NECB NorthEast Community Bancorp Inc

EXECUTIVE COMPENSATION

Summary Compensation Table

The following information is furnished for all individuals serving as the principal executive officer of NorthEast Community Bancorp for the most recently completed fiscal year and our next two most highly compensated executive officers whose total compensation for the year ended December 31, 2022 exceeded $100,000.

Grants of Plan Based Awards

The following table summarizes grants made in 2022 to the Company’s named executive officers 2022 Equity Incentive Plan. The material terms of the equity plan are described below on page 18 of this Proxy Statement.

Short-Term Incentives

Annual Incentive Plan. The Company maintains an annual cash incentive plan which is designed to align the interests of our officers with the overall performance of the Company, including our named executive officers (“2022 Annual Incentive Plan”). Participants in the plan are eligible to earn a target incentive award for a calendar year which is defined as a percentage of the participant’s base salary. Awards for the named executive officers are approved by the Compensation Committee and the Board of Directors.

In designing the 2022 Annual Incentive Plan, the Compensation Committee reviewed our 2022 Business Plan approved by our Board of Directors and the key performance measures for the Company and information related to the peer group for the Company and retained an independent compensation consultant to assist it in designing the plan.

The 2022 Annual Incentive Plan provides Messrs. Martinek, Collazo, and Hom with a target incentive award opportunity equal to 30%, 25% and 25%, respectively, of their base salaries. In addition to the performance metrics, the 2022 Annual Incentive Plan contains a credit quality modifier as a measure of minimum acceptable credit quality to be used within the plan as a payout modifier. These incentive award opportunities and performance metrics under the 2022 Annual Incentive Plan are in line with the Company’s compensation philosophy of paying market competitive compensation in line with each executive’s roles and responsibilities at the Company and the Bank and aligning pay with performance.

The actual incentive awards under the 2022 Annual Incentive Plan were determined in accordance with performance under the following metrics (and the respective weighting for each metric):

(1) The discretionary metric is designed to evaluate individual and Company performance not addressed in the other performance metrics.

The following table summarizes the thresholds, targets, and maximum parameters and actual 2022 performance for each of the applicable financial metrics selected under the 2022 Annual Incentive Plan:

(1) Payouts earned for intermediate performance levels are determined using straight line interpolation.

In order for the NEOs to be eligible to receive full payout under the plan, Non-Performing Loan (“NPL”)/Total Loans had to meet certain acceptable levels. To the extent that NPLs/Total Loans was greater than 3%, any earned award would be reduced by 30% and if NPLs/Total Loans was greater than 5%, all formulaic payouts would be eliminated and any payment under the plan would be discretionary. The Company had no non-performing loans at December 31, 2022.

For purposes of determining the level of achievement for each of the performance measures under the 2022 Annual Incentive Plan, the Compensation Committee reviewed the applicable financial metrics, as derived from our 2022 financial results, and the performance metrics. For the 2022 performance year, the Compensation Committee certified achievement of the pre-established performance measures for the CEO and each of the other NEOs as reflected in the table above.

After review and discussion, the successful execution of the strategic objectives in 2022 coupled with the Company’s financial performance, which exceeded that of the prior year, resulted in payouts at the maximum award opportunity, which represented 166.67% of each NEO’s target 2022 Annual Incentive Plan opportunity, as is set forth below.

The actual dollar amounts earned by our NEOs in fiscal year 2022, pursuant to the 2022 Annual Incentive Plan, are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table below.

Discretionary Bonuses. Prior to 2022, the Company awarded discretionary bonuses to the named executive officers at levels consistent with past practice and in accordance with the financial performance of Northeast Community Bank. No discretionary bonuses were awarded to our named executives in 2022.

Long Term Incentives

Equity Incentive Plan. On September 29, 2022, the stockholders of the Company approved the Company’s 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”). The purpose of the 2022 Equity Incentive Plan is to (i) align the interests of the Company’s stockholders and the recipients of awards under the 2022 Equity Incentive Plan by increasing the economic interest of the recipients in the Company’s growth and success; (ii) advance the interests of the Company by attracting and retaining officers, employees, and non-employee directors; (iii) encourage such officers, employees, and non- employee directors to act in the long-term best interests of the Company and its stockholders; and (iv) serve as an integral part of the Company’s compensation philosophy.

