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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

(Mark One)

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

ACT OF 1934

For fiscal year ended June 30, 2001

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

EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number (1-14588)

NORTHEAST BANCORP(Exact name of registrant as specified in its charter)



|Maine
(State or other jurisdiction of incorporation or organization)      |  | 01-0425066
(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------- |  | -----------------------------------------------
|232 Center Street, Auburn, Maine
(Address of principal executive offices) |  | 04210
(Zip Code)                               
|Registrant's telephone number, including area code:                       |  | (207) 777-6411                                 

Securities registered pursuant to Section 12(b) of the Act:



|Title of each class:          | Name of each exchange on which registered:
|----------------------------- | ------------------------------------------
|Common Stock, $1.00 par value | American Stock Exchange                   

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes X

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]

The aggregate market value of the Registrant's common shares held by non-affiliates, as of September 19, 2001, was
$29,284,074 based on the last reported sales price of the Company's common shares on the American Stock Exchange as of the close of business on such date.  Although directors and executive officers of the registrant and its subsidiaries were assumed to be "affiliates" of the registrant for the purposes of this calculation, this classification is not to be interpreted as an admission of such status.   There were
2,579,188 common shares of the registrant outstanding as of September 19, 2001.



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DOCUMENTS INCORPORATED BY REFERENCE

The following documents, in whole or in part, are specifically incorporated by reference in the indicated Part of this Annual Report on Form 10-K:

|Document                                                     | Form 10-K Reference Location
|------------------------------------------------------------ | ----------------------------
|Proxy Statement for the 2001 Annual Meeting of
 Shareholders | III                         

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.  See "Item 1. Business -Forward Looking Statements."

PART I

ITEM 1.  BUSINESS

General

Northeast Bancorp (the "Company"), a Maine corporation chartered in April 1987, is a unitary savings and loan holding company registered with the Office of Thrift Supervision ("OTS") its primary regulator.  Prior to 1996, the Company operated under the name Bethel Bancorp.  The Company's primary subsidiary and principal asset is its wholly-owned banking subsidiary, Northeast Bank, FSB (the "Bank"), which has branches located in Auburn, Augusta, Bethel, Harrison, South Paris, Buckfield, Mechanic Falls, Brunswick, Richmond, Lewiston, and Lisbon Falls, Maine. The Bank also maintains a facility on Fundy Road in Falmouth, Maine, from which loan applications are accepted and investment, insurance and financial planning products and services are offered.

Northeast Bancorp through its subsidiary, Northeast Bank and the Bank's subsidiary Northeast Financial Services, Inc., provides a broad range of financial services to individuals and companies in western, mid-coast and south-central Maine. Although historically the Bank has been primarily a residential mortgage lender,
the Bank has expanded its commercial loan business, increased its line of financial products and services, and expanded its market
area over the last decade. Management believes that this strategy will increase core earnings in the long term by providing stronger interest margins, additional non-interest income, and increased loan volume. The Bank believes that the local character of its business and its "community bank" management philosophy allows it to compete effectively in its market area. As of June 30, 2001, the Company, on a consolidated basis, had total assets of approximately $431 million, total deposits of approximately $274 million, and stockholders' equity of approximately $30 million.  Unless the context otherwise requires, references herein to the Company include the Company and its subsidiaries on a consolidated basis.

The Bank (which was formerly known as Bethel Savings Bank F.S.B. ("Bethel")) is a federally chartered savings bank, which was originally organized in 1872 as a Maine-chartered mutual savings bank.  The Bank received its federal charter in 1984.  In 1987,  the Bank converted to a stock form of ownership and in subsequent years has engaged in a strategy of both geographic and product expansion. The Bank has broad powers, including the power to engage in non-residential lending activities.  In connection with its conversion into a federal savings bank in 1983, the Bank retained its then-authorized powers as a Maine-chartered mutual savings bank.  Under applicable regulations, except as otherwise determined by the OTS, the Bank retains the authority that it was permitted to exercise as a mutual savings bank under the state law existing at the time of the conversion.  Historically, Maine-chartered savings banks have had certain lending, investment, and other powers that have only recently been granted to federal savings institutions, including commercial lending authority and the ability to offer personal checking and negotiable order of withdrawal ("NOW") accounts.

Strategy

Northeast Bancorp's corporate philosophy is to offer a wide array of financial products and services with an emphasis on a high level of personalized service.  This strategy is designed to attract profitable long-term banking relationships with its customers which will increase the Bank's core earnings by developing strong interest margins, non-interest
fee income, and increasing the volume of banking products and services as its market area expands.  In keeping with this strategy, the Bank is making a concerted effort to become an all-inclusive financial center that is able to provide its customers with virtually any financial product and service that will meet their needs.  In this regard, the Bank assists its clients in assessing their financial needs through its personalized financial planning services.  Once the customer's financial needs have been identified, the Bank provides the customer with financial product or service solutions, designed to meet their needs.  Management believes that the ability to deliver such personalized service and advice will be one of the primary competitive factors in the financial institutions industry in the future.  Accordingly, over the past few years the Bank has invested a substantial amount of resources in developing its ability to offer a high level of personalized service with an emphasis on financial planning and delivery of financial advisory services that are responsive to a broad range of customer needs.

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To further support the corporate philosophy, the Bank has expanded the scope of lending and other financial services that it provides to its customers.  In the past, the Bank has focused primarily on its residential mortgage lending business.  As a result, its business has historically consisted of attracting deposits from the general public through its retail banking offices and applying those funds principally to the origination, retention, servicing, investing in and selling first mortgage loans on single and multi-family residential real estate.
However, the Bank has expanded the scope of its services by placing additional emphasis on:

- consumer lending and small business, home equity, and commercial loans;







Northeast Bancorp also offers to its customers financial planning, investment services and all lines of insurance products through the Bank's subsidiary, Northeast Financial Services Corporation.  Northeast Financial Services Corporation, which is located at Northeast Bancorp's headquarters in Auburn, Maine, offers customers access to investment, insurance and annuity products through an arrangement with Commonwealth Equity Services, Inc., an unaffiliated, fully licensed New York securities firm, which licenses the brokers who sell such products and services.  It also offers all lines of insurance products to customers through its relationships with several insurance agencies, including one owned by Mr. Kendall who is a director of the Company.



Trust services and employee benefit products are provided to Northeast Bancorp customers through the Bank's trust department, Northeast Trust, a division of the Bank.



The community banking strategy of Northeast Bancorp emphasizes the development of long-term full banking relationships with customers at each branch location by providing consistent, high quality service from:



- employees with local decision-making authority;







With the goal of providing a full range of banking services to its customers and in an effort to develop strong long-term primary banking relationships with businesses and individuals, the Bank has expanded its commercial banking operations by selectively making commercial loans to small and medium sized companies.  In this regard, the Bank's business development efforts have been directed towards full service credit packages and financial services, as well as competitively priced mortgage packages. At June 30, 2001, the Bank's loan portfolio consisted of 50% residential real estate mortgages, 19% commercial real estate mortgages, 12% commercial loans, and 19% consumer loans.  At June 30, 2001, the Bank's lending limit was approximately $4.6 million.  To the extent that customer's credit needs exceed the bank's lending limits, the Bank may seek participations in such loans with other banks. In addition, the Bank invests in certain U.S. government and agency obligations and other investments permitted by applicable law and regulations.

The Bank is subject to examination and comprehensive regulation by the OTS and its deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the extent permitted by law.  The Bank also is a member of the Federal Home Loan Bank ("FHLB") of Boston.  Although the Bank's deposits are primarily insured through the Bank Insurance Fund, deposits at the Brunswick branch, which represent approximately 20% of the Bank's total deposits, are insured through the Savings Association Insurance Fund.

The principal executive offices of Northeast Bancorp and the Bank are located at 232 Center Street, Auburn, Maine, 04210, and their telephone number is (207) 777-6411.

Market Area and Competition



The Bank is headquartered in Auburn, Maine with full service branches in Augusta, Bethel, Harrison, South Paris, Buckfield, Mechanic Falls, Brunswick, Richmond, Lewiston, and Lisbon Falls, Maine. In addition, the Company maintains a facility in Falmouth, Maine from which it accepts loan applications and offers investment services, insurance, and financial planning products and services.  The Company's market area, which covers western, central and mid-coastal regions of the State of Maine, is characterized by a diverse economy that has experienced moderate growth in recent years.

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Market for Services and Competition

Management believes that the Bank's principal markets are: (i) the residential real estate market within its primary market area, (ii) the commercial market and small-to-medium sized businesses within its primary market area; and (iii) the growing consumer loan market, including indirect automobile dealer loans, as well as a wide range of other consumer-oriented financial services and products such as financial planning services, investments, insurance trust services, college loans and other similar products.



Businesses are solicited through the personal efforts of the directors and officers of both Northeast Bancorp and the Bank.  Management believes a locally-based independent bank is often perceived by the local business community as possessing a clearer understanding of local commerce and its needs.  Consequently, Northeast Bancorp believes that it is able to make prudent lending decisions quickly and more equitably than its competitors without compromising asset quality or profitability.



In an effort to attract a broader base of long-term customer relationships and diversity in its banking operations, during the past few years Northeast Bancorp has expanded its focus from primarily seeking residential loan customers to becoming a "one-stop shopping" destination point for our customers' full financial needs.  As a part of this strategy, the Bank has significantly increased the number and type of financial products, loans, and services that it makes available to its customers.



Northeast Bancorp encounters strong competition in its market area in making loans, attracting deposits, and selling its other customer products and services.  The deregulation of the banking industry, the ability to create financial services holding companies to engage in a wide range of financial services other than banking,  and the widespread enactment of state laws which permit multi-bank holding companies, as well as the availability of nationwide interstate banking, has created a highly competitive environment for financial services providers.  In one or more aspects of its business, the Bank competes with other savings banks, commercial banks, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, finance companies, and other financial intermediaries operating in Maine and elsewhere.  Many of the Bank's primary competitors, some of which are affiliated with large bank holding companies or other larger financial-based institutions, have substantially greater resources and have higher lending limits.



The principal factors in competing for deposits are convenient office locations, flexible hours, interest rates and services, while the principal competitive factors relating to loans are interest rates, the range of lending services offered and lending fees. Northeast Bancorp believes that an emphasis on personalized financial planning and advice tailored to individual customer needs, together with the local character of the Bank's business and its "community bank" management philosophy will enhance its ability to compete successfully in its market areas.  Further, Northeast Bancorp also offers a wide range of financial services to its customers, including not only basic loan and deposit services, but also investment services, trust services, and insurance products. We believe that our ability to provide such services and advice, and to provide the financial services and products required by our customers, will be an attractive alternative to consumers in our market area.

Lending Activities

General.

The primary source of income generated by the Bank is from the interest earned from the loan
portfolio. The principal lending activities of the Bank are the origination and purchase of conventional mortgages for the purpose of constructing, financing, or re-financing one-to-four family residential properties and commercial properties.  The majority of the properties securing the mortgage loan portfolio are located in the State of Maine.  However, in an effort to diversify the geographic scope of the real estate collateral held by it, the Bank does purchase in the secondary market residential mortgage loans collateralized by properties in other states.  Interest rates and origination fees charged on loans originated by the Bank are generally competitive with other financial institutions and other mortgage originators in its general market area.

Although residential and commercial real estate lending remains a strong component of the Bank's lending operations, consistent with its business strategy Northeast Bancorp also actively seeks an increased volume of commercial and consumer loans.  Commercial loans are originated for commercial construction, acquisition, remodeling, and general business purposes.  In this regard, the Bank, among other things, also originates loans to small businesses in association with the Small Business Administration.  Consumer loans include those for the purchase of automobiles, boats, home improvements and personal investments.  Northeast Bancorp also pursues quality indirect lending through local automobile dealerships.

Residential Lending.

The major component of the Bank's lending activities consists of the origination of single-family residential mortgage loans collateralized by owner-occupied property, most of which is located in its primary service areas.  The Bank offers a variety of mortgage loan products.  Its originations are generally for adjustable rate mortgages ("ARMs") or fixed rate mortgage loans having a term of 15 years or 30 years amortized on a monthly basis, with principal and interest due each month.  Additionally, the Bank offers second mortgage residential loans.

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The Bank offers one-year ARMs with rate adjustments tied to the weekly average rate of U.S. Treasury securities adjusted to a constant one-year maturity with specified minimum and maximum interest rate adjustments.  The interest rates on a majority of these mortgages are adjusted yearly with limitations on upward adjustments of 2% per adjustment period and 6% over the life of the loan. The Bank also originates fixed-rate mortgage loans on single-family residential real estate. The Bank generally charges a higher interest rate if the property is not owner-occupied.  It has been the Bank's experience that the proportion of fixed-rate and adjustable-rate loan originations depend in large part on the level of interest rates.  As interest rates fall, there is generally a reduced demand for ARMs and, as interest rates rise, there is generally an increased demand for ARMs.

Fixed rate and adjustable rate mortgage loans collateralized by single family residential real estate generally have been originated in amounts of no more than 80% of appraised value. The Bank may, however, lend up to 95% of the value of the property collateralizing the loan, but if such loans are required to be made in excess of 80% of the value of the property, they must be insured by private or federally guaranteed mortgage insurance.  In the case of mortgage loans, the Bank will procure mortgagee's title insurance to protect against defects in its lien on the property that may collateralize the loan.  The Bank in most cases requires title, fire, and extended casualty insurance to be obtained by the borrower, and, where required by applicable regulations, flood insurance.  The Bank maintains its own errors and omissions insurance policy to protect against loss in the event of failure of a mortgagor to pay premiums on fire and other hazard insurance policies.

Although the contractual loan payment period for single-family residential real estate loans is generally for a 15 to 30 year period, such loans often remain outstanding for significantly shorter periods than their contractual terms.  In addition, the Bank charges no penalty for prepayment of mortgage loans.  Mortgage loans originated by the Bank customarily include a "due on sale" clause giving the Bank the right to declare a loan immediately due and payable in the event, among other matters, that the borrower sells or otherwise disposes of the real property subject to a mortgage.  In general, the Bank enforces due on sale clauses.  Borrowers are typically permitted to refinance or prepay loans at their option without penalty.

The Bank generally applies the same underwriting criteria to residential mortgage loans whether purchased or originated.  In its loan purchases, the Bank generally reserves the right to reject particular loans from a loan package being purchased and does reject loans in a package that do not meet its underwriting criteria.  In connection with loan purchases, the Bank receives various representations and warranties from the sellers of the loans regarding the quality and characteristics of the loans.  In determining whether to purchase or originate a loan, the Bank assesses both the borrower's ability to repay the loan and the adequacy of the proposed collateral.  On originations, the Bank obtains appraisals of the property securing the loan.  On purchases, the Bank reviews the appraisal obtained by the loan seller or originator.  On purchases and originations, the Bank reviews information concerning the income, financial condition, employment and credit history of the applicant.

Northeast Bancorp has adopted written, non-discriminatory underwriting standards for use in the underwriting and review of every loan considered for origination or purchase.  These underwriting standards are reviewed and approved annually by its board of directors.  Northeast Bancorp's underwriting standards for fixed rate residential mortgage loans generally conform to standards established by Fannie Mae ("FNMA") and the Federal Home Loan Mortgage Corporation (the "FHLMC").  A loan application is obtained or reviewed by the Bank's underwriters to determine the borrower's ability to repay, and confirmation of the more significant information is obtained through the use of credit reports, financial statements, and employment and other verifications.

The Bank generally uses appraisals to determine the value of collateral for all loans it originates.  When originating a real estate mortgage loan, the Bank obtains a new appraisal of the property from an independent third party to determine the adequacy of the collateral, and such appraisal is reviewed by one of the underwriters. Otherwise, the collateral value is determined by reference to the documentation contained in the original file.

The Bank also requires that a survey be conducted and title insurance be obtained, insuring the priority of its mortgage lien.  Pursuant to its underwriting standards, the Bank generally requires private mortgage insurance policies on newly originated mortgage loans with loan-to-value ratios greater than 80%.  All loans are reviewed by the Bank's underwriters to ensure that its guidelines are met or that waivers are obtained in limited situations where offsetting factors exist.

Commercial Real Estate Lending.

The Bank originates both multi-family and commercial real estate loans.  Multi-family and commercial property loans generally are made in amounts up to 80% of the lesser of the appraised value or purchase price of the property.  Although the largest multi-family or commercial loan in Northeast Bancorp's portfolio at June 30, 2001 was approximately
$1.9 million, the majority of such loans have balances under $500,000.

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The Bank's permanent commercial real estate loans are secured by improved property such as office buildings, medical facilities, retail centers, warehouses, apartment buildings, condominiums, and other types of buildings, which are located in its primary market area.  Multi-family and commercial real estate loans generally have fixed or variable interest rates indexed to FHLB rates with fixed notes having terms of 3 - 5 years.  Mortgage loan maturities have terms up to 15 years.

Loans secured by multi-family and commercial real estate generally are larger and involve greater risks than one-to-four family residential mortgage loans.  Because payments on loans secured by multi-family and commercial properties often are dependent on successful operation or management of the properties, repayment of such loans may be subject to a greater extent to adverse conditions in the real estate market or the economy.  Northeast Bancorp seeks to minimize these risks in a variety of ways, including limiting the size of its multi-family and commercial real estate loans and generally restricting such loans to its primary market area.  In determining whether to originate multi-family or commercial real estate loans, Northeast Bancorp also considers such factors as the financial condition of the borrower and the debt service coverage of the property.  Northeast Bancorp intends to continue to make multi-family and commercial real estate loans as the market demands and economic conditions permit.

Commercial Lending.

The Bank offers a variety of commercial loan services including term loans, lines of credit, equipment, and receivables financing.  A broad range of short-to-medium term commercial loans, both collateralized and uncollateralized, are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisitions of real estate and improvements), and the purchase of equipment and machinery.  Equipment loans are typically originated on both a one year line of credit basis and on a fixed-term basis ranging from one to five years.  The purpose of a particular loan generally determines its structure.

The Bank's commercial loans primarily are underwritten in Northeast Bancorp's market areas on the basis of the borrowers' ability to service such debt from income.  As a general practice, the Bank takes as collateral a security interest in any available real estate, equipment, or other chattel, although such loans may be made on an uncollateralized basis.  Collateralized working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets.

Unlike residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from the borrower's wages and other income and which are collateralized by real property whose value tends to be easily ascertainable, commercial loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of their business and generally are collateralized by business assets, such as accounts receivable, equipment, and inventory.  As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself.  Further, the collateral underlying the loans, which may depreciate over time, usually cannot be appraised with as much precision as residential real estate, and may fluctuate in value based on the success of the business.

Consumer Loans.

Consumer loans made by the Bank have included automobiles, recreation vehicles, boats, second mortgages, home improvements, home equity lines of credit, personal (collateralized and uncollateralized), and deposit account collateralized loans. The Bank's consumer loan portfolio consists primarily of loans to individuals for various consumer purposes, but includes some business purpose loans which are payable on an installment basis.  A majority of these loans are for terms of less than 60 months and although generally collateralized by liens on various personal assets of the borrower, they may be originated without collateral.  Consumer loans are made at fixed and variable interest rates and may be made based on up to a 5 year amortization schedule.

Consumer loans are attractive to Northeast Bancorp because they typically have a shorter term and carry higher interest rates than that charged on other types of loans.  Consumer loans, however, do pose additional risks of collectability when compared to traditional types of loans granted by commercial banks such as residential mortgage loans.  In many instances, the Bank is required to rely on the borrower's ability to repay since the collateral may be of reduced value at the time of collection.  Accordingly, the initial determination of the borrower's ability to repay is of primary importance in the underwriting of consumer loans.

In 1998, the Bank entered the indirect automobile lending market.  Indirect automobile lending consists of automobile loans made by the Bank through the purchase of contracts from automobile dealers.  Generally, the Bank will obtain fixed-rate automobile loans indirectly through various automobile dealerships located in its market areas.  The indirect origination of consumer loan products
occasionally  requires funding of dealer reserves.  These reserves are maintained for the benefit of the dealer who originated such loans, but such funding is subject to performance of certain loan conditions.  The dealer is generally responsible to the Bank for the amount of the reserve only if a loan giving rise to the reserve becomes delinquent or the loan has been prepaid.

Construction Loans.

The Bank originates residential construction loans to finance the construction of single-family dwellings.  Most of the residential construction loans are made to individuals who intend to erect owner-occupied housing on a purchased parcel of real estate. The Bank construction loans to individuals typically range in size from $100,000 to $200,000.  Construction loans also are made to contractors to erect single-family dwellings for resale.  Construction loans are generally offered on the same basis as other residential real estate loans, except that a larger percentage down payment is typically required.

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The Bank also may make residential construction loans to real estate developers for the acquisition, development, and construction of residential subdivisions.  The Bank has limited involvement with this type of loan.  Such loans may involve additional risk attributable to the fact that funds will be advanced to fund the project under construction, which is of uncertain value prior to completion and because it is relatively difficult to evaluate accurately the total amount of funds required to complete a project.

The Bank finances the construction of individual, owner-occupied houses on the basis of written underwriting and construction loan management guidelines.  Construction loans are structured either to be converted to permanent loans with the Bank at the end of the construction phase or to be paid off upon receiving financing from another financial institution.  Construction loans on residential properties are generally made in amounts up to 80% of appraised value.  Construction loans to developers generally have terms of up to 12 months.  Loan proceeds on builders' projects are disbursed in increments as construction progresses and as inspections warrant.  The maximum loan amounts for construction loans are based on the lesser of the current appraisal value or the purchase price for the property.

Construction loans are generally considered to involve a higher degree of risk than long-term financing collateralized by improved, occupied real estate.  A lender's risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at the completion of construction and estimated cost (including interest) of construction.  If the estimate of construction cost proves to be inaccurate, the lender could be required to advance funds beyond the amount originally committed in order to permit completion of the project.  If the estimate of anticipated value proves to be inaccurate, the lender may have collateral which has value insufficient to assure full repayment.

Loans collateralized by subdivisions and multi-family residential real estate generally are larger than loans collateralized by single-family, owner-occupied housing and also generally involve a greater degree of risk.  Payments on these loans depend to a large degree on the results of operations and management of the properties, and repayment of such loans may be more subject to adverse conditions in the real estate market or the economy.

Loan Solicitation and Processing

Loan originations are derived from a number of sources.  Residential loan originations can be attributed to real estate broker referrals, mortgage loan brokers, direct solicitation by the Bank's loan officers, present savers and borrowers, builders, attorneys, walk-in customers and, in some instances, other lenders.  Loan applications, whether originated through the Bank or through mortgage brokers, are underwritten and closed based on the same standards, which generally meet FNMA underwriting guidelines.  Consumer and commercial real estate loan originations emanate from many of the same sources.  The legal lending limit of the Bank, as of June 30, 2001, was approximately $4.6 million.

The loan underwriting procedures followed by the Bank conform to regulatory specifications and are designed to assess the borrower's ability to make principal and interest payments and the value of any assets or property serving as collateral for the loan.  Generally, as part of the process, a bank loan officer meets with each applicant to obtain the appropriate employment and financial information as well as any other required loan information.  Upon receipt of the borrower's completed loan application, the Bank then obtains reports with respect to the borrower's credit record, and orders and reviews an appraisal of any collateral for the loan (prepared for the Bank through an independent appraiser).  The loan information supplied by the borrower is independently verified.  Loan officers or other loan production personnel in a position to directly benefit monetarily through loan solicitation fees from individual loan transactions do not have approval authority.  Once a loan application has been completed and all information has been obtained and verified, the loan request is submitted to a final review process.  As part of the loan approval process, all uncollateralized loans of $100,000 or more and all collateralized loans of $500,000 or more require pre-approval by the Bank's loan committee, which is currently comprised of five directors of the Bank and meets on such basis as is deemed necessary to promptly service loan demand.  All loans of $2,000,000 or more require pre-approval by the Bank's Board of Directors, and borrowers requesting amounts which will result in a loan relationship of $2,000,000 or more also must be approved by the board of directors of the Bank.

Loan applicants are notified promptly of the decision of the Bank by telephone and a letter.  If the loan is approved, the commitment letter specifies the terms and conditions of the proposed loan including the amount of the loan, interest rate, amortization term, a brief description of the required collateral, and required insurance coverage.  Prior to closing any long-term loan, the borrower must provide proof of fire and casualty insurance on the property serving as collateral which insurance must be maintained during the full term of the loan.  Title insurance is required on loans collateralized by real property.  Interest rates on committed loans are normally locked in at the time of application for a 30 to 45 day period.  The commitment issued at the time of approval will be for the time remaining, based on the application date.

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Subsidiaries

On October 4, 1999, the Company formed NBN Capital Trust, a Delaware statutory trust and a wholly-owned subsidiary of the Company (the "Trust"), for the purpose of (i) issuing and selling its common securities to the company and its trust preferred securities to the public, and (ii) using the proceeds therefrom to purchase 9.60% Junior Subordinated Deferrable Interest Debentures ("Junior Subordinated Debentures") from the Company. The Junior Subordinated Debentures are  the sole asset of the Trust.  In the quarter ended December 31, 1999, the Trust sold its trust-preferred securities to the public and its common securities to the Company. The Trust used the proceeds to purchase the Junior Subordinated Debentures issued by the Company. The Company pays interest on the Junior Subordinated Debentures at a rate of 9.60% to the Trust at the end of each quarter, which is equal to the dividend rate payable to the holders of the Trust's preferred securities. The cost of the issuance of the preferred securities is treated as a deferred asset and will be amortized over the life of the securities. Following the offer and sale of the Trust's securities, the Company owned and currently holds all of the outstanding common securities of the Trust, its only voting securities, and as a result the Trust is a subsidiary of the Company.

