Certain supplemental schedules have been omitted because they are either
not required or not applicable.
The accompanying notes are an integral part
of the financial statements.
The accompanying notes are an integral part
of the financial statements.
NOTES TO FINANCIAL STATEMENTS
The following description of the NorthEast
Community Bank Employees’ Savings & Profit Sharing Plan and Trust (the “Plan”) provides only general information.
Participants should refer to the plan document for more detailed information.
General
The Plan is a defined contribution plan
sponsored by NorthEast Community Bank (the “Company”) covering substantially all employees who have attained 18 years of age.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Contributions
Participants may contribute up to 60%
of their gross compensation, as defined in the Plan, on a pre-tax basis or on an after-tax (“Roth”) basis, subject to Internal
Revenue Code (“IRC”) limitations. Participants who are at least age 50 may make an additional pretax "catch-up"
contribution subject to IRC limitations. The Plan provides for automatic enrollment in the amount of 3% of compensation for new employees
who do not opt out. Participants who are automatically enrolled are also automatically increased by 1% annually up to 5%. Participants
may also contribute funds from another qualified retirement plan (“rollover contributions”), subject to certain requirements.
The Company may make discretionary non-elective
contributions. Participants must work at least 1,000 hours during the plan year and be employed on the last day of the plan year to be
eligible for discretionary non-elective contributions. No discretionary non-elective contributions were made during 2021.
Participant Accounts
Each participant’s account is
credited or charged with contributions, investment income, and administrative expenses. Investment income, including realized and unrealized
gains and losses, and expenses are allocated to participant’s accounts based on each participant’s account balance within
each fund. Participants determine the percentage in which contributions are to be invested in each fund, except for investments in the
Company Stock which are not open to new investments as of December 31, 2021. Participants may change their investment options as
set forth in the plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant's
vested account.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
Vesting
Participants are fully vested in that
portion of their account which represents their contributions and the income earned thereon. Participants become 100% vested in the Company’s
contributions and earnings thereon upon death, total and permanent disability, or attainment of normal retirement age. Otherwise, a participant’s
interest in the Company’s contributions and earnings thereon vests according to the following:
Completed Years of Service |
|
Percent Vested |
1 year |
|
0 |
% |
2 years |
|
20 |
% |
3 years |
|
40 |
% |
4 years |
|
60 |
% |
5 years |
|
80 |
% |
6 years |
|
100 |
% |
Forfeitures
When certain terminations of participation
in the Plan occur, the nonvested portion of a participant’s account represents a forfeiture, as defined by the Plan. If a forfeiting
participant is re-employed and fulfills certain requirements, as set forth in the Plan, the participant’s account will be restored.
Forfeitures can be used to reduce administrative expenses or to reduce employer contributions. No forfeitures were used to pay for administrative
expenses or to reduce employer contributions during 2021. Total unapplied forfeitures on December 31, 2021 and 2020 were $1,842 and
$1,232, respectively.
Distribution of Benefits
Benefits may be distributed to participants
upon termination of employment by reason of retirement, disability, death, or other separation from service. Distributions from the Plan
may be made in the form of a lump sum or annuity.
A participant may also request a withdrawal
upon attainment of age 59 ½ or upon demonstration by the participant to the plan administrator that the participant is suffering
from “hardship”, as defined in the plan document. A participant may also take a distribution from their rollover account balance
at any time.
Notes Receivable from Participants
Participants may borrow from their fund
accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balance. The loans are
secured by the balance in the participant's account. Loans must bear a reasonable rate of interest. All loans must be repaid within five
years unless the proceeds are used to acquire a principal residence, in which case a longer repayment period is allowed. No more than
two loans may be outstanding at any time. Principal and interest is generally paid ratably through payroll deductions each pay period.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
B. | Summary of Significant Accounting Policies: |
Basis of Accounting
The accompanying financial statements
have been prepared using the accrual basis of accounting.
Investment Valuation and
Income Recognition
Investments are reported at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants on the measurement date. See Note C for discussion of fair value measurements.
Purchases and sales of securities are
recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net
appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Notes Receivable from Participants
Notes receivable from participants are
measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on the accrual basis. No
allowance for credit losses has been recorded as of December 31, 2021 or 2020. Delinquent participant loans are reclassified as distributions
based upon the terms of the plan document.