The 2022 Equity Incentive Plan is administered by the Compensation Committee or such other committee consisting of two or more independent members of the Company’s Board of Directors as may be appointed by the Board of Directors to administer the 2022 Equity Incentive Plan (the “Committee”). Employees of the Company and its subsidiaries, including our named executive officers, and non- employee members of the Company’s and the Bank’s Board of Directors, are eligible for selection by the Committee for the grant of awards under the 2022 Equity Incentive Plan.

The 2022 Equity Incentive Plan allows for the issuance of up to 1,369,771 shares of Company common stock pursuant to awards of restricted stock, restricted stock units (“RSUs”) (including performance shares and performance units), and stock options (including non-qualified stock options and incentive stock options). Of this amount, (i) 391,363 shares may be issued as restricted stock award shares or restricted stock units, including performance shares and performance units (or 4.0% of total shares of Company common stock sold in our second-step conversion offering (“4% Limit”)) and (ii) 978,408 shares may be issued as stock options (or 10.0% of total shares of Company common stock sold in our second-step conversion offering), subject to the following exception. To the extent that we choose to grant full value awards (i.e., restricted stock awards) in excess of the 4% Limit, we have committed in the 2022 Equity Incentive Plan to reduce the share pool by three stock options for each share associated with a full value award granted in excess of the 4% Limit. Should any full value awards in excess of the 4% Limit be forfeited, the stock option award pool will increase by three for each share of restricted stock or each restricted stock unit forfeited above the 4% Limit. This plan design is referred to as a “fungible plan design” and is intended to ensure that the overall plan costs remain relatively constant irrespective of the type of award granted.

The minimum vesting period for each award granted under the 2022 Equity Incentive Plan must be at least one year, provided that up to 5% of the shares authorized for issuance under the 2022 Equity Incentive Plan may be issued pursuant to awards with minimum vesting periods of less than one year. In addition, the minimum vesting requirement does not apply to accelerated vesting on account of death, disability, or a change in control of the Company as otherwise permitted by the 2022 Equity Incentive Plan.

The 2022 Incentive Equity Plan set forth the awards to be made to our non-employee directors upon approval of the plan by our stockholders and, as set forth in the plan, self-executing grants of restricted stock and options were made to our non-employee directors on September 30, 2022, without further action of the Compensation Committee or the Board of Directors.

Subject to certain exceptions, generally, if a participant ceases to perform services for the Company and its subsidiaries for any reason (i) all of the participant’s restricted stock, RSUs, performance shares, and performance units that were not vested on the date of such cessation shall be forfeited immediately upon such cessation, (ii) all of the participant’s stock options that were exercisable on the date of such cessation shall remain exercisable for, and shall otherwise terminate at the end of, a period of 90 days after the date of such cessation, but in no event after the expiration date of the stock options, and (iii) all of the participant’s stock options that were not exercisable on the date of such cessation shall be forfeited immediately upon such cessation. The Committee may provide in an award agreement (or otherwise) that a participant shall be eligible for a full or prorated award upon a cessation of the participant’s service relationship due to death, disability, involuntary termination without cause, or resignation for good reason. For an award subject to one or more performance objectives, the Committee may provide for payment of any such full or prorated award prior to certification of such performance objectives or without regard to whether they are certified upon a cessation of the participant’s service relationship due to death, disability, involuntary termination without cause, or resignation for good reason.

For a participant who is a director, cessation of service on the Board of Directors will not be deemed to have occurred if the director continues as director emeritus or advisory director of the Company or the Bank. For a participant who is both an employee and a director, termination of employment will not constitute a cessation of service for purposes of the 2022 Equity Incentive Plan so long as the participant continues to provide service as a director, director emeritus, or advisory director.

The Committee may, in its sole discretion, provide that any time-based vesting requirement applicable to an award shall be deemed satisfied in full in the event that both a change in control occurs and a cessation of the participant’s employment occurs, or if the surviving entity in such change in control does not assume or replace the award. With respect to an award that is subject to one or more performance objectives, the Committee may, in its sole discretion, provide that in the event of a change in control, any full or prorated award will be paid under the circumstances described in the previous sentence before any or all of the applicable performance objectives of the award are certified (or without regard to whether they are certified).