The Company acquired a wholly-owned subsidiary, ASI Data Services, Inc. (ASI) through two stock purchases during 1993-1994. ASI initially provided data processing services to the Company and its subsidiaries. The Company 's board transferred the assets and operations of ASI to the Bank in 1996 and ASI now is an inactive corporate subsidiary.

Northeast Financial Services Corporation, a Maine Corporation, and a wholly-owned subsidiary of the Bank was originally formed in 1982 as a vehicle through which the Bank could participate in certain real estate development projects. At June 30, 2001, investment in and loans to its subsidiary constituted 0.18% of the Company's total assets.  Generally, any proposed development project will be examined for its profit potential and its ability to enhance the communities served by the Bank. At the present time, there are no definitive plans for additional real estate development projects. Northeast Financial also supports the Bank's non-banking financial services through its relationship with Commonwealth Financial Services, Inc., ("Commonwealth"), a fully licensed New York securities firm, and a variety of insurance agencies, including Kendall Insurance Agency, which allows the Bank to deliver insurance products to its customers, and for which the Bank receives a flat fee from the various relationships for referrals. Northeast Financial has not invested in any assets in its business relationship with Commonwealth.

Employees

As of June 30, 2001, the Company and the Bank together employed 129 full-time and 26 part-time employees.  The Company's employees are not represented by any collective bargaining unit.  The Company believes that its relations with its employees are good.

SUPERVISION AND REGULATION

General

Northeast Bancorp is a savings and loan holding company that is regulated and subject to examination by the OTS.  The Bank is a federally chartered savings bank and also is subject to the regulations, examinations, and reporting requirements of the OTS.  The Bank is a member of the Federal Home Loan Bank of Boston and the Bank's deposits are insured by the FDIC. As the administrator of the deposit insurance fund, the FDIC has certain regulatory and full examination authority over OTS regulated savings associations.

The Bank also is subject to regulation by the Board of Governors of the Federal Reserve System governing reserves to be maintained against deposits and certain other matters.  The Bank's relationship with its depositors and borrowers also is regulated to a great extent by both federal and state laws.  Any change in applicable laws or regulations, or a change in the ways these laws and regulations are interpreted by regulatory agencies or courts, may have a material adverse impact on the business of Northeast Bancorp and the Bank.

The following information is a summary of some of the laws and regulations applicable to Northeast Bancorp and the Bank.  The applicable statutes and regulations are summarized and do not purport to be complete, and are qualified in their entirety by reference to the particular statutes and regulations.

Impact of Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act ("Gramm-Leach") was signed into law on November 12, 1999.  This legislation is intended to modernize the financial services industry.  This legislation, among other things, establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies and securities firms.  Generally, the new law:

- repeals the historical restrictions and eliminates many federal and
  state law barriers to affiliations among banks and securities firms, insurance companies and other financial service providers,
- provides a uniform framework for the activities of banks, savings institutions and their holding companies,
- broadens the activities that may be conducted by subsidiaries of national banks and state banks,
- provides an enhanced framework for protecting the privacy of information gathered by financial institutions regarding their customers and consumers,
- adopts a number of provisions related to the capitalization, membership, corporate governance and other measures designed to modernize the FHLB System,
- requires public disclosure of certain agreements relating to funds expended in connection with an institution's compliance with the CRA, and
- addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions, including the functional regulation of bank securities and insurance activities.

Gramm-Leach also: restricts the power of new unitary savings and loan association holding companies.  Unitary savings and loan holding companies that are "grandfathered," (i.e., unitary savings and loan holding companies in existence or with applications filed with the OTS on or before May 4, 1999), such as the Company, retain their authority under the prior law.  All other unitary savings and loan holding companies are limited to financially related activities permissible for bank holding companies, as defined under Gramm-Leach.  Gramm-Leach also prohibits non-financial companies from acquiring grandfathered unitary saving sand loan association holding companies.

Gramm-Leach also requires financial institutions to disclose,
for ATM machines, any non-customer fees and to disclose to their customers upon the issuance of any ATM card any fees that may be imposed by the institutions on ATM users.  For older ATMs, financial institutions will have until December 31, 2004 to provide such notices.

Bank holding companies are permitted to engage in a wider variety of financial activities than permitted under the prior law, particularly with respect to insurance and securities activities.  Gramm-Leach establishes state regulators as the appropriate functional regulators for insurance activities but provides that state regulators cannot "prevent or significantly interfere" with affiliations between banks and insurance firms.  In addition, in a change from the prior law bank holding companies are in a position to be owned, controlled or acquired by any company engaged in financially related activities.

The Company does not believe that the law will have a material adverse affect upon its operations in the near term.  However, to the extent the new law permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation.  This type of consolidation could result in a growing number of larger financial institutions that offer a wider variety of financial services than the Bank currently offers and that can more aggressively compete in the markets we currently serve.

Federal Regulation of Savings and Loan Holding Companies

General Limitations.

Northeast Bancorp is a unitary savings and loan holding company within the meaning of the Home Owners' Loan Act of 1933 ("HOLA") and is registered with the OTS.  As a result, the Company is subject to the regulations, examinations, supervision and reporting requirements of the OTS.  Further, the OTS has enforcement authority over Northeast Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.

As a unitary savings and loan holding company, Northeast Bancorp generally is not restricted under existing laws as to the types of business activities in which it may engage, provided that the Bank continues to be a qualified thrift lender.  See "Supervision and Regulation Federal Regulations of Savings Associations Qualified Thrift Lender Test."  Nevertheless, various activities conducted by savings and loan holding companies require OTS authorization.

The HOLA prohibits a savings and loan holding company from directly or indirectly acquiring control (including through an acquisition by merger, consolidation or purchase of assets) of any savings association, or any other savings and loan holding company, without prior OTS approval.  In considering whether to grant approval for any such transaction, the OTS will take into consideration a number of factors, including:

- competitive effects of the transaction;









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Further, a savings and loan holding company may not acquire more than 5% of the voting shares of any savings association unless by merger, consolidation or purchase of assets, each of which requires prior OTS approval.  In addition, under other provisions of HOLA, a savings and loan holding company may acquire up to 15% of the voting shares of certain undercapitalized savings associations.

Multiple Savings and Loan Holding Companies.

At the present time, Northeast Bancorp is a unitary savings and loan holding company. Upon acquisition by Northeast Bancorp of a separate subsidiary savings association, Northeast Bancorp would become a multiple savings and loan holding company and would be subject to extensive limitations on the types of business activities in which it could engage.  A holding company that acquires another institution and maintains it as a separate subsidiary or whose sole subsidiary fails to meet the qualified thrift lender test will become subject to the activities limitations applicable to multiple savings bank holding companies.  In general, a multiple savings bank holding company (or subsidiary thereof that is not an insured institution) may not commence, or continue for more than a limited period of time after becoming a multiple savings bank holding company (or a subsidiary thereof), any business activity other than:

- furnishing or performing management services for a subsidiary insured institution;













These restrictions do not apply to a multiple savings bank holding company if (a) all, or all but one, of its insured institution subsidiaries were acquired in emergency thrift acquisitions or assisted acquisitions and (b) all of its insured institution subsidiaries are qualified thrift lenders.

The OTS is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:  (a) the approval of interstate supervisory acquisitions by savings and loan holding companies, and (b) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions.  The states vary with regard to the extent to which they permit interstate savings and loan holding company acquisitions.  Northeast Bancorp currently is not a party to any discussions with any acquisition targets, which would make Northeast Bancorp a multiple savings and loan holding company.

Safety and Soundness.

Under federal law, the Director of the OTS is authorized to take action when it determines that there is reasonable cause to believe that the continuation by a savings bank holding company of any particular activity constitutes a serious risk to the financial safety, soundness or stability of a savings bank holding company's subsidiary savings institution.  The Director of the OTS has oversight authority for all holding company affiliates, not just the insured institution.  Specifically, the Director of the OTS may, as necessary:

- limit the payment of dividends by the savings institution to its parent holding company;





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Federal Regulation of Savings Institutions

Business Activities.

The activities of savings institutions are governed by the HOLA and, in certain respects, the Federal Deposit Insurance Act and the rules and regulations issued by the OTS and the FDIC pursuant to these acts.  These laws and regulations delineate the nature and extent of the activities in which savings associations may engage.

Capital Requirements.

The OTS capital regulations require federally chartered savings associations to satisfy three different capital requirements:  a leverage (core capital) limit, a tangible capital requirement, and a risk-based capital requirement.

The leverage limit requires that a federally chartered savings association maintain core capital of at least  4% of its adjusted total assets.
However, OTS regulations also provide for a minimum capital leverage ratio of 3% for depository institutions that have been assigned the highest composite rating of 1 under the Uniform Financial Institutions Rating System.   For purposes of this requirement, total assets are adjusted to exclude intangible assets and investments in certain subsidiaries, and to include the assets of certain other subsidiaries, certain intangibles arising from prior period supervisory transactions, and permissible mortgage servicing rights.  Core capital includes common shareholders' equity and retained earnings, non-cumulative perpetual preferred stock and related surplus and minority interests in consolidated subsidiaries, minus intangibles, plus certain mortgage servicing rights and certain goodwill arising from prior regulatory accounting practices.

Certain mortgage servicing rights are not deducted in computing core and tangible capital.  Prior to August 10, 1998, generally, the lower of 90% of the fair market value of readily marketable mortgage servicing rights, or the current unamortized book value as determined under GAAP could be included in core and tangible capital up to a maximum of 50% of core capital computed before the deduction of any disallowed qualifying intangible assets.  Effective August 10, 1998, the OTS increased the maximum amount of mortgage servicing rights that are includable in regulatory capital from 50% to 100% of core capital.

In determining core capital, all investments in and loans to subsidiaries engaged in activities not permissible for national banks, which are generally more limited than activities permissible for savings associations and their subsidiaries, must be deducted.  Certain exceptions are provided, including exceptions for mortgage banking subsidiaries and subsidiaries engaged in agency activities for customers (unless determined otherwise by the FDIC on safety and soundness grounds).  Generally, all subsidiaries engaged in activities permissible for national banks are required to be consolidated for purposes of calculating capital compliance by the parent savings association.  In assessing an institution's capital adequacy, the OTS takes into consideration not only the above numeric factors, but also qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where necessary.

The tangible capital requirement mandates that a savings association maintain tangible capital of at least 1.5% of adjusted total assets, provided, however, that savings institutions may include up to 90% of the fair market value of readily marketable purchased mortgage servicing rights included in core capital as tangible capital (subject to certain conditions, including any limitations imposed by the FDIC on the maximum percentage of the tangible capital requirement that may be satisfied with such servicing rights).  For purposes of the tangible capital requirement, adjusted total assets are calculated on the same basis as the leverage limit. As of June 30, 2001, the Bank was in compliance with these requirements.  The balances maintain the same manner as core capital, except that all intangible assets must be deducted.

The risk-based requirement promulgated by the OTS pursuant to the HOLA, tracks the standard applicable to national banks, except that the OTS may determine to reflect interest rate and other risks not specifically included in the national bank standard.  However, such deviations from the national bank standard may not result in a materially lower risk-based requirement for savings associations than for national banks.  The risk-based standard adopted by the OTS is similar to the Office of the Comptroller of the Currency standard for national banks.  The risk-based standards of the OTS require maintenance of core capital equal to at least 4% of risk-weighted assets and total capital equal to at least 8% of risk-weighted assets. Total capital includes core capital plus supplementary capital (to the extent it does not exceed core capital).  Supplementary capital includes (a) cumulative perpetual preferred stock; (b) mutual capital certificates, income capital certificates and net worth certificates; (c) non-withdrawable accounts and pledged deposits to the extent not included in core capital; (d) perpetual and mandatory convertible subordinated debt and maturing capital instruments meeting specified requirements; and (e) general loan and lease loss allowances, up to a maximum of 1.25% of risk-weighted assets.  See Item 8. "Financial Statements and Supplementary Data - Footnote
9."

In determining the amount of risk-weighted assets, savings associations must assign balance sheet assets to one of four risk-weight categories, reflecting the relative credit risk inherent in the asset.  Off-balance-sheet items are assigned to one of the four risk-weight categories after a credit conversion factor is applied.

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The OTS adopted regulations intended to revise their 8% risk-based capital standards discussed above to take into account interest rate risk, concentration of risk, and the risk of non-traditional activities. Only savings associations with more than a normal level of interest rate risk are subject to these requirements.  Specifically, savings associations with interest rate risk exposure in excess of 2% (measured in accordance with an OTS Model and Guidelines) must deduct an interest rate risk component from total capital prior to calculating their risk-based capital ratios.  The interest rate risk component is calculated as one-half of the difference between the institution's measured interest rate risk and 2%, multiplied by the market value of the institution's assets.  This deduction will have the effect of requiring savings associations with interest rate risk exposure of more than 2% to hold more capital than those with less than 2% exposure.  On August 21, 1995, the OTS adopted and approved an appeal process, but delayed the interest rate risk capital deduction indefinitely.

Loans to One Borrower.

Under the HOLA, savings institutions are generally subject to the national bank limits on loans to a single or related group of borrowers.  Generally, a savings association may not make a loan or extend credit to a single borrower or group of related borrowers, on an unsecured basis, in an amount  greater than 15% of its unimpaired capital and unimpaired surplus.  An additional amount may be loaned  not in excess of  10% of the savings association's unimpaired capital and unimpaired surplus,  if the loan is secured by readily marketable collateral, which is defined to include certain financial instruments and bullion, but generally does not include real estate.  The OTS by regulation has amended the loans to one borrower rule to permit savings associations meeting certain requirements to extend loans to one borrower in additional amounts under circumstances limited essentially to loans to develop or complete residential housing units.  The OTS also may impose more stringent limits on an association's loans to one borrower, if it determines that such limits are necessary to protect the safety and soundness of the institution.

Qualified Thrift Lender Test.

Under HOLA,  all savings associations, including the Bank, are required to meet a qualified thrift lender ("QTL") test for, among other things, future eligibility for FHLB advances.  A savings association that fails to satisfy the QTL test is subject to substantial restrictions on its activities and to other significant penalties.  A savings association is a QTL if it meets either (a) has invested at least 65% of its "portfolio assets" in qualified thrift investments and maintains this level of "qualified thrift investments" on a monthly average basis in the nine of every twelve months, or (b) the test for being a domestic building and loan association, as that term is defined in Section 7701(a) (19) of the Internal Revenue Code of 1986, as amended.

The term "portfolio assets" under the QTL test is defined as savings institutions total assets less the sum of:  (i) certain intangibles, including goodwill and credit card rights, (ii) properties used to conduct business, and (iii) liquid assets (up to 20% total assets).  The following asset may be included as "qualified thrift investments" without limit:  (1) domestic residential housing or manufactured housing loans, (2) home equity loans and mortgage backed securities backed by residential housing and manufactured housing loans, (3) FHLB stock, (4) certain obligations of the FDIC and certain other related entities, and (5) education, small business, and credit card loans.   In addition, the following assets, which may be included in the aggregate amount of up to 20% of portfolio assets, also constitute qualified thrift investments: (i) 50% of originated residential mortgage loans sold within 90 days of origination, (ii) investments in debt or equity of service corporations that derive 80% of their gross revenues from
housing-related activities, (iii) 200% of certain loans to, and investment in, low cost one-to-four family housing, (iv) 200% of loans for residential real property, churches, nursing homes, schools, and small businesses in areas where the credit needs of low-and moderate- income families are not met, (v) other loans for churches, schools, nursing homes  and hospitals, and (vi) personal, family, or household loans (other than education, small business, or credit card loans).   At June 30, 2001, the Bank maintained approximately
97.5% of its portfolio assets in qualified thrift institutions and satisfied the QTL test in each of the previous 12 months.

Any savings association that fails to meet the QTL test must convert to a national bank charter, unless it requalifies.  A savings association may requalify the next time it meets the requirement in nine of the preceding twelve months, but it may requalify only one time.  If an institution that fails the QTL test and has not yet requalified or converted to a national bank charter, the savings institution is immediately ineligible to receive any new FHLB advances, and is subject to national bank limits for payment of dividends.  Further, it may not establish a branch office at any location at which a national bank located in the savings association's state could not establish a branch.  In addition, within one year of the loss of QTL status, the holding company of the savings association that does not convert to a bank charter must register as a bank holding company and will be subject to all statutes applicable to bank holding companies.

These penalties , however,  do not apply to a federal savings association, such as the Bank, which existed as a federal savings association on August 9, 1989 but was chartered before October 15, 1982 as a savings bank under state law.

Limitation on Capital Distributions.

OTS regulations impose limitations upon all capital distributions by savings institutions, including:

- cash dividends;







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OTS rules establish three tiers of institutions, which are based primarily on an institution's capital level.
 Under OTS regulations, certain savings associations are permitted to pay
capital distributions during a calendar year that do not exceed the
association's net capital income for that year plus its retained net income for
the prior two years without notice to, or the approval of the OTS. However, a
savings association subsidiary of a savings and loan holding company, such as
the Bank, must file a notice unless the specific capital distribution requires
an application. In addition, the OTS can prohibit a proposed capital
distribution, otherwise permissible under the regulation, if the OTS has
determined that the association is in need of more than normal supervision if it
determined that the proposed distribution by an association would constitute an
unsafe or unsound practice. Furthermore, under the OTS prompt corrective action
regulations, the Bank would be prohibited from making any capital distribution
if, after the distribution, the Bank failed to meet its minimum capital
requirements as described above. See "Supervision and Regulation - Federal
Regulation of Savings Institutions - Capital Requirements."



Liquidity.

During fiscal 2001, Congress eliminated the statutory liquidity requirement which required federally chartered savings associations to maintain a minimum amount of liquid assets between 4% and 10%, depending on economic conditions and savings flows of all savings associations.  The OTS recently conformed its implementing regulations to reflect this statutory change.  Under the revised regulations, which became effective March 15, 2001, the Bank is required to maintain sufficient liquidity to ensure safe and sound operations.

Community Reinvestment Act and Fair Lending Laws.

Savings associations have a responsibility under the Community Reinvestment Act ("CRA") and related regulations of the OTS to help meet the credit needs of their communities, including low- and moderate-income neighborhoods.  In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA.   The CRA requires the OTS, in connection with its examination of a savings association, to assess the association's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such association.  The CRA regulations establish an assessment system that bases an association's rating on its actual performance in meeting community needs.  In particular, the assessment system focuses on three tests: (a) a lending test, to evaluate the institution's record of making loans in its assessment areas, (b) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals or businesses, and (c) a service test, to evaluate the institution's delivery of services through its branches, ATMs, and other offices.  The CRA also requires all institutions to make public disclosure of their CRA rating.  In addition, in May 2000, the OTS proposed regulations implementing the requirements under Gramm-Leach that insured depository institutions publicly disclose certain agreements that are in fulfillment of the CRA.  The Bank has no such agreement in place at this time.

A savings institution's failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities.  Failure of a savings association to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OTS, as well as other federal regulatory agencies and the Department of Justice.  The Bank received a "satisfactory" CRA  rating under the current regulations in its most recent federal examination by the OTS.

The Bank Secrecy Act and Money Laundering Laws.

The Bank Secrecy Act was enacted by Congress in 1970.  This act requires every financial institution within the United States to file a Currency Transaction Report with the Internal Revenue Service for each transaction in currency of more than $10,000 not exempted by the United States Treasury Department.

The Money Laundering Prosecution Improvements Act requires financial institutions, typically banks, to verify and record the identity of the purchaser upon the issuance or sale of bank checks or drafts, cashier's checks, traveler's checks, or money orders involving $3,000 or more in cash.  Institutions also must verify and record the identity of the originator and beneficiary of certain funds transfers.

Branching.

Subject to certain statutory restrictions in the HOLA and the Federal Deposit Insurance Act, the Bank is authorized to branch on a nationwide basis.  Branching by savings associations also is subject to other regulatory requirements, including compliance with the CRA and its implementing regulations.

Page 14

Transactions with Related Parties.

The Bank's authority to engage in transactions with related parties or "affiliates" (i.e., any company that controls or is under common control with the Bank, including Northeast Bancorp and any non-savings institution subsidiaries) or to make loans to certain insiders of the Bank or Northeast Bancorp, is limited by Sections 23A and 23B of the Federal Reserve Act.  OTS regulations prohibit a savings association  (a) from lending to any of its affiliates that is engaged in activities that are not permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, and (b) from purchasing the securities of any affiliate other than a subsidiary.  Section 23A limits the aggregate amount of transactions with any individual affiliate to 10% of the capital and surplus of the savings institution and also limits the aggregate amount of transactions with all affiliates to 20% of the savings institution's capital and surplus.  Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates is generally prohibited. Section 23B provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies.

Loans to Officers, Directors, and Principal Stockholders.

The Bank's authority to extend credit to any of the following persons currently is governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board promulgated thereunder :

- an executive officer of a savings association;









Among other things, these provisions require that extensions of credit to such insiders be made on terms substantially the same as those prevailing on comparable transactions made to unaffiliated individuals, and that such extensions of credit do not involve more than the normal risk of repayment or present other unfavorable features.  Certain extensions of credit to such persons must first be approved in advance by a disinterested majority of a savings association's entire board of directors.  Section 22(h) of the Federal Reserve Act prohibits loans to any such individuals where the aggregate amount exceeds an amount equal to 15% of an insured institution's unimpaired capital and surplus, plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all such extensions of credit outstanding to all such persons would exceed the Bank's unimpaired capital and unimpaired surplus.  Section 22(g) establishes additional limitations on loans to executive officers.

Changes in Directors and Senior Executive Officers.

Section 32 of the Federal Deposit Insurance Act, as amended by the 1996 Act, requires a depository institution or holding company of a depository institution to give 30 days prior written notice to its primary federal regulator of any proposed appointment of a director or senior executive officer if the institution is not in compliance with the minimum capital requirements or otherwise is in a troubled condition. The regulator then has the opportunity to disapprove the proposed appointment.

Permissible Loans and Investments.

Federally chartered savings banks, such as the Bank, are authorized to originate, invest in, sell, purchase, service, participate, and otherwise deal in:  (1) loans made on the security of residential and nonresidential real estate, (2) commercial loans (up to 20% of assets, the last 10% of which must be small business loans), (3) consumer loans (subject to certain percentage of asset limitations), and (4) credit card loans.  The lending authority of federally chartered associations is subject to various OTS requirements, including, as applicable, requirements governing loan-to-value ratio, percentage-of-assets limits, and loans to one borrower limits.  In September 1996, the OTS substantially revised its investment and lending regulations eliminating many of their specific requirements in favor of a more general standard of safety and soundness.

Page 15

Federally chartered savings associations may invest, without limitation, in the following assets:  (1) obligations of the United States government or certain agencies thereof; (2) stock issued or loans made by FHLB or the FNMA; (3) obligations issued or guaranteed by the FNMA, the Student Loan Marketing Association, the GNMA, or any agency of the United States Government; (4) certain mortgages, obligations, or other securities that have been sold by the FHLMC; (5) stock issued by a national housing partnership corporation; (6) demand, time, or savings deposits, shares, or accounts of any insured depository institution; (7) certain "liquidity" investments approved by the OTS to meet liquidity requirements; (8) shares of registered investment companies, the portfolios of which are limited to investments that a federal association is otherwise authorized to make; (9) certain MBS; (10) general obligations of any state of the United States or any political subdivision or municipality thereof, provided that not more than 10% of a savings association's capital may be invested in the general obligations of any one issuer; (11) loans secured by residential real property; (12) credit card loans; and (13) educational loans.  Federally chartered savings associations may invest in secured or unsecured loans for commercial, corporate, business, or agricultural purposes, up to 20% of assets, provided that the last 10% is invested in small business loans.  The HOLA also limits a federal savings association's aggregate nonresidential real property loans to 400% of the savings association's capital as determined pursuant to the OTS's capital requirements.  See "Supervision and Regulation Federal Regulation of Savings Associations Capital Requirements." The OTS may allow a savings association to exceed the aggregate limitation, if the OTS determines that exceeding the limitation would pose no significant risk to the safe and sound operations of the association and would be consistent with prudent operating practices.  Federally chartered savings associations also are authorized by the HOLA to make investments in consumer loans, business development credit corporations, certain commercial paper and corporate debt securities, service corporations, and small business investment companies.  All of these types of investments are subject to percentage-of-assets and various other limitations.

Service Corporations.

The HOLA authorizes federally chartered savings associations, such as the Bank, to invest in the capital stock, obligations, or other securities of service corporations.  The HOLA authorizes a savings association to invest up to a total of 3% of its assets in service corporations.  The last 1% of the 3% statutory investment limit applicable to service corporations must be primarily invested in community development investments drawn from a broad list of permissible investments that include, among other things:  (1) government guaranteed loans, (2) loans for investment in small businesses, (3) investments in revitalization, and rehabilitation projects, and (4) investments in low- and moderate-income housing developments.

