retirement.
Payments Made Upon Voluntarily Termination and Termination without Cause or for Good
Reason. If the Bank and the Company terminate the executives for reasons other than cause, or if the
executives terminate voluntarily under certain circumstances outlined in the employment agreements that
constitute constructive termination, the executives, or their beneficiaries should they die prior to receipt of
payment, each receive an amount equal to their base salary and employer contributions to benefit plans
payable for the remaining term of the agreement. The Bank and the Company also agree to continue
and/or pay for the executives’ life, health and dental coverage for the remaining term of the agreements.
The executives will be entitled to their supplemental benefits under the supplemental executive retirement
plan as described under “Payments Made Upon Retirement” depending on their age as of the termination
date.
Payments Made Upon Disability. Under the employment agreements, if the executives become
disabled, the Bank and the Company agree to provide them with monthly disability pay equal to 75% of
their monthly base salaries for a period ending on the earliest to occur of (1) a return to full-time
employment with the Bank and the Company; (2) death; (3) attainment of age 65; or (4) the expiration of
the employment agreement. The disability payments under the agreement would be reduced, however, by
the amount of any short- or long-term disability benefits that would become payable to the executives
under the terms of any disability insurance programs sponsored by the Bank and the Company.
In the event of termination due to disability, the executives will receive the early retirement benefit or
normal retirement benefit due under the supplemental executive retirement plan if they have reached age 65 (or
age 60 in the case of Mr. Martinek), respectively, prior to termination. If they have not attained early retirement
age prior to termination due to disability, they will receive a benefit equal to their accrued benefit under the plan
as of the date of termination.
16
Payments Made Upon Death. Upon the death of an executive, the executive’s employment
agreement terminates and the executive’s beneficiary will receive base salary and accrued benefits
through the last day of the month of death.
The supplemental executive retirement plan provides that upon the death of the executive while
actively employed, they, or their beneficiary, would receive an actuarially equivalent lump sum benefit,
calculated as if the executive had attained the normal retirement age prior to his death.
Payments Made Upon a Change in Control. Under the employment agreements, if an executive
is involuntarily or constructively terminated within one year of a change in control (as defined in the
agreements), the executive will receive a severance payment equal to three times his or her average
annual compensation over the five preceding years, as well as continued life, medical and dental benefits
for three years following termination of employment.
The benefits provided to the executives under the employment agreements upon a change in
control are limited to avoid adverse tax consequences to the Company and the Bank under Section 280G
of the Internal Revenue Code of 1986. The “280G Limit” provides that total payments and benefits to the
executives that are contingent upon a change in control shall not equal or exceed in the aggregate three
times the individual’s average annual taxable income over the five preceding years.
The supplemental executive retirement plan provides that upon termination in connection with a
change in control Messrs. Martinek and Collazo, or their beneficiary, would receive an actuarially
equivalent lump sum benefit, calculated as if they had attained age 60 for Mr. Martinek and age 65 for Mr.
Collazo prior to termination of employment.
Under the terms of our employee stock ownership plan, upon a change in control (as defined in
the plan), the plan will terminate and the plan trustee will repay in full any outstanding acquisition loan.
After repayment of the acquisition loan, all remaining shares of our stock held in the loan suspense
account, all other stock or securities, and any cash proceeds from the sale or other disposition of any
shares of our stock held in the loan suspense account will be allocated among the accounts of all
participants in the plan who were employed by us on the date immediately preceding the effective date of
the change in control. The allocations of shares or cash proceeds shall be credited to each eligible
participant in proportion to the opening balances in their accounts as of the first day of the valuation
period in which the change in control occurred. Payments under our employee stock ownership plan do
not count towards the executives’ 280G Limits.
OTHER INFORMATION RELATING TO
DIRECTORS AND EXECUTIVE OFFICERS
Transactions with Related Persons
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive
officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such
prohibition for loans by the Bank to its executive officers and directors in compliance with federal
banking regulations. Federal regulations require that all loans or extensions of credit to executive officers
and directors of insured institutions must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with other persons and must not
involve more than the normal risk of repayment or present other unfavorable features. The Bank is
therefore prohibited from making any new loans or extensions of credit to executive officers and directors
at different rates or terms than those offered to the general public, except for loans made pursuant to
programs generally available to all employees. Notwithstanding this rule, federal regulations permit the
17
Bank to make loans to executive officers and directors at reduced interest rates if the loan is made under a
benefit program generally available to all other employees and does not give preference to any executive
officer or director over any other employee, although the Bank does not currently have such a program in
place.
SUBMISSION OF BUSINESS PROPOSALS AND
STOCKHOLDER NOMINATIONS
The Company must receive proposals that stockholders seek to include in the proxy statement for
the Company’s next annual meeting no later than December 8, 2017. If next year’s annual meeting is
held on a date more than 30 calendar days from May 17, 2018, a stockholder proposal must be received
by a reasonable time before the Company begins to print and mail its proxy solicitation for such annual
meeting. Any stockholder proposals will be subject to the requirements of the proxy rules adopted by the
Securities and Exchange Commission.
The Company’s bylaws provide that, in order for a stockholder to make nominations for the
election of directors or proposals for business to be brought before the annual meeting, a stockholder must
deliver notice of such nominations and/or proposals to the Secretary not less than 30 days before the date
of the annual meeting. However, if less than 40 days’ notice or prior public disclosure of the date of the
annual meeting is given to stockholders, such notice of stockholder nominations or proposals must be
received not later than the close of business of the tenth day following the day on which notice of the date
of the annual meeting was mailed to stockholders or prior public disclosure of the meeting date was made.
A copy of the bylaws may be obtained from the Company.
STOCKHOLDER COMMUNICATIONS
The Company encourages stockholder communications to the Board of Directors. All
communications from stockholders should be addressed to NorthEast Community Bancorp, Inc., 325
Hamilton Avenue, White Plains, New York 10601. Communications to the Board of Directors should be
in the care of Anne Stevenson-DeBlasi, Corporate Secretary. Stockholders who wish to communicate
with a Committee of the Board should send their communications to the care of the Chairperson of the
particular committee, with a copy to Kenneth H. Thomas, the Chair of the Nominating/Corporate
Governance Committee. It is in the discretion of the Nominating/Corporate Governance Committee
whether any communication sent to the full Board should be brought before the full Board.
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
Important Notice Regarding the Availability of Proxy Materials for the Stockholders
Meeting to be held on May 17, 2017.
The Proxy Statement and Annual Report
to Stockholders are available at
https://www.necb.com/portals/NorthEastCommunityBank/PDF/2017_Meeting_2016_Proxy
_Annual_Rpt.pdf
18
MISCELLANEOUS
The Company will pay the cost of this proxy solicitation. The Company will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them
in sending proxy materials to the beneficial owners of the Company. Additionally, directors, officers and
other employees of the Company may solicit proxies personally or by telephone. None of these persons
will receive additional compensation for these activities.
The Company’s Annual Report to Stockholders has been included with this proxy statement. The
Annual Report is not to be treated as part of the proxy solicitation material or as having been incorporated
by reference into this proxy statement.
If you and others who share your address own your shares in “street name,” your broker or other
holder of record may be sending only one annual report and proxy statement to your address. This
practice, known as “householding,” is designed to reduce our printing and postage costs. However, if a
stockholder residing at such an address wishes to receive a separate annual report or proxy statement in
the future, he or she should contact the broker or other holder of record. If you own your shares in “street
name” and are receiving multiple copies of our annual report and proxy statement, you can request
householding by contacting your broker or other holder of record.
Whether or not you plan to attend the annual meeting, please vote by marking, signing, dating
and promptly returning the enclosed proxy card in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
Anne Stevenson-DeBlasi
Corporate Secretary
White Plains, New York
April 7, 2017
19
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Northeast Community Bancorp, Inc.
Consolidated Financial Report
December 31, 2016
Tel: +212 885-8000
Fax: +212 697-1299
www.bdo.com
100 Park Avenue
New York, NY 10017
Independent Auditor’s Report
Board of Directors and Stockholders
Northeast Community Bancorp, Inc.
We have audited the accompanying consolidated financial statements of Northeast Community Bancorp, Inc.
and subsidiary (collectively the “Company”), which comprise the consolidated statements of financial
condition as of December 31, 2016 and 2015, and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes
to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Northeast Community Bancorp, Inc. and subsidiary as of December 31,
2016 and 2015, and the consolidated results of their operations and their cash flows for the years then ended
in accordance with accounting principles generally accepted in the United States of America.
New York, New York
April 7, 2017
F-1
Northeast Community Bancorp, Inc.
