U.S. SECURITIES AND EXCHANGE COMMISSION 
 
                           WASHINGTON, D.C. 20549 
 
                                Form 10 - QSB 

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

                For the quarterly period ended March 31, 1997 

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

                For the transition period from             to
                                               -----------    -------------- 
 
                         Commission File No. 0-11184 
 
                        NORTH EAST INSURANCE COMPANY 
         (Name of small business issuer as specified in its charter) 

                   Maine                              01-0278387
      (State or other Jurisdiction of               (I.R.S Employer
      incorporation or organization)             Identification Number) 
 
                  482 Payne Road, Scarborough, Maine 04074 
                  (Address of principal executive offices) 
 
                               (207) 883-2232 
                         (Issuer's telephone number) 
 
Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for 
such shorter period that the issuer was required to file such reports), and 
(2) has been subject to such filing requirements for the past 90 days. Yes [ 
X ]   No [   ] 
 
As of May 12, 1997 there were 3,002,375 outstanding shares of Common Stock, 
$1.00 par value, the only authorized class of the issuer. 
 
Transitional Small Business Disclosure Format: Yes [   ]  No [ X ] 
 

 
                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
INDEX
----- 
 
Part I - Financial Information 

      Item 1.  Financial Statements 

         Consolidated Balance Sheet
         As of March 31, 1997                                    3 

         Consolidated Statements of Operations for the
         Three Months Ended March 31,1997 and 1996               4 

         Consolidated Statements of Cash Flows for the
         Three Months Ended March 31,1997 and 1996               5 

         Notes to Consolidated Financial Statements              7 

         Management's Discussion and Analysis of 
         Financial Condition and Results of Operations           8 
 
Part II - Other Information 

      Item 5.  Other Information                                 10 

      Item 6.  Exhibits and Reports on Form 8-K                  10 
 
                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
Item 1. Financial Statements 
 
<TABLE>
<CAPTION>

                         Consolidated Balance Sheet 
                            as of March 31, 1997 
ASSETS                                                            1997
                                                                 ------
<S>                                                            <C>
  Investments:
    Fixed maturities available for sale, at
     fair value (amortized cost $15,494,967 )                  $15,130,280
    Investment property, at cost less
     accumulated depreciation of $46,291                            63,709
    Equity securities available for sale,
     fair value (cost $154,970 )                                    90,508
    Short-term investments                                       2,214,246
                                                               -----------
      Total investments                                         17,498,743
  Reinsurance (loss and loss adjustment expense
   reserves and paid recoverables)                               5,078,001
  Premium balances receivable                                    3,947,141
  Deferred policy acquisition costs                                511,834
  Cash                                                             220,320
  Prepaid reinsurance premiums (ceded unearned premium)          1,755,820
  Investment income due and accrued                                247,442
  Property and equipment, net of accumulated depreciation          498,114
  Deferred tax asset                                             2,107,847
  Prepaid federal income tax                                         9,242
  Other assets                                                     198,201
                                                               -----------
      Total Assets                                             $32,072,705
                                                               =========== 
 
LIABILITIES
  Losses and loss adjustment expenses                          $15,057,731
  Unearned premiums                                              5,821,225
  Ceded reinsurance balances payable                               840,796
  Reserve for unpaid expenses                                    1,097,888
  Book overdraft                                                   411,698
  Other liabilities                                                 55,710
                                                               -----------
      Total Liabilities                                         23,285,048 
 
SHAREHOLDERS' EQUITY
  Common stock $1.00 par value,
   authorized 6,000,000 shares, issued
   and outstanding 3,002,375 shares                              3,002,375
  Additional paid-in capital                                     6,348,039
  Unrealized depreciation of investments                          (428,649)
  Accumulated deficit                                             (134,108)
                                                               -----------
      Total Shareholders' Equity                                 8,787,657
                                                               -----------
        Total Liabilities and Shareholders' Equity             $32,072,705
                                                               =========== 
 
The accompanying notes are an integral part of the consolidated financial statements. 

</TABLE>

                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
<TABLE>
<CAPTION>
                    Consolidated Statements of Operations 
                    for the Three Months ended March 31, 
 
                                                  1997          1996
                                               ------------------------ 
<S>                                            <C>           <C>
Revenues:
  Premiums earned                              $2,756,797    $2,798,108
  Premiums ceded                                  665,447       892,729
                                               ----------    ----------
    Net premiums earned                         2,091,350     1,905,379
  Net investment income                           138,188       281,206
  Realized capital gains                           82,424        79,140
                                               ----------    ----------
    Total revenues                              2,311,962     2,265,725 
Expenses:
  Losses and loss adjustment expenses           2,116,098     2,264,961
  Reinsurance recoveries                         (364,946)     (611,556)
    Net losses and loss adjustment expenses     1,751,152     1,653,405
  Underwriting expenses incurred                  838,395       594,048
                                               ----------    ----------
    Total expenses                              2,589,547     2,247,453
                                               ----------    ---------- 
 
Income (loss) before provision for
 income taxes                                    (277,585)       18,272 
 
Provision (credit) for income taxes               (57,453)          365 
 
Net income (loss)                              $ (220,132)   $   17,907
                                               ==========    ========== 
 
Earnings per common share:
  Net income (loss)                            $    (0.07)   $     0.01
                                               ==========    ========== 
 
The accompanying notes are an integral part of the consolidated financial statements. 