Service corporations are authorized to engage in a variety of pre-approved activities, some of which (e.g., securities brokerage and real estate development) are ineligible activities for the parent savings association.  The OTS regulations implementing the service corporation authority contained in the HOLA also provide that activities reasonably related to the activities of a federally chartered savings association may be approved on a case-by-case basis by the Director of the OTS.

Operating Subsidiaries.

All federal savings associations are authorized to establish or acquire one or more operating subsidiaries.  Operating subsidiaries are subject to examination and supervision by the OTS to the same extent as the parent thrift.  An operating subsidiary is a corporation that meets all of the following requirements: (1) it engages only in activities that a federal savings association is permitted to engage in directly; (2) the parent savings association owns, directly or indirectly, more than 50% of the subsidiary's voting stock; and (3) no person or entity other than the parent thrift may exercise effective operating control over the subsidiary.  While a savings association's investment in its service corporations is generally limited to an amount that does not exceed 3% of the parent savings association's total assets, OTS regulations do not limit the amount that a parent savings association may invest in its operating subsidiaries.  Operating subsidiaries may be incorporated and operated in any geographical location where its parent may operate.  An operating subsidiary that is a depository institution may accept deposits in any location, provided that the subsidiary has federal deposit insurance.

Enforcement.

Under the Federal Deposit Insurance Act, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring enforcement action against all "institution-affiliation parties," including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in any violation of applicable law or regulation or breach of fiduciary duty or certain other wrongful actions that cause or is likely to have more
than a minimal loss or other significant  adverse effect on an insured institution.  Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institutions, receivership, conservatorship or the termination of deposit insurance.  Civil penalties cover a wide range of violations and actions, and range up to $5,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day.  Under the act, the FDIC has the authority to recommend to the Director of OTS that enforcement action be taken with respect to a particular savings institution.  If action is not taken by the Director, the FDIC has authority to take such actions under certain circumstances.

Page 16

Standards for Safety and Soundness.

The Federal Deposit Insurance Act, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement of 1994, the OTS and the bank regulatory agencies have adopted a set of general  standards relating to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, and compensation, fees, and benefits and such other operational and managerial standards as the agency deems appropriate.  The federal banking agencies adopted a final regulation and Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under the act.  These guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.  Further, the guidelines address (a) internal controls and information systems; (b) internal audit system; (c) credit underwriting; (d) loan documentation; (e) interest rate risk exposure; (f) asset growth; and (g) compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by these guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act.  The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.

Insurance Activities.

The Bank generally is permitted to engage in certain insurance activities through its subsidiaries.  In August 2000, the OTS and the other federal banking agencies proposed regulations pursuant to Gramm-Leach which would prohibit depository institutions from conditioning the extension of credit to individuals upon either the purchase of an insurance product or annuity or an agreement that the consumer not purchase an insurance product or annuity from an entity that is not affiliated with the depository institution.  The proposed regulations also would require prior disclosure of this prohibition to potential insurance product or annuity customers.  We do not believe that these regulations, if adopted as proposed, would have a material impact on our operations.

Prompt Corrective Regulatory Action.

Under the OTS Prompt Corrective Action regulations, the OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's degree of capitalization.  Generally, a savings institution that has total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0% (3.0% if the association receives the highest rating on the Uniform Financial Institutions Rating System) is considered to be undercapitalized.  A savings institution that has total risk-based capital of less than 6.0%, a Tier 1 core risk-based capital ratio of less than 4.0% or a leverage ratio that is less than 4.0% (3.0% if the association receives the highest rating on the Uniform Financial Institutions Rating System) is considered to be "significantly undercapitalized" and a savings institution that has a tangible capital to assets ratio equal to or less than 1.5% is deemed to be "critically undercapitalized."

Subject to a narrow exception, the OTS is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the

Insurance of Deposit Accounts and Assessments.

The Bank's deposits are insured by the FDIC through the bank insurance fund ("BIF") and the savings association insurance fund ("SAIF") for up to $100,000 for each insured account holder, the maximum amount currently permitted by law.  The FDIC establishes premium assessment rates for BIF and SAIF deposit insurance. There is no statutory limit on the maximum assessment and the percent of increase in the assessment that the FDIC may impose in any one year, provided, however, that the FDIC may not collect more than is necessary to reach or maintain the BIF's and SAIF's designated reserve
ratio and must rebate any excess collected. Under the FDIC's risk-based insurance system, BIF and SAIF-assessable deposits are now subject to premiums of between 0 to 27 cents per $100 of deposits, depending upon the institution's capital position and other supervisory factors.

To arrive at a risk-based assessment for each bank and thrift, the FDIC places the institution in one of nine risk categories using a two-step process based first on capital ratios and then on relevant supervisory information.  Each institution is assigned to one of three groups (well-capitalized, adequately capitalized, or undercapitalized) based on its capital ratios.  A well-capitalized institution is one that has at least a 10% total risk-based capital ratio (the ratio of total capital to risk-weighted assets), a 6% tier 1 risk-based capital ratio (the ratio of tier 1 core capital to risk-weighted assets), and a 5% leverage capital ratio (the ratio of core capital to adjusted total assets).  An adequately capitalized institution has at least an 8% total risk-based capital ratio, a 4% tier 1 core risk-based capital ratio, and a 4% leverage capital ratio.  An undercapitalized institution is one that does not meet either the definition of well-capitalized or adequately capitalized.

Page 17

The FDIC also assigns each institution to one of three supervisory subgroups based on an evaluation of the risk posed by the institution.  These supervisory evaluations modify premium rates within each of the three capital groups.  The nine risk categories and the corresponding SAIF assessment rates are as follows:



|Supervisory Subgroup           |    |    |   
|------------------------------ | -- | -- | --
|Meets numerical standards for: | A  | B  | C 
|Well-capitalized               | 0  | 3  | 17
|Adequately capitalized         | 3  | 10 | 24
|Undercapitalized               | 10 | 24 | 27

For purposes of assessments of FDIC insurance premiums, the Bank is a well-capitalized institution as of June 30, 2001.  FDIC regulations prohibit disclosure of the supervisory subgroup to which an insured institution is assigned.

Brokered Deposits.

Only a well-capitalized depository institution may accept brokered deposits without prior regulatory approval.  Under implementing regulations, well-capitalized banks may accept brokered deposits without restriction, adequately capitalized banks may accept brokered deposits without a waiver from the FDIC (subject to certain restrictions on payments of rates), while undercapitalized banks may not accept brokered deposits.

Federal Home Loan Bank System.

The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional banks. FHLBs provide a central credit facility primarily for member institutions.  The Bank, as a member of the FHLB of Boston, is required to acquire and hold shares of capital stock in that institution in an amount at least equal to the greater of: (a) 1% of the aggregate principal amount of the Bank's unpaid residential mortgage loans and similar obligations at the beginning of each year, (b) 0.390 of total assets, or (c) 5% of its advances from the FHLB of Boston.

Pursuant to Gramm-Leach, the foregoing minimum share ownership requirements will be replaced by regulations to be promulgated by the Federal Housing Finance Board.  Gramm-Leach specifically provides that the minimum requirements in existence immediately prior to adoption of Gramm-Leach shall remain in effect until such regulations are adopted.  Formerly, federal savings associations were required to be members of the FHLB System.  The new law removed the mandatory membership requirement and authorized voluntary membership for federal savings associations, as is the case for all other eligible institutions.

Federal Reserve System.

The Federal Reserve Board regulations require savings institutions to maintain non-interest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts).  As of June 30, 2001, the Bank was in compliance with these requirements.  The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the OTS.

Federal Securities Laws.

Northeast Bancorp's common stock is registered with the SEC under the Securities Exchange Act of 1934.  Accordingly, Northeast Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act.

Maine Law.

Northeast Bancorp and the Bank are headquartered in, and qualified to do business in the State of Maine.  Accordingly, the Maine Bureau of Banking has the authority to impose certain regulations and the power to examine both the Bank and Northeast Bancorp.  In addition to approvals from federal regulatory agencies, Northeast Bancorp may be required to seek approval of the Maine Bureau of Banking prior to engaging in certain extraordinary transactions.

Page 18

Legislation.

Federal legislation and regulation have significantly affected the operations of federally insured savings associations, such as the Bank, and other federally regulated financial institutions in the past several years and has increased competition among savings associations, commercial banks, and other financial institutions.  Congress has been considering legislation in various forms that would require federal thrifts, such as the Bank, to convert their charters to national or state bank charters.  The Bank cannot determine whether, or in what form, such legislation may eventually be enacted, and there can be no assurance of the effect that any legislation that is enacted would have on Northeast Bancorp, the Bank, and its affiliates.  The operations of regulated depository institutions will continue to be subject to changes in applicable statutes and regulations from time to time and could adversely affect Northeast Bancorp, the Bank, and its affiliates.

Statistical Disclosure.

The additional statistical disclosure describing the business of the Company and the Banks required by Industry Guide 3 under the Securities Exchange Act of 1934, as amended, is provided in Item 8b.

Forward-Looking Statements.

This Annual Report on Form 10-K (including the Exhibits hereto) contains certain statements that are not based on historical facts and are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to financial condition and future prospects, loan loss reserve adequacy, simulation of changes in interest rates, prospective results of operations, capital spending and financing sources, and revenue sources. These statements relate to expectations concerning matters that are not historical facts. Forward-looking statements, which are based on various assumptions (some of which are beyond the Company's control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology such as "believe", "expect", "estimate", "anticipate", "continue", "plan", "approximately", "intend", or other similar terms or variations on those terms, or the future or conditional verbs such as "will", "may", "should", "could", and "would". Such forward-looking statements reflect the current view of management and are based on information currently available to them, and upon current expectations, estimates, and projections regarding the Company and its industry, management's belief with respect there to, and certain assumptions made by management. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors. Accordingly, actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, changes in technology, changes in the securities markets, and the availability of and the costs associated with sources of liquidity. In addition, the Company may from time to time make such written or oral "forward-looking statements" in future filings with the Securities and Exchange Commission (including exhibits thereto), in its reports to shareholders, and in other communications made by or with the approval of the Company.

These forward-looking statements reflect the current views of the Company at the time they are made and are based on information currently available to the management of the Company and upon current expectations, estimates, and projections regarding the Company and its industry, management's beliefs with respect thereto, and certain assumptions made by management.  These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors (many of which are outside the control of the Company), which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Potential risks, uncertainties, and other factors which could cause the Company's financial performance or results of operations to differ materially from current expectations or such forward-looking statements include, but are not limited to:

1. general economic conditions becoming less favorable than expected, either nationally or in the markets where the   Company or its subsidiaries offer their financial products or services, resulting in, among other things, a deterioration of credit quality or in a decreased demand for the Company's products or services;
2. competitive pressure in the banking and financial services industry increasing significantly and, more particularly, competition in the Company's market areas as described under "Business -- Market for Services and Competition";
3. changes in the interest rate environment which reduces margins, including those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations "Financial Condition" and also may  have a negative impact on the Company's interest rate exchange agreement;
4. the adequacy of the allowance for loan losses and the Bank's asset quality, including those matters described in "Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Conditions -- Results of Operations"
  as well as the federal income tax impact for recapture of pre-1988 tax bad debt reserve in the event the Bank's assets exceed $500 million;
5. changes in political conditions or changes occurring in the legislative or regulatory environment, including the impact of any changes in laws and regulations relating to banking, securities, taxes, and insurance;
6. the ability to increase market share and to control expenses, and changes in consumer spending, borrowing, and saving habits;















Page 19

Such forward-looking statements speak only to the date that such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

The Company's results are strongly influenced by general economic conditions in its market areas in the western, central, and mid-coastal regions of the State of Maine.  The deterioration in these conditions could have a material adverse effect on the quality of the Bank's loan portfolio and the demand for its products and services.  In particular, changes in the real estate or service industries, or a slow-down in population growth may adversely impact the Company's performance.  See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

All forward-looking statements presume a continuation of the existing regulatory environment and monetary policy.  The banking industry is subject to extensive state and federal regulation, and significant new laws or regulations, or changes in or repeals of existing laws or regulations may cause results of the Company to differ materially.  Further federal monetary policy, particularly as implemented by the FRB, significantly affect credit conditions for the Bank and its customers.  Such changes could adversely impact the Company's financial results.  See "Item 1. Business Supervision and Regulation."

A significant source of risks arise from the possibility that losses will be sustained because borrowers, guarantors, and related parties fail to perform in accordance with the terms of their loans.  The Bank has adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for loan losses, that management believes are appropriate to minimize the risks in assessing the likelihood of nonperformance, tracking loan performance, and diversifying the Bank's loan portfolio.  However, such policies may not prevent unexpected losses that could adversely affect the Company's results and the allowance for loan losses may not be adequate in all instances.  See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition," , " -- Results of Operations," and " -- Market Risk."  Further, certain types of lending relationships carry greater risks of nonperformance and collectability, such as commercial and consumer loans.  For a discussion of the risks associated with such lending relationships, see "Item 1.  Business -- Lending Activities."

ITEM 2.  PROPERTIES

The principal executive and administrative offices of the Company and the Bank are located at 232 Center Street, Auburn, Maine and consist of two floors, containing a lobby, executive and customer service offices, teller stations, and vault operations.  These office facilities are subject to a lease, which expires in 2007, with an option to renew the lease for 2 additional 10-year terms.  The lease requires rental payments of $96,072 per year.

The Bank has 11 branching locations, including the banking facility located at its executive offices.  The branches located in Bethel, Harrison, Buckfield, Mechanic Falls, Brunswick, Augusta (Western Avenue), and Lisbon, Maine, are owned by the Bank in fee simple.  In addition to the Auburn facilities, the branches located in South Paris and Lewiston, Maine are leased by the Bank. The Bank also owns in fee simple certain real property and improvements located in Auburn and Falmouth, Maine at which various loan and non-banking services as well as accounting and operations functions of the Company and the Bank are performed.  The facilities owned or occupied under lease by the Bank and its subsidiaries are considered by management to be adequate.

Page 20

ITEM 3.  LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company is a party or any of its property is the subject.  There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of banking, to which the Bank is a party or of which any of the Bank's property is the subject.  There are no material pending legal proceedings to which any director, officer or affiliate of the Company, any owner of record beneficially of more than five percent of the common stock of the Company, or any associate of any such director, officer, affiliate of the Company or any security holder is a party adverse to the Company or has a material interest adverse to the Company or the Bank.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company's securities-holders during the fourth quarter of the fiscal year ended June 30, 2001.

ITEM 4A.   EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to the Instructions of Form 10-K and Item 401(b) of Regulation S-K, the name, age, and position of each executive officer of the Company and the Bank are set forth below along with such officer's business experience during the past five years.  Officers are elected annually by the respective Boards of Directors of the Company and the Bank to hold office until the earlier of their death, resignation, or removal.

Name                   Age          Position with Company and/or Bank



|Name                | Age | Position with Company and/or Bank                       
|------------------- | --- | --------------------------------------------------------
|James D. Delamater  | 50  | President and Chief Executive Officer (1)               
|A. William Cannan   | 59  | Executive Vice President and Chief Operating Officer (1)
|Philip C. Jackson   | 57  | Senior Vice President of Bank Trust Operations          
|Gary Berlucchi      | 55  | Senior Vice President of Bank - Operations              
|A. Daniel Keneborus | 60  | Senior Vice President of Bank - Commercial Lending      
|Marcel Blais        | 42  | Senior Vice President of the Bank - Sales Manager       
|Suzanne Carney      | 34  | Clerk                                                   

(1) Each of these individuals serves both the Company and the Bank in the same capacities as indicated above.

James D. Delamater has been President, Chief Executive Officer, and a director of the Company and the Bank since 1987. Mr. Delamater also serves as a director of the Acadia Group, Inc.

A. William Cannan has been Executive Vice President and Chief Operating Officer of the Company and the Bank since 1993, and a director of the Company and the Bank since 1996.  From 1991 to 1993 Mr. Cannan served as President of Casco Northern Bank, N.A., located in Portland, Maine.

Philip C. Jackson has been a director of the Company and the Bank since 1987.  Mr. Jackson also has served as the Senior Vice President of the Bank's Trust Operations since 1997.  From 1991 to 1994, Mr. Jackson served as President of Bethel Savings, the predecessor to the Bank.

Gary Berlucchi has been the Senior Vice President of the Bank - Operations since January 1999.  From 1972 to 1995, Mr. Berlucchi was a Vice President of Casco Northern Bank, N.A., in operations and credit policy.  Previous to joining Northeast Bank, Mr. Berlucchi was self-employed as a financial consultant.

A. Daniel Keneborus has been the Senior Vice President of the Bank - Commercial Lending since October 1998.  Mr. Keneborus served as Vice President, Casco Northern Bank from 1976 to 1990, Vice President Commercial Lending of Peoples Heritage from 1990 to 1992, and Vice President Commercial Lending for Shawmut Bank from 1993 to 1997.

Marcel Blais has been the Senior Vice President of the Bank - Retail Lending since 1998.  Mr. Blais joined the Company in 1997 as the Vice President of the Bank - Branch Administration.  Prior to joining the Company he served as Vice President of Atlantic Bank from 1995 to 1997, and as Vice President - Branch Manager of Casco Bank from 1977 until 1995.

Suzanne Carney has been Clerk of the Bank since March 1999 and has been with the company since 1994 in the Accounting Division.

Effective August 15, 2001, Richard E. Wyman, Jr., resigned as the Chief Financial Officer.  A. William Cannan currently is serving as the Acting Chief Financial Officer.

Page 21

Part II

Item 5. Market Prices of Common Stock and Dividends Paid

The Common Stock of Northeast Bancorp trades on the American Stock Exchange
("AMEX") under the symbol "NBN". As of the close of business
on September 19, 2001, there was approximately 2,579,188 of shares of common
stock outstanding held by approximately 518 stockholders of record.

The following table sets forth the high and low closing sales prices of the
Company's Common Stock as reported on AMEX, and dividends paid during each
quarter for fiscal years ending June 30, 2001 and 2000.

|2000 - 2001    | High  | Low   | Div Pd
|-------------- | ----- | ----- | ------
|Jul 1- Sep 30  | 9.50  | 8.125 | .063  
|Oct 1 - Dec 31 | 8.625 | 7.625 | .063  
|Jan 1 - Mar 31 | 10.60 | 8.375 | .063  
|Apr 1 - Jun 30 | 12.90 | 10.01 | .063  

|1999 - 2000    | High  | Low  | Div Pd
|-------------- | ----- | ---- | ------
|Jul 1- Sep 30  | 10.13 | 8.00 | .053  
|Oct 1 - Dec 31 | 9.81  | 7.00 | .053  
|Jan 1 - Mar 31 | 9.50  | 7.88 | .063  
|Apr 1 - Jun 30 | 9.13  | 8.00 | .063  

On September 19, 2001, the last reported sale price of the Company's Common
stock as quoted on AMEX was $12.30. Holders of the Company's Common stock are
entitled to receive dividends when and if declared by the Board of Directors out
of funds legally available. The amount and timing of future dividends payable
on the Company's Common Stock will depend on, among other things, the financial
condition of the Company, regulatory considerations, and other factors. The
Company is a legal entity separate from the Bank, but the revenues are derived
primarily from the bank. Accordingly, the ability of the Company to pay cash
dividends on its stock in the future generally will be dependent upon the
earnings of the Bank and the Bank's ability to pay dividends to the Company. The
payment of dividends by the Bank will depend on a number of factors, including
capital requirements, regulatory limitations, the Bank's results of operations
and financial condition, tax consideration, and general economic conditions. National
banking laws regulate and restrict the ability of the Bank to pay dividends to
the Company. See "Item 1.Business - Supervision and Regulation".

Page 22



|Item 6. Selected
      Financial Data                                                             |                                                                                                                |              |                                                        |             
|------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------------------ | ------------
|                                                                                                  |                                                                                                                |              | At or for the
      Year                              
|                                                                                                  |                                                                                                                |              | Ended June 30,                                        
|                                                                                                  |                                                                                                                |              | _________________________________________             
|                                                                                                  |                                                                                                                |              | 2001                                                   | 2000        
|                                                                                                  |                                                                                                                |              | _______                                                | _______     
|                                                                                                  |                                                                                                                |              | (Dollars in
      thousands except for Per Share Data)
|Selected
      Operations Data:                                                                   |                                                                                                                |              |                                                        |             
|                                                                                                  | Interest income                                                                                                | $   35,800   | $   32,406                                             | $   26,857  
|                                                                                                  | Interest expense                                                                                               | 21,754       | 18,352                                                 | 14,550      
|                                                                                                  |                                                                                                                |              | _______                                                | _______     
|                                                                                                  | Net interest
      income                                                                                      | 14,046       | 14,054                                                 | 12,307      
|                                                                                                  | Provision for loan
      losses                                                                                | 781          | 1,072                                                  | 610         
|                                                                                                  | Other operating
      income (1)                                                                               | 2,934        | 2,451                                                  | 2,621       
|                                                                                                  | Net securities
      gains                                                                                     | 148          | 84                                                     | 95          
|                                                                                                  | Other operating
      expenses (2)                                                                             | 10,975       | 10,543                                                 | 10,570      
|                                                                                                  |                                                                                                                |              | _______                                                | _______     
|                                                                                                  |                                                                                                                |              |                                                        |             
|                                                                                                  | Income before
      income taxes                                                                               | 5,372        | 4,974                                                  | 3,843       
|                                                                                                  | Income tax expense                                                                                             | 1,888        | 1,764                                                  | 1,433       
|                                                                                                  |                                                                                                                |              | _______                                                | _______     
|                                                                                                  |                                                                                                                |              |                                                        |             
|                                                                                                  | Net income                                                                                                     | $     3,484  | $     3,210                                            | $     2,410 
|                                                                                                  |                                                                                                                |              |                                                        |             
|Consolidated Per
      Share Data(3):                                                             |                                                                                                                |              |                                                        |             
|                                                                                                  | Net income:                                                                                                    |              |                                                        |             
|                                                                                                  |                                                                                                                | Basic        | $       1.32                                           | $       1.17
|                                                                                                  |                                                                                                                | Diluted      | $       1.30                                           | $       1.17
|                                                                                                  | Cash dividends                                                                                                 | $       0.25 | $       0.23                                           | $       0.21
|Selected Balance
      Sheet Data:                                                                |                                                                                                                |              |                                                        |             
|                                                                                                  | Total assets                                                                                                   | $ 431,298    | $ 433,852                                              | $ 364,383   
|                                                                                                  | Loans receivable                                                                                               | 380,483      | 381,824                                                | 318,986     
|                                                                                                  | Deposits                                                                                                       | 274,136      | 259,982                                                | 219,364     
|                                                                                                  | Borrowings                                                                                                     | 115,222      | 129,801                                                | 104,569     
|                                                                                                  | Total
      stockholders' equity                                                                               | 30,445       | 28,126                                                 | 26,683      
|Other Ratios:                                                                                     |                                                                                                                |              |                                                        |             
|                                                                                                  | Return on average
      assets                                                                                 | 0.80%        | 0.79%                                                  | 0.71%       
|                                                                                                  | Return on average
      equity                                                                                 | 11.65%       | 11.59%                                                 | 9.18%       
|                                                                                                  | Average equity to
      average total assets                                                                   | 6.84%        | 6.85%                                                  | 7.73%       
|                                                                                                  | Common dividend
      payout ratio (3)                                                                         | 19.23%       | 19.66%                                                 | 24.42%      
|                                                                                                  |                                                                                                                |              |                                                        |             
|(1) Includes fees for services
      to customers and sale of loans.                             
|(2) Includes salaries, employee
      benefits, occupancy, equipment and other expenses .        
|(3) Per share data include
      restatement to reflect (a) a 50% stock dividend paid in 1997 and
|                                                                                                  | (b) adoption of
      FASB No. 128 "Earnings Per Share" and its retroactive
      application to 1997. The    
|                                                                                                  | selected financial
      data for 1997 has been restated to include Cushnoc Bank's financial
      information
|                                                                                                  | in accordance with
      the pooling of interests accounting method due to a merger.                          

Page 23

Item 7. Management's Discussion of Financial Condition and Results of
Operations

Management's Discussion and Analysis

DESCRIPTION OF OPERATIONS

Northeast Bancorp (the "Company") is a unitary savings and loan
holding company registered with the Office of Thrift Supervision ("OTS")
its primary regulator. The Company's principal asset is its wholly-owned banking
subsidiary, Northeast Bank, FSB (the "Bank"), which has branches
located in Auburn, Augusta, Bethel, Harrison, South Paris, Buckfield, Mechanic
Falls, Brunswick, Richmond, Lewiston, and Lisbon Falls, Maine. The Bank also
maintains a facility on Fundy Road in Falmouth, Maine, from which loan
applications are accepted and investment, insurance and financial planning
products and services are offered. The Bank's deposits are primarily BIF-insured.
Deposits at the Brunswick branch are SAIF-insured and represent approximately
20% of the Bank's total deposits at June 30, 2001.