Consolidated Statements of Financial Condition
Cash and amounts due from depository institutions
Interest-bearing deposits
Cash and cash equivalents
ASSETS
$
Certificates of deposit
Securities available-for-sale
Securities held-to-maturity (fair value of $4,132 and $5,227, respectively)
Loans receivable, net of allowance for loan losses of $3,771 and $3,895, respectively
Premises and equipment, net
Investments in restricted stock, at cost
Bank owned life insurance
Accrued interest receivable
Goodwill
Other intangible assets
Real estate owned
Other assets
Total assets
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Advance payments by borrowers for taxes and insurance
Federal Home Loan Bank advances
Accounts payable and accrued expenses
Total liabilities
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: 12,215,830 and 12,223,802 shares, respectively
Additional paid-in capital
Unearned Employee Stock Ownership Plan (“ESOP”) shares
Retained earnings
Treasury stock – at cost, 1,009,170 and 1,001,198 shares, respectively
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
December 31,
2016
(In thousands, except share and
2015
per share amounts)
8,109 $
35,064
43,173
648
3,950
4,055
626,139
14,597
3,774
22,363
2,547
749
162
6,272
6,075
734,504 $
91,191 $
454,155
545,346
4,071
70,249
5,386
625,052
3,775
24,043
27,818
648
35
5,114
507,611
12,152
3,127
21,737
1,915
749
223
6,596
5,880
593,605
47,424
376,810
424,234
3,491
56,172
4,661
488,558
-
-
132
56,857
(2,333)
61,794
(6,815)
(183)
109,452
734,504 $
132
56,939
(2,592)
57,329
(6,757)
(4)
105,047
593,605
See notes to consolidated financial statements.
F-2
Northeast Community Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31,
2015
2016
(In thousands, except per share amounts)
INTEREST INCOME:
Loans
Interest-earning deposits
Securities – taxable
Total Interest Income
INTEREST EXPENSE:
Deposits
Borrowings
Total Interest Expense
Net Interest Income
PROVISION FOR LOAN LOSSES
Net Interest Income after Provision for Loan Losses
NON-INTEREST INCOME:
Other loan fees and service charges
Loss on disposition of equipment
Earnings on bank owned life insurance
Investment advisory fees
Other
Total Non-Interest Income
NON-INTEREST EXPENSES:
Salaries and employee benefits
Occupancy expense
Equipment
Outside data processing
Advertising
Real estate owned expense
Other
Total Non-Interest Expenses
INCOME BEFORE PROVISION FOR INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
NET INCOME PER COMMON SHARE - BASIC AND DILUTED
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING – BASIC AND DILUTED
DIVIDENDS DECLARED PER COMMON SHARE
$
28,122 $
161
302
28,585
4,547
833
5,380
23,205
146
23,059
748
(49)
626
763
38
2,126
9,722
1,378
674
1,064
118
478
3,606
17,040
8,145
3,118
$
$
$
5,027 $
0.42 $
11,974
0.12 $
21,982
54
221
22,257
3,823
231
4,054
18,203
434
17,769
473
(3)
624
748
20
1,862
8,430
1,442
600
1,121
82
800
3,620
16,095
3,536
1,194
2,342
0.20
11,970
0.12
See notes to consolidated financial statements.
F-3
Northeast Community Bancorp, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Income
Other comprehensive income (loss):
Unrealized loss on securities available-for-sale arising during the year
Defined benefit pension:
Reclassification adjustments out of accumulated other comprehensive loss:
Amortization of prior service cost (1)
Amortization of actuarial (gain) (1)
Actuarial (loss) gain arising during period
Total
Income tax expense (2)
Total other comprehensive income (loss)
Years Ended December 31,
2016
2015
(In thousands)
$
5,027 $
2,342
(79)
-
21
(13)
(229)
(300)
121
(179)
21
(11)
29
39
(16)
23
Total Comprehensive Income
$
4,848
$
2,365
(1) Amounts are included in salaries and employees benefits in the audited consolidated statements of
operations as part of net periodic pension cost. See Note 15 for further information.
(2) Amounts are included in provision for income taxes in the audited consolidated statements of
operations.
See notes to consolidated financial statements.
F-4
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Northeast Community Bancorp, Inc.
Consolidated Statements of Cash Flows
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization of securities premiums and discounts, net
Provision for loan losses
Depreciation
Net (accretion) amortization of deferred loan fees and costs
Amortization of intangible assets
Deferred income tax (benefit) expense
Loss on sales and write-downs of real estate owned
Earnings on bank owned life insurance
Loss on dispositions of premises and equipment
ESOP compensation expense
Increase in accrued interest receivable
Decrease (increase) in other assets
Increase in accounts payable and accrued expenses
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Net increase in loans
Proceeds from sale of loans held-for-sale
Proceeds from sale of loan participations
Principal repayments on securities available-for-sale
Principal repayments on securities held-to-maturity
Purchase of securities available-for-sale
Purchases of certificates of deposit
Proceeds from sale of real estate owned
Net purchases of FHLB of NY stock
Purchases of premises and equipment
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Net increase in deposits
Proceeds from FHLB of NY advances
Repayment of FHLB of NY advances
Purchase of treasury stock
Increase in advance payments by borrowers for taxes and insurance
Cash dividends paid
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending
$
See notes to consolidated financial statements.
F-6
Years Ended
December 31,
2016
2015
(In thousands)
$
5,027 $
2,342
18
146
698
(240)
61
(156)
324
(626)
49
177
(632)
82
504
5,432
(125,794)
-
7,360
6
1,041
(4,000)
-
-
(647)
(3,192)
(125,226)
121,112
27,462
(13,385)
(58)
580
(562)
135,149
15,355
27,818
43,173 $
27
434
660
26
61
120
352
(624)
3
191
(462)
(814)
475
2,791
(90,785)
5,457
-
5
1,454
-
(498)
2,487
(1,194)
(1,097)
(84,171)
50,182
53,174
(27,002)
(758)
153
(561)
75,188
(6,192)
34,010
27,818
Northeast Community Bancorp, Inc.
Consolidated Statements of Cash Flows (Continued)
Supplementary Cash Flows Information:
Income taxes paid
Interest paid
Supplementary Disclosure of Non-Cash Investing
and Financing Activities:
Loans receivable transferred to loans held-for-sale
Loans receivable transferred to real estate owned
Dividends declared and not paid
Years Ended December 31,
2015
2016
(In Thousands)
2,609 $
5,379 $
950
4,056
- $
- $
140 $
5,457
702
140
$
$
$
$
$
See notes to consolidated financial statements.
F-7
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
The following is a description of the Company’s business and significant accounting and reporting policies:
Nature of Business
Northeast Community Bancorp, Inc. (the “Company”) is a Federally-chartered corporation that was organized to be a mid-tier
holding company for Northeast Community Bank (the “Bank”) in conjunction with the Bank’s reorganization from a mutual
savings bank to a mutual holding company structure on July 5, 2006. The Bank is a New York State-chartered savings bank and
completed its conversion from a federally-chartered savings bank effective as of the close of business on June 29, 2012. The
Company’s primary activity is the ownership and operation of the Bank.
The Bank is principally engaged in the business of attracting deposits and investing those funds into mortgage and commercial
loans. When demand for loans is low, the Bank invests in debt securities. Currently the Bank conducts banking operations from
its headquarters in White Plains, New York, its three full service branches in New York City, New York, its four full service
branches in the Boston, Massachusetts suburban area, its one full service branch in Rockland County, New York, and its loan
production offices in Massachusetts and New York, gathering deposits and lending from Massachusetts to New Jersey.
The Bank also offers investment advisory and financial planning services under the name Hayden Wealth Management Group, a
division of the Bank, through a networking arrangement with a registered broker-dealer and investment advisor.
New England Commercial Properties LLC (“NECP”), a New York limited liability company and wholly owned subsidiary of the
Bank, was formed in October 2007 to facilitate the purchase or lease of real property by the Bank. New England Commercial
Properties, LLC currently owns three foreclosed properties located in Massachusetts, New Jersey, and Pennsylvania.
NECB Financial Services Group, LLC (“NECB Financial”), a New York limited liability company and wholly owned subsidiary
of the Bank, was formed in the third quarter of 2012 as a complement to Hayden Wealth Management Group. NECB Financial
has not conducted any business.
The consolidated financial statements include the accounts of the Company, the Bank, NECP, and NECB Financial (collectively
the “Company”) and have been prepared in conformity with accounting principles generally accepted in the United States of
America (“U.S. GAAP”). All significant inter-company accounts and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and
assumptions that affect certain recorded amounts and disclosures. Accordingly, actual results could differ from those estimates.
The most significant estimate pertains to the allowance for loan losses. The borrowers’ abilities to meet contractual obligations
and collateral value are the most significant assumptions used to arrive at the estimate. The risks associated with such estimates
arise when unforeseen conditions affect the borrowers’ abilities to meet the contractual obligations of the loan and result in a
decline in the value of the supporting collateral. Such unforeseen changes may have an adverse effect on the consolidated results
of operations and financial position of the Company.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s
allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Additionally, the Company is exposed to significant changes in market interest rates. Such changes could have an adverse effect
on consolidated earnings and consolidated financial position, particularly in those situations in which the maturities or re-pricing
of assets are different than the maturities or re-pricing of the supporting liabilities.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository institutions and interest-bearing deposits in other banks,
all with original maturities of three months or less.