Employment Agreements with Named Executive Officers. In 2021, we entered into employment agreements with Messrs. Martinek and Collazo that replace their prior employments agreement in their entirety. The employment agreements provide for a 36-month term. The term of the employment agreements will extend for an additional 12 months on each anniversary of the effective date of the agreements, unless the boards of directors of NorthEast Community Bancorp, Inc., NorthEast Community Bank or Messrs. Martinek or Collazo, respectively, decide not to extend the term. The Compensation Committee of the NorthEast Community Bank board of directors annually reviews the executives’ base salaries. In addition to base salary, the agreements provide that the executives will be eligible to participate in short-term and long-term incentive compensation, determined and payable at the discretion of the Compensation Committee of the NorthEast Community Bank board of directors. The executives will also be entitled to continue participation in any fringe benefit arrangements in which he was participating on the effective date of the employment agreement. In addition, the agreements provide for reimbursement of reasonable travel and other business expenses incurred in connection with the performance of the executive’s duties.

If the executive’s employment is terminated by NorthEast Community Bancorp, Inc. and NorthEast Community Bank during the term of the agreement, without cause, including a resignation for good reason (as defined in the agreement), but excluding termination for cause or due to death, disability, retirement or following a change in control, the executive would be entitled to a payment equal to a three times the sum of: (i) his annual base salary plus (ii) his target annual bonus in effect on the termination date. The severance payment will be paid to the executive as salary continuation in substantially equal installments over the 36-month period in accordance with NorthEast Community Bank’s customary payroll practices, subject to the receipt of a signed release of claims from the executive within the time frame set forth in the agreement. Assuming the executives elect continued medical and dental coverage under COBRA, NorthEast Community Bank will reimburse the executives in an after-tax amount equal to the monthly COBRA premium paid by the executive for such coverage, less the active employee premium for such coverage. Each executive will be eligible to receive said reimbursement for the earlier of the date the executive is no longer eligible for COBRA, the period of time used to calculate the severance payments, or the date in which the executive becomes eligible to receive substantially similar coverage from another employer. In addition, each executive would receive any unpaid annual bonus for the completed fiscal year and, to the extent there are any outstanding equity plan awards made to the executives, the treatment of such awards upon termination would be determined in accordance with the terms of the applicable equity plan and award agreements.

If the executive’s employment is terminated during the term of the agreement by NorthEast Community Bancorp, Inc. and NorthEast Community Bank without cause, including a resignation for good reason (as defined in the agreements), within 24 months after a change in control (as also defined in the agreements), each executive would be entitled to a payment equal to a multiple of three times of the sum of: (i) his annual base salary (or his base salary in effect immediately before the change in control, if higher) plus (ii) his annual target bonus (or his target bonus in effect immediately before the change in control, if higher). The severance payment will be paid to the executive within 60 days of the termination date in a single lump sum payment. The payment will also include a sum equal to three times his prior year bonus in a lump sum on the date on which the bonus would have been paid to executive but for executive’s termination of employment. In addition, each executive will receive a lump sum payment equal to the cost of providing continued medical and dental coverage for 36 months following termination less the active employee charge for such coverage in effect on the termination date. Further, to the extent there are any outstanding equity plan awards made to executives, the treatment of such awards upon termination would be determined in accordance with the terms of the applicable equity plan and award agreements.

For purposes of the executive’s ability to resign and receive a payment under the agreement, “good reason” would include the occurrence of any of the following events: (i) a material reduction in the executive’s base salary, except for reductions proportionate with similar reductions to all other employees; (ii) a material adverse change in executive’s position that results in a demotion in the executive’s status within NorthEast Community Bancorp, Inc. and NorthEast Community Bank; (iii) a change in the primary location at which the executive is required to perform the duties of his employment with NorthEast Community Bancorp, Inc. and NorthEast Community Bank to a location that is more than 30 miles from the location of NorthEast Community Bank’s headquarters as of the date of the agreement; or (iv) a material breach by NorthEast Community Bancorp, Inc. and NorthEast Community Bank of any written agreement between the executive, on the one hand, and any of NorthEast Community Bancorp, Inc. and NorthEast Community Bank or any other affiliate of NorthEast Community Bancorp, Inc., on the other hand, unless arising from the executive’s inability to materially perform his duties contemplated hereunder.

The employment agreements provide for a “best net benefits” approach in the event that severance benefits under the agreements or otherwise result in “excess parachute payments” under Section 280G of the Internal Revenue Code of 1986, as amended. The best net benefits approach reduces an executive’s payments and benefits to avoid triggering the excise tax if the reduction would result in a greater after-tax amount to the executive officer compared to the amount the executive officer would receive net of the excise tax if no reduction were made.