</TABLE>
 
                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
<TABLE>
<CAPTION>
                    Consolidated Statements of Cash Flows 
                    for the Three Months ended March 31, 

                                                           1997      1996
                                                       ------------------------- 
 
<S>                                                    <C>           <C>
Cash flow from operating activities:
  Insurance premium received                           $2,609,858    $2,394,714
  Loss and loss adjustment expenses paid               (2,068,973)   (2,846,656)
  Operating expenses paid                                (862,053)     (906,832)
  Investment income received                              175,097       324,424
                                                       ----------    ----------
    Net cash used in operating activities                (146,071)   (1,034,350)
                                                       ----------    ---------- 
 
Cash flows from investing activities:
  Fixed maturities available for sale, sold               946,747       600,000
  Fixed maturities available for sale, purchased       (1,568,400)     (204,559)
  Proceeds from mortgage note                                   0       459,140
  Purchase of furniture, fixtures and equipment           (71,218)      (16,732)
                                                       ----------    ----------
    Net cash provided (used) in investing activities     (692,871)      837,849 
                                                       ----------    ----------

  Net decrease in cash, book overdraft
   and short-term investments                            (838,942)     (196,501) 
Cash, book overdraft and short-term
 investments at beginning of year                       2,861,810     1,722,100
                                                       ----------    ----------
Cash, book overdraft and short-term
 investments at end of period                          $2,022,868    $1,525,599
                                                       ==========    ==========
 
The accompanying notes are an integral part of the consolidated financial statements. 
 
</TABLE>

                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
<TABLE>
<CAPTION>
                 Consolidated Reconciliation of Cash Used In 
                  Operating Activities to Net Income (Loss) 
                    for the Three Months ended March 31, 

                                                     1997         1996 
                                                  ------------------------
 
<S>                                               <C>          <C>
Net income (loss)                                 $(220,132)   $    17,907 
 
Decrease (increase) in net premium and ceded
 reinsurance balances                              (549,796)       995,665 
Increase (decrease) in unearned
 premium reserve                                    898,335       (474,402) 
Increase (decrease) in loss and loss adjustment
 expense reserve                                   (147,852)    (1,225,179) 
Decrease in investment income
 due and accrued                                     36,909         43,218 
Decrease (increase) in deferred tax asset           (57,453)             0 
Decrease (increase) in deferred policy
 acquisition costs                                 (113,239)         4,494 
Increase (decrease) in expense accruals              21,889       (389,590) 
Amortization of bond premium, net                    20,208         19,048 
Depreciation and amortization expense                47,484         53,629 
Gain on investment activities                       (82,424)       (79,140) 
                                                  ---------    -----------
Net cash used in operating activities             $(146,071)   $(1,034,350) 
                                                  =========    ===========
 
The accompanying notes are an integral part of the consolidated financial statements. 

</TABLE>

                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
                 Notes to Consolidated Financial Statements 
 
1. The condensed financial statements included herein have been prepared by 
the Registrant, without audit, pursuant to the rules and regulations of the 
Securities and Exchange Commission. Certain information and footnote 
disclosures normally included in financial statements prepared in accordance 
with generally accepted accounting principles have been condensed or omitted 
pursuant to such rules and regulations.  The Registrant believes that the 
disclosures which are made are adequate to make the information presented 
not misleading.  These financial statements should be read in conjunction 
with the financial statements and the notes thereto included in the 
Registrant's latest annual report on Form 10-KSB. In Management's opinion, 
the attached interim financial statements reflect all adjustments 
(consisting only of normally recurring adjustments) which are necessary for 
a fair presentation of results of operations and financial position for the 
periods presented. 
 
2. In June 1996 the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards ("FAS") No. 125 ("Accounting for 
Transfers and Servicing of Financial Assets and Extinguishments of 
Liabilities") which provides standards whereby an entity recognizes the 
financial and servicing assets it controls and the liabilities it has 
incurred, de-recognizes financial assets when control has been surrendered, 
and de-recognizes liabilities when extinguished. The Statement is effective 
for transfers and servicing of financial assets and extinguishments of 
liabilities occurring after December 31, 1996. The effect of adopting the 
provisions of FAS No. 125 did not  have a material effect on the Company's 
consolidated results of operations or financial position. 
 
In March 1997 the FASB issued FAS No. 128 ("Earnings Per Share") which 
provides for a "basic" earnings per share computation based upon the 
weighted-average shares outstanding. The new standard requires a dual 
presentation of basic and diluted earnings per share. The effect of adopting 
the provisions of FAS No. 128 did not have a material effect on the 
Company's per share earnings. 
 