Northeast Bancorp through its subsidiary, Northeast Bank and the Bank's
subsidiary Northeast Financial Services, Inc., provide a broad range of
financial services to individuals and companies in western, midcoast and
south-central Maine. Although historically the Bank has been primarily a
residential mortgage lender, the Bank has expanded its commercial loan business,
increased its line of financial products and services, and expanded its market
area. Management believes that this strategy will increase core earnings in the
long term by providing stronger interest margins, additional non-interest
income, and increased loan volume. Substantially all of the Bank's current
income and services are derived from banking products and services in Maine.

This Management's Discussion and Analysis of Financial Condition and Results
of Operations presents a review of the consolidated financial condition of the
Company and its Subsidiaries at June 30, 2001 and June 30, 2000, and the results
of their operations for the fiscal years ended June 30, 2001, 2000, and 1999.
This discussion and analysis is intended to assist in understanding the
financial condition and results of operations of the Company and the Bank.
Accordingly, this section should be read in conjunction with the consolidated
financial statements and the related notes and other statistical information
contained herein.

Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, such as statements relating to
financial condition and future prospects, loan loss reserve adequacy, simulation
of changes in interest rates, prospective results of operations, capital
spending and financing sources, and revenue sources. These statements relate to
expectations concerning matters that are not historical facts. Forward-looking
statements, which are based on various assumptions (some of which are beyond the
Company's control), may be identified by reference to a future period or
periods, or by the use of forward-looking terminology such as
"believe", "expect", "estimate",
"anticipate", "continue", "plan",
"approximately", "intend", or other similar terms or
variations on those terms, or the future or conditional verbs such as
"will", "may", "should", "could", and
"would". Such forward-looking statements reflect the current view of
management and are based on information currently available to them, and upon
current expectations, estimates, and projections regarding the Company and its
industry, management's belief with respect thereto, and certain assumptions made
by management. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, and other factors.
Accordingly, actual results could differ materially from those set forth in
forward-looking statements due to a variety of factors, including, but not
limited to, those related to the economic environment, particularly in the
market areas in which the Company operates, competitive products and pricing,
fiscal and monetary policies of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management, asset/liability
management, changes in technology, changes in the securities markets, and the
availability of and the costs associated with sources of liquidity.

FINANCIAL CONDITION

The overall strategy of the Company is to increase the core earnings of the
Bank by the development of strong net interest margins and non-interest fee
income, by increasing deposits through a larger market area as well as
increasing sales in the Company's financial services department.

The state of Maine's economy, in which the Company operates, including the
south central and mid-coast region of Cumberland, Androscoggin and Sagadahoc
counties, has experienced moderate growth over the previous three years and the
banking business has become increasingly competitive. The Bank's major
competitors for deposits and loans consist primarily of other Maine-based banks,
regional and money center banks, and non-bank financial institutions. Many of
the Bank's competitors are larger in size and, consequently, possess greater
financial resources. The principal factors in competing for deposits are
convenient office locations, flexible hours, interest rates and services, while
those relating to loans are interest rates, the range of lending services
offered and lending fees. The Company believes that the local character of the
Bank's business and its "community bank" management philosophy
enhances its ability to compete in its market areas. The Company has enhanced
its product lines and now provides a wide range of financial services such as
loans and deposits, brokerage services through its relationship with
Commonwealth Financial Services, Inc., employee retirement benefits and trust
services through the Bank's trust department, and insurance products through its
affiliation with local insurance agencies.

Page 24

The Company believes that its level of capital is adequate for its current
operations and will support future growth and development. As of June 30, 2001,
the Company's total equity represents 7.06% of its total assets. The Company's
total assets as of June 30, 2001 was $431,298,186; a decrease of $2,554,260 from
June 30, 2000. This decrease in total assets was primarily the result of a
decrease in portfolio loans and in available for sale securities. The Bank
experienced a reduction in loan volume during the 2001 fiscal year due to a
decrease in real estate mortgage and consumer loans, which was partially offset
by the increase in commercial loans. Available for sale securities decreased due
to increased principal payments and scheduled maturities on the Bank's
mortgage-backed securities portfolio.

Cash and cash equivalents increased by $1,410,322 at June 30, 2001 compared
to June 30, 2000. The increase in cash equivalents was primarily the result of
the timing of cash items clearing through the Federal Reserve.

The Bank's loan portfolio had a balance of $380,482,812 as of June 30, 2001,
or approximately 88% of total assets, which represents a decrease of $1,341,289
as compared to June 30, 2000. From June 30, 2000 to June 30, 2001, the loan
portfolio decreased by $4,065,576 in real estate mortgage loans and $1,201,526
in consumer and other loans, and increased by $3,925,813 in commercial loans.
Loans held for sale increased by $1,084,885 from June 30, 2000 to June 30, 2001
due to a larger volume of borrowers refinancing, much of which occurred in the
fourth quarter in 2001. In March 2001, the Bank sold $5,327,307 of indirect auto
loans, in which the Bank recorded a gain of $172,237. The Bank anticipates
holding approximately $20,000,000 of indirect auto loans in its portfolio and
currently holds $19,908,626 as of June 30, 2001. The Bank continues to originate
indirect auto loans and the Bank has continued to build relationships with other
institutions for future sales of the indirect auto loans it originates. The loan
portfolio contains elements of credit and interest rate risk. The Bank
historically has loaned within its local market areas, which management believes
helps it to better evaluate credit risk. The Bank's local market, as well as the
secondary market, continues to be very competitive for loan volume. The local
lending environment and customer response to favorable secondary market rates
has had an adverse affect on the Bank's ability to increase the residential real
estate mortgage loan portfolio. In an effort to increase loan volume, the Bank's
interest rates for its loan products have been reduced to compete in the various
markets. The Bank has experienced margin compression due to the competitive loan
and deposit environment. The Bank anticipates that the margin compression will
continue for the foreseeable future until the rates on its cost of funds
decrease in the current declining interest rate environment.

At June 30, 2001, residential real estate mortgages made up 50% of the total
loan portfolio, of which 34% of the residential loans are variable rate
products. At June 30, 2000, residential real estate mortgages made up 52% of the
total loan portfolio, of which 37% of the residential loans were variable rate
products. Variable rate residential loans have decreased during fiscal 2001,
when compared to 2000, due to the increased market demand for fixed rate loans.
Many of the fixed rate residential mortgages were sold to the secondary market.

At June 30, 2001, 19% of the Bank's total loan portfolio is commercial real
estate mortgages. Commercial real estate loans have minimal interest rate risk
as 89% of the portfolio consists of variable rate products. At June 30, 2000,
commercial real estate mortgages made up 17% of the total loan portfolio, in
which 89% of the commercial real estate loans were variable rate products. The
Bank tries to mitigate credit risk by lending in its local market areas as well
as maintaining a well-collateralized position in real estate.

Commercial loans made up 12% of the total loan portfolio at June 30, 2001.
Variable rate loans comprise 51% of this loan portfolio at June 30, 2001. At
June 30, 2000 commercial loans made up 11% of the total loan portfolio, of which
43% of the balance was variable rate instruments. The credit loss exposure on
commercial loans is highly dependent on the cash flow of the customers'
business. The Bank mitigates losses by strictly adhering to the Company's
underwriting and credit policies.

Consumer and other loans make up 19% of the total loan portfolio as of June
30, 2001, which compares to 20% at June 30, 2000. Since these loans are
primarily fixed rate products, they have interest rate risk when market rates
increase. These loans also have credit risk. The decrease in consumer loans was
primarily due to the sale in indirect automobile loans. Indirect automobile and
mobile home loans together comprise approximately 84% of the total consumer
loans. The consumer loan department underwrites all the automobile dealer
finance and mobile home loans to protect credit quality. The Bank typically pays
a nominal one-time origination fee on the loans. The fees are deferred and
amortized over the life of the loans as a yield adjustment. Management attempts
to mitigate credit and interest rate risk by keeping the products offered
short-term, receiving a rate of return commensurate with the risk, and lending
to individuals in the Bank's known market areas.

The Bank's allowance for loan losses was $3,778,000 as of June 30, 2001
versus $3,498,000 as of June 30, 2000, representing 0.99% and 0.92% of total
loans, respectively. The increase in the allowance for loan losses in 2001 was
primarily due to the rise in delinquencies and non-performing loans that
occurred during fiscal 2001. The Bank had non-performing loans totaling
$3,629,000 and $1,178,000 at June 30, 2001 and 2000, which was 0.95% and 0.31%
of total loans, respectively. The increase in 1-4 family and commercial mortgage
non-performing loan balances were due to the addition of four 1-4 family
mortgages and one commercial mortgage to the Bank's non-performing loans. The
additional non-performing commercial mortgage loan has a balance of
approximately $1,300,000, at June 30, 2001 and has a government guarantee on 90%
of its balance. Due to the government guarantee, the Bank's risk of loss is
limited to 10% of any losses on this loan. Any losses actually incurred will be
covered by the Bank's specific reserve for this loan. Non-performing loans and
assets acquired represented 0.93% and 0.34% of total assets at June 30, 2001 and
2000, respectively. Non-performing loans are generally loans ninety days
delinquent or greater for which the Bank does not accrue interest income. The
Bank's allowance for loan losses was equal to 104% and 297% of total
non-performing loans at June 30, 2001 and 2000, respectively. The following
table represents the Bank's non-performing loans as of June 30, 2001 and 2000:

Page 25



|Description
      _____________________________________ | June 30, 2001
      ____________  | June 30, 2000
      ____________ 
|------------------------------------------------------- | --------------------------------- | ---------------------------------
|1-4 Family Mortgages                                    | $      577,000                    | $      191,000                   
|Commercial Mortgages                                    | 2,139,000                         | 650,000                          
|Commercial Loans                                        | 523,000                           | 152,000                          
|Consumer and Other                                      | 390,000 
      ____________       | 185,000 
      ____________      
|Total non-performing                                    | $    3,629,000 
      =========== | $    1,178,000 
      ===========

At June 30, 2001, the Bank had approximately $448,000 of loans classified
substandard, exclusive of the non-performing loans stated above, that could
potentially become non-performing due to delinquencies or marginal cash flows.
These substandard loans decreased by $1,978,000 when compared to the $2,426,000
at June 30, 2000. The decrease was primarily due to the payoff in 2001 of a
substandard commercial real estate loan with an outstanding principal balance of
approximately $1,500,000 at June 30, 2000. This commercial real estate loan was
well collaterallized and the Bank did not incur any financial loss on this loan.
The Bank's delinquent loans, as a percentage of total loans, increased from June
30, 2000 to June 30, 2001, primarily as a result of the addition of a new
commercial loan with a principal balance of $600,000 becoming delinquent as well
as the large guaranteed commercial mortgage loan discussed above. Although
delinquent and non-performing loans have increased during the fiscal year,
management considers the percentages to be low and in control, as compared to
industry data and historical information.

The following table reflects the annual trend of total delinquencies 30 days
or more past due, including non-performing loans, for the Bank as a percentage
of total loans:



|06/30/01
      ____________ | 06/30/00
      ___________ | 06/30/99
      ___________ | 06/30/98
      ___________
|--------------------------- | -------------------------- | -------------------------- | --------------------------
|1.53%                       | 0.85%                      | 0.76%                      | 1.09%                     

At June 30, 2001, loans classified as non-performing included $544,025 of
loan balances that are current and paying as agreed, but which the Bank
maintains as non-performing until the borrower has demonstrated a sustainable
period of performance. Excluding these loans, the Bank's total delinquencies 30
days or more past due, as a percentage of total loans, would be 1.39% as of June
30, 2001.

The level of the allowance for loan losses as a percentage of total loans
increased to 0.99% at June 30, 2001 as compared to 0.92% at June 30, 2000, while
the level of the allowance for loan losses as a percentage of total
non-performing loans decreased as total non-performing loans increased from June
30, 2001 compared to June 30, 2000. Classified loans also are considered in
management's analysis of the adequacy of the allowance for loan losses. Based on
reviewing the credit risk and collateral of classified loans, management has
considered the risks of the classified portfolio and believes the allowance for
loan losses is adequate. Net charge-offs for the Bank were $500,846, $497,949,
and $664,017, for the years ended June 30, 2001, June 30, 2000, and June 30,
1999, respectively.

At June 30, 2001, total impaired loans were $3,311,240, of which $1,987,699
had related allowances of $515,704. This compares to total impaired loans of
$1,164,349, of which $81,341 had related allowances of $30,000, at June 30,
2000. During the year ended June 30, 2001, the income recognized related to
impaired loans was $36,781 and the average balance of outstanding impaired loans
was $1,963,065. This compares to income recognized related to impaired loans of
$22,648 and the average balance of impaired loans of $914,493 at June 30, 2000.
The Bank recognizes interest on impaired loans on a cash basis when the ability
to collect the principal balance is not in doubt; otherwise, cash received is
applied to the principal balance of the loan.

On a regular and ongoing basis, management actively monitors the Bank's asset
quality to evaluate the adequacy of the allowance for loan losses and, when
appropriate, to charge-off loans against the allowance for loan losses, provide
specific loss allowances when necessary, and change the level of loan loss
allowance. The process of evaluating the allowance involves a high degree of
management judgement. The methods employed to evaluate the allowance for loan
losses are quantitative in nature and consider such factors as the loan mix, the
level of non-performing loans, delinquency trends, past charge-off history, loan
reviews and classifications, collateral, and the current economic climate.

Page 26

Management believes that the allowance for loan losses is adequate
considering the level of risk in the loan portfolio. While management believes
that it uses the best information available to make its determinations with
respect to the allowance, there can be no assurance that the Company will not
have to increase its provision for loan losses in the future as a result of
changing economic conditions, adverse markets for real estate or other factors.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance for
loan losses based on their judgments about information available to them at the
time of their examination. The Bank's most recent examination by the Office of
Thrift Supervision was on May 14, 2001. At the time of the exam the regulators
proposed no adjustments to the allowance for loan losses.

At June 30, 2001, the Bank had a total of $385,077 in acquired assets as
compared to $278,010 as of June 30, 2000. The Bank has an allowance for losses
that was established to provide for declines in values and to consider estimated
selling costs. The allowance for losses on acquired assets totaled $21,194 at
June 30, 2001 versus $28,455 at June 30, 2000. The Company provided for this
allowance through a charge against earnings of $24,000 for each year ended June
30, 2001 and 2000. In 2001 and 2000, write-downs of acquired assets totaled
$31,261 and $23,270, respectively. Management periodically receives independent
appraisals to assist in its valuation of acquired assets. As a result of its
review of the independent appraisals and the acquired assets portfolio, the
Company believes the allowance for losses on acquired assets is adequate to
state the portfolio at lower of cost, or fair value less estimated selling
costs.

At June 30, 2001 and 2000, the Company's investment portfolio totaled
$20,172,844 and $23,159,039, respectively. The investment portfolio consists of
federal agency securities, mortgage-backed securities, bonds, and equity
securities. Funds retained by the Bank as a result of increases in deposits or
decreases in loans, which are not immediately used by the Bank, are invested in
securities held in its investment portfolio. The investment portfolio is used as
a source of liquidity for the Bank. The investment portfolio is structured so
that it provides for an ongoing source of funds for meeting loan and deposit
demands and for reinvestment opportunities to take advantage of changes in the
interest rate environment.

Equity securities, and debt securities which may be sold prior to maturity,
are classified as available for sale and are carried at market value. The
Company's entire investment portfolio was classified as available for sale at
June 30, 2001 and 2000. Changes in market value, net of applicable income taxes,
are reported as a separate component of stockholders' equity. Gains and losses
on the sale of securities are recognized at the time of the sale using the
specific identification method. The amortized cost and market value of available
for sale securities at June 30, 2001 was $20,442,116 and $20,172,844,
respectively. The decrease of $2,986,195 in securities available for sale, from
June 30, 2000 to June 30, 2001, was primarily due to the decrease in
mortgage-backed securities from principal payments and scheduled maturities. The
carrying value was $269,272 less than the cost of the securities at June 30,
2001. Management reviews the portfolio of investments on an ongoing basis to
determine if there has been an other-than-temporary decline in value. Some of
the considerations management makes in the determination are market valuations
of particular securities and economic analysis of the securities' sustainable
market values based on the underlying companies' profitability. Based on
management's assessment of the securities portfolio in fiscal 2001, 2000 and
1999, there have been other than temporary declines in values of individual
equity securities in the amounts of $105,643, $60,000, $95,728, respectively.
Such securities have been written down through an adjustment against earnings
and are included in other expenses in the statements of income.

The Bank continues to attract new local deposit relationships. The Bank
utilizes, as alternative sources of funds, brokered C.D.'s when national deposit
interest rates are less than the interest rates on local market deposits.
Brokered C.D.'s carry the same risk as local deposit C.D.'s, in that both are
interest rate sensitive with respect to the Bank's ability to retain the funds.
The Bank also utilizes FHLB advances, as alternative sources of funds, when the
interest rates of the advances are less than market deposit interest rates. FHLB
advances are also used to fund short-term liquidity demands.

Total deposits were $274,135,778 and securities sold under repurchase
agreements were $8,818,799 as of June 30, 2001. These amounts represent an
increase of $14,153,966 and a decrease of $4,291,366, respectively, as compared
to June 30, 2000. The increase in deposits was primarily due to the increase in
time and demand deposits. The increase in time deposits was attributable to
various special rate offerings as well as normal growth from the branch market
areas. Brokered CD's represented $26,001,690 of total deposits at June 30, 2001,
which decreased by $11,503,451 compared to the $37,505,141 balance at June 30,
2000. During the June 30, 2000 quarter, the Bank issued two structured brokered
CD's at $10 million each. The first CD offering was for a ten-year term with a
one-year call option at a fixed rate of 7.75%. The Bank then entered into an
interest rate exchange agreement with a third party to receive a fixed rate of
interest at 7.75% and pay a variable rate at the one-month Libor rate. The
second CD offering was for a five year six month term with a one-year call
option at a fixed rate of 7.50%. The Bank then entered into an interest rate
exchange agreement with a third party to receive a fixed rate of interest at
7.50% and pay a variable rate at the three-month Libor rate. The Bank entered
into these transactions as an alternative to short-term borrowings at the FHLB.
These brokered CD's were utilized to fund loan growth as well as to decrease
FHLB short term advances. During fiscal 2001 the one-year call option on both of
the structured brokered CDs and the interest rate exchange agreements were
exercised, which was the primary reason for the reduction in brokered CDs.

Total borrowings from the FHLB were $108,048,723 as of June 30, 2001, which
represents a decrease of $14,579,082 as compared to June 30, 2000. The cash
received from the increase in Bank deposits were utilized to reduce FHLB
advances. Certain mortgage loans, free of liens, pledges and encumbrances,
investment securities not otherwise pledged, FHLB overnight deposits and the
Company's FHLB stock have been pledged under a blanket agreement to secure these
borrowings.

Page 27

CAPITAL RESOURCES & LIQUIDITY

Liquidity is defined as the ability of the Bank to generate sufficient cash
to fund current loan demand, deposit withdrawals, other cash demands and
disbursement needs, and otherwise operate on an ongoing basis. The Bank's
primary sources of funds are its interest bearing deposits, cash and due from
banks, deposits with the FHLB, certificates of deposit, loan payments and
prepayments and other investments maturing in less than two years as well as
securities available for sale. In addition, the Bank has unused borrowing
capacity from the FHLB through its advances program. The Bank's long-term
advance availability, subject to the satisfaction of certain conditions, is
approximately $30,000,000 over and above the 2001 end-of-year advances. The
Company's ability to access the principal sources of liquid funds listed above
is immediate and adequate to support the Company's needs.

Cross selling strategies are employed by the Bank to develop deposit growth.
Deposit interest rates have also become very competitive during fiscal 2001.
Like other companies in the banking industry, the Bank will still be challenged
to maintain and or increase its core deposit base because customers have many
choices on where to invest their money.

In December 1999, the Board of Directors of Northeast Bancorp approved a plan
to repurchase up to $2,000,000 of its common stock. Also in May 2001, the Board
of Directors authorized the repurchase of an additional $2,000,000 of its common
stock. Under the common stock repurchase plans, Northeast Bancorp may purchase
shares of its common stock from time to time in the open market at prevailing
prices. Repurchased shares are held in treasury and may be used in connection
with employee benefits and other general corporate purposes. The Company does
not believe that the current market price for its common stock adequately
reflects full value and believes that the purchase of its common stock from time
to time in the open market is a good investment and use of its funds. As of June
30, 2001, the Company has repurchased $1,975,297 of its common stock. Management
believes that these and future purchases have not and will not have a
significant impact on the Company's liquidity. The repurchase of its common
stock has had a positive effect on diluted earnings per share during fiscal
2001, as such repurchases have reduced the number of common shares outstanding.

NBN Capital Trust, a subsidiary of the Company, has $7,172,998 of trust
preferred securities outstanding at June 30, 2001. These trust preferred
securities pay distributions to the securities holders quarterly at an annual
rate of 9.60%. The trust preferred securities are redeemable on December 31,
2029 or upon earlier redemption as provided in the Indenture. The Company
incurred approximately $706,000 of interest costs for the year ended June 30,
2001 on these securities. The Company will incur similar interest costs each
fiscal year until the trust preferred securities mature or are redeemed.

Various employees exercised company stock options during fiscal 2001 and
2000, in the amount of 2,500 and 16,500 shares, respectively. The proceeds from
the exercised options were utilized as general working capital and contributed
to the growth of the Company's total equity. As of June 30, 2001, 238,000 shares
of unissued common stock were reserved for issuance pursuant to stock options.

The total equity to total assets ratio of the Company was 7.06% as of June
30, 2001, 6.48% as of June 30, 2000 and 7.32% at June 30, 1999. Book value per
common share was $11.83 as of June 30, 2001, $10.40 as of June 30, 2000 and
$9.64 at June 30, 1999.

The Company's net cash provided by operating activities was $3,411,505,
representing a $1,885,224 decrease as compared to June 30, 2001. The decrease in
net cash provided by operating activities was primarily due to the increase in
loans held for sale. Net cash provided by investing activities increased
primarily due to the reduction in loan volume and the decrease in available for
sale securities purchased. Net cash provided by financing activities decreased
primarily due to the decrease in deposit growth, repurchase agreements, and the
repayment of advances to the FHLB. The increase in net cash from investing
activities more than offset the decrease in operating and financing activities.
Overall, the Company's cash position increased by $1,410,322 in fiscal 2001 when
compared to fiscal 2000.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
contains various provisions intended to recapitalize BIF and also affects a
number of regulatory reforms that impact all insured depository institutions,
regardless of the insurance fund in which they participate. Among other things,
FDICIA grants the OTS broader regulatory authority to take prompt corrective
action against insured institutions that do not meet capital requirements,
including placing undercapitalized institutions into conservatorship or
receivership. FDICIA also grants the OTS broader regulatory authority to take
corrective action against insured institutions that are otherwise operating in
an unsafe and unsound manner.

FDICIA defines specific capital categories based on an institution's capital
ratios. Regulations require a minimum Tier 1 core capital equal to 4.0% of
adjusted total assets, Tier 1 risk-based capital of 4.0% and a total risk-based
capital standard of 8.0%. The prompt corrective action regulations define
specific capital categories based on an institution's capital ratios. The
capital categories, in declining order, are "well capitalized",
"adequately capitalized", "undercapitalized",
"significantly undercapitalized", and "critically
undercapitalized". As of June 30, 2001, the most recent notification from
the OTS categorized the Bank as well capitalized. There are no conditions or
events since that notification that management believes has changed the
institution's category. Regulatory capital requirements are also discussed and
illustrated in footnote 9 of the consolidated financial statements.

Page 28

RESULTS OF OPERATIONS

Net income for the year ended June 30, 2001 was $3,483,901 as compared to
$3,209,722 for the year ended June 30, 2000 and $2,410,452 for the year ended
June 30, 1999. Basic and diluted earnings per share were $1.32 and $1.30,
respectively for the year ended June 30, 2001. The increase in basic and diluted
earnings per share when compared to June 30, 2000 was due to the increase in net
income and the effect of the repurchase of common stock under the Company's
stock buy-back plan, which reduced the number of shares outstanding. Basic and
diluted earnings per share were $1.17, for the year ended June 30, 2000 and
$0.88 and $0.86, respectively for the year ended June 30, 1999. The increase in
net income for the year ended June 30, 2001, when compared to June 30, 2000, was
primarily due to the increase in non-interest income and the reduction in
provision for loan losses, which was offset, in part, by the increase in
operating expenses. The increase in net income for the year ended June 30, 2000,
when compared to June 30, 1999, was primarily due to the increase in net
interest income, which was offset, in part, by the decrease in non-interest
income and the increase in provision for loan losses. The Company's overall
return on average assets ("ROAA") was 0.80% for the year ended June
30, 2001, 0.79% for the year ended June 30, 2000, and 0.71% for the year ended
June 30, 1999.