Under the employment agreements, if the executive is terminated due to disability, the employment agreement will terminate and the executive will receive an amount equal to one times the sum of his base salary and target bonus in effect on the termination date less the amount expected to be paid to executive under the NorthEast Community Bank long-term disability plan, payable as salary continuation in substantially equal installments over a twelve-month period. For these purposes, disability will occur on the date on which the insurer or administrator of NorthEast Community Bank’s long-term disability insurance determines that executive is eligible to commence benefits under such insurance. If the executive dies while employed, the employers will pay to his designated beneficiary an amount equal to one time the sum of the executive’s base salary and target bonus in effect on the termination date.

Upon retirement of an executive, the executive will be entitled to benefits under any retirement plans to which he is a party but shall not be entitled to any amount or benefits under the employment agreement.

The employment agreements provide that, except in the event of a change in control or involuntary termination of employment for reasons other than cause, the executives are each subject to a one-year non-compete in the event their employment is terminated. The employment agreements further require that the executives not solicit business, customers or employees of NorthEast Community Bancorp, Inc. and NorthEast Community Bank for a 12-month period following termination (other than a termination of employment following a change in control) and require the executives to maintain confidential information.

NorthEast Community Bank will pay or reimburse the executives for all reasonable costs and legal fees paid or incurred by the executives in any dispute or question of interpretation relating to the employment agreement if the executive is successful on the merits in a legal judgment, arbitration or settlement. The employment agreements also provide that NorthEast Community Bancorp, Inc. and NorthEast Community Bank will indemnify the executives to the fullest extent legally allowable.

To the extent that a payment is made, or a benefit is received from NorthEast Community Bank, the same payment or benefit will not be paid or received from NorthEast Community Bancorp, Inc.

Change in Control Agreements

NorthEast Community Bancorp and NorthEast Community Bank have entered into change in control agreements with Donald S. Hom and certain other key executives. Mr. Hom’s change in control agreement has a two-year term, subject to renewal by the board of directors for an additional year beyond the then current expiration date. If, within twenty-four months following a change in control of NorthEast Community Bank or NorthEast Community Bancorp, Inc., either party or their successors terminates Mr. Hom’s employment for reasons other than for cause, or if Mr. Hom voluntarily resigns upon the occurrence of circumstances specified in the agreement, Mr. Hom will receive a severance payment under the agreement. Mr. Hom’s severance benefit under his change in control agreement will be equal to two times the sum of his base salary and most recent bonus earned at the time of his termination of employment. In addition to the cash severance payment, Mr. Hom would be reimbursed for the amount equal to the monthly COBRA premium paid by him for such coverage less the active employee premium for such coverage. The change in control agreement limits payments made to Mr. Hom in connection with a change in control to amounts that will not exceed the limits imposed by Section 280G of the Internal Revenue Code.

Retirement Benefits

NorthEast Community Bank Employee Stock Ownership Plan. The ESOP is a tax-qualified defined contribution plan for all employees of NorthEast Community Bank who are 18 years of age or older and have completed one year of service with NorthEast Community Bank. Eligible employees can begin participation in the ESOP on the entry date (January 1 or July 1) that coincides or immediately follows their satisfaction of the ESOP eligibility requirements. All named executive officers participate in the ESOP.

In 2006, in connection with the Company’s public minority stock offering, the ESOP borrowed funds from NorthEast Community Bancorp pursuant to a loan and used those funds to purchase 518,420 shares of common stock for the ESOP in connection with the offering (the “2006 ESOP Loan”), which has an interest rate of 8.25%, a term that ends in 2025 and which had a balance of $1.3 million at December 31, 2022. In connection with the completion of the second-step conversion offering on July  12, 2021, the ESOP purchased an additional 782,726 shares of NorthEast Community Bancorp’s common stock. The ESOP funded its purchase with a loan from the Company in the amount of $7.8 million (“2021 ESOP Loan”). The loan will be repaid principally through NorthEast Community Bank’s contribution to the Employee Stock Ownership Plan and dividends payable on common stock held by the Employee Stock Ownership Plan over the 15-year term of the loan. The interest rate for the 2021 ESOP loan is 3.25% and the balance of that loan was $6.8 million at December 31, 2022. All shares of the Company’s common stock held by the ESOP prior to the completion of the second step offering and conversion on July 12, 2021 were automatically converted to shares of NorthEast Community Bancorp common stock pursuant to the exchange ratio of 1.3400.