In March 1997 the FASB also issued FAS No. 129 ("Disclosures of Information 
About Capital Structure"). The effect of adopting the provision of FAS No. 
129 did not result in significant disclosure due in part to the simplified 
nature of the Company's capital structure. 
 
3. North East Insurance Company owns 100% of American Colonial Insurance 
Company and North Atlantic Underwriters, Inc. whose results are consolidated 
herein. 
 
4. Earnings per share are computed using the weighted average method. 
 
Item 2. Management's Discussion and Analysis of Financial Condition 
and Results of Operations 
 
Three Months Ended March 31, 1997 
 
During the first quarter of 1997 the Company, based on its most recent 
historic operating results, was able to reduce the cost of its excess of 
loss reinsurance protection by over 50% of the amount previously charged. 
Further as a result of improved results of operations for the year ended 
December 31, 1996 and the related increase in capital (shareholders' equity) 
the Company decided to terminate its quota share reinsurance on a run off 
basis effective January 1, 1997. The effect of these reinsurance changes are 
reflected in our first quarter results of operations. 
 
Net premiums written amounted to $2,989,684 for the three months ended March 
31, 1997 compared with $1,430,978 for the three months ended March 31, 1996. 
Net premiums earned for the three months ended March 31, 1997 and 1996 
amounted to $2,091,350 and $1,905,379, respectively. 
 
Loss and loss adjustment expenses represented 83.7 % and 86.8% of net 
premium earned for the three months ended March 31, 1997 and 1996, 
respectively. The high loss ratio is the result of the severe weather 
conditions experienced in both the first quarter of 1997 and 1996. 
  
Underwriting expenses incurred represented 28.0% and 41.5% of net premiums 
written for the three months ended March 31, 1997 and 1996, respectively. 
 
Total return from investment activities amounted to $220,612 for the three 
months ended March 31, 1997 compared with $360,346 for the three months 
ended March 31, 1996. The return on invested assets, based on amortized 
cost, net of allocated expenses was 5.0% for the three months ended March 
31, 1997 compared with 5.5% for the three months ended March 31, 1996. 
 
Net loss for the three months ended March 31, 1997 amounted to $220,132 or 
$0.07 per share compared with  net income of $17,907 or $0.01 per share for 
the three months ended March 31, 1996. 
 
Shareholders' equity at March 31, 1997 amounted to $8,787,657 or $2.93 per 
share compared with $9,324,961 or $3.11 per share at December 31, 1996. The 
decline in shareholders' equity is attributable to a decline in the market 
value of the company's' fixed maturities available for sale and the 
previously mentioned net loss of $220,132. The decline in market value 
resulted in a charge to surplus of $317,172 for the three months ended March 
31, 1997. 
 
Liquidity and Capital Resources 
 
Cash used in operating activities amounted to $146,071 for the three months 
ended March 31, 1997 compared with $1,034,350 for the three months ended 
March 31, 1996. The decrease in cash used in operating activities is a 
direct result of the reinsurance restructuring previously mentioned. Cash 
used by investing activities amounted to $692,871 for the three months ended 
March 31, 1997 compared with cash provided by  investing activities of 
$837,849 for the three months ended March 31,1996. 
 
The fair value of the Company's fixed maturities available for sale was 
$364,687 less than the amortized cost at March 31,1997 compared with $52,717 
less than amortized cost at December 31,1996. 
 
The Company maintains short term investments to provide a cash resource 
should the demands from operations exceed incoming cash flow. Short term 
investments amounted to $2,214,246 at March 31, 1997 compared with 
$2,868,875 at December 31, 1996. The Company believes that this level is 
sufficient to meet any unanticipated cash demands. 
 
                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
                                   PART II 
 
Item 5. Other Information

As previously announced, A.M. Best Company has upgraded the Registrant to a 
"B-" rating. For many years, the Registrant carried a "D" rating from A.M. 
Best.  The Registrant had previously announced its intention to seek an 
improved rating on the basis of a significant improvement in its financial 
condition and resolution of uncertainties surrounding sale of a large block 
of the Registrant's common stock formerly held in a non-voting trust. 
 
Item 6. Exhibits and Reports on Form 8-K 

      a) Exhibits
         27  Financial Data Schedules 

      b) Reports on Form 8-K
         The Company filed a report on Form 8-K on May 5, 1997, announcing 
         the upgrade in its A.M. Best rating. 
 
                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
                                 SIGNATURES 
 
In accordance with the requirements of the Exchange Act, the Registrant 
caused this report to be signed on its behalf by the undersigned, thereunto 
duly authorized. 

                                  NORTH EAST INSURANCE COMPANY 
 
Date:  May 13, 1997               By   /s/ Robert G. Schatz
                                       President and Chief Executive Officer 
 
Date:  May 13, 1997               By   /s/ Graham S. Payne
                                       Treasurer and Chief Financial Officer 
 
                NORTH EAST INSURANCE COMPANY AND SUBSIDIARIES 
 
                                 FORM 10-QSB 
 
                                EXHIBIT INDEX 
 
 
Exhibit 
 Number        Description                  Page
------------------------------------------------ 
  27           Financial Data Schedules      13