Total interest income for the fiscal years ended June 30, 2001, 2000 and 1999
was $35,799,931, $32,405,984, and $26,856,793, respectively. The Company's net
interest income for the years ended June 30, 2001, 2000 and 1999 was
$14,046,235, $14,053,532, and $12,306,551, respectively. Net interest income for
fiscal 2001 decreased $7,297, compared to the amount at June 30, 2000 as a
result of increased interest expense. Total interest and dividend income
increased $3,393,947 for the year ended June 30, 2001 compared to the year ended
June 30, 2000, resulting primarily from an increase of average balances and
rates on loans. Total interest expense increased approximately $3,401,244 for
the twelve months ended June 30, 2001 primarily as a result of the increased
average balances on deposits as well as the increase in rates on deposits and
borrowings. The changes in net interest income, as explained above, are also
presented in the schedule that follows.



|Northeast Bancorp
      Rate/Volume Analysis for the Year Ended
      June 30, 2001 versus June 30, 2000
|--------------------------------------------------------------------------------------------------------
|                                                                                                        
|                                                                                                        
|Investments                                                                                             
|Loans, net                                                                                              
|FHLB Deposits & Other                                                                                   
|Total Interest Earning Assets                                                                           
|                                                                                                        
|Deposits                                                                                                
|Repurchase Agreements                                                                                   
|Borrowings                                                                                              
|Total Interest-Bearing Liabilities                                                                      
|Net Interest Income                                                                                     

Rate/Volume amounts are spread proportionately between Volume and Rate.
Borrowings in the table above include trust-preferred securities and FHLB
advances.

Net interest income for fiscal 2000 increased $1,746,981, or 14.20%, compared
to the amount at June 30, 1999. Total interest and dividend income increased
$5,549,191 for the year ended June 30, 2000 compared to the year ended June 30,
1999, resulting primarily from an increase in the volume of loans and
investments offset in part by a decrease in the volume of FHLB deposits. The
increase in total interest expense of $3,802,210 for the twelve months ended
June 30, 2000 resulted primarily from the increased volume of borrowings and
deposits. The changes in net interest income, as explained above, are also
presented in the schedule that follows.

Page 29



|Northeast Bancorp
      Rate/Volume Analysis for the Year Ended
      June 30, 2000 versus June 30, 1999
|--------------------------------------------------------------------------------------------------------
|                                                                                                        
|                                                                                                        
|Investments                                                                                             
|Loans, net                                                                                              
|FHLB Deposits & Other                                                                                   
|Total Interest Earning Assets                                                                           
|                                                                                                        
|Deposits                                                                                                
|Repurchase Agreements                                                                                   
|Borrowings                                                                                              
|Total Interest-Bearing Liabilities                                                                      
|Net Interest Income                                                                                     

Rate/Volume amounts are spread proportionately between Volume and Rate.
Borrowings in the table above include trust-preferred securities, FHLB advances
and note payable.

The Company's business primarily consists of the savings and loan activities
of the Bank. Accordingly, the success of the Company is largely dependent on its
ability to manage interest rate risk. This is the risk that represents the
potential changes in interest rates and those changes in interest rates may
adversely affect net interest income. Generally, interest rate risk results from
differences in repricing intervals or maturities between interest-earning assets
and interest-bearing liabilities, the components of which comprise the interest
rate spread. When such differences exist, a change in the level of interest
rates will most likely result in an increase or decrease in net interest income.
The Bank has shifted to a slightly liability sensitive position based on its own
internal analysis which categorizes its core deposits as long term liabilities
which are then matched to long term assets. As a result, the Bank with its mix
of interest-earning assets and interest-bearing liabilities will generally
experience a contraction in its net interest margins during a period of
increasing rates.

Approximately 23% of the Bank's loan portfolio is comprised of floating rate
loans based on a prime rate index and 17% of other loans in the Bank's portfolio
that are based on short-term rate indices such as the one-year treasury bill.
Interest income on these existing loans will increase as the prime rate and
short-term indices increases. An increase in short-term interest rates will also
increase deposit and FHLB advance rates, increasing the Company's interest
expense. Although the Company has experienced net interest margin compression,
the impact on net interest income will depend on, among other things, actual
rates charged on the Bank's loan portfolio, deposit and advance rates paid by
the Bank, and loan volume.

The provision for loan losses for the fiscal year ended June 30, 2001 was
$780,846, as compared to $1,071,949 and $610,017 for the fiscal years ended June
30, 2000 and 1999, respectively. The Company experienced strong loan growth
during fiscal 2000 particularly in the commercial and consumer loan portfolios.
However, these types of loans have additional credit risk as compared to real
estate mortgage loans. Due to the increase in these types of loans, the Bank
increased its provision for loan losses during fiscal 2000 to maintain its
allowance for loan losses as a percentage of total loans, when compared to
fiscal 1999. The Company did not experience similar loan growth in fiscal 2001,
and as a result did not provide similar increases to the provision for loan
losses because management did not deem it necessary. Net charge-offs amounted to
$500,846 during fiscal 2001 versus $497,949 and $664,017 for 2000 and 1999,
respectively. The Bank intends to continue to aggressively manage the
non-performing assets, through sales, workouts and charge-offs, to reduce the
amount of non-performing assets.

Page 30

Non-interest income was $3,081,705 for the year ended June 30, 2001, an
increase of $546,760 when compared to non-interest income of $2,534,945 for the
year ended June 30, 2000. Non-interest income was $2,534,945 for the year ended
June 30, 2000, a decrease of $181,407 when compared to non-interest income of
$2,716,352 for the year ended June 30, 1999. All areas of non-interest income
increased in fiscal 2001 when compared to fiscal 2000 except loan servicing
fees. The decrease in non-interest income in fiscal 2000, when compared to
fiscal 1999 was primarily due to the decrease in gain on sales of loans which
was offset, in part, by the increase in service fees and other income.

Included in non-interest income were service charges and fees for other
services, which totaled $1,113,760 for the year ended June 30, 2001, $1,034,617
for the year ended June 30, 2000 and $948,765 for June 30, 1999. The increase in
service charges and fees at June 30, 2001, when compared to June 30, 2000 and at
June 30, 2000, when compared to June 30, 1999, was primarily due to fees
generated from the increase in loan and deposit balances.

Net securities gains were $147,742, $84,022 and $94,865 for fiscal 2001, 2000
and 1999, respectively. Net security gains were higher in fiscal 2001 than
fiscal 2000 and 1999. The primary reason for the increase in net security gains
during fiscal 2001 was that the Company sold more of its available for sale
securities in fiscal 2001 than fiscal 2000 and 1999.

Gains on the sale of loans amounted to $393,018 for fiscal 2001 and were an
increase of $172,064 compared to the $220,954 gains on the sale of loans in
fiscal 2000. Gains on the sale of loans amounted to $220,954 for fiscal 2000 and
were a decrease of $596,130 compared to $817,084 for fiscal 1999. The increase
in gain on sale of loans in fiscal 2001, when compared to 2000 was due to the
sale of $5,327,307 of indirect auto loans, in which the Bank recorded a gain of
$172,237. The decrease in gain on sale of loans in fiscal 2000, when compared to
1999 was due to decreased sales of approximately $13,133,000 in qualified 1-4
family mortgage loans to Freddie Mac. The decrease in loan sale volume was due
to the Federal Reserve increasing its rates during fiscal 2000. In addition in
fiscal 1999, loans were sold from the Bank's portfolio to improve its
asset/liability management position while at the same time taking advantage of
market prices, which also accounted for part of the increase in gain on sale of
loans. The Company's loan sales activity is dependent on market interest rates
as well as local competition. The Company receives income from servicing
mortgage loans for others. The outstanding balance of such loans decreased from
approximately $52,410,000 at June 30, 2000 to $48,540,000 at June 30, 2001.

Other income was $1,341,570 for the year ended June 30, 2001, an increase of
$287,832 when compared to June 30, 2000. Other income was $1,053,738 at June 30,
2000, an increase of $358,911, when compared to June 30, 1999. The increase in
other income for fiscal 2001 and 2000 was primarily due to an increase in income
generated from the Bank's trust department, insurance division and revenue
generated from brokerage services offered to customers through the Bank's
relationship with Commonwealth Financial Services, Inc.

Total non-interest expense for the Company was $10,975,264 for fiscal 2001,
$10,543,085 for fiscal 2000, and $10,569,843 for fiscal 1999. Total non-interest
expense increased by $432,179 in fiscal 2001 as compared to fiscal 2000 due, in
part, to an increase of $337,367 in compensation expense primarily due to (I)
the increase in commissions paid to brokers in the investment sales division due
to growth in sales revenue, (II) increased costs associated with the Company's
normal growth, and (III) increases in the Company's health insurance and benefit
costs. This increase was offset, in part, by the decrease in occupancy expense
by $39,683 due to previous branch closures and the decrease in equipment expense
by $58,958. Equipment expenses were reduced in 2001 because the one time
expenses in 2000 which were incurred in connection with opening the new Lewiston
branch as well as the conversion of the mainframe hardware and software and tele-communication
system were not duplicated in 2001. Other expenses increased by $197,769 during
fiscal 2001, when compared to fiscal 2000. The increase in other expenses in
fiscal 2001 were primarily due to an increase in professional fees and printing
expenses associated with regulatory changes as well as increased advertising
expenses.

Total non-interest expense decreased by $26,758 for fiscal 2000 as compared
to fiscal 1999 due, in part, to the following items: (I) compensation expense
increased by $435,204 a result of increased commissions paid to brokers in the
investment sales division due to growth in sales revenue as well as increased
costs associated with the Company's normal growth and increases in its health
insurance and benefit costs and (II) equipment expense increased by $83,556 due
to the expenses associated with opening the new Lewiston branch as well as the
conversion of the mainframe hardware and software and tele-communication system.
These increases were offset, in part, by the decrease in occupancy expense by
$63,183 due to the closing of the Bangor Street branch in Augusta, Me. Other
expenses decreased by $473,626 during fiscal 2000, when compared to fiscal 1999.
The decrease in fiscal 2000 was primarily due to the additional one-time
expenses the Company incurred during fiscal 1999 for professional fees and other
various expenses incurred in expanding the Company's operations and upgrading
its technology resources. The Company decided in the fourth quarter of fiscal
1999 to dissolve the First New England Benefits (FNEB) division. FNEB was a
pension and 401-k administration company and was purchased by the Company in
1993. The FNEB division was dissolved because the division could not attain
sufficient growth to meet revenue expectations. Due to the closure of FNEB the
Company experienced one-time pretax expenses of $290,133 for goodwill,
receivables and fixed asset write-offs as well as approximately $140,000 in
pretax other general business expenses related to the operations of FNEB during
fiscal 1999.

The Company's income tax expense increased by $124,208 for the year ended
June 30, 2001, when compared to the year ended June 30, 2000. The increase in
income tax expense is due to increased earnings before tax. The Company's income
tax expense increased by $331,130 for the year ended June 30, 2000, when
compared to the year ended June 30, 1999. The increase in income tax expense is
due to increased earnings before tax.

Page 31

ADOPTION OF ACCOUNTING STANDARD

On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS 138 ("Statement 133"). Statement
133 establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Statements require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through earnings. During fiscal 2000, the Company
entered into two interest rate exchange agreements to manage and hedge its
interest rate exposure with respect to a portion of its certificates of deposit.
The total notional principal amount of the interest rate exchange agreements
outstanding at June 30, 2000 was $20,000,000. These interest rate exchange
agreements qualified for hedge accounting. The adoption of these Statements did
not result in a cumulative effect of an accounting change or necessitate any
transition adjustment. The interest rate exchange agreements and certificates of
deposit were both called during fiscal 2001. No such agreements are outstanding
at June 30, 2001. The adoption of these Statements did not have a significant
effect on the Company's financial position, liquidity or results of operations.
The adoption of this accounting pronouncement is more fully described in
footnote 15 in the Company's notes to its consolidated financial statements.

On April 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", a replacement of FASB Statement
No. 125 (Statement 140). Statement 140 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a financial
component approach that focuses on control. Under that approach, after a
transfer of financial assets, 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. Statement 140 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. Statement 140 was effective for transfers and servicing assets and
extinguishments of liabilities occurring after March 31, 2001. This statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of this Statement did not have a
significant effect on the Company's financial position, liquidity or results of
operations.

MARKET RISKS

The Company's success is largely dependent upon its ability to manage
interest rate risk. Interest rate risk can be defined as the exposure of the
Company's net interest income to adverse movements in interest rates. Although
the Company regularly manages other risks, such as credit and liquidity risk, in
the normal course of its business, management considers interest rate risk to be
its most significant market risk and could potentially have the largest material
effect on the Company's financial condition and results of operations. Because
the Company's portfolio of trading assets is immaterial, the Company does not
believe that it is exposed to significant market risk from trading activities.

The Company's interest rate risk management is the responsibility of the
Asset/Liability Management Committee (ALCO), which reports to the Board of
Directors. ALCO establishes policies that monitor and coordinate the Company's
sources, uses and pricing of funds. The ALCO is also involved in formulating the
economic projections for the Company's budget and strategic plan.

The Company continues to reduce the volatility of its net interest income by
managing the relationship of interest-rate sensitive assets to interest-rate
sensitive liabilities. To accomplish this, management undertakes steps to
increase the percentage of variable rate assets, as a percentage of its total
earning assets. In recent years, the focus has been to originate adjustable rate
residential and commercial real estate loans, which reprice or mature more
quickly than fixed-rate real estate loans. The Company also originates
adjustable-rate consumer loans and commercial business loans. The Company's
adjustable-rate loans are primarily tied to published indices, such as the Wall
Street Journal prime rate and one-year U.S. Treasury Bills. The Company is
slightly liability sensitive and management considers the Bank's assets and
liabilities well matched.

The table that follows presents in tabular form contractual balances of the
Company's on balance sheet and off balance sheet financial instruments that are
interest rate sensitive, in U.S. dollars, at the expected maturity dates as well
as the fair value of those on balance sheet and off balance sheet financial
instruments that are interest rate sensitive for the period ended June 30, 2001,
with comparative summary balances for 2000. The expected maturity categories
take into consideration historical prepayment speeds as well as actual
amortization of principal and do not take into consideration reinvestment of
cash. Principal prepayments are the amounts of principal reduction, over and
above normal amortization, that the Company has experienced in the past
twenty-four months. The Company's assets and liabilities that do not have a
stated maturity date, as in cash equivalents and certain deposits, are
considered to be long term in nature by the Company and are reported in the
"Thereafter" column. The Company does not consider these financial
instruments materially sensitive to interest rate fluctuations and historically
the balances have remained fairly constant over various economic conditions. The
interest rate table for loans reflects contractual maturity and does not
indicate repricing in variable rate loans. Variable rate loans reprice in the
fiscal years as follows: fiscal year 2002 $99,275,805, fiscal year 2003
$13,234,184, fiscal year 2004 $13,626,983, fiscal year 2005 $11,830,020, fiscal
year 2006 $9,603,592, and fiscal years thereafter $3,107,768. The weighted
average interest rates for the various assets and liabilities presented are
actual as of June 30, 2001.

Page 32

The fair value of interest bearing deposits at other banks and interest
receivable approximate their book values due to their short maturities. The fair
value of available for sale securities are based on bid quotations from security
dealers or on bid prices published in financial newspapers. FHLB stock does not
have a market and the fair value is unknown. The fair value of loans are
estimated in portfolios with similar financial characteristics and takes into
consideration discounted cash flows through the estimated maturity or repricing
dates using estimated market discount rates that reflect credit risk. The fair
value of loans held for sale is based on bid quotations from loan dealers. The
fair value of demand deposits, NOW, money market, and savings accounts is the
amount payable upon demand. The fair value of time deposits is based upon the
discounted value of contractual cash flows, which is estimated using current
rates offered for deposits of similar remaining terms. The fair value of
repurchase agreements approximates the carrying value due to their short
maturity. The fair value of FHLB borrowings is estimated by discounting the cash
flows through maturity or the next repricing date based on current rates offered
by the FHLB for borrowings with similar maturities. The fair value of trust
preferred securities are based on comparisons to similar contracts at year-end.

There have been no substantial changes in the Company's market risk from the
preceding year, other than the fair value of the Company's loans and the
assumptions are consistent with prior year assumptions. The fair value of the
Company's loans improved at June 30, 2001 when compared to June 30, 2000. A
large percentage of the Company's loan portfolio was in fixed rate loans during
fiscal 2001. As interest rates decreased during the fiscal year, the loan
portfolio improved in value due to the fixed coupon rates in the portfolio being
better than current market rates.

|Market
      Risk                                                                  |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|---------------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------ | ---------------------------- | ------------------- | ------------------- | ------------------- | ------------------- | ----------- | ---------- | ----------
|June
      30, 2001                                                                |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|($ In
      Thousands)                                                             |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    |                                      | Expected
      Maturity Date |                     |                     |                     |                    
|                                                                                   |                                    |                                      |                              | 2001                | 2001                | 2000                | 2000               
|                                                                                   |                                    |                                      | 6/30/02                      | 6/30/03             | 6/30/04             | 6/30/05             | 6/30/06             | Thereafter  | Total      | Fair Value
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|Financial
      Assets:                                                            |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|Interest Bearing
      Deposits                                                    |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    | Variable
      Rate                  | $
              --           | $         
      -- | $         
      -- | $         
      -- | $         
      -- | $     4,594 | $    4,594 | $   4,594 
|                                                                                   |                                    | Weighted
      Average Interest Rate | --                           | --                  | --                  | --                  | --                  | 3.90%       | 3.90%      |           
|Available
      for Sale Securities                                                | 3,991                              | 2,681                                | 3,098                        | 3,256               | 3,575               | 3,841               | 20,442              | 20,173      | 24,335     | 23,159    
|                                                                                   |                                    | Weighted
      Average Interest Rate | 6.80%                        | 6.84%               | 6.80%               | 6.83%               | 6.84%               | 6.84%       | 6.83%      |           
|FHLB
      Stock (1)                                                               | --                                 | --                                   | --                           | --                  | --                  | 6,645               | 6,645               | 6,645       | 6,645      | 6,645     
|                                                                                   |                                    | Weighted
      Average Interest Rate | --                           | --                  | --                  | --                  | --                  | 6.25%       | 6.25%      |           
|Loans
      Held For Sale                                                          |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    | Fixed
      Rate                     | 1,167                        | --                  | --                  | --                  | --                  | --          | 1,167      | 1,187     
|                                                                                   |                                    | Weighted
      Average Interest Rate | 6.58%                        | --                  | --                  | --                  | --                  | --          | 6.58%      |           
|Loans                                                                              |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    | Fixed
      Rate Loans               | 21,012                       | 21,889              | 29,100              | 34,607              | 33,989              | 86,614      | 227,211    | 223,187   
|                                                                                   |                                    | Weighted
      Average Interest Rate | 9.04%                        | 9.36%               | 9.41%               | 9.37%               | 9.37%               | 8.69%       | 9.09%      |           
|                                                                                   |                                    | Variable
      Rate Loans            | 28,644                       | 15,140              | 18,440              | 19,454              | 21,261              | 46,555      | 149,494    | 150,382   
|                                                                                   |                                    | Weighted
      Average Interest Rate | 8.18%                        | 8.51%               | 8.52%               | 8.55%               | 8.58%               | 8.66%       | 8.51%      |           
|Interest
      Receivable                                                          | 2,403                              | --                                   | --                           | --                  | --                  | --                  | 2,403               | 2,403       | 2,404      | 2,404     
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|Financial
      Liabilities:                                                       |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|NOW/Money
      Market/Savings                                                     | --                                 | --                                   | --                           | --                  | --                  | 57,913              | 57,913              | 57,913      | 56,592     | 56,592    
|                                                                                   |                                    | Weighted
      Average Interest Rate | --                           | --                  | --                  | --                  | --                  | 2.28%       | 2.28%      |           
|Time
      Deposits                                                                | 145,218                            | 37,753                               | 2,819                        | 2,918               | 1,120               | 72                  | 189,900             | 191,365     | 181,618    | 181,094   
|                                                                                   |                                    | Weighted
      Average Interest Rate | 6.12%                        | 5.42%               | 5.53%               | 6.38%               | 5.76%               | 6.22%       | 5.97%      |           
|Repurchase
      Agreements                                                        |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    | Fixed
      Rate                     | 8,819                        | --                  | --                  | --                  | --                  | --          | 8,819      | 8,819     
|                                                                                   |                                    | Weighted
      Average Interest Rate | 2.66%                        | --                  | --                  | --                  | --                  | --          | 2.66%      |           
|FHLB
      Advances                                                                |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    | Fixed
      Rate                     | 38,105                       | 8,722               | 18,222              | 2,000               | 26,000              | 15,000      | 108,049    | 110,240   
|                                                                                   |                                    | Weighted Average
      Interest Rate | 5.18%                        | 5.52%               | 5.73%               | 6.65%               | 6.74%               | 5.24%       | 5.71%      |           
|Junior
      Subordinated Debentures                                               |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    | Fixed Rate                           | --                           | --                  | --                  | --                  | --                  | 7,173       | 7,173      | 7,224     
|                                                                                   |                                    | Weighted
      Average Interest Rate | --                           | --                  | --                  | --                  | --                  | 9.60%       | 9.60%      |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|Off
      Balance Sheet Instruments:                                               |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|Interest
      rate exchange agreements                                            |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   | in a
      net receivable position |                                      |                              |                     |                     |                     |                     |             |            |           
|                                                                                   |                                    | Fixed
      Rate                     | --                           | --                  | --                  | --                  | --                  | --          | --         | --        
|                                                                                   |                                    | Weighted
      Average Interest Rate | --                           | --                  | --                  | --                  | --                  | --          | --         |           
|                                                                                   |                                    |                                      |                              |                     |                     |                     |                     |             |            |           
|(1)
      FHLB stock does not have a market; therefore, its fair value is unknown. |                                    |                                     

Page 33

Impact of Inflation

The consolidated financial statements and related notes herein have been
presented in terms of historic dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike industrial
companies, substantially all of the assets and virtually all of the liabilities
of the Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the general level of
inflation. Over short periods of time, interest rates may not necessarily move
in the same direction or in the same magnitude as inflation.

RECENT ACCOUNTING DEVELOPMENTS

In July, 2001, the Financial Accounting Standards Board issued two statements
- Statement 141, Business Combinations, and Statement 142, Goodwill
and Other Intangible Assets, which will potentially impact the Company's
accounting for its reported goodwill and other intangible assets.

Statement 141:

- Eliminates the pooling method for accounting for business combinations.

- Requires that intangible assets that meet certain criteria be reported
      separately from goodwill.

- Requires negative goodwill arising from a business combination to be
      recorded as an extraordinary gain.

Statement 142:

- Eliminates the amortization of goodwill and other intangibles that are
      determined to have an indefinite life

- Requires, at a minimum, annual impairment tests for goodwill and other
      intangible assets that are determined to have an indefinite life.

Upon adoption of these Statements, the Company is required to:

- Re-evaluate goodwill and other intangible assets that arose from
      business combinations entered into before July 1, 2001. If the recorded
      other intangibles assets do not meet the criteria for recognition, they
      should be reclassified to goodwill. Similarly, if there are other
      intangible assets that meet the criteria for recognition but were not
      separately recorded from goodwill, they should be reclassified from
      goodwill.

- Reassess the useful lives of intangible assets and adjust the remaining
      amortization periods accordingly.

The Company has not yet completed its full assessment of the effects of these
new pronouncements on its financial statements and so is uncertain as to the
impact. The standards generally are required to be implemented by the Company in
its 2002 financial statements.



Item  7A.     Quantiture and
Qualitative Disclosure about Market Risk

See
" - Market Risks" and accompanying table set forth in Item 7 above.

Item  8.       Financial
Statements and Supplementary Data

a.
     Financial Statements Required by Regulation S-X

INDEPENDENT AUITORS' REPORT

The Board of Directors
Northeast Bancorp and Subsidiaries

We have audited the consolidated statements of financial condition of
Northeast Bancorp and Subsidiaries as of June 30, 2001 and 2000, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended June 30, 2001.
These financial statements are the responsibility of Northeast Bancorp's
management. Our responsibility is to express an opinion on these 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Northeast Bancorp
and Subsidiaries as of June 30, 2001 and 2000, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.