F -8
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (Continued)
Certificates of Deposit
Certificates of deposit are carried at cost which approximates fair value and have maturities of less than one year.
Securities
The Company is required to classify its securities among three categories: held to maturity, trading, and available for sale.
Management determines the appropriate classification at the time of purchase. Held to maturity securities are those debt
securities which management has the intent and the Company has the ability to hold to maturity and are reported at amortized cost
(unless there is other than temporary impairment). Trading securities are those debt and equity securities which are bought and
held principally for the purpose of selling them in the near term and are reported at fair value, with unrealized gains and losses
included in earnings. Available for sale securities are those debt and equity securities which are neither held to maturity securities
nor trading securities and are reported at fair value, with unrealized gains and losses, net of the related income tax effect, excluded
from earnings and reported in a separate component of stockholders’ equity. The Company did not have trading securities in its
portfolio during 2016 or 2015.
If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all
securities with unrealized losses quarterly to determine if such impairments are temporary or other-than-temporary. Temporary
impairments on available for sale securities are recognized, on a tax-effected basis, through other comprehensive income (loss)
(“OCI”) with offsetting adjustments to the carrying value of the security and the balance of related deferred taxes. Temporary
impairments on held to maturity securities are not recorded in the consolidated financial statements; however, information
concerning the amount and duration of unrealized losses on held to maturity securities is disclosed.
Other-than-temporary impairments on debt securities that the Company has decided to sell, or will, more likely than not, be required
to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in earnings. If either of
these conditions regarding the likelihood of sale apply for a debt security, the other-than-temporary impairment is bifurcated into
credit-related and noncredit-related components. Credit-related impairment generally represents the amount by which the present
value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related
component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes
credit-related other-than-temporary impairments in earnings. Noncredit-related other-than-temporary impairments on debt securities
are recognized in OCI. Premiums and discounts on all securities are amortized/accreted to maturity by use of the level-yield
method. Gain or loss on sales of securities is based on the specific identification method.
Loans
Loans are stated at unpaid principal balances plus net deferred loan origination fees and costs less an allowance for loan losses.
Interest on loans receivable is recorded on the accrual basis. An allowance for uncollected interest is established on loans where
management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations or where
interest or principal is 90 days or more past due, unless the loans are well secured and in the process of collection. When a loan is
placed on nonaccrual, an allowance for uncollected interest is established and charged against current income. Thereafter, interest
income is not recognized unless the financial condition and payment record of the borrower warrant the recognition of interest
income. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with
the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual
principal and interest is no longer in doubt. Interest on loans that have been restructured is accrued according to the renegotiated
terms. Net loan origination fees and costs are deferred and amortized into income over the contractual lives of the related loans
by use of the level yield method. Past due status of loans is based upon the contractual due date.
Allowance for Loan Losses
The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet
date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and
decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses,
and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are
F -9
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly
unlikely.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably
anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the
Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s
ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions,
and other relevant factors.
This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more
information becomes available.
Risk characteristics associated with the types of loans we underwrite are as follows:
Multi-family, Mixed-use and Non-residential Real Estate Loans. Loans secured by multi-family, mixed-use and non-
residential real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary concern in multi-family, mixed-use and non-residential real estate lending is the current and
potential cash flow of the property and the borrower’s demonstrated ability to operate that type of property. Payments on loans
secured by income properties often depend on successful operation and management of the properties. As a result, repayment of
such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or
the economy.
Commercial and Industrial Loans. Unlike residential mortgage loans, which are generally made on the basis of a borrower’s
ability to make repayment from the operation and cash flow from the real property whose value tends to be more ascertainable,
commercial and industrial loans are of higher risk and tend to be made on the basis of a borrower’s ability to make repayment
from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial and
industrial loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may
depreciate over time, may be difficult to appraise and may fluctuate in value.
Construction Loans. Construction financing is generally considered to involve a higher degree of risk of loss than long-term
financing on improved, occupied real estate due to (1) the increased difficulty and costs of monitoring the loan; and (2) the
increased difficulty of working out loan problems. We have sought to minimize this risk by limiting the amount of construction
loans outstanding at any time and by spreading the loans among multi-family, mixed-use and non-residential projects.
Management addresses these concerns by limiting the Company’s activity to known borrowers in areas considered to be unique
communities with strong demand for residential housing.
Consumer Loans. We offer personal loans, loans secured by passbook savings accounts, certificates of deposit accounts or
statement savings accounts, and overdraft protection for checking accounts. We do not believe these loans represent a significant
risk of loss to the Company.
The allowance consists of specific and general reserves. The specific component relates to loans that are classified as impaired.
For loans that are classified as impaired, a specific allowance is established or a partial charge-off is taken when the discounted
cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.
Beginning in the fourth quarter of 2012, the Company discontinued the use of specific allowances. If an impairment is identified,
the Company now charges off the impaired portion immediately. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for
F -10
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
the delay, the borrower’s prior payment records, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis.
The Company does not evaluate individual 1-4 family residential real estate and consumer loans for impairment, unless such
loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.
The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of
the loan’s collateral or discounted cash flows.
For loans secured by real estate, estimated fair values are determined primarily through in-house or third-party appraisals. When
a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate
is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value
ratio based on the original appraisal and the condition of the property. Appraised values might be discounted to arrive at the
estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated
costs to sell the property.
For loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are
determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or
invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the
quality of the assets.
The general component covers pools of loans by loan class including loans not considered impaired, as well as smaller balance
homogeneous loans, such as residential real estate and consumer loans. These pools of loans are evaluated for loss exposure
based upon historical loss rates, adjusted for qualitative factors. These qualitative risk factors include:
1. Changes in policies and procedures in underwriting standards and collections.
2. Changes in economic conditions.
3. Changes in nature and volume of lending.
4. Experience of origination team.
5. Changes in past due loan volume and severity of classified assets.
6. Quality of loan review system.
7. Collateral values in general throughout lending territory.
8. Concentrations of credit.
9. Competition, legal and regulatory issues.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using
relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of
changes in conditions in a narrative accompanying the allowance for loan loss calculation.
The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s
overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for
commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial, residential and consumer
loans. Credit quality risk ratings include regulatory classifications of pass, special mention, substandard, doubtful and
loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected,
the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-
defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected
by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.
F -11
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that
collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are
considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.
The allowance calculation for each pool of loans is also based on the loss factors that reflect the Company’s historical charge-off
experience adjusted for current economic conditions applied to loan groups with similar characteristics or classifications in the
current portfolio. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a
loan as agreed, the Company has a structured loan rating process which allows for a periodic review of its loan portfolio and the
early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status,
size of loans, type of collateral and financial condition of the borrowers.
Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions
and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt
restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date at a below
market rate. Adversely classified, non-accrual troubled debt restructurings may be returned to accrued status if principal and
interest payments, under the modified terms, are current for six consecutive months after modification. All troubled debt
restructured loans are classified as impaired.
Based on management’s comprehensive analysis of the loan portfolio, management believes the allowance for loan losses is
appropriate as of December 31, 2016.
Concentration of Risk
The Company’s lending activity is concentrated in loans secured by multi-family and non-residential real estate located primarily
in the Northeast and Mid-Atlantic regions of the United States. The Company also had deposits in excess of the FDIC insurance
limit at other financial institutions. At December 31, 2016, such deposits totaled $12.6 million held by the Federal Reserve Bank
of New York, $12.0 million held by Atlantic Community Bankers Bank (“ACBB”), and $10.5 million held by the Federal Home
Loan Bank of New York. Generally, deposits in excess of $250,000 are not insured by the FDIC.
Premises and Equipment
Land is stated at cost. Buildings and improvements, leasehold improvements and furnishings and equipment are stated at cost less
accumulated depreciation and amortization computed on the straight-line method over the following useful lives:
Buildings
Building improvements
Leasehold improvements
Furnishings and equipment
Years
30 - 50
10 - 50
1 - 15
3 - 5
Maintenance and repairs are charged to operations in the years incurred.
Bank Owned Life Insurance (“BOLI”)
The Company owns life insurance on the lives of certain of its officers. The cash surrender value is recorded as an asset and the
change in cash surrender value is included in non-interest income and is tax-exempt. The BOLI can be liquidated, if necessary,
with tax consequences. However, the Company intends to hold these policies and, accordingly, the Company has not provided
for deferred income taxes on the earnings from the increase in cash surrender value.
F -12
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (Continued)
Investments in Restricted Stock
Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB
according to a predetermined formula. The Company also owns restricted stock in Atlantic Community Bancshares, Inc. (ACBI),
holding company of ACBB, a correspondent banker’s bank. These stocks are carried at cost.