All shares purchased by the trustees on behalf of ESOP are held in a loan suspense account. Shares are released from the loan suspense account on a pro rata basis, as NorthEast Community Bank makes contributions to the ESOP sufficient to repay principal and interest on the loan. As shares are released from the loan suspense account, they will be allocated among participants on the basis of each participant’s proportional share of compensation. Participants vest ratably in their ESOP benefits over a six-year period. Participants also become fully vested in their account balances upon normal retirement, death or disability, a change in control, or the termination of the plan. Participants may generally receive distributions from the plan upon separation from service. Any unvested shares forfeited upon a participant’s termination of employment will be reallocated among the remaining participants, in accordance with the terms of the plan.

The ESOP permits a participant to direct the trustee as to how to vote the shares of common stock allocated to his or her account. The trustee votes unallocated shares and allocated shares for which participants do not provide instructions on any matter in the same ratio as those shares for which participants provide instructions, subject to fulfillment of the trustee’s fiduciary responsibilities.

Under applicable accounting requirements, NorthEast Community Bank will record compensation expense for the ESOP at the fair market value of the shares as they are committed to be released from the unallocated suspense account to each participant’s account. The compensation expense resulting from the release of the common stock from the suspense account and allocation to plan participants will result in a corresponding reduction in our earnings.

NorthEast Community Bank 401(k) Retirement Savings Plan (“401(k) Plan”). The 401(k) Plan is a tax-qualified defined contribution plan for all employees of NorthEast Community Bank who are 18 years of age or older and completed one year of service with NorthEast Community Bank. All named executive officers are eligible to participate in the 401(k) Plan. Eligible employees may contribute to the plan on a pre-tax basis, subject to limitations imposed by the Internal Revenue Code. For 2022, the limit is $20,500; provided, however, that participants over age 50 may contribute an additional $6,500 in “catch-up” contributions to the plan. Under the plan, NorthEast Community Bank may make discretionary matching contributions of 100% of the amount deferred, up to a maximum of 5% of each participant’s compensation, to the accounts of all participants, as well as discretionary profit-sharing contributions to the accounts of participants who are employed on the last day of the year and have completed at least 1,000 hours of service during the year. Northeast Community Bank provided no matching contributions in 2022.

Participants are always 100% percent vested in their salary deferrals; participants vest in NorthEast Community Bank’s matching and profit-sharing contributions at the rate of 20% per year following completion of their first year of service.

Supplemental Executive Retirement Plan. NorthEast Community Bank maintains a supplemental executive retirement plan that provides for the payment of supplemental retirement benefits to Kenneth Martinek and Jose Collazo upon their termination of employment on or after the normal retirement age of 65. The normal retirement benefit under the supplemental executive retirement plan equals 50% of the executive’s average base salary over the three-year period preceding termination of employment. Upon retirement on or after attaining age 60 and completing a minimum of 20 years of service, the executive is eligible to receive an early retirement benefit equal to the normal retirement benefit, reduced by 0.25% for each month by which the executive’s age at termination is less than age 65. No benefit is payable under the supplemental executive retirement plan upon termination of employment prior to age 60, unless the termination is due to death, disability, or a change in control, as discussed below. Upon early or normal retirement, the executive receives the annual retirement benefit in equal monthly installments for the greater of the executive’s lifetime or 15 years immediately following the participant’s normal or early retirement or, in the case of disability, commencing at age 65. If a participant dies while receiving benefits under the plan, the executive’s beneficiary continues to receive any remaining installment payments (up to 15) due from the plan. If the executive dies while actively employed, his beneficiary receives an actuarially equivalent lump sum calculated as if the executive had attained normal retirement age immediately prior to death. If the executive has attained age 65 or is eligible for an early retirement benefit, he receives the applicable benefit upon termination of employment due to disability. If the executive is not eligible for an early or normal retirement benefit, the disability benefit under the plan is calculated as if the executive attained normal retirement age immediately prior to termination of employment. Upon termination of employment in connection with a change in control, the executive will receive a lump sum payment that is actuarially equivalent to the normal retirement benefit, calculated as of the date of termination and without regard to the participant’s age at termination. No benefits are payable under the supplemental executive retirement plan upon a participant’s termination for cause (as defined in the plan).