Page 34



Portland,
Maine                                                                     Baker
Newman & Noyes
August 3,
2001                                                                      Limited
Liability Company

NORTHEAST BANCORP AND SUBSIDIARIES

ASSETS

|                                                                                                | 2001
      ____________          | 2000
      ____________         
|----------------------------------------------------------------------------------------------- | -------------------------------- | --------------------------------
|Cash and due from banks                                                                         | $    9,594,668                   | $    7,996,321                  
|Interest bearing deposits                                                                       | 507,597                          | 488,622                         
|Federal Home Loan Bank overnight deposits (note 7)                                              | 4,086,000 
      ____________    | 4,293,000 
      ____________   
|Total cash and cash equivalents                                                                 | 14,188,265                       | 12,777,943                      
|Available for sale securities, at market value (notes 2, 7 and 8)                               | 20,172,844                       | 23,159,039                      
|Loans held for sale                                                                             | 1,166,775                        | 81,890                          
|Loans receivable (notes 3 and 7):                                                               |                                  |                                 
|Mortgage loans:                                                                                 |                                  |                                 
|Residential real estate                                                                         | 185,985,453                      | 194,287,520                     
|Construction loans                                                                              | 6,574,545                        | 10,999,414                      
|Commercial real estate                                                                          | 68,568,711 
      ____________   | 61,924,339 
      ____________  
|Total mortgage loans                                                                            | 261,128,709                      | 267,211,273                     
|                                                                                                |                                  |                                 
|Commercial loans                                                                                | 45,438,422                       | 41,518,623                      
|Consumer and other loans                                                                        | 72,777,245 
      ____________   | 74,027,771 
      ____________  
|                                                                                                | 379,344,376                      | 382,757,667                     
|                                                                                                |                                  |                                 
|Undisbursed portion of construction loans                                                       | (1,696,402)                      | (3,593,553)                     
|Net deferred loan origination costs                                                             | 2,834,838 
      ____________    | 2,659,987 
      ____________   
|                                                                                                | 380,482,812                      | 381,824,101                     
|Less allowance for loan losses                                                                  | 3,778,000 
      ____________    | 3,498,000 
      ____________   
|Net loans                                                                                       | 376,704,812                      | 378,326,101                     
|Premises and equipment - net (note 4)                                                           | 4,118,587                        | 4,397,768                       
|Acquired assets - net (note 5)                                                                  | 385,077                          | 278,010                         
|Accrued interest receivable - loans                                                             | 2,190,566                        | 2,149,846                       
|Accrued interest receivable - investments                                                       | 212,258                          | 253,868                         
|Federal Home Loan Bank stock, at cost (note 7)                                                  | 6,644,500                        | 6,644,500                       
|Goodwill, net of accumulated amortization of $2,211,105 in 2001
         and $1,936,846 in 2000 | 913,829                          | 1,188,088                       
|Other assets (notes 13 and 19)                                                                  | 4,600,673 
      ____________    | 4,595,393 
      ____________   
|Total assets                                                                                    | $ 431,298,186 
      =========== | $ 433,852,446 
      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

|                                                                                                                                                                                                                             | 2001
      ____________            | 2000
      ____________           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ----------------------------------
|Liabilities:                                                                                                                                                                                                                 |                                    |                                   
|Deposits (note 6):                                                                                                                                                                                                           |                                    |                                   
|Demand                                                                                                                                                                                                                       | $   26,323,105                     | $   21,772,073                    
|NOW                                                                                                                                                                                                                          | 30,957,847                         | 29,250,094                        
|Money market                                                                                                                                                                                                                 | 6,601,435                          | 6,339,360                         
|Regular savings                                                                                                                                                                                                              | 20,353,424                         | 21,002,599                        
|Brokered time deposits                                                                                                                                                                                                       | 26,001,690                         | 37,505,141                        
|Certificates of deposit under $100,000                                                                                                                                                                                       | 128,179,846                        | 116,080,981                       
|Certificates of deposit $100,000 or more                                                                                                                                                                                     | 35,718,431 
      _____________    | 28,031,564 
      _____________   
|Total deposits                                                                                                                                                                                                               | 274,135,778                        | 259,981,812                       
|FHLB borrowings (note 7)                                                                                                                                                                                                     | 108,048,723                        | 122,627,805                       
|Securities sold under repurchase agreements (notes 2
      and 8)                                                                                                                                                            | 8,818,799                          | 13,110,165                        
|Other liabilities                                                                                                                                                                                                            | 2,676,871 
      _____________     | 2,833,188 
      _____________    
|Total liabilities                                                                                                                                                                                                            | 393,680,171                        | 398,552,970                       
|Guaranteed Preferred Beneficial Interest in the Company's Junior
      Subordinated Debentures (note 19)                                                                                                                     | 7,172,998                          | 7,172,998                         
|Commitments and contingent liabilities (notes 14 and 15)                                                                                                                                                                     |                                    |                                   
|Stockholders' equity (notes 2, 9, 10, 11, 13 and 14):                                                                                                                                                                        |                                    |                                   
|Preferred stock, cumulative, $1 par value, 1,000,000
      shares authorized
          and none issued and outstanding                                                                                                       | --                                 | --                                
|Common stock, $1 par value, 15,000,000 shares
      authorized; 2,786,095
          and 2,786,095 shares issued and 2,572,938 and
      2,682,527 shares
          outstanding at June 30, 2001 and 2000,
      respectively | 2,786,095                          | 2,786,095                         
|Additional paid-in capital                                                                                                                                                                                                   | 10,267,067                         | 10,265,909                        
|Retained earnings                                                                                                                                                                                                            | 19,544,871                         | 16,722,474                        
|Accumulated other comprehensive income (loss)                                                                                                                                                                                | (177,719)                          | (776,174)                         
|Treasury stock, 213,157 shares at June 30, 2001 and
      103,568 shares
          at June 30, 2000 at cost                                                                                                                  | (1,975,297)
      _____________    | (871,826)
      _____________     
|Total stockholders' equity                                                                                                                                                                                                   | 30,445,017 
      _____________    | 28,126,478 
      _____________   
|Total liabilities and stockholders'
      equity                                                                                                                                                                             | $  431,298,186 
      ============ | $  433,852,446 
      ============

See accompanying notes.

Page 35

NORTHEAST BANCORP AND SUBSIDIARIESConsolidated Statements of Income
Years Ended June 30, 2001, 2000 and 1999

|                                                              | 2001
      ___________          | 2000
      ____________         | 1999
      ____________        
|------------------------------------------------------------- | ------------------------------- | ------------------------------- | -------------------------------
|Interest and dividend income:                                 |                                 |                                 |                                
|Interest on loans                                             | $  33,430,104                   | $  30,227,058                   | $  25,178,587                  
|Interest on Federal Home Loan Bank overnight deposits         | 320,846                         | 242,386                         | 328,981                        
|Interest and dividends on available for sale
      securities | 1,532,659                       | 1,485,774                       | 957,558                        
|Dividends on Federal Home Loan Bank stock                     | 489,550                         | 427,982                         | 364,245                        
|Other interest and dividend income                            | 26,772 
      ____________      | 22,784 
      ____________      | 27,422 
      ____________     
|Total interest and dividend income                            | 35,799,931                      | 32,405,984                      | 26,856,793                     
|Interest expense:                                             |                                 |                                 |                                
|Deposits (note 6)                                             | 13,093,685                      | 10,345,583                      | 8,680,297                      
|Repurchase agreements                                         | 539,830                         | 569,564                         | 339,556                        
|Borrowed funds                                                | 7,414,100                       | 7,010,715                       | 5,530,389                      
|Trust preferred securities                                    | 706,081 
      ____________     | 426,590 
      ____________     | -- 
      ____________         
|Total interest expense                                        | 21,753,696 
      ____________  | 18,352,452 
      ____________  | 14,550,242 
      ____________ 
|Net interest income before provision for
      loan losses    | 14,046,235                      | 14,053,532                      | 12,306,551                     
|Provision for loan losses (note 3)                            | 780,846 
      ____________     | 1,071,949 
      ____________   | 610,017 
      ____________    
|Net interest income after provision for loan losses           | 13,265,389                      | 12,981,583                      | 11,696,534                     
|Noninterest income:                                           |                                 |                                 |                                
|Fees and service charges on loans                             | 320,705                         | 302,953                         | 288,720                        
|Fees for other services to customers                          | 793,055                         | 731,664                         | 660,045                        
|Net securities gains (note 2)                                 | 134,875                         | 75,175                          | 84,133                         
|Gain on trading activities                                    | 12,867                          | 8,847                           | 10,732                         
|Gain on sales of loans                                        | 393,018                         | 220,954                         | 817,084                        
|Loan servicing fees                                           | 85,615                          | 141,614                         | 160,811                        
|Other income                                                  | 1,341,570 
      ____________   | 1,053,738 
      ____________   | 694,827 
      ____________    
|Total noninterest income                                      | 3,081,705                       | 2,534,945                       | 2,716,352                      
|Noninterest expense:                                          |                                 |                                 |                                
|Salaries and employee benefits (note 14)                      | 5,661,743                       | 5,324,376                       | 4,889,172                      
|Occupancy expense (note 4)                                    | 872,220                         | 911,903                         | 975,086                        
|Equipment expense (note 4)                                    | 913,021                         | 971,979                         | 888,423                        
|FDIC insurance expense                                        | 50,416                          | 54,732                          | 63,441                         
|Other (notes 2 and 12)                                        | 3,477,864 
      ____________   | 3,280,095 
      ____________   | 3,753,721 
      ____________  
|Total noninterest expense                                     | 10,975,264 
      ____________  | 10,543,085 
      ____________  | 10,569,843 
      ____________ 
|Income before income taxes                                    | 5,371,830                       | 4,973,443                       | 3,843,043                      
|Income tax expense (note 13)                                  | 1,887,929 
      ____________   | 1,763,721 
      ___________    | 1,432,591 
      ___________   
|Net income                                                    | $   3,483,901 
      ========== | $   3,209,722 
      ========== | $   2,410,452 
      ==========
|Earnings per common share (notes 10 and 14):                  |                                 |                                 |                                
|Basic                                                         | $         1.32                  | $         1.17                  | $          .88                 
|Diluted                                                       | $         1.30                  | $         1.17                  | $          .86                 

See accompanying notes.

Page 36

NORTHEAST BANCORP AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY

Years Ended June 30, 2001, 2000 and 1999

|                                                                                                                             | Preferred Stock
      Series A and B
      ______________ | Common
      Stock
      ______________
|---------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ---------------------------------------
|Balance at June 30, 1998                                                                                                     | $         999,988                                         | $       2,614,285                      
|Net income                                                                                                                   | --                                                        | --                                     
|Other comprehensive income net of tax:                                                                                       |                                                           |                                        
|Net unrealized loss on investments
      available for sale, net
            of reclassification adjustment (note
      17)  | --                                                        | --                                     
|Total comprehensive income                                                                                                   | --                                                        | --                                     
|Issuance of common stock                                                                                                     | --                                                        | 1,477                                  
|Stock options exercised                                                                                                      | --                                                        | 16,500                                 
|Dividends on preferred stock                                                                                                 | --                                                        | --                                     
|Dividends on common stock at $0.21 per share                                                                                 | --                                                        | --                                     
|Conversion of preferred stock Series A (note 11)                                                                             | (999,988)
      ______________                            | 136,362 
      ______________          
|Balance at June 30, 1999                                                                                                     | --                                                        | 2,768,624                              
|Net income                                                                                                                   | --                                                        | --                                     
|Other comprehensive income net of tax:                                                                                       |                                                           |                                        
|Net unrealized loss on investments
      available for sale, net
            of reclassification adjustment (note
      17)  | --                                                        | --                                     
|Total comprehensive income                                                                                                   | --                                                        | --                                     
|Treasury stock purchased, 104,298 shares                                                                                     | --                                                        | --                                     
|Issuance of common stock and treasury stock sold                                                                             | --                                                        | 971                                    
|Stock options exercised                                                                                                      | --                                                        | 16,500                                 
|Dividends on common stock at $0.23 per share                                                                                 | -- 
      ______________                                  | -- 
      ______________               
|Balance at June 30, 2000                                                                                                     | --                                                        | 2,786,095                              
|Net income                                                                                                                   | --                                                        | --                                     
|Other comprehensive income net of tax:                                                                                       |                                                           |                                        
|Net unrealized gains on investments
      available for sale, net
            of reclassification adjustment (note
      17) | --                                                        | --                                     
|Total comprehensive income                                                                                                   | --                                                        | --                                     
|Treasury stock purchased, 112,499 shares                                                                                     | --                                                        | --                                     
|Treasury stock sold                                                                                                          | --                                                        | --                                     
|Stock options exercised and treasury stock sold                                                                              | --                                                        | --                                     
|Dividends on common stock at $0.25 per share                                                                                 | -- 
      ______________                                  | -- 
      ______________               
|Balance at June 30, 2001                                                                                                     | -- 
      =============                                   | $       2,786,095
      =============  

See accompanying notes.

|Additional Paid-in
      Capital
      _________________ | Retained Earnings
      _________________   | Accumulated Other
      Comprehensive
      Income (Loss)
      _________________ | Treasury Stock
      _________________      | Total
      _________________             
|-------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------
|$          9,258,107                                     | $         12,331,595                        | $             (64,448)                                                            | $                   --                      | $         25,139,527                      
|--                                                       | 2,410,452                                   | --                                                                                | --                                          | 2,410,452                                 
|                                                         |                                             |                                                                                   |                                             |                                           
|--                                                       | --                                          | (375,080)                                                                         | --                                          | (375,080)                                 
|--                                                       | --                                          | --                                                                                | --                                          | 2,035,372                                 
|14,780                                                   | --                                          | --                                                                                | --                                          | 16,257                                    
|71,786                                                   | --                                          | --                                                                                | --                                          | 88,286                                    
|--                                                       | (25,667)                                    | --                                                                                | --                                          | (25,667)                                  
|--                                                       | (570,660)                                   | --                                                                                | --                                          | (570,660)                                 
|863,626 
      _________________                         | -- 
      _________________                 | -- 
      _________________                                                       | -- 
      _________________                 | -- 
      _________________               
|10,208,299                                               | 14,145,720                                  | (439,528)                                                                         | --                                          | 26,683,115                                
|--                                                       | 3,209,722                                   | --                                                                                | --                                          | 3,209,722                                 
|                                                         |                                             |                                                                                   |                                             |                                           
|--                                                       | --                                          | (336,646)                                                                         | --                                          | (336,646)                                 
|--                                                       | --                                          | --                                                                                | --                                          | 2,873,076                                 
|--                                                       | --                                          | --                                                                                | (878,532)                                   | (878,532)                                 
|7,765                                                    | --                                          | --                                                                                | 6,706                                       | 15,442                                    
|49,845                                                   | --                                          | --                                                                                | --                                          | 66,345                                    
|-- 
      _________________                              | (632,968)
      _________________           | -- 
      _________________                                                       | -- 
      _________________                 | (632,968)
      _________________         
|10,265,909                                               | 16,722,474                                  | (776,174)                                                                         | (871,826)                                   | 28,126,478                                
|--                                                       | 3,483,901                                   | --                                                                                | --                                          | 3,483,901                                 
|                                                         |                                             |                                                                                   |                                             |                                           
|--                                                       | --                                          | 598,455                                                                           | --                                          | 598,455                                   
|--                                                       | --                                          | --                                                                                | --                                          | 4,082,356                                 
|--                                                       | --                                          | --                                                                                | (1,125,257)                                 | (1,125,257)                               
|164                                                      | --                                          | --                                                                                | 1,968                                       | 2,132                                     
|994                                                      | --                                          | --                                                                                | 19,818                                      | 20,812                                    
|-- 
      _________________                              | (661,504)
      _________________           | -- 
      _________________                                                       | -- 
      _________________                 | (661,504)
      _________________         
|$         10,267,067 
      ===============              | $         19,544,871 
      =============== | $           (177,719)
      ===============                                       | $         (1,975,297)
      =============== | $         30,445,017
      ===============

Page 37



NORTHEAST BANCORP AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2001, 2000 and 1999

|                                                                                                                                 | 2001
      ____________        | 2000
      ____________        | 1999
      ____________       
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------------ | ------------------------------
|Cash flows from operating activities:                                                                                            |                                |                                |                               
|Net income                                                                                                                       | $  3,483,901                   | $  3,209,722                   | $  2,410,452                  
|Adjustments to reconcile net income to net cash
      provided
          by operating activities                                 |                                |                                |                               
|Provision for loan losses                                                                                                        | 780,846                        | 1,071,949                      | 610,017                       
|Provision for losses on acquired assets                                                                                          | 24,000                         | 24,000                         | 47,000                        
|Write-down of investment securities                                                                                              | 105,643                        | 60,000                         | 95,728                        
|Deferred income tax (benefit) expense                                                                                            | (274,481)                      | (154,576)                      | 86,398                        
|Depreciation of premises and equipment                                                                                           | 701,830                        | 808,760                        | 755,956                       
|Amortization of goodwill                                                                                                         | 274,259                        | 274,258                        | 461,569                       
|Net gain on sale of available for sale
      securities                                                                          | (134,875)                      | (75,175)                       | (84,133)                      
|Net gain on sales of loans                                                                                                       | (393,018)                      | (220,954)                      | (817,084)                     
|Originations of loans held for sale                                                                                              | (13,008,894)                   | (4,343,694)                    | (17,476,548)                  
|Proceeds from sale of loans held for sale                                                                                        | 12,155,643                     | 4,672,871                      | 17,908,553                    
|Other                                                                                                                            | (89,157)                       | (325,495)                      | (163,899)                     
|Change in other assets and liabilities:                                                                                          |                                |                                |                               
|Interest receivable                                                                                                              | 890                            | (413,054)                      | (56,962)                      
|Other assets and liabilities                                                                                                     | (215,082)
      ____________   | 708,117 
      ____________    | (1,241,063)
      ____________
|Net cash provided by operating activities                                                                                        | 3,411,505                      | 5,296,729                      | 2,535,984                     
|Cash flows from investing activities:                                                                                            |                                |                                |                               
|Proceeds from the sale of available for sale
      securities                                                                    | 604,650                        | 341,815                        | 6,930,743                     
|Purchases of available for sale securities                                                                                       | (1,589,596)                    | (9,173,218)                    | (15,992,030)                  
|Proceeds from maturities and principal payments on
          available for sale Securities                                       | 4,907,123                      | 3,291,786                      | 4,086,624                     
|Proceeds from sale of portfolio loans                                                                                            | 5,488,691                      | 40,769                         | 11,278,496                    
|Purchases of loans                                                                                                               | --                             | (3,168,848)                    | (27,913,995)                  
|Net increase in loans                                                                                                            | (4,880,739)                    | (60,039,333)                   | (20,629,306)                  
|Additions to premises and equipment                                                                                              | (433,658)                      | (325,814)                      | (1,424,307)                   
|Proceeds from sale of acquired assets                                                                                            | 382,645                        | 246,124                        | 422,787                       
|Purchase of Federal Home Loan Bank stock                                                                                         | -- 
      ____________         | (964,000)
      ____________   | -- 
      ____________        
|Net cash provided (used) by investing activities                                                                                 | 4,479,116                      | (69,750,719)                   | (43,240,988)                  
|                                                                                                                                 |                                |                                |                               
|Cash flows from financing activities:                                                                                            |                                |                                |                               
|Net increase in deposits                                                                                                         | $ 14,153,966                   | $ 40,617,777                   | $ 35,339,938                  
|Net (repayments) borrowings from the Federal Home
          Loan Bank                                                            | (14,579,082)                   | 18,746,089                     | (558,236)                     
|Net (decrease) increase in repurchase agreements                                                                                 | (4,291,366)                    | 1,242,326                      | 6,662,245                     
|Dividends paid                                                                                                                   | (661,504)                      | (632,968)                      | (596,327)                     
|Treasury stock purchased                                                                                                         | (1,125,257)                    | (878,532)                      | --                            
|Issuance of common stock and treasury stock                                                                                      | 22,944                         | 81,787                         | 104,543                       
|Principal payments on note payable                                                                                               | --                             | (687,500)                      | (305,555)                     
|Debt issuance costs paid                                                                                                         | --                             | (523,614)                      | --                            
|Proceeds from issuance of interest in Junior
      Subordinated
          Debentures                                             | -- 
      ____________         | 7,172,998 
      ____________  | -- 
      ____________        
|Net cash (used) provided by financing activities                                                                                 | (6,480,299)
      ____________ | 65,138,363 
      ____________ | 40,646,608 
      ____________
|Net increase (decrease) in cash and cash equivalents                                                                             | 1,410,322                      | 684,373                        | (58,396)                      
|Cash and cash equivalents, beginning of year                                                                                     | 12,777,943 
      ____________ | 12,093,570 
      ____________ | 12,151,966
      ____________ 
|Cash and cash equivalents, end of year                                                                                           | $ 14,188,265 
      ========== | $ 12,777,943 
      ========== | $ 12,093,570 
      ==========
|Supplemental schedule of cash flow information:                                                                                  |                                |                                |                               
|Interest paid                                                                                                                    | $ 21,696,449                   | $ 18,145,911                   | $ 14,610,453                  
|Income taxes paid                                                                                                                | 2,101,500                      | 1,872,000                      | 1,524,000                     
|Supplemental schedule of noncash investing and financing
       activities:                                                      |                                |                                |                               
|Transfer from loans to acquired assets                                                                                           | $   513,712                    | $   338,570                    | $   301,537                   
|Change in valuation allowance for
      unrealized (gains)
            losses on available for sale
      securities, net of tax | (598,455)                      | 336,646                        | 375,080                       
|Net change in deferred taxes for
      unrealized (gains)
            losses on available for sale
      securities              | (308,295)                      | 173,424                        | 193,222                       

See accompanying notes.

Page 38

NORTHEAST BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2001, 2000 and 1999

1.  Summary of Significant Accounting Policies

The accounting and reporting policies of Northeast Bancorp and Subsidiaries
(the Company) conform to generally accepted accounting principles and general
practice within the banking industry.

Business

Northeast Bancorp provides a full range of banking services to individual and
corporate customers throughout south central and western Maine through its
wholly owned subsidiary, Northeast Bank, F.S.B. The bank is subject to
competition from other financial institutions. The bank is subject to the
regulations of the Federal Deposit Insurance Corporation (FDIC) and the Office
of Thrift Supervision (OTS) and undergoes periodic examinations by these
agencies.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Northeast Bancorp, a savings and loan holding company, and two wholly-owned
subsidiaries, Northeast Bank, F.S.B. (including the Bank's wholly-owned
subsidiary, Northeast Financial Services, Inc.), and NBN Capital Trust. All
significant intercompany transactions and balances have been eliminated in
consolidation.

Use of Estimates

The financial statements have been prepared in conformity with accounting
principles generally accepted in the Unites States of America. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the balance sheet and income
and expenses for the period. Actual results could differ significantly from
those estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses. In connection with
the determination of the allowance for loan losses, management obtains
independent appraisals for significant properties. A substantial portion of the
Company's loans are secured by real estate in the State of Maine. Accordingly,
the ultimate collectibility of a substantial portion of the Company's loan
portfolio is susceptible to changes in market conditions in Maine.

Cash and Cash Equivalents

For purposes of presentation in the consolidated statements of cash flow,
cash and cash equivalents consist of cash and due from banks, Federal Home Loan
Bank overnight deposits and interest bearing deposits. The Company is required
to maintain a certain reserve balance in the form of cash or deposits with the
Federal Reserve Bank. At June 30, 2001, the reserve balance was approximately
$1,843,000.

Available for Sale Securities

Marketable equity securities, and debt securities which may be sold prior to
maturity, are classified as available for sale and are carried at market value.
Market value is determined based on bid prices published in financial newspapers
or bid quotations received from securities dealers. Changes in market value, net
of applicable income taxes, are reported as a separate component of
stockholders' equity. When a decline in market value of a security is considered
other than temporary, the loss is charged to other expense in the consolidated
statements of income and is treated as a writedown of the security's
"cost". Realized gains and losses on the sale of securities are
recognized on the trade date using the specific identification method.

Federal Home Loan Bank Stock

Federal Home Loan Bank stock is carried at cost.

Loans Held for Sale and Mortgage Banking Activities

Loans originated for sale are specifically identified and carried at the
lower of aggregate cost or market value, estimated based on bid quotations from
loan dealers. The carrying value of loans held for sale approximates the market
value at June 30, 2001 and 2000. Realized gains and losses on sale of loans are
determined using the specific identification method and are reflected as gains
on sale of loans in the consolidated statements of income.

The Company recognizes as separate assets the rights to service mortgage
loans for others, and performs an assessment of capitalized mortgage servicing
rights for impairment based on the current fair value of those rights. The
Company capitalizes mortgage servicing rights at their allocated cost (based on
the relative fair values of the rights and the related loans) upon the sale of
the related loans.

The Company's mortgage servicing rights asset at June 30, 2001 and 2000 was
approximately $452,000 and $524,000, respectively, and is included in other
assets in the consolidated statements of financial position. Mortgage servicing
rights are amortized over the estimated weighted average life of the loans. The
Company's assumptions with respect to prepayments, which affect the estimated
average life of the loans, are adjusted periodically to reflect current
circumstances. The Company evaluates the estimated life of its servicing
portfolio based on data which is disaggregated to reflect note rate, type and
term on the underlying loans.

Loans

Loans are carried at the principal amounts outstanding plus net premiums paid
and net deferred loan costs. Loan origination fees and certain direct loan
origination costs are deferred and recognized in interest income as an
adjustment to the loan yield over the life of the related loans. Loan premiums
paid to acquire loans are recognized as a reduction of interest income over the
estimated life of the loans. Loans are generally placed on nonaccrual status
when they are past due 90 days as to either principal or interest, or when in
management's judgment the collectibility of interest or principal of the loan
has been significantly impaired. When a loan has been placed on nonaccrual
status, previously accrued and uncollected interest is reversed against interest
on loans. A loan can be returned to accrual status when collectibility of
principal is reasonably assured and the loan has performed for a period of time,
generally six months. Loans are classified as impaired when it is probable that
the Company will not be able to collect all amounts due according to the
contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status and collateral value.