Goodwill
Goodwill at both December 31, 2016 and 2015, totaled $749,000 and consists of goodwill acquired in the business combination
completed by the Company in November 2007. The Company tests goodwill during the fourth quarter of each year for
impairment, or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist.
The Company utilizes a two-step approach. The first step requires a comparison of the carrying value of the reporting unit to the
fair value of the unit. The Company estimates the fair value of the reporting unit through internal analyses and external valuation,
which utilizes an income approach based on the present value of future cash flows. If the carrying value of the reporting unit
exceeds its fair value, impairment exists and the Company will perform the second step of the goodwill impairment test to
measure the amount of impairment loss, if any. The second step of the goodwill impairment test, if necessary, compares the
implied fair value of a reporting unit’s goodwill with its carrying value.
The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business
combination is determined. The Company allocates the fair value of the reporting unit to all of the assets and liabilities of that
unit, including identifiable intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of
the value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. No
impairment charges were recorded in 2016 and 2015.
Other Intangible Assets
Other intangible assets at December 31, 2016 and 2015, totaled $162,000 and $223,000, respectively, and consist of the value of
customer relationships acquired in a business combination completed by the Company in November 2007. The Company is
amortizing these assets, using the straight-line method, over the remaining useful life of 11.7 years. Amortization expense is
included in other non-interest expenses. The Company evaluates the remaining useful life of intangible assets on an annual basis
to determine whether events and circumstances warrant a revision to the remaining useful life. If the estimate of an intangible
asset’s remaining useful life is changed, the Company will amortize the remaining carrying value of the intangible asset
prospectively over the revised remaining useful life. The Company reviews intangible assets subject to amortization for
impairment on an annual basis or whenever events or circumstances indicate that the carrying value of these assets may not be
recoverable. If intangible assets are found to be impaired, the amount recognized for impairment is equal to the difference
between the carrying value and fair value. The fair value is estimated based upon the present value of discounted future cash
flows or other reasonable estimates of fair value. No impairment charges were recorded in 2016 or 2015.
Real Estate Owned
Real estate owned is carried at the lower of cost or fair value of the related property, as determined by current appraisals less
estimated costs to sell. Foreclosed real estate is initially recorded at the fair value of property acquired minus estimated costs to
sell at the date of foreclosure, establishing a new cost basis. Write-downs on these properties, which occur after the initial
transfer from the loan portfolio, are recorded as operating expenses. Costs of holding such properties are charged to expense in
the current period. Gains, to the extent allowable, and losses on the disposition of these properties are reflected in current
operations.
Income Taxes
The Company files a consolidated federal income tax return. Income taxes are allocated to the Company, Bank, NECP, and
NECB Financial based upon their respective income or loss included in the consolidated income tax return. The Company, the
Bank, NECP, and NECB Financial file combined or separate state and city income tax returns depending on the particular
requirements of each jurisdiction.
F -13
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies (Continued)
Income Taxes (Continued)
Federal, state and city income tax expense has been provided on the basis of reported income. The amounts reflected on the tax
returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial
reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted for as deferred taxes
applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and
liabilities for the estimated future tax consequences attributable to differences between the consolidated financial statement
carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the
period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided,
when necessary, for that portion of the asset, which is not more likely than not to be realized.
The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements in accordance with ASC
Topic 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has not identified any
significant income tax uncertainties through the evaluation of its income tax positions for the years ended December 31, 2016 and
2015, and has not recognized any liabilities for tax uncertainties as of December 31, 2016 and 2015. The Company’s policy is to
recognize income tax related interest and penalties in income tax expense; such amounts were not significant during the years ended
December 31, 2016 and 2015. The tax years subject to examination by federal, state, and city taxing authorities are 2013 through
2016.
Other Comprehensive Income (Loss)
The Company records in accumulated other comprehensive income (loss), net of related deferred income taxes, unrealized gains
and losses on available for sale securities and the prior service cost and actuarial gains and losses related to the Outside Directors
Retirement Plan (“DRP”) that have not yet been recognized in expense.
Gains and losses on the sale of securities, if any, are reclassified to non-interest income upon the sale of the related securities or
upon the recognition of a security impairment loss and a portion of the prior service cost and actuarial gains and losses of the DRP
are reclassified to non-interest expense.
At December 31, 2016, accumulated other comprehensive loss totaled $183,000 and included $78,000 in unrealized loss on
securities available-for-sale and $231,000 in prior service cost and actuarial losses of the DRP net of $126,000 of related deferred
income taxes. At December 31, 2015, accumulated other comprehensive income totaled $4,000 and included $9,000 in prior
service cost and actuarial losses of the DRP net of $5,000 of related deferred income taxes.
Net Income Per Common Share
Basic net income per common share is calculated by dividing the net income available to common stockholders by the weighted-
average number of common shares outstanding during the period. 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 basic net income per common share until they are committed to be released. There were no dilutive common share
equivalents at December 31, 2016 or 2015.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Company enters into off-balance-sheet financial instruments consisting of commitments to
extend credit. Such financial instruments are recorded in the consolidated statement of financial condition when funded.
Subsequent Events
The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated
financial statements were issued.
F -14
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 2 – Mutual Holding Company Reorganization and Regulatory Matters
On July 5, 2006, the Bank reorganized from a mutual savings bank to a mutual holding company structure. In the reorganization,
the Company sold 5,951,250 shares of its common stock to the public and issued 7,273,750 shares of its common stock to
Northeast Community Bancorp, MHC (“MHC”).
The MHC, which owned 59.5% of the Company’s common stock as of December 31, 2016, must hold at least 50.1% of the
Company’s stock so long as the MHC exists.
Due to the conversion of the Bank to a New York State-chartered savings bank on June 29, 2012, the Federal Deposit Insurance
Corporation (“FDIC”) and the New York State Department of Financial Services (“NYS”) are now the Bank’s primary regulator
replacing the OCC. Under New York State Banking Law, New York state-chartered stock-form savings banks may declare and
pay dividends out of their net profits, unless there is an impairment of capital, but approval of the NYS Superintendent is required
if the total of all dividends declared by the bank in a calendar year would exceed the total of its net profits for that year combined
with its retained net profits for the preceding two years less prior dividends paid. The FDIC also has authority to use its
enforcement powers to prohibit a savings bank from paying dividends if, in its opinion, the payment of dividends would constitute
an unsafe or unsound practice.
The Federal Reserve Board, the federal regulator of the MHC, has adopted regulations which require the MHC to notify the
Federal Reserve Board if it proposes to waive receipt of dividends from the Company. In addition, the regulations also require
that the MHC obtain the approval of a majority of the eligible votes of members of the MHC (generally Bank depositors) before it
can waive dividends. For a grandfathered company such as the MHC that waived dividends prior to December 1, 2009, the
Federal Reserve Board may not object to a dividend waiver request if the board of directors of the mutual holding company
expressly determines that a waiver of the dividend is consistent with its fiduciary duties to members and the waiver would not be
detrimental to the safe and sound operation of the savings association subsidiaries of the holding company. Northeast Community
Bancorp, MHC has waived receipt of all dividends from Northeast Community Bancorp in prior years, except in 2012 when
Northeast Community Bancorp, MHC received $218,000 in dividends from Northeast Community Bancorp.
Dividends declared by the Company in 2016 and 2015 and waived by the MHC totaled approximately $873,000 and $873,000,
respectively. As of December 31, 2016, total dividends waived by the MHC aggregated $7,856,000.
The Company and its subsidiary Bank are subject to regulatory capital requirements promulgated by the federal banking agencies.
The Federal Reserve Board establishes capital requirements, including well capitalized standards, for the consolidated financial
holding company, and the FDIC has similar requirements for the Company’s subsidiary bank.
Prior to January 1, 2015, quantitative measures were established by regulation to ensure capital adequacy which required the
Bank to maintain minimum amounts and ratios of Total, Tier 1 capital (as defined by regulations) to risk-weighted assets (as
defined), and of Core tier 1 capital to adjusted total assets (as defined).
Effective January 1, 2015, the Company adopted the Basel III final rule. Based on the Company’s capital levels and statement of
condition composition at December 31, 2016, the implementation of the new rule had no material impact on our regulatory capital
level or ratios at the Bank level. The new rule establishes limits at the Company level and increases the minimum Tier 1 capital
to risk based assets requirement from 4% to 6% of risk-weighted assets; establishes a new common equity Tier 1 capital; and
assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual and to certain
commercial real estate facilities that finance the acquisition, development or construction of real property. The new rule has a
capital conservation buffer requirement that will be phased in at a rate of 0.625% annually beginning January 1, 2016 through
January 1, 2019, when full capital conservation buffer requirement of 2.50% will be effective. Management believes that the
Bank met all capital adequacy requirements to which it was subject as of December 31, 2016 and 2015.