Payment of Benefits
Benefits are recorded when paid.
Plan Expenses
Expenses that are paid by the Company
are excluded from these financial statements. The majority of expenses incurred in the administration of the Plan are paid by the Company.
Remaining expenses are paid by the Plan.
Use of Estimates
The preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
C. | FAIR VALUE MEASUREMENTS: |
The framework for measuring fair value
provides a fair value hierarchy that prioritizes the inputs to valuation techniques 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) and the lowest priority to
unobservable inputs (level 3). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:
Level 1 - Inputs to the valuation
methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2 - Inputs to the valuation
methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or
liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived
principally from or corroborated by observable market data by correlation or other means. If the assets or liability has a specified (contractual)
term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation
methodology are unobservable and significant to the fair value measurement.
The asset or liability’s fair
value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement.
Following is a description of the valuation
methodologies used by the Plan:
Northeast
Community Bancorp, Inc. Stock – At
December 31, 2021, valued at the daily closing price as publicly traded on the market. At December 31, 2020, valued at fair
value based upon an independent appraisal. This appraisal was based upon a combination of the market and income valuation techniques.
The appraiser took into account historical and projected net income, growth rate, prior transactions share value, capitalization factor,
return on equity, and market comparables.
Mutual funds – At December 31,
2021 and 2020, valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that
are registered with the SEC. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The
mutual funds held by the Plan are deemed to be actively traded.
Common collective trust –
At December 31, 2021 and 2020, valued at the net asset value of units of a collective trust. The net asset value, as provided by
the fund manager, is used as a practical expedient to estimate fair value. The net asset value is based on the fair value of the underlying
investments held by the fund less its liabilities. This practical expedient would not be used if it is determined to be probable that
the fund will sell the investment for an amount different from the reported net asset value.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
The following tables set forth by level,
within the fair value hierarchy, the Plan's assets at fair value as of December 31:
| |
2021 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Northeast Community Bancorp, Inc. Stock | |
$ | 1,056,350 | | |
$ | 1,056,350 | | |
$ | — | | |
$ | — | |
Mutual funds | |
| 12,450,976 | | |
| 12,450,976 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Total investments in the fair value hierarchy | |
| 13,507,326 | | |
$ | 13,507,326 | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Investments measured at net asset value (1): | |
| | | |
| | | |
| | | |
| | |
Common collective trust | |
| 980,172 | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Investment at fair value | |
$ | 14,487,498 | | |
| | | |
| | | |
| | |
| |
2020 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Northeast Community Bancorp, Inc. Stock | |
$ | 919,692 | | |
$ | — | | |
$ | — | | |
$ | 919,692 | |
Mutual funds | |
| 9,878,379 | | |
| 9,878,379 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Total investments in the fair value hierarchy | |
| 10,798,071 | | |
$ | 9,878,379 | | |
$ | — | | |
$ | 919,692 | |
| |
| | | |
| | | |
| | | |
| | |
Investments measured at net asset value (1): | |
| | | |
| | | |
| | | |
| | |
Common collective trust | |
| 493,718 | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Investment at fair value | |
$ | 11,291,789 | | |
| | | |
| | | |
| | |
| (1) | In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share
(or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended
to permit reconciliation of the fair value hierarchy to the line items presented in the statements of net assets available for benefits. |
Redemptions of the common collective
trust held by the Plan are allowed daily for participants; however, the Plan is subject to a twelve-month redemption notice period. There
are no unfunded commitments.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
At December 31, 2020, the Northeast
Community Bancorp, Inc. Stock held by the Plan is reported at fair value based upon an independent appraisal. The appraisal was based
upon a combination of the market and income valuation techniques as illustrated in the following tables:
| |
2020 | |
| |
Fair | | |
Principal Valuation | |
Unobservable |
Instrument | |
Value | | |
Technique | |
Input(s) |
Northeast Community Bancorp, Inc. Stock | |
$ | 919,692 | | |
Income | |
Capitalization factor |
| |
| | | |
| |
Earnings power |
| |
| | | |
| |
Risk free rate |
| |
| | | |
| |
Equity Risk premium |
| |
| | | |
| |
Size premium |
| |
| | | |
| |
Long-term growth rate |
| |
| | | |
| |
Discount for lack of marketability |
| |
| | | |
| |
|
| |
| | | |
Market | |
Public comparables |
| |
| | | |
| |
Price to earnings multiples |
| |
| | | |
| |
Price to book value multiples |
| |
| | | |
| |
Price to tangible book value multiples |
| |
| | | |
| |
Discount for lack of marketability |
During 2021, the Northeast Community
Bancorp, Inc. stock was transferred from level 3 investment to level 1 investment due to the Company’s second-step conversion
completed in July 2021. There were no other transfers in or out of the level 3 investment during the year.