Page 39

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan
losses charged to operations. Loan losses are charged against the allowance when
management believes that the collectibility of the loan principal is unlikely.
Recoveries on loans previously charged off are credited to the allowance.

The allowance is an amount that management believes will be adequate to
absorb possible loan losses based on evaluations of collectibility and prior
loss experience. The evaluation takes into consideration such factors as changes
in the nature and volume of the portfolio, overall portfolio quality, specific
problem loans, and current economic conditions that may affect the borrowers'
ability to repay.

Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, changing
economic conditions and the economic prospects of the borrowers might
necessitate future additions to the allowance. 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.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance and repairs are charged to
expense as incurred and the cost of major renewals and betterments are
capitalized.

Long-Lived Assets

Long-lived assets are evaluated periodically for impairment. An assessment of
recoverability is performed prior to any writedown of the asset. If
circumstances suggest that their value may be impaired, then an expense would be
charged in the then current period.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. 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 the period that
includes the enactment date.

Acquired Assets

Acquired assets are carried at the lower of cost or fair value of the
collateral less estimated selling expenses.

Goodwill

Goodwill arising from acquisitions is being amortized on a straight-line
basis over ten to fifteen year periods. Goodwill is reviewed for possible
impairment when events or changed circumstances may affect the underlying basis
of the asset.

Advertising Expense

Advertising costs are expensed as incurred. Advertising costs were
approximately $286,000, $194,000 and $218,000 for the years ended June 30, 2001,
2000 and 1999, respectively.

Stock-Based Compensation

Compensation expense for the Stock Option Plans is accounted for in
accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. The Stock Option Plans are noncompensatory plans
and no expense is recognized. Shares reserved for issuance under the Plans, but
not yet awarded, are not considered outstanding for purposes of computing
earnings per share.

Comprehensive Income

Accumulated other comprehensive income or loss consists solely of unrealized
gains or losses on investment securities available for sale net of related
income taxes.

Page 40

New Accounting Pronouncements Not Yet Implemented

The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible
Assets." The FASB statement provides guidance on how to account for
acquired goodwill and other intangible assets. The most substantive change
represented by this statement is that goodwill and other intangible assets with
an indefinite useful life will no longer be amortized; instead, they will be
tested for impairment at least on an annual basis. The nonamortization and
impairment rules will apply to existing goodwill and other intangible assets of
the Company, which will adopt the provisions of this statement in its fiscal
year beginning July 1, 2001.

2.   Available for Sale Securities

A summary of the cost and approximate fair values of available for sale
securities at June 30, 2001 and 2000 follows:

|                                                                                                              | 2001
      ________________________ | 2000
      ________________________
|------------------------------------------------------------------------------------------------------------- | ----------------------------------- | -----------------------------------
|                                                                                                              | Cost
      ___________              | Fair
      Value
      ___________ 
|Debt securities issued by the U.S. Treasury and
       other U.S. Government corporations and
       agencies | $   248,628                         | $  248,628                         
|Corporate bonds                                                                                               | 149,887                             | 151,641                            
|Mortgage-backed securities                                                                                    | 18,737,709                          | 18,662,746                         
|Equity securities                                                                                             | 1,305,892 
      ___________        | 1,109,829 
      ___________       
|                                                                                                              | $20,442,116 
      ==========       | $20,172,844 
      ==========      

The gross unrealized gains and unrealized losses on available for sale
securities are as follows:

|                                                                                                  | 2001
      ______________________                    | 2000
      ______________________                    
|------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | -----------------------------------------------------
|                                                                                                  | Gross
      Unrealized
      Gains
      ___________ | Gross
      Unrealized
      Losses
      ___________
|Debt securities issued by the U.S. Treasury and  other U.S. Government corporations and  agencies | $           --                                       | $           --                                       
|Corporate bonds                                                                                   | 1,754                                                | --                                                   
|Mortgage-backed securities                                                                        | 157,027                                              | 231,990                                              
|Equity securities                                                                                 | 24,885 
      ___________                            | 220,948 
      ___________                           
|                                                                                                  | $    183,666 
      ==========                       | $    452,938 
      ==========                       

At June 30, 2001, mortgage-backed securities with a market value of
approximately $14,211,000 were pledged as collateral to secure outstanding
repurchase agreements.

At June 30, 2001 and 2000, included in accumulated other comprehensive income
(loss) as a reduction to stockholders' equity are net unrealized losses of
$269,272 and $1,176,021, respectively, net of the deferred tax effect of $91,553
and $399,847, respectively.

Page 41

The cost and fair values of available for sale securities at June 30, 2001 by
contractual maturity are shown below. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

|                                                                                                                                                 | Cost
      ______________             | Fair
      Value
      ______________
|------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------- | -------------------------------------
|Debt securities:                                                                                                                                 |                                       |                                      
|Due in one year                                                                                                                                  | $         248,628                     | $         248,628                    
|Due after one year through five years                                                                                                            | 149,887 
      ______________         | 151,641 
      ______________        
|                                                                                                                                                 | 398,515                               | 400,269                              
|Mortgage-backed securities (including securities with interest rates
       ranging from 5.15% to 9.0% maturing September 2003 to November 2029) | 18,737,709                            | 18,662,746                           
|Equity securities                                                                                                                                | 1,305,892 
      ______________       | 1,109,829 
      ______________      
|                                                                                                                                                 | $     20,442,116 
      ============= | $     20,172,844 
      ============ 

Realized gains and losses on sales of available for sale securities for the
year ended June 30, 2001 were $134,875 and $0, respectively, for the year
ended June 30, 2000 were $75,175 and $0, respectively, and for the year
ended June 30, 1999 were $85,891 and $1,758, respectively.

Based on management's assessment of available for sale securities, there has
been more than a temporary decline in fair value of certain securities. During
the years ended June 30, 2001, 2000 and 1999, write-downs of available for
sale securities were $105,643, $60,000 and $95,728, respectively, and are
included in other expense in the consolidated statements of income.

3.   Loans Receivable

The Company's lending activities are predominantly conducted in south central
and western Maine. However, the Company does purchase residential mortgage loans
in the open market out of this geographical area when management believes this
is prudent. The Company grants single-family and multi-family residential loans,
commercial real estate loans, commercial loans and a variety of consumer loans.
In addition, the Company grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties and for land
development. Also, the Company participates in indirect lending arrangements for
automobile, equipment and mobile home loans. The Company's indirect lending
activities are conducted in south central and western Maine. Most loans granted
by the Company are collateralized by real estate. The ability and willingness of
residential and commercial real estate, commercial and construction loan
borrowers to honor their repayment commitments is generally dependent on the
health of the real estate sector in the borrowers' geographic area and/or the
general economy.

In the ordinary course of business, the Company has loan transactions with
its officers, directors and their associates and affiliated companies
("related parties") at substantially the same terms as those
prevailing at the time for comparable transactions with others. Such loans
amounted to $3,051,196 and $3,444,816 at June 30, 2001 and 2000, respectively.
In 2001, new loans granted to related parties totaled $741,055 payments and
reductions amounted to $1,134,675.

Included in the loan portfolio are unamortized premiums on purchased loans of
approximately $453,000 and $632,000 at June 30, 2001 and 2000, respectively.

Page 42

Activity in the allowance for loan losses was as follows:

|                                           | Years Ended June 30,
      _____________________________________________
|------------------------------------------ | ------------------------------------------------------------------------
|                                           | 2001
      ____________                                                 
|Balance at beginning of year               | $   3,498,000                                                           
|Provision charged to operating expenses    | 780,846                                                                 
|Loans charged off                          | (744,345)                                                               
|Recoveries on loans previously charged off | 243,499 
      ____________                                             
|Net loans charged off                      | (500,846)
      ____________                                            
|Balance at end of year                     | $   3,778,000 
      ==========                                         

Commercial and commercial real estate loans with balances greater than
$25,000 are considered impaired when it is probable that the Company will not
collect all amounts due in accordance with the contractual terms of the loan.
Loans that are returned to accrual status are no longer considered to be
impaired. Certain loans are exempt from individual impairment evaluation,
including large groups of smaller-balance homogenous loans that are collectively
evaluated for impairment, such as consumer and residential mortgage loans and
commercial loans with balances less than $25,000.

The allowance for loan losses includes impairment reserves related to loans
that are identified as impaired, which are based on discounted cash flows using
the loan's effective interest rate, the fair value of the collateral for
collateral-dependent loans, or the observable market price of the impaired loan.
When foreclosure is probable, impairment is measured based on the fair value of
the collateral. Loans that experience insignificant payment delays (less than 60
days) and insignificant shortfalls in payment amounts (less than 10%) generally
are not classified as impaired. Restructured loans are reported as impaired in
the year of restructuring. Thereafter, such loans may be removed from the
impaired loan disclosure if the loans were paying a market rate of interest at
the time of restructuring and are performing in accordance with their
renegotiated terms.

At June 30, 2001, impaired loans were $3,311,240 of which $1,987,699 had
related allowances of $515,704. During the year ended June 30, 2001, the income
recognized related to impaired loans was $36,781 and the average balance of
outstanding impaired loans was $1,963,065. At June 30, 2000, impaired loans
were $1,164,349 of which $81,341 had related allowances of $30,000. During the
year ended June 30, 2000, the income recognized related to impaired loans was
$22,648 and the average balance of outstanding impaired loans was $914,493. At
June 30, 1999, impaired loans were $612,867 of which $241,420 had related
allowances of $77,200. During the year ended June 30, 1999, the income
recognized related to impaired loans was $66,030 and the average balance of
outstanding impaired loans was $1,229,987. The Company recognizes interest on
impaired loans on a cash basis when the ability to collect the principal balance
is not in doubt; otherwise, cash received is applied to the principal balance of
the loan.

Loans on nonaccrual status, including impaired loans described above, at June
30, 2001 and 2000 totaled approximately $3,629,000 and $1,178,000, respectively.
Interest income that would have been recorded under the original terms of such
loans, net of interest income actually recognized for the years ended
June 30, 2001, 2000 and 1999, totaled approximately $287,000, $89,000 and
$71,000, respectively.

The Company has no material outstanding commitments to lend additional funds
to customers whose loans have been placed on nonaccrual status or the terms of
which have been modified.

The Company was servicing, for others, mortgage loans of approximately
$48,540,000, $52,410,000 and $64,690,000 at June 30, 2001, 2000 and 1999,
respectively.

Page 43

4.  Premises and Equipment

Premises and equipment at June 30, 2001 and 2000 are summarized as follows:



|                                    | 2001
      ____________         | 2000
      ____________        
|----------------------------------- | ------------------------------- | -------------------------------
|Land                                | $   1,025,440                   | $   1,025,440                  
|Buildings                           | 2,240,667                       | 2,348,507                      
|Leasehold and building improvements | 1,437,119                       | 1,228,423                      
|Furniture, fixtures and equipment   | 3,742,101 
      ____________   | 3,720,732 
      ____________  
|                                    | 8,445,327                       | 8,323,102                      
|Less accumulated depreciation       | 4,326,740 
      ____________   | 3,925,334 
      ____________  
|Net premises and equipment          | $   4,118,587 
      ========== | $   4,397,768 
      ==========

Depreciation and amortization of premises and equipment, included in
occupancy and equipment expense, was $701,830, $808,760 and $755,956 for the
years ended June 30, 2001, 2000 and 1999, respectively.

5.   Acquired Assets

The following table summarizes the composition of acquired assets at June 30:

|                                                                                       | 2001
      ____________         | 2000
      ____________        
|-------------------------------------------------------------------------------------- | ------------------------------- | -------------------------------
|Real estate properties acquired in settlement of loans and other
      acquired assets | $     406,271                   | $     306,465                  
|Less allowance for losses                                                              | 21,194 
      ____________      | 28,455 
      ____________     
|                                                                                       | $     385,077 
      ========== | $     278,010 
      ==========

Activity in the allowance for losses on acquired assets was as follows:

|                                        | 2001
      ____________            | 2000
      ____________           | 1999
      ____________           
|--------------------------------------- | ---------------------------------- | --------------------------------- | ----------------------------------
|Balance at beginning of year            | $       28,455                     | $       27,725                    | $        5,100                    
|Provision for losses on acquired assets | 24,000                             | 24,000                            | 47,000                            
|Write-downs                             | (31,261)
      ____________        | (23,270)
      ____________       | (24,375)
      ____________       
|Balance at end of year                  | $       21,194 
      ============ | $       28,455
      ============ | $       27,725 
      ============

Page 44

6.   Deposits

Deposits at June 30 are summarized as follows:

|                                                           | Weighted
      Average Rate
      at June 30, 2001
      _______________ | 2001
      ____________________ | 2000
      ____________________
|---------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------- | -------------------------------
|Amount
      __________                                    | Percent
      _______                                                    | Amount
      __________         | Percent
      _______          
|Demand                                                     | 0.00%                                                                    | $  26,323,105                   | 9.6%                           
|NOW                                                        | 2.41                                                                     | 30,957,847                      | 11.3                           
|Money market                                               | 2.52                                                                     | 6,601,435                       | 2.4                            
|Regular savings                                            | 2.02                                                                     | 20,353,424                      | 7.4                            
|Certificates of deposit and brokered
       time deposits: |                                                                          |                                 |                                
|1.00 - 3.75%                                               | 3.49                                                                     | 1,394,470                       | .5                             
|3.76 - 5.75%                                               | 5.06                                                                     | 64,889,000                      | 23.7                           
|5.76 - 7.75%                                               | 6.47  
      _______________                                             | 123,616,497 
      ____________ | 45.1  
      _______           
|                                                           | 5.11%
      =============                                                | $ 274,135,778 
      ========== | 100.0%
      ======            

At June 30, 2001, scheduled maturities of certificates of deposit and
brokered time deposits are as follows:

|               | 2002
      ___________ | 2003
      ___________ | 2004
      ___________ | 2005
      ___________ | 2006
      ___________ | Thereafter
      __________
|-------------- | ---------------------- | ---------------------- | ---------------------- | ---------------------- | ---------------------- | ---------------------------
|1.00 -   3.75% | $     1,394,470        | $                    - | $                    - | $                    - | $                    - | $                    -     
|3.76 -   5.75% | 35,415,213             | 25,947,876             | 2,207,005              | 583,613                | 715,148                | 20,145                     
|5.76 -   7.75% | 108,408,114            | 11,804,803             | 612,347                | 2,334,703              | 404,392                | 52,138                     

Interest expense on deposits for the years ended June 30, 2001, 2000 and 1999
is summarized as follows:

|                                                   | 2001
      ____________          | 2000
      ____________          | 1999
      ____________         
|-------------------------------------------------- | -------------------------------- | -------------------------------- | --------------------------------
|NOW                                                | $      864,359                   | $      915,018                   | $      932,896                  
|Money market                                       | 178,334                          | 144,388                          | 209,733                         
|Regular savings                                    | 484,288                          | 493,861                          | 514,917                         
|Certificates of deposit and brokered time deposits | 11,566,704 
      ____________   | 8,792,316
      ____________     | 7,022,751
      ____________    
|                                                   | $  13,093,685 
      =========== | $  10,345,583 
      =========== | $   8,680,297 
      ===========

Page 45

7.   Federal Home Loan Bank Borrowings

A summary of borrowings from the Federal Home Loan Bank are as follows:



|June 30, 2001
      ___________________________________________________________________
|---------------------------------------------------------------------------------------
|Principal
      Amounts
      ___________________                                      
|$            38,105,113                                                                
|8,722,204                                                                              
|18,221,406                                                                             
|2,000,000                                                                              
|26,000,000                                                                             
|8,000,000                                                                              
|7,000,000 
      ___________________                                                   
|$          108,048,723 
      =================                                        
|                                                                                       
|June 30, 2000
      ___________________________________________________________________
|Principal
      Amounts
      ___________________                                      
|$            91,579,611                                                                
|11,471,802                                                                             
|6,832,792                                                                              
|2,743,600                                                                              
|2,000,000                                                                              
|8,000,000 
      ___________________                                                   
|$           122,627,805 
      =================                                       

Several of the FHLB borrowings are subject to call provisions and may be
called prior to the stated maturity.

Certain mortgage loans, free of liens, pledges and encumbrances, investment
securities not otherwise pledged, FHLB overnight deposits and the Company's FHLB
stock have been pledged under a blanket agreement to secure these borrowings.
The Company is required to own stock of the Federal Home Loan Bank of Boston in
order to borrow from the Federal Home Loan Bank.

At June 30, 2001, the Company had approximately $2,100,000 available
under a line of credit arrangement with the FHLB. Also, in addition to the FHLB
advances outstanding at June 30, 2001, the Company had approximately
$30,588,000 available for long-term advances from the FHLB.

8.   Securities Sold Under Repurchase Agreements

During 2001 and 2000, the Company sold securities under agreements to
repurchase. The weighted average interest rate on repurchase agreements was
2.66% and 4.18% at June 30, 2001 and 2000, respectively. These borrowings,
which were scheduled to mature within 180 days, were collateralized by
mortgage-backed securities with a market value of $14,211,000 and amortized cost
of $14,388,000 at June 30, 2001, and a market value of $17,006,000 and
amortized cost of $17,877,000 at June 30, 2000. The average balance of
repurchase agreements was $13,573,000 and $13,768,000 during the years ended
June 30, 2001 and 2000, respectively. The maximum amount outstanding at any
month-end during 2001 and 2000 was $16,109,000 and $18,675,000, respectively.
Securities sold under these agreements were under the control of the Company
throughout 2001 and 2000.

Page 46

9.   Capital and Regulatory Matters

The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and
"critically undercapitalized."

As of June 30, 2001 and 2000, the most recent notification from the
Office of Thrift Supervision (OTS) categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well capitalized" the Bank must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 capital as set forth in the table
below. There are no conditions or events since that notification that management
believes have changed the institution's category.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios as set forth in the
table below. At June 30, 2001 and 2000, the Bank ratios exceeded the regulatory
requirements. Management believes that the Bank meets all capital adequacy
requirements to which it is subject as of June 30, 2001 and 2000.

The following tables illustrate the actual and required amounts and ratios
for the Bank at the dates indicated.

|                                                        | Actual
      _____________________ | For Capital Adequacy
      Purposes
      _____________________ | To Be "Well Capitalized"
      Under Prompt Corrective
      Action Provisions
      ____________________ 
|------------------------------------------------------- | ---------------------------------- | --------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------
|                                                        | Amount
      ____________          | Ratio
      _______                                             | Amount
      ____________                                                                                 
|(Dollars in Thousands)                                  |                                    |                                                                 |                                                                                                           
|As of June 30, 2001:                                    |                                    |                                                                 |                                                                                                           
|Tier 1 (Core) capital (to risk
        weighted assets) | $      35,114                      | 11.12%                                                          | >$    12,628                                                                                              
|Tier 1 (Core) capital (to
        total assets)         | $      35,114                      | 8.17%                                                           | >$    17,197                                                                                              
|Total capital (to risk
        weighted assets)         | $      37,266                      | 11.80%                                                          | >$    25,257                                                                                              
|                                                        |                                    |                                                                 |                                                                                                           
|                                                        | Actual
      _____________________ | For Capital Adequacy
      Purposes
      _____________________ | To Be "Well Capitalized"
      Under Prompt Corrective
      Action Provisions
      _____________________
|                                                        | Amount
      ____________          | Ratio
      _______                                             | Amount
      ____________                                                                                 
|                                                        |                                    |                                                                 |                                                                                                           
|(Dollars in Thousands)                                  |                                    |                                                                 |                                                                                                           
|As of June 30, 2000:                                    |                                    |                                                                 |                                                                                                           
|Tier 1 (Core) capital (to risk
        weighted assets) | $      33,140                      | 10.60%                                                          | >$    12,504                                                                                              
|Tier 1 (Core) capital (to
        total assets)         | $      33,140                      | 7.66%                                                           | >$    17,309                                                                                              
|Total capital (to risk
        weighted assets)         | $      35,434                      | 11.34%                                                          | >$    25,008                                                                                              

The Bank may not declare or pay a cash dividend on, or repurchase, any of its
capital stock from the Parent if the effect thereof would cause the capital of
the Bank to be reduced below the capital requirements imposed by the regulatory
authorities or if such amount exceeds the otherwise allowable amount under OTS
rules (approximately $1,700,000 is available at June 30, 2001).

In December 1999, the Board of Directors of the Company approved a plan to
repurchase up to $2,000,000 of its common stock. Also in May 2001, the Board of
Directors authorized the repurchase of an additional $2,000,000 of common stock.
Under the common stock repurchase plans, the Company may purchase shares of its
common stock from time to time in the open market at prevailing prices.
Repurchased shares will be held in treasury and may be used in connection with
employee benefits and other general corporate purposes. As of June 30,
2001, the Company had approximately $1,975,000 of treasury stock, which is
carried at cost.

Page 47

10.   Earnings Per Common Share

Basic earnings per share (EPS) are computed by dividing net income available
to common stockholders by the weighted average number of shares outstanding. The
following table shows the weighted average number of shares outstanding for each
of the last three years. Shares issuable relative to stock options granted have
been reflected as an increase in the shares outstanding used to calculate
diluted EPS, after applying the treasury stock method. The number of shares
outstanding for Basic and Diluted EPS are presented as follows:

|                                                                            | 2001
      ____________      | 2000
      ____________      | 1999
      ____________     
|--------------------------------------------------------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|Average shares outstanding, used in computing Basic EPS                     | 2,648,205                    | 2,739,966                    | 2,710,117                   
|Effect of Dilutive Securities:                                              |                              |                              |                             
|Stock options outstanding                                                   | 21,811                       | 7,537                        | 26,188                      
|Options exercised                                                           | 1,916                        | 6,090                        | 8,177                       
|Convertible preferred stock                                                 | -- 
      ____________       | -- 
      ____________       | 50,062 
      ____________  
|Average equivalent shares outstanding, used in computing
       Diluted EPS | 2,671,932 
      =========== | 2,753,593 
      =========== | 2,794,544 
      ===========

There is a difference in 1999 between net income and net income available to
common stockholders which is used in the calculation of Basic EPS. The following
table illustrates the difference:



|                                            | 1999
      __________             
|------------------------------------------- | ----------------------------------
|Net income                                  | $    2,410,452                    
|Preferred stock dividends                   | (25,667)
      ___________        
|Net income available to common stockholders | $     2,384,785 
      ===========

11.  Preferred Stock

In November of 1998, the preferred stock, Series A, was converted to common
stock at a three to one ratio. There were no warrants attached to the Series A
preferred stock. No preferred stock is outstanding at June 30, 2001 and 2000.

Page 48

12.  Other Expenses

Other expenses include the following for the years ended June 30, 2001, 2000
and 1999:

|                                    | 2001
      ____________            | 2000
      ____________            | 1999
      ____________           
|----------------------------------- | ---------------------------------- | ---------------------------------- | ----------------------------------
|Professional fees                   | $      512,041                     | $      504,179                     | $      471,083                    
|Printing and office supplies        | 275,742                            | 214,103                            | 300,888                           
|Real estate owned expenses          | 33,343                             | 59,896                             | 44,219                            
|Goodwill amortization               | 274,259                            | 274,258                            | 461,569                           
|Write-down of investment securities | 105,643                            | 60,000                             | 95,728                            
|Other                               | 2,276,836 
      ____________      | 2,167,659 
      ____________      | 2,380,234
      ____________      
|                                    | $    3,477,864 
      ============ | $    3,280,095 
      ============ | $    3,753,721 
      ============

The goodwill amortization for 1999 included an impairment write-down of
approximately $165,000.

13.  Income Taxes

The current and deferred components of income tax (benefit) expense were as
follows for the years ended June 30, 2001, 2000 and 1999:

|                          | 2001
      ____________           | 2000
      ____________           | 1999
      ____________          
|------------------------- | --------------------------------- | --------------------------------- | ---------------------------------
|Federal:                  |                                   |                                   |                                  
|Current                   | $    2,093,089                    | $    1,848,732                    | $    1,290,783                   
|Deferred                  | (274,481)
      ____________      | (154,576)
      ____________      | 86,398 
      _____________      
|                          | 1,818,608                         | 1,694,156                         | 1,377,181                        
|State and local - current | 69,321 
      ____________        | 69,565 
      ____________        | 55,410 
      _____________      
|                          | $    1,887,929 
      =========== | $    1,763,721 
      =========== | $    1,432,591 
      ===========

Total income tax expense is different from the amounts computed by applying
the U.S. federal income tax rates in effect to income before income taxes. The
reasons for these differences are as follows for the years ended June 30, 2001,
2000 and 1999:

|                                                       | 2001
      ___________________ | 2000
      ___________________              | 1999
      ___________________
|------------------------------------------------------ | ------------------------------ | ------------------------------------------- | ------------------------------
|                                                       | Amount
      __________        | %Of
      Pretax
      Income
      _______ | Amount
      __________       
|Expected income tax expense
       at federal tax rate | $ 1,826,422                    | 34.0%                                       | $ 1,690,971                   
|State tax, net of federal tax benefit                  | 45,752                         | .9                                          | 45,913                        
|Nondeductible goodwill                                 | 34,671                         | .6                                          | 34,671                        
|Dividend received deduction                            | (17,832)                       | (.3)                                        | (20,049)                      
|Low income/rehabilitation credit                       | (10,000)                       | (.2)                                        | (18,126)                      
|Other                                                  | 8,916 
      __________        | .2  
      _______                          | 30,341 
      __________      
|                                                       | $1,887,929 
      =========    | 35.2%
      ======                          | $ 1,763,721 
      =========  

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
2001 and 2000 are presented below:

|                                                                                    | 2001
      ____________           | 2000
      ____________          
|----------------------------------------------------------------------------------- | --------------------------------- | ---------------------------------
|Deferred tax assets:                                                                |                                   |                                  
|Loans, principally due to allowance for loan losses                                 | $    1,258,000                    | $    1,169,000                   
|Interest on nonperforming loans                                                     | 98,000                            | 33,000                           
|Difference in tax and financial statement bases of
      investments                | 190,000                           | 475,000                          
|Difference in tax and financial statement amortization of
      deductible goodwill | 156,000                           | 132,000                          
|Other                                                                               | 151,000 
      ____________       | 94,000 
      ____________       
|Total deferred tax assets                                                           | 1,853,000                         | 1,903,000                        
|Deferred tax liabilities:                                                           |                                   |                                  
|Loan loss reserve - tax basis                                                       | (44,000)                          | (59,000)                         
|Mortgage servicing rights                                                           | (149,000)                         | (170,000)                        
|Other                                                                               | (73,000)
      ____________       | (53,000)
      ____________      
|Total deferred tax liabilities                                                      | (266,000)
      ____________      | (282,000)
      ____________     
|Net deferred tax assets, included in other
      assets                             | $    1,587,000 
      =========== | $    1,621,000 
      ===========

The Company has sufficient refundable taxes paid in available carryback years
to fully realize its recorded deferred tax assets. Accordingly, no valuation
allowance has been recorded.