F -15
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 2 – Mutual Holding Company Reorganization and Regulatory Matters (Continued)
The following table presents information about the Bank’s capital levels at the dates presented:
Regulatory Capital Requirements
Actual
Amount Ratio
Minimum Capital Adequacy
(1)
For Classification as Well-
Capitalized
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
As of December 31, 2016:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity tier 1 capital (to risk-weighted assets)
Core (Tier 1) capital (to adjusted total assets)
$
95,646
91,875
91,875
91,875
14.00% $ 54,638
40,979
13.45
30,734
13.45
27,836
13.20
8.00 % $ 68,298
54,638
.00
44,394
4.50
34,796
.00
10.00 %
8.00
6.50
5.00
As of December 31, 2015:
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Common equity tier 1 capital (to risk-weighted assets)
Core (Tier 1) capital (to adjusted total assets)
$
90,527
86,632
86,632
86,632
18.27% $ 39,642
29,732
17.48
22,299
17.48
22,251
15.57
8.00 % $ 49,553
39,642
.00
32,209
4.50
27,814
.00
10.00 %
8.00
6.50
5.00
(1) Ratios do not include the capital conversation buffer.
Based on the most recent notification by the FDIC, the Bank was categorized as “well capitalized” under the regulatory
framework for prompt corrective action. There have been no conditions or events that have occurred since notification that
management believes have changed the Bank’s category.
Note 3 - Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments are commitments to extend credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial
condition.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Construction loans in process
Stand-by letters of credit
Commitments to fund unused lines of credit:
Commercial and industrial lines
Multi-family real estate equity lines
Consumer lines
F -16
December 31,
2016
2015
(In Thousands)
$
45,972 $
145,788
6,518
50,827
4,618
111
35,171
66,494
2,999
31,390
3,024
105
$
253,834 $
139,183
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 3 - Financial Instruments with Off-Balance Sheet Risk (Continued)
Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The amount of collateral obtained, if deemed necessary by the Company, is based on management’s
credit evaluation of the borrower.
Note 4 - Securities Available for Sale
Mutual Funds
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Mortgage-backed securities – residential:
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
4,000 $
24
4
4,028 $
(In Thousands)
$
-
-
-
- $
78
$
-
-
78 $
Fair
Value
3,922
24
4
3,950
December 31, 2015
(In Thousands)
30 $
4
34 $
1 $
-
1 $
- $
-
- $
31
4
35
$
$
$
$
There were no sales of securities available for sale during the years ended December 31, 2016 and 2015.
Contractual final maturities of mortgage-backed securities were as follows:
Due after five but within ten years
Due after ten years
December 31,
2016
Amortized Cost
Fair Value
$
$
(In Thousands)
18 $
10
28 $
18
10
28
The maturities shown above are based upon contractual final maturity. Actual maturities will differ from contractual maturities
due to scheduled monthly repayments and due to the underlying borrowers having the right to prepay their obligations.
F -17
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 5 - Securities Held to Maturity
Mortgage-backed securities - residential:
Government National Mortgage Association
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Collateralized mortgage obligations - GSE
Mortgage-backed securities - residential:
Government National Mortgage Association
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Collateralized mortgage obligations - GSE
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair Value
3,269 $
93
61
632
4,055 $
57 $
2
1
17
77 $
- $
-
-
-
- $
3,326
95
62
649
4,132
Amortized
Cost
December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair Value
3,995 $
150
101
868
5,114 $
82 $
4
2
25
113 $
- $
-
-
-
- $
4,077
154
103
893
5,227
$
$
$
$
Contractual final maturities of mortgage-backed securities were as follows at December 31, 2016:
Due after one but within five years
Due after five but within ten years
Due after ten years
2016
Amortized Cost
Fair Value
$
$
(In Thousands)
20 $
99
3,936
4,055 $
20
100
4,012
4,132
The maturities shown above are based upon contractual final maturity. Actual maturities will differ from contractual maturities
due to scheduled monthly repayments and due to the underlying borrowers having the right to prepay their obligations.
F -18
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and the Allowance for Loan Losses
Residential real estate:
One-to-four family
Multi-family
Mixed-use
Total residential real estate
Non-residential real estate
Construction
Commercial and industrial
Consumer
Total Loans
Allowance for loan losses
Deferred loan (fees) costs, net
$
December 31,
2016
2015
(In Thousands)
13,704 $
174,718
62,584
251,006
70,526
251,017
57,349
111
630,009
(3,771)
(99)
16,343
201,117
67,738
285,198
71,233
118,632
35,888
123
511,074
(3,895)
432
$
626,139 $
507,611
Loans serviced for the benefit of others totaled approximately $13,573,000 and $6,385,000 at December 31, 2016 and 2015,
respectively. The value of mortgage servicing rights was not material at December 31, 2016 and 2015.
The Company had no loans to related parties at December 31, 2016 and 2015. In addition, the Company did not originate any
loans to related parties in 2016 and 2015.
F -19
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and the Allowance for Loan Losses (Continued)
The following is an analysis of the allowance for loan losses and related information concerning loan balances:
As of and For the Year Ended December 31, 2016:
Non-
residential
Real
Estate
Residential
Real Estate
Commercial
and
Construction
Industrial Consumer Unallocated
Total
(In Thousands)
$
$
$
1,754 $
(349)
71
(202)
1,274 $
770
(5)
13
(191)
587
$
$
916
-
-
146
1,062
$
$
432
-
-
416
848
$
$
- $
-
-
-
- $
23 $
-
-
(23)
- $
3,895
(354)
84
146
3,771
- $
-
$
-
$
-
$
- $
- $
-
$
1,274 $
587
$
1,062
$
848
$
- $
- $
3,771
$
251,006 $
70,526
$
251,017
$
57,349
$
111 $
- $ 630,009
$
1,567 $
-
$
400
$
2,691
$
- $
- $
4,658
$
249,439 $
70,526
$
250,617
$
54,658
$
111 $
- $ 625,351
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision (Credit)
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans receivable:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
F -20
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and the Allowance for Loan Losses (Continued)
The following is an analysis of the allowance for loan losses and related information concerning loan balances:
As of and For the Year Ended December 31, 2015:
Non-
residential
Real
Estate
Construction
Residential
Real Estate
Commercial
and
Industrial Consumer Unallocated
Total
$
$
$
2,023 $
(9)
65
(325)
1,754 $
692
(599)
188
489
770
- $
-
$
$
$
(In Thousands)
492
-
-
424
916
-
$
$
$
494
-
-
(62)
432
-
$
$
$
- $
-
-
-
- $
115 $
-
-
(92)
23 $
3,816
(608)
253
434
3,895
- $
- $
-
$
1,754 $
770
$
916
$
432
$
- $
23 $
3,895
$
285,198 $
71,233
$
118,632
$
35,888
$
123 $
- $ 511,074
$
1,140 $
-
$
-
$
2,728
$
- $
- $
3,868
$
284,058 $
71,233
$
118,632
$
33,160
$
123 $
- $ 507,206
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision (Credit)
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans receivable:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
F -21
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and the Allowance for Loan Losses (Continued)
The following is an analysis of our impaired loans.
As of and for the Year Ended December 31, 2016:
2016
With no related allowance recorded:
Residential real estate-Multi-family
Non-residential real estate
Construction
Commercial and industrial
With an allowance recorded
Total:
Residential real estate-Multi-family
Non-residential real estate
Construction
Commercial and industrial
Recorded
Investment
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Related
Allowance
(In Thousands)
$
$
1,567 $
-
400
2,691
4,658
1,567 $
-
400
2,691
4,658
-
-
1,567
-
400
2,691
4,658 $
1,567
-
400
2,691
4,658 $
- $
-
-
-
-
-
-
-
-
-
- $
1,428 $
-
240
2,683
4,351
-
1,428
-
240
2,683
4,351 $
9
-
2
-
11
-
9
-
2
-
11
As of and for the Year Ended December 31, 2015:
2015
With no related allowance recorded:
Residential real estate-Multi-family
Non-residential real estate
Commercial and industrial
With an allowance recorded
Total:
Residential real estate-Multi-family
Non-residential real estate
Commercial and industrial
Recorded
Investment
Unpaid
Principal
Balance
Average
Recorded
Investment
Interest
Income
Recognized
Related
Allowance
(In Thousands)
$
$
1,140 $
-
2,728
3,868
1,149 $
-
2,728
3,877
-
-
1,140
-
2,728
3,868 $
1,149
-
2,728
3,877 $
- $
-
-
-
-
-
-
-
- $
4,304 $
3,092
2,614
10,010
-
4,304
3,092
2,614
10,010 $
9
-
3
12
-
9
-
3
12
F -22
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6 - 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 December 31:
Residential real estate:
Multi-family
Mixed-use
Commercial and industrial loans
2016
2015
(In Thousands)
$
$
197
1,567
2,691
4,455
$
$
997
143
2,728
3,868
During the years ended December 31, 2016 and 2015, the Company recognized interest income of approximately $18,000 and
$12,000, respectively, on non-accrual loans. Interest income that would have been recorded had the loans been on accrual status
would have amounted to approximately $181,000 and $141,000 for the years ended December 31, 2016 and 2015, respectively.