The Plan has adopted the volume submitter
profit sharing plan document of FMR LLC. The volume submitter sponsor received a favorable opinion letter dated June 30, 2020 in
which the IRS stated that the form of the volume submitter plan was in compliance with the applicable requirements of the IRC. The plan
administrator believes that the Plan is designed and being operated in compliance with the applicable requirements of the IRC, and that
the related trust is therefore tax-exempt.
Accounting principles generally accepted
in the United States of America require plan management to evaluate tax positions taken by the plan and recognize a tax liability if the
plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan is subject
to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Section 3(14) of ERISA defines
a party-in-interest to include, among others, fiduciaries or employees of the Plan, any person who provides services to the Plan or an
employer whose employees are covered by the Plan. Accordingly, loans to participants and the management of investments held by the trustee
are considered party-in-interest transactions.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
The Plan invests in Northeast Community
Bancorp, Inc. Stock. Northeast Community Bancorp, Inc. is a Maryland corporation that was incorporated in May 2021 to be
the successor to NorthEast Community Bancorp, Inc., a federally chartered corporation (the “Mid-Tier Holding Company”),
upon completion of the second-step conversion of NorthEast Community Bank (the “Bank”) from the two-tier mutual holding company
structure to the stock holding company structure. In conjunction with the second-step conversion, each of NorthEast Community Bancorp,
MHC and the Mid-Tier Holding Company merged out of existence and now cease to exist. The second-step conversion was completed on July 12,
2021, at which time each of the existing outstanding shares of Mid-Tier Holding Company common stock owned by persons other than NorthEast
Community Bancorp, MHC was converted into 1.3400 shares of Company common stock.
During the year ended December 31,
2021, the Plan purchased shares in the amount of $11,297, sold shares in the amount of $12,985, and had net appreciation in fair value
in the amount of $138,346. Of the shares purchased, $11,297 were reinvested as dividends, and of the shares sold, $12,985 was distributed
to participants. The total value of the Plan’s interest in the Company Common Stock was $1,056,350 and $919,692 on December 31,
2021, and 2020, respectively. The total number of shares held by the Plan was 94,887 and 94,773¹ on December 31, 2021 and 2020,
respectively.
¹Shares amounts related to periods
prior to the July 12, 2021 closing of the Company’s second-step conversion offering have been restated to give retroactive
recognition to the 1.3400 exchange ratio applied in the conversion offering.
Although the Plan was established with
the intention that it will continue indefinitely, the Company retains the right to discontinue its contributions at any time or to terminate
the Plan, subject to the provisions of ERISA.
Participant contributions from the first
pay date of the 2022 plan year were contributed to the Plan on December 30, 2021. This contribution has been recorded as a prepaid
contribution as of December 31, 2021.
| H. | Risks and uncertainties: |
The Plan invests in various investment
securities. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Market risks include
global events which could impact the value of investment securities. Due to the level of risk associated with certain investment securities,
it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that such changes
could materially affect participants' account balances and the amounts reported in the statements of net assets available for benefits.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
The Plan has evaluated all events or
transactions through the date of this filing. During this period, there were no material subsequent events which affected the Plan’s
financial statements.
NORTHEAST
COMMUNITY BANK EMPLOYEES’
SAVINGS
& PROFIT SHARING PLAN AND TRUST
EIN: 13-0736530
pLAN NUMBER:
002
sCHEDULE
h, lINE 4(i) – SCHEDULE OF ASSETS (HELD AT END OF YEAR)
dECEMBER
31, 2021