The Company is not committed to lend additional funds to borrowers whose loans have been placed on non-accrual status.
The following table provides information about delinquencies in our loan portfolio at the dates indicated.
Age Analysis of Past Due Loans as of December 31, 2016:
30-59 Days
Past Due
60 – 89
Days Past
Due
Greater
Than 90
Days
Total Past
Due
(In Thousands)
Current
Total Loans
Receivable
Recorded
Investment
> 90 Days
and
Accruing
Residential real estate:
One- to four-family
Multi-family
Mixed-use
$
Non-residential real estate
Construction loans
Commercial and industrial loans
Consumer
$
- $
-
-
-
-
-
-
- $
-
197
-
-
-
100
-
297
$
$
-
-
1,567
481
400
2,691
-
5,139
$
$
-
197
1,567
481
400
2,791
-
5,436
$
13,704 $
174,521
61,017
70,045
250,617
54,558
111
$ 624,573 $
13,704
174,718
62,584
70,526
251,017
57,349
111
630,009
$
$
-
-
-
481
400
-
-
881
Age Analysis of Past Due Loans as of December 31, 2015:
30-59 Days
Past Due
60 – 89
Days Past
Due
Greater
Than 90
Days
Total Past
Due
(In Thousands)
Current
Total Loans
Receivable
Recorded
Investment
> 90 Days
and
Accruing
Residential real estate:
One- to four-family
Multi-family
Mixed-use
$
Non-residential real estate
Construction loans
Commercial and industrial loans
Consumer
$
- $
-
-
-
-
-
-
- $
-
-
1,106
-
-
-
-
1,106
$
$
-
246
-
-
-
2,728
-
2,974
$
$
-
246
1,106
-
-
2,728
-
4,080
$
16,343 $
200,871
66,632
71,233
118,632
33,160
123
$ 506,994 $
16,343
201,117
67,738
71,233
118,632
35,888
123
511,074
$
$
-
-
-
-
-
-
-
-
F -23
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and the Allowance for Loan Losses (Continued)
The following tables provide certain information related to the credit quality of our loan portfolio.
Credit Risk Profile by Internally Assigned Grade as of December 31, 2016:
Residential
Real Estate
Non-residential
Real Estate
Construction
Commercial
and Industrial Consumer
Total
(In Thousands)
Grade:
Pass
Special Mention
Substandard
Doubtful
$
249,242 $
-
1,764
-
$
251,006 $
69,816
710
-
-
70,526
$
$
250,617
-
400
-
251,017
$
$
53,774 $
884
2,691
-
57,349 $
111
-
-
-
111
Credit Risk Profile by Internally Assigned Grade as of December 31, 2015:
Grade:
Pass
Special Mention
Substandard
Doubtful
Residential
Real Estate
Non-residential
Real Estate
Construction
Commercial
and Industrial Consumer
(In Thousands)
$
283,845 $
964
389
-
$
285,198 $
71,233
-
-
-
71,233
$
$
118,632
-
-
-
118,632
$
$
33,160 $
-
2,630
98
35,888 $
123
-
-
-
123
$
$
$
$
623,560
1,594
4,855
-
630,009
Total
506,993
964
3,019
98
511,074
There were no loans modified that were deemed troubled debt restructuring during the year ended December 31, 2016. During
the year ended December 31, 2016, none of the loans that were modified during the previous twelve months had defaulted during
the year ended December 31, 2016.
The following table shows the breakdown of loans modified during the year ended December 31, 2015:
(dollars in thousands)
Real estate loans:
Multi-family
Mixed-use
2015
(Dollars in Thousands)
Recorded
Investment
Prior to
Modification
Recorded
Investment
After
Modification
Number of
Modifications
1
1
2
$
$
712
147
859
$
$
712
138
850
The multi-family mortgage loan had an original interest rate of 5.75% with an amortization of 25 years. Interest did not accrue
for one year from July 2015 to June 2016. The interest rate for July and August 2016 was 5.75%. The interest rate starting
September 1, 2016 was adjusted to 275 basis points above the five year U.S. Treasury interest rate, with a floor of 5.75% and a
cap of 10.75%. In connection with the loan restructuring and modification, a $50,000 construction loan was granted at the same
F -24
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 6 - Loans Receivable and the Allowance for Loan Losses (Continued)
term and interest rate as the permanent mortgage loan. Both loans had a final maturity of July 1, 2017 with balloon payments for
both loans. The permanent and construction loans were satisfied on July 8, 2016.
The mixed-use mortgage loan had an original interest rate of 5.125% with an amortization of 30 years. Interest did not accrue for
three months from June 2015 to August 2015. The interest rate starting on September 1, 2015 was 3.75% amortized over 30 years
and will continue until March 1, 2017 at which time the interest rate will be adjusted to 275 basis points above the Federal Home
Loan Bank of Boston three year borrowing rate. The loan will mature on January 1, 2020 with a balloon payment.
The mixed-use mortgage has defaulted and was classified as non-accrual as of December 31, 2015. The loan was satisfied on
June 1, 2016 with the Company recognizing a charge-off of $94,000.
Note 7 - Premises and Equipment, Net
Premises and equipment at December 31 are summarized as follows:
Land
Buildings and improvements
Leasehold improvements
Furnishings and equipment
Accumulated depreciation and amortization
Note 8 - Accrued Interest Receivable, Net
Accrued interest receivable, net at December 31 is summarized as follows:
Loans receivable
Securities
Allowance for uncollected interest
$
2016
2015
(In Thousands)
2,628 $
13,273
1,162
7,365
2,415
13,552
321
7,062
24,428
(9,831)
23,350
(11,198)
$
14,597 $
12,152
2016
2015
(In Thousands)
$
$
2,972 $
7
2,979
(432)
2,547 $
2,161
11
2,172
(257)
1,915
F -25
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 9 - Goodwill and Intangible Assets
Goodwill and intangible assets at December 31 are summarized as follows:
Goodwill
Customer relationships intangible
$
$
2016
2015
$
(In Thousands)
749
162
911
$
749
223
972
The Company did not identify any impairment of goodwill and intangible assets during the years ended December 31, 2016 and
2015. Amortization expense of customer relationships intangible was $61,000 for the years ended December 31, 2016 and 2015.
Scheduled amortization for each of the next three years is as follows (in thousands):
2017
2018
2019
$
61
61
40
Note 10 - Real Estate Owned (“REO”)
The Company owned three foreclosed properties valued at approximately $6,272,000 at December 31, 2016 and $6,596,000 at
December 31, 2015 consisting of an office building located in New Jersey ($3,753,000 at December 31, 2016), an office building
located in Pennsylvania ($2,164,000 at December 31, 2016), and a building housing auto repair and auto rental facilities located
in Massachusetts ($355,000 at December 31, 2016). All the properties were acquired through foreclosures during the year ended
December 31, 2014, except for the office building located in New Jersey that was acquired through a foreclosure in 2012.
The Company recognized a loss and established a valuation allowance of $294,000 in August 2016 against the office building
located in New Jersey and subsequently sold the property on January 31, 2017 at a loss of $72,000. The Company transferred the
office building located in Pennsylvania to other assets in February 2017 upon determining to develop this property for internal use
by the Company. In addition, the Company recognized a loss and established a valuation allowance of $30,000 in 2016 against
the building housing auto repair and auto rental facilities located in Massachusetts.
Further declines in real estate values may result in impairment charges in the future. Routine holding costs are charged to expense
as incurred and improvements to real estate owned that enhance the value of the real estate are capitalized. REO expense,
including loss on sales and write-downs, amounted to $478,000 and $800,000 during the years ended December 31, 2016 and
December 31, 2015, respectively.
F -26
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 11 – Deposits
Demand deposits:
Non-interest bearing
NOW and money market
Total
Savings accounts
Certificates of deposit maturing in:
One year or less
After one to two years
After two to three years
After three to four years
After four years
Total
December 31,
2016
2015
Weighted
Average Interest
Rate
Weighted
Average Interest
Rate
Amount
Amount
(Dollars in Thousands)
$
91,191
103,890
195,081
84,735
134,826
101,093
17,792
5,408
6,411
265,530
$
0.00 %
0.73 %
0.39 %
0.46 %
1.49 %
1.47 %
1.83 %
1.82 %
1.89 %
1.52 %
47,424
88,151
135,575
74,073
108,079
73,750
14,472
14,480
3,805
214,586
$
545,346
0.95 %
$
424,234
0.00 %
0.58 %
0.38 %
0.45 %
1.24 %
1.82 %
1.68 %
1.90 %
1.79 %
1.52 %
0.97 %
As of December 31, 2016 and 2015, certificates of deposits equal to or in excess of $250,000 totaled approximately $75,234,000
and $39,423,000, respectively.
The aggregate amount of brokered deposits was $26.0 million and $12.4 million as of December 31, 2016 and 2015, respectively.
At December 31, 2016, the Company had $9.4 million in brokered deposits, $15.6 million in Insured Cash Sweep (“ICS”)
reciprocal money market deposits, and $996,000 in Certificates of Deposit Account Registry Service (“CDARS”) reciprocal
certificates of deposits that were fully-insured brokered deposits as defined in the FDIC call report instructions. The ICS money
market deposits were obtained from one retail depositor and the CDARS certificates of deposits were obtained from another retail
depositor and then transferred into the ICS and CDARS Networks in order to obtain full FDIC insurance coverage for our
customers. These types of deposits are known in the ICS and CDARS Networks as reciprocal deposits, which the Company
considers as core deposits and not brokered deposits. Included in brokered deposits at December 31, 2015, the Company had
$11.4 million in ICS reciprocal deposits and $990,000 in CDARS reciprocal certificates of deposits.
Interest expense on deposits consists of the following:
Demand deposits
Savings accounts
Certificates of deposit
Years Ended December 31,
2015
2016
(In Thousands)
677 $
322
3,548
4,547 $
408
413
3,002
3,823
$
$
F -27
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 12 – Federal Home Loan Bank of New York (“FHLB”) Advances
Advances maturing in:
One year or less
After one to two years
After two to three years
December 31,
2016
2015
Weighted
Average Interest
Rate
Amount
Weighted
Average Interest
Rate
Amount
(Dollars in Thousands)
$
7,380
40,408
22,461
$
0.73 %
1.39 %
1.18 %
13,385
7,380
35,407
$
70,249
1.25 %
$
56,172
0.60 %
0.73 %
1.41 %
1.13 %
At December 31, 2016, none of the above advances were subject to early call or redemption features. At December 31, 2016, the
advances were secured by a pledge of the Company’s investment in the capital stock of the FHLB and a blanket assignment of the
Company’s otherwise unpledged qualifying mortgage loans. At December 31, 2016, the Company had the ability to borrow
$131.2 million, net of $70.2 million in outstanding advances, from the FHLB and $8.0 million from ACBB.
Note 13 - Income Taxes
The Bank qualifies as a savings institution under the provisions of the Internal Revenue Code and was, therefore, prior to
January 1, 1996, permitted to deduct from taxable income an allowance for bad debts based upon eight percent of taxable income
before such deduction, less certain adjustments. Retained earnings at December 31, 2016 and 2015, include approximately $4.1
million of such bad debt deductions which, in accordance with U.S. GAAP is considered a permanent difference between the
book and income tax basis of loans receivable, and for which deferred income taxes have not been provided. If such amount is
used for purposes other than for bad debt losses, including distributions in liquidation, it will be subject to income tax at the then
current rate.
The components of provision for income taxes are summarized as follows:
Current tax expense
Deferred tax (benefit) expense
Years Ended December 31,
2016
2015
$
$
(In Thousands)
3,274 $
(156)
3,118 $
1,074
120
1,194
The following table presents a reconciliation between the reported income taxes and the income taxes, which would be computed
by applying the existing federal income tax rate of 34% to income before taxes:
Federal income tax at statutory rates
State and city tax, net of federal income tax effect
Non-taxable income on bank owned life insurance
Change in valuation allowance against deferred assets
Other
Effective Income Tax Rate
F -28
Years Ended December 31,
2015
2016
(Dollars In Thousands)
2,769
$
354
(213)
228
(20)
3,118
$
1,202
225
(212)
-
(21)
1,194
38.3 %
33.8 %
$
$
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 13 - Income Taxes (Continued)
The tax effects of significant items comprising the net deferred tax asset are as follows:
Deferred tax assets:
Allowance for loan losses
State net operating loss carryforwards
Reserve for uncollected interest
Depreciation
Benefit plans
Accumulated other comprehensive loss - DRP
Unrealized loss on available-for-sale securities
Other
Total Deferred Tax Assets
Deferred tax liability:
Goodwill
Total Deferred Tax Liabilities
Valuation Allowance - State Net Operating Loss Carryforwards
Net Deferred Tax Assets Included in Other Assets
December 31,
2016
2015
(In Thousands)
$
$
1,553 $
228
174
160
1,765
94
32
130
4,136
90
90
(228)
3,818 $
1,613
43
103
191
1,634
5
-
7
3,596
55
55
-
3,541
The Company has state net operating loss (NOL) carryforwards totaling $3,666,000 at December 31, 2016 that are available to be
carried forward to future years. These NOL carryforwards will expire in 2032 if not fully utilized.
Note 14 - Other Non-Interest Expenses
The following is an analysis of other non-interest expenses:
Years Ended December 31,
2016
2015
(In Thousands)
552 $
550
526
433
319
296
265
264
204
111
86
3,606 $
519
451
504
386
308
389
244
317
269
87
146
3,620
$
$
Other
Service contracts
Telephone
Directors compensation
Consulting expense
Audit and accounting
Insurance
Director, officer, and employee expenses
Legal fees
Office supplies and stationary
Recruiting expense
F -29
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 15 - Benefits Plans
Outside Director Retirement Plan (“DRP”)
The DRP is an unfunded non-contributory defined benefit pension plan covering all non-employee directors meeting eligibility
requirements as specified in the plan document. The following table sets forth the funded status of the DRP and components of
net pension periodic expense measured as of December 31:
Projected benefit obligation – beginning
Service cost
Interest cost
Actuarial loss (gain)
Benefits Paid
Projected benefit obligation – ending
Funded status – accrued liability included in accounts payable and accrued expenses
Accumulated benefit obligation
Discount rate
Salary increase rate
Net periodic pension expense:
Service cost
Interest cost
Actuarial loss recognized
Prior service cost recognized
$
$
$
$
$
Years Ended December 31,
2015
2016
(Dollars In Thousands)
$
1,186
84
54
229
(15)
1,538
$
1,538
1,483
$
$
3.84 %
2.00 %
1,095
90
44
(29)
(14)
1,186
1,186
1,143
4.11 %
2.00 %
Years Ended December 31,
2016
2015
(Dollars In Thousands)
$
84
54
(13)
21
90
44
(11)
21
144
4.11 %
2.00 %
Total net periodic pension expense included in other non-interest expenses
$
146
$
Discount rate
Salary increase rate
3.84 %
2.00 %
Benefit payments, which reflect expected future service as appropriate, are expected to be paid for the years ending December 31
as follows (in thousands):
2017
2018
2019
2020
2021
2022 to 2026
$
136
136
136
136
179
879
F -30
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 15 - Benefits Plans (Continued)
Supplemental Executive Retirement Plan (“SERP”)
The SERP is a non-contributory defined benefit plan that covers certain officers of the Company.
Under the SERP, each of these individuals will be entitled to receive upon retirement an annual benefit paid in monthly
installments equal to 50% of his average base salary in the three-year period preceding retirement. Each individual may also
retire early and receive a reduced benefit upon the attainment of certain age and years of service combination. Additional terms
related to death while employed, death after retirement, disability before retirement and termination of employment are fully
described within the plan document. The benefit payment term is the greater of 15 years or the executives remaining life. No
benefits are expected to be paid during the next ten years.
During the years ended December 31, 2016 and 2015, expenses of $166,000 and $59,000, respectively, were recorded for this
plan and are reflected in the Consolidated Statements of Operations under Salaries and Employee Benefits. At December 31,
2016 and 2015, a liability for this plan of $2,214,000 and $2,049,000, respectively, is included in the Consolidated Statements of
Financial Condition under Accounts Payable and Accrued Expenses.
401(k) Plan
The Company maintains a 401(k) plan for all eligible employees. Participants are permitted to contribute from 1% to 15% of
their annual compensation up to the maximum permitted under the Internal Revenue Code. The Company provided no matching
contribution in 2016 and 2015.
Employee Stock Ownership Plan (“ESOP”)
In conjunction with Company’s initial public stock offering, the Bank established an ESOP for all eligible employees
(substantially all full-time employees). The ESOP borrowed $5,184,200 from the Company and used those funds to acquire
518,420 shares of Company common stock at $10.00 per share. The loan from the Company carries an interest rate of 8.25% and
is repayable in twenty annual installments through 2025. Each year, the Bank makes discretionary contributions to the ESOP
equal to the principal and interest payment required on the loan from the Company. The ESOP may further pay down the
principal balance of the loan by using dividends paid, if any, on the shares of Company common stock it owns. The balance
remaining on the ESOP loan was $3,197,000 and $3,430,000 at December 31, 2016 and 2015, respectively.
Shares purchased with the loan proceeds serve as collateral for the loan and are held in a suspense account for future allocation
among ESOP participants. As the loan principal is repaid, shares will be released from the suspense account and become eligible
for allocation. The allocation among plan participants will be as described in the ESOP governing document.
ESOP shares initially pledged as collateral were recorded as unearned ESOP shares in the stockholders’ equity section of the
consolidated statement of financial condition. Thereafter, on a monthly basis over a 240 month period, approximately 2,160
shares are committed to be released and compensation expense is recorded equal to the shares committed to be released multiplied
by the average closing price of the Company’s stock during that month. ESOP expense during the years ended December 31,
2016 and 2015, totaled approximately $177,000 and $191,000, respectively. Dividends on unallocated shares, which totaled
approximately $32,000 and $35,000 during 2016 and 2015, respectively, are recorded as a reduction of the ESOP loan.
Dividends on allocated shares, which totaled approximately $30,000 and $27,000 during 2016 and 2015, respectively, are charged
to retained earnings.
F -31
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 15 - Benefits Plans (Continued)
Employee Stock Ownership Plan (“ESOP”) (Continued)
ESOP shares are summarized as follows:
Allocated shares
Shares committed to be released
Unearned shares
Total ESOP Shares
Less allocated shares distributed to former or retired employees
December 31,
2016
2015
259,210
25,921
233,289
518,420
(55,290)
233,289
25,921
259,210
518,420
(47,318)
Total ESOP Shares Held by Trustee
463,130
471,102
Fair value of unearned shares
$
1,843,000 $
1,846,000
Note 16 - Commitments and Contingencies
Lease Commitments
Rentals under operating leases for certain branch offices and land amounted to $395,000 and $493,000 for the years ended
December 31, 2016 and 2015, respectively. At December 31, 2016, the minimum rental commitments under all non-cancelable
leases with initial or remaining terms of more than one year are as follows (in thousands):
Year ending December 31,
2017
2018
2019
2020
2021
Thereafter
$
$
225
229
227
145
113
5,158
6,097
Other
The Company and Bank are also subject to claims and litigation that arise primarily in the ordinary course of business. Based on
information presently available and advice received from legal counsel representing the Company and Bank in connection with
such claims and litigation, it is the opinion of management that the disposition or ultimate determination of such claims and
litigation will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the
Company.
Note 17 - 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, the Company has 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).
F -32
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 17 - Fair Value Disclosures (Continued)
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
Identical Assets
(Level 1)
Quoted Prices
in Active
Markets for
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Unobservable Inputs
December 31, 2016:
Recurring:
Mutual Funds:
Mortgage-backed securities - residential:
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Total
Nonrecurring:
Real estate owned
December 31, 2015:
Recurring:
Mortgage-backed securities - residential:
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Total
$
$
$
$
(In Thousands)
$
3,922 $
3,922 $
- $
24
4
3,950 $
4,107 $
-
-
3,922 $
24
4
28 $
- $
- $
4,107
-
-
-
-
31 $
4
35 $
- $
-
- $
31 $
4
35 $
-
-
-
For real estate owned, fair value is generally determined through independent appraisals or fair value estimations of the
underlying properties which generally include various Level 3 inputs which are not identifiable. The appraisals or fair value
estimation may be adjusted by management for qualitative reasons and estimated liquidation expenses. Management’s
assumptions may include consideration of location and occupancy of the property and current economic conditions.
Subsequently, as these properties are actively marketed, the estimated fair values may be periodically adjusted through
incremental subsequent write-downs to reflect decreases in estimated values resulting from sales price observations and the
impact of changing economic and market conditions.
At December 31, 2016 to account for the aforementioned factors, adjustments to appraisal or fair values for real estate owned
ranged from 7.8% to 8.5%.
F -33
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 17 - Fair Value Disclosures (Continued)
A loan is considered impaired when, based upon current information and events; it is probable that the Company will be unable to
collect all scheduled payments in accordance with the contractual terms of the loan. Impaired loans that are collateral dependent
are written down to fair value through the establishment of specific reserves, a component of the allowance for loan losses or
through partial charge-offs, and as such are carried at the lower of cost or the fair value. Estimates of fair value of the collateral
are determined based on a variety of information, including available valuations from certified appraisers for similar assets,
present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry
liquidation advance rates and estimates and assumptions developed by management. The appraisals may be adjusted by
management for estimated liquidation expenses and qualitative factors such as economic conditions. If real estate is not the
primary source of repayment, present value of discounted cash flows and estimates using generally accepted industry liquidation
advance rates are utilized. Due to the multitude of assumptions, many of which are subjective in nature, and the varying inputs
and techniques used by appraisers, the Company recognizes that valuations could differ across a wide spectrum of valuation
techniques employed and accordingly, fair value estimates for impaired loans are classified as Level 3.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are
inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates
herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated.
The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated
for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these
financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value
calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and
those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values
of the Company’s financial instruments at December 31, 2016 and 2015:
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, other loans secured by real estate, commercial and industrial loans,
and consumer. Certain types, such as commercial and industrial loans and consumer loans, are further segmented by maturity and
type of collateral.
For performing loans, fair value is calculated by discounting scheduled future cash flows through estimated maturity using a
market rate that reflects the credit and interest-rate risks inherent in the loans. The discounted value of the cash flows is reduced
by a credit risk adjustment based on internal loan classifications.
For non-performing loans, fair value is calculated by discounting the estimated future cash flows from the remaining carrying
value at a market rate.
F -34
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 17 - Fair Value Disclosures (Continued)
Loans (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.
Investments in Restricted Stocks
The carrying amount of the FHLB of New York and ACBI stocks approximates their fair value and considers the limited
marketability of these securities.
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. Certificates of deposits are segregated by
type, size, and remaining maturity. The fair value of certificates of 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.
Off-Balance-Sheet Financial Instruments
The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to
enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential
borrowers. At December 31, 2016 and 2015, the estimated fair values of these off-balance-sheet financial instruments were
immaterial.
F -35
Northeast Community Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 17 - Fair Value Disclosures (Continued)
The carrying amounts and estimated fair value of our financial instruments are as follows:
Fair Value at
December 31, 2016
Quoted
Prices in
Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
(In thousands)
Financial Assets
Cash and cash equivalents
Certificates of deposit
Securities available for sale
Securities held to maturity
Loans receivable
Investments in restricted stock
Accrued interest receivable
Financial Liabilities
Deposits
FHLB of New York advances
Accrued interest payable
Carrying
Amount
Fair Value
(Level 1)
(Level 2)
(Level 3)
$
43,173 $
648
3,950
4,055
626,139
3,774
2,547
43,173 $
648
3,950
4,132
628,748
3,774
2,547
- $
-
3,922
-
-
-
-
43,173 $
648
28
4,132
-
3,774
2,547
545,346
70,249
2
548,036
69,858
2
-
-
-
548,036
69,858
2
-
-
-
-
628,748
-
-
-
-
-
Fair Value at
December 31, 2015
Quoted
Prices in
Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Carrying
Amount
Fair Value
(Level 1)
(Level 2)
(Level 3)
$
27,818 $
648
35
5,114
507,611
3,127
1,915
27,818 $
648
35
5,227
508,208
3,127
1,915
424,234
56,172
1
426,877
55,875
1
F -36
- $
-
-
-
-
-
-
-
-
-
27,818 $
648
35
5,227
-
3,127
1,915
426,877
55,875
1
-
-
-
-
508,208
-
-
-
-
-
(In thousands)
Financial Assets:
Cash and cash equivalents
Certificates of deposit
Securities available for sale
Securities held to maturity
Loans receivable
Investments in restricted stock
Accrued interest receivable
Financial Liabilities:
Deposits
FHLB of New York advances
Accrued interest payable
(This page intentionally left blank)
NORTHEAST COMMUNITY BANCORP, INC.
NORTHEAST COMMUNITY BANCORP, INC.
Board of Directors
Board of Directors
Jose M. Collazo
Jose M. Collazo
Kenneth H. Thomas
Kenneth H. Thomas
John F. McKenzie
John F. McKenzie
Kevin P. O’Malley
Kevin P. O’Malley
Kenneth A. Martinek
Kenneth A. Martinek
Diane B. Cavanaugh
Diane B. Cavanaugh
Arthur M. Levine
Arthur M. Levine
Eugene M. Magier
Eugene M. Magier
Charles A. Martinek
Charles A. Martinek
Executive Officers of Northeast Community Bancorp, Inc.
Executive Officers of Northeast Community Bancorp, Inc.
Kenneth A. Martinek
Kenneth A. Martinek
Chairman of the Board and Chief Executive Officer
Chairman of the Board and Chief Executive Officer
Jose M. Collazo
Jose M. Collazo
President and Chief Operating Officer
President and Chief Operating Officer
Donald S. Hom
Donald S. Hom
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Financial Officer
Executive Officers of Northeast Community Bank
Executive Officers of Northeast Community Bank
Kenneth A. Martinek
Kenneth A. Martinek
Chairman of the Board and Chief Executive Officer
Chairman of the Board and Chief Executive Officer
Jose M. Collazo
Jose M. Collazo
President and Chief Operating Officer
President and Chief Operating Officer
Donald S. Hom
Donald S. Hom
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Financial Officer
325 Hamilton Avenue
White Plains, NY 10601