Tax legislation requires that all thrift institutions, such as the Company,
recapture all or a portion of their tax bad debt reserves added since the base
year (last taxable year beginning before January 1, 1988). The Company has
previously recorded a deferred tax liability equal to the tax bad debt recapture
and as such, the rules will have no effect on net income or federal income tax
expense. Except as stated below, the unrecaptured base year reserves will not be
subject to recapture as long as the Bank continues to carry on the business of
banking. However, the balance of the pre-1988 tax bad debt reserves is subject
to provisions of present law that require recapture in the case of certain
excess distributions to stockholders and recapture would also be required should
the Bank's assets exceed $500 million. For federal income tax purposes, the
Company has designated approximately $2,400,000 of net worth as a reserve for
tax basis bad debts on loans. No deferred taxes have been provided for base year
reserve recapture as management plans to avoid the events that would cause such
recapture.

Page 49

14.  Employee Benefit Plans

Profit Sharing Plan

The Company has a profit sharing plan which covers substantially all
full-time employees. Contributions and costs are determined as a percent of each
covered employee's salary and are at the Board of Directors' discretion.
Expenses related to the profit sharing plan for the years ended June 30,
2001, 2000 and 1999 were $53,199, $83,064 and $53,590, respectively.

401(k) Plan

The Company offers a contributory 401(k) plan which is available to all
full-time salaried and hourly-paid employees who are regularly scheduled to work
1,000 hours or more in a Plan year, have attained age 21, and after completing
90 days of employment. Employees may contribute between 1% and 15% of their base
compensation to which the Company will match 50% up to the first 6% contributed.
For the years ended June 30, 2001, 2000 and 1999, the Company contributed
$117,046, $86,984 and $74,115, respectively.

Stock Option Plans

The Company has adopted Stock Option Plans. Both "incentive stock
options" and "nonqualified stock options" may be granted pursuant
to the Option Plans. Under the Option Plans, incentive stock options may only be
granted to employees of the Company and nonqualified stock options may be
granted to employees and nonemployee directors. All options granted under the
Option Plans will be required to have an exercise price per share equal to at
least the fair market value per share of common stock on the date the option is
granted. Options immediately vest upon being granted. The options are
exercisable for a maximum of ten years after the options are granted in the case
of all incentive stock options and five years after the grant date for
nonqualified stock options.

In accordance with the Stock Option Plans, a total of 197,500 shares of
unissued common stock were reserved for issuance pursuant to incentive stock
options with 75,900 shares at June 30, 2001 available to be granted and
40,500 shares of unissued common stock were reserved for issuance pursuant to
nonqualified stock options with 1,600 shares at June 30, 2001 available to
be granted.

A summary of the qualified and non-qualified stock option activity for the
years ended June 30 follows:

|                                                  | 2001
      _____________________ | 2000
      _____________________                                   | 1999
      _____________________
|------------------------------------------------- | -------------------------------- | ------------------------------------------------------------------ | --------------------------------
|                                                  | Shares
      __________          | Weighted-
      Average
      Exercise
      Price
      _________ | Shares
      __________         
|Outstanding at beginning
       or year           | 128,250                          | $     10.66                                                        | 111,750                         
|Granted                                           | 40,500                           | 8.25                                                               | 38,000                          
|Exercised                                         | (2,500)                          | 8.33                                                               | (16,500)                        
|Expired                                           | (5,750)
      __________         | 14.10 
      _________                                             | (5,000)
      __________        
|Outstanding and exercisable
       at end of year | 160,500 
      =========         | $9.96 
      ========                                              | 128,250 
      =========        

The following table summarizes information about stock options outstanding at
June 30, 2001:

|                                                         | Options Outstanding
      ________________________________________________________
|-------------------------------------------------------- | ----------------------------------------------------------------------------------
|Range of
      Exercise Prices
      ___________________ | Number
      Outstanding at
      June 30, 2001
      _________________           
|$ 7.50                                                   | 42,000                                                                            
|$   8.00 to $  9.00                                      | 85,750                                                                            
|$ 10.00 to $ 18.50                                       | 32,750 
      _________________                                                   
|$   7.50 to $ 18.50                                      | 160,500 
      ===============                                                    

The per share weighted average fair value of stock options granted during
2001 and 2000 was $2.86 and $2.62, respectively, on the date of the grants using
the Black Scholes option-pricing model as a valuation technique with the
following average assumptions: expected dividend yield, 1.94% and 2.85%;
risk-free interest rate, 5.39% and 6.03%; expected life, 8 years and 8 years;
and expected volatility, 28.02% and 27.90%, respectively.

For financial statement purposes, the Company measures the compensation costs
of its stock option plans under Accounting Principles Board (APB) Opinion No.
25, whereby no compensation cost is recorded if, at the grant date, the exercise
price of the options is equal to the fair market value of the Company's common
stock. Had the Company determined cost based on the fair value at the grant date
for its stock options under SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net income and earnings per share for the year
ended June 30, 2001 and June 30, 2000 would have been reduced to the
pro forma amounts indicated below.



|                                  |                               | Earnings Per Share
      ___________________
|--------------------------------- | ----------------------------- | --------------------------------------------
|                                  | Net Income
      ____________ | Basic
      ________                        
|June 30, 2001:
      ___________  |                               |                                             
|As reported                       | $     3,483,901               | $     1.32                                  
|Pro forma                         | $     3,367,981               | $     1.27                                  
|                                  |                               |                                             
|                                  |                               |                                             
|June 30, 2000:
      ____________ |                               |                                             
|As reported                       | $     3,209,722               | $     1.17                                  
|Pro forma                         | $     3,110,103               | $     1.14                                  
|                                  |                               |                                             
|June 30, 1999:
      ____________ |                               |                                             
|As reported                       | $     2,410,452               | $     0.88                                  
|Pro forma                         | $     2,376,947               | $     0.87                                  

Stock Purchase Plan

The Company had a stock purchase plan which covered substantially all
full-time employees with one year of service. Offerings under the Plan were made
quarterly at the market value of the Company's common stock on the offering
termination date. The maximum number of shares which could be purchased under
the plan was 156,000 shares. This plan expired in fiscal 2000.

Page 50

15.  Commitments, Contingent Liabilities and Other
Off-Balance-Sheet Risks

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
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and standby letters
of 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 contract amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.

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 and
standby letters of credit is represented by the contractual 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 with contract amounts which represent credit risk:



|                                                                                                 | 2001
      _____________       | 2000
      _____________      
|------------------------------------------------------------------------------------------------ | ------------------------------ | ------------------------------
|Commitments to originate loans:                                                                  |                                |                               
|Residential real estate mortgages                                                                | $     9,399,000                | $     2,898,000               
|Commercial real estate mortgages, including
      multi-family
          residential real estate | 10,983,000                     | 3,523,000                     
|Commercial business loans                                                                        | 2,520,000 
      _____________ | 4,552,000 
      _____________
|                                                                                                 | 22,902,000                     | 10,973,000                    
|Unused lines of credit                                                                           | 27,094,000                     | 24,839,000                    
|Standby letters of credit                                                                        | 2,542,000                      | 1,504,000                     
|Unadvanced portions of construction loans                                                        | 1,696,000                      | 3,594,000                     

At June 30, 2001, $912,000 of the stand-by letters of credit have been
granted with respect to related parties.

Commitments to extend credit are 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. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the counter party. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are issued to support private borrowing arrangements. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers.

Interest Rate Exchange Agreements

During fiscal 2000, the Company entered into two interest rate exchange
agreements to manage and hedge its interest rate exposure with respect to
certain certificates of deposit. The first agreement called for the Company to
receive a fixed interest rate of 7.75% and pay a variable rate based on the one
month LIBOR rate. The second agreement called for the Company to receive a fixed
interest rate of 7.50% and pay a variable rate based on the three month LIBOR
rate. Both agreements contained one year call provisions. The amounts
potentially subject to credit risk are the streams of payments under the
agreements and not the notional principal amount used to express the volume of
these transactions. At June 30, 2000, the Company had recorded a receivable
of approximately $140,000 with respect to these agreements. Entering into
interest rate exchange agreements involves not only the risk of default by the
other party, but also the interest rate risk if positions are not matched. The
notional principal amount of the interest rate exchange agreements outstanding
at June 30, 2000 was $20,000,000. Each agreement had a notional principal
amount of $10,000,000. The interest rate exchange agreements and related
certificates of deposit were both called during fiscal 2001. No such agreements
are outstanding at June 30, 2001.

On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS 138 ("Statement 133"). Statement
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Statements require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through earnings. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
are either offset against the change in fair value of assets, liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is recognized in earnings immediately. The
interest rate exchange agreements described above qualified for hedge
accounting. The adoption of this Statement did not result in a cumulative effect
of an accounting change or necessitate any transition adjustment, nor did
adoption have a significant effect on the Company's financial position,
liquidity or results of operations.

Other Derivative Financial Instruments

The Company has only limited involvement with other derivative financial
instruments and they are used for trading and hedging purposes. The derivative
financial instruments used by the Company are covered call and put contracts on
its equity securities portfolio and interest rate exchange agreements. Gains and
losses from entering into covered call and put contracts have been immaterial to
the results of operations of the Company. Such covered call and put contracts
are recorded at fair value with any adjustments recognized through earnings. The
total value of securities under call and put contracts at any one time is
immaterial to the Company's financial position, liquidity, or results of
operations.

Legal Proceedings

The Company and its subsidiaries are parties to litigation and claims arising
in the normal course of business. Management believes that the liabilities, if
any, arising from such litigation and claims will not be material to the
Company's consolidated financial position.

Lease Obligations

The Company leases certain properties and equipment used in operations under
terms of operating leases which include renewal options. Rental expense under
these leases approximated $264,000, $312,000 and $373,000 for the years ended
June 30, 2001, 2000 and 1999, respectively.

Approximate future minimum lease payments over the remaining terms of the
leases at June 30, 2001 are as follows:



|2002           | $    251,000                      
|-------------- | ----------------------------------
|2003           | 188,000                           
|2004           | 182,000                           
|2005           | 182,000                           
|2006           | 182,000                           
|2007 and after | 464,000 
      _____________      
|               | $    1,449,000 
      ============

Page 51

16.  Condensed Parent Information

Condensed financial statements for Northeast Bancorp at June 30, 2001
and 2000 and for each of the years in the three year period ended June 30,
2001 are presented below.

Balance Sheets

|Assets
      ______                                                           | June 30,
      __________________________
|----------------------------------------------------------------------------- | -----------------------------------------
|                                                                              | 2001
      ____________                  
|Cash (deposited with banking subsidiary)                                      | $       63,923                           
|Investment in banking subsidiary                                              | 35,571,532                               
|Investment in common securities of Trust subsidiary                           | 221,851                                  
|Goodwill, net                                                                 | 407,897                                  
|Other assets                                                                  | 1,575,978 
      ____________            
|Total assets                                                                  | $  37,841,181 
      ===========         
|                                                                              |                                          
|Liabilities and Stockholders' Equity
      __________________________________ |                                          
|Junior Subordinated Debentures issued to subsidiary                           | $   7,394,849                            
|Other liabilities                                                             | 1,315 
      ____________                
|                                                                              | 7,396,164                                
|Stockholders' equity                                                          | 30,445,017 
      ____________           
|Total liabilities and stockholders' equity                                    | $  37,841,181 
      ===========         

Statements of Income

|                                                                                                                | Years Ended June 30,
      __________________________________________
|--------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------
|                                                                                                                | 2001
      ____________                                              
|Income:                                                                                                         |                                                                      
|Dividends from banking subsidiary                                                                               | $   2,330,000                                                        
|Other income                                                                                                    | 26,486
      ____________                                            
|Total income                                                                                                    | 2,356,486                                                            
|Expenses:                                                                                                       |                                                                      
|Amortization of goodwill                                                                                        | 101,974                                                              
|Interest on note payable                                                                                        | -                                                                    
|Interest on Junior Subordinated Debentures paid to
           subsidiary                                        | 727,379                                                              
|General and administrative expense                                                                              | 65,390 
      ____________                                           
|Total expenses                                                                                                  | 894,743 
      ____________                                          
|Income (loss) before income tax benefit and
      equity
           in undistributed net income of subsidiaries | 1,461,743                                                            
|Income tax benefit                                                                                              | 264,458 
      ____________                                          
|Income (loss) before equity in undistributed net
          income of subsidiaries                               | 1,726,201                                                            
|Equity in undistributed net income of subsidiaries                                                              | 1,757,700 
      ____________                                        
|Net income                                                                                                      | $   3,483,901 
      ===========                                     
|                                                                                                                |                                                                      
|                                                                                                                | Years Ended June 30,
      __________________________________________
|Statements of Cash Flows
      _____________________                                                            | 2001
      ____________                                              
|                                                                                                                |                                                                      
|Cash flows from operating activities:                                                                           |                                                                      
|Net income                                                                                                      | $   3,483,901                                                        
|Adjustments to reconcile net income to net cash
      provided
          (used) by operating activities:        |                                                                      
|Amortization                                                                                                    | 119,448                                                              
|Undistributed earnings of subsidiaries                                                                          | (1,757,700)                                                          
|Increase in other assets                                                                                        | (271,592)                                                            
|Decrease in other liabilities                                                                                   | (3,575)
      ____________                                           
|Net cash provided (used) by operating activities                                                                | 1,570,482                                                            
|                                                                                                                |                                                                      
|Cash flows from investing activities:                                                                           |                                                                      
|Increase in investment in banking subsidiary                                                                    | -                                                                    
|Purchase of common securities of Trust subsidiary                                                               | - 
      ____________                                                
|Net cash used by investing activities                                                                           | -                                                                    
|                                                                                                                |                                                                      
|Cash flows from financing activities:                                                                           |                                                                      
|Principal payments on note payable                                                                              | -                                                                    
|Issuance of common stock and treasury stock                                                                     | 22,944                                                               
|Treasury stock purchased                                                                                        | (1,125,257)                                                          
|Dividends paid to stockholders                                                                                  | (661,504)                                                            
|Proceeds from issuance of Junior Subordinated
      Debentures                                                  | -                                                                    
|Payments for debt issuance costs                                                                                | - 
      ____________                                                
|Net cash (used) provided by financing activities                                                                | (1,763,817)
      ____________                                       
|Net (decrease) increase in cash                                                                                 | (193,335)                                                            
|Cash, beginning of year                                                                                         | 257,258 
      ____________                                          
|Cash, end of year                                                                                               | $       63,923 
      ===========                                    
|Supplemental schedule of cash flow information:                                                                 |                                                                      
|Interest paid                                                                                                   | $      727,379                                                       

Page 52

17.  Other Comprehensive Income

The components of other comprehensive income for the years ended 2001, 2000
and 1999 are as follows:



|                                                                                                                                                                               | 2001
      ____________          | 2000
      ____________           | 1999
      ____________          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------- | --------------------------------- | ---------------------------------
|Unrealized gains (losses) arising during the period,
       net of tax effect of $318,234 in 2001, $178,583 in
       2000, and $197,195 in 1999                               | $      617,748                   | $     (346,662)                   | $     (367,427)                  
|                                                                                                                                                                               |                                  |                                   |                                  
|Less: reclassification adjustment for gains, net of write-
       downs, included in net income, net of tax effect of
       $9,939 in 2001, $5,159 in 2000 and $3,942 in 1999 | 19,293 
      ____________       | 10,016 
      ____________        | (7,653)
      ____________       
|                                                                                                                                                                               |                                  |                                   |                                  
|Other comprehensive income                                                                                                                                                     | $     598,455 
      =========== | $     (336,646)
      =========== | $     (375,080)
      ===========

18.  Segment Reporting

Northeast Bancorp through its banking subsidiary, Northeast Bank and its
subsidiary Northeast Financial Services, Inc., provide a broad range of
financial services to individuals and companies in western and south central
Maine. These services include lending, demand, savings and time deposits, cash
management, investment and trust services. While the Company's senior management
team monitors the operations of the subsidiaries, the subsidiaries are primarily
organized to operate in the banking industry. Substantially all income and
services are derived from banking products and services in Maine. Accordingly,
the Company's subsidiaries are considered by management to be aggregated in one
reportable operating segment.

19.  Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Debentures

NBN Capital Trust ("NBNCT"), a Delaware statutory trust, was
created in October of 1999. NBNCT exists for the exclusive purpose of (i)
issuing and selling Common Securities to the Company and Preferred Securities to
the public (together the "Trust Securities"), (ii) using the proceeds
of the sale of Trust Securities to acquire 9.60% Junior Subordinated Deferrable
Interest Debentures ("Junior Subordinated Debentures") issued by the
Company, and (iii) engaging only in those other activities necessary, convenient
or incidental thereto (such as registering the transfer of the Trust
Securities). Accordingly, the Junior Subordinated Debentures are the sole assets
of NBNCT. The preferred securities accrue and pay distributions quarterly at an
annual rate of 9.60% of the stated liquidation amount of $7.00 per preferred
security. The Company has fully and unconditionally guaranteed all of the
obligations of the NBNCT. The guaranty covers the quarterly distributions and
payments on liquidation or redemption of the trust preferred securities, but
only to the extent of funds held by NBNCT. In the second quarter of fiscal 2000,
NBNCT sold $7,172,998 of its trust preferred securities to the public and
$221,851 of its common securities to the Company. The trust preferred securities
are mandatory redeemable upon the maturity of the Junior Subordinated Debentures
on December 31, 2029 or upon earlier redemption as provided in the
Indenture. The Company has the right to redeem the Junior Subordinated
Debentures, in whole or in part on or after December 31, 2004 at a
redemption price specified in the Indenture plus any accrued but unpaid interest
to the redemption date. The costs of the issuance of the trust preferred
securities was approximately $524,000 and is included in other assets in the
Company's consolidated statement of financial condition at June 30, 2001 and
2000, as a deferred financing cost, net of accumulated amortization. The costs
are being amortized into interest expense over the life of the securities. The
Company owns all of the common securities of NBNCT, the only voting security,
and as a result, NBNCT is a subsidiary of the Company.

Page 53

20.  Fair Value of Financial Instruments

Fair value estimates, methods and assumptions are set forth below for the
Company's significant financial instruments.

Cash and Cash Equivalents

The fair value of cash, due from banks, interest bearing deposits and FHLB
overnight deposits approximates their relative book values, as these financial
instruments have short maturities.

Available for Sale Securities

The fair value of available for sale securities is estimated based on bid
prices published in financial newspapers or bid quotations received from
securities dealers.

Federal Home Loan Bank Stock

This financial instrument does not have a market nor is it practical to
estimate the fair value without incurring excessive costs.

Loans and Loans Held for Sale

Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimates of maturity are based on the Company's historical experience
with repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic conditions, lending conditions and
the effects of estimated prepayments.

Fair value for significant non-performing loans is based on estimated cash
flows and is discounted using a rate commensurate with the risk associated with
the estimated cash flows. Assumptions regarding credit risk, cash flows and
discount rates are judgmentally determined using available market information
and historical information.

Management has made estimates of fair value using discount rates that it
believes to be reasonable. However, because there is no market for many of these
financial instruments, management has no basis to determine whether the fair
value presented would be indicative of the value negotiated in an actual sale.

The fair value of loans held for sale is estimated based on bid quotations
received from loan dealers.

Accrued Interest Receivable

The fair value of this financial instrument approximates the book value as
this financial instrument has a short maturity. It is the Company's policy to
stop accruing interest on loans past due by more than ninety days. Therefore
this financial instrument has been adjusted for estimated credit loss.

Deposits

The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings, NOW accounts and money market
accounts, is equal to the amount payable on demand. The fair values of
certificates of deposit are based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.

The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market. If that value was considered, the fair value of
the Company's net assets could increase.

Borrowed Funds and Repurchase Agreements

The fair value of the Company's borrowings with the Federal Home Loan Bank is
estimated by discounting the cash flows through maturity or the next repricing
date based on current rates available to the Company for borrowings with similar
maturities. The fair value of repurchase agreements approximates the carrying
value, as these financial instruments have a short maturity.

Junior Subordinated Debentures

The fair value of the Company's Junior Subordinated Debentures is estimated
based on prices published in financial newspapers.

Interest Rate Exchange Agreements

The fair value of interest rate exchange agreements (used for hedging
purposes) is the estimated amount that the Company would receive or pay to
terminate the agreements at the reporting date, taking into account current
interest rates and the current credit-worthiness of the counterparties.

Commitments to Originate Loans

The Company has not estimated the fair value of commitments to originate
loans due to their short term nature and their relative immateriality.

Limitations

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These values
do not reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial instruments include the deferred tax asset, premises and
equipment and intangible assets, including the customer base. In addition, the
tax ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in any of the estimates.

Page 54

The following table presents the estimated fair value of the Company's
significant financial instruments at June 30, 2001 and 2000:

|                                                                         | June 30, 2001
      _________________________ | June 30, 2000
      _________________________
|------------------------------------------------------------------------ | --------------------------------------------- | ---------------------------------------------
|                                                                         | Carrying
      Value
      ____________       | Estimated
      Fair Value
      ____________
|Financial assets:                                                        |                                               |                                              
|Cash and cash equivalents                                                | $ 14,188,000                                  | $ 14,188,000                                 
|Available for sale securities                                            | 20,173,000                                    | 20,173,000                                   
|Loans held for sale                                                      | 1,167,000                                     | 1,187,000                                    
|Loans                                                                    | 376,705,000                                   | 373,569,000                                  
|Interest receivable                                                      | 2,403,000                                     | 2,403,000                                    
|                                                                         |                                               |                                              
|Financial liabilities:                                                   |                                               |                                              
|Deposits (with no stated maturity)                                       | 84,236,000                                    | 84,236,000                                   
|Time deposits                                                            | 189,900,000                                   | 191,365,000                                  
|Borrowed funds                                                           | 108,049,000                                   | 110,240,000                                  
|Repurchase agreements                                                    | 8,819,000                                     | 8,819,000                                    
|Junior Subordinated Debentures                                           | 7,173,000                                     | 7,224,000                                    
|                                                                         |                                               |                                              
|Off Balance Sheet Instruments:                                           |                                               |                                              
|Interest rate exchange agreements in a net
          receivable position | -                                             | -                                            



|Item 8.b.
      Statistical Disclosures Required by Industry Guide 3
                    
      __________________________________________
|------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                          
|Northeast
      Bancorp Consolidated                                                                                                      
|Distribution
      of Assets, Liabilities and Net Worth (in thousands)                                                                    
|Interest
      Rates and Interest Differential                                                                                            
|Years
      Ended June 30, 2001, 2000 and 1999                                                                                            
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|June
      30, 2001                                                                                                                       
|                                                                                                                                          
|Assets:                                                                                                                                   
|                                                                                                                                          
|Interest
      earning-assets:                                                                                                            
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      interest-earning assets/interest                                                                                              
|income/average
      rates earned                                                                                                         
|                                                                                                                                          
|                                                                                                                                          
|Non-interest
      earning assets:                                                                                                        
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      non-interest earning assets                                                                                                   
|                                                                                                                                          
|Total
      assets                                                                                                                        
|                                                                                                                                          
|                                                                                                                                          
|Liabilities
      & Net Worth:                                                                                                            
|                                                                                                                                          
|Interest-bearing
      liabilities:                                                                                                       
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      interest-earning liabilities/                                                                                                 
|interest
      expense/average rates paid                                                                                                 
|                                                                                                                                          
|                                                                                                                                          
|Total
      non-interest bearing liabilities:                                                                                             
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      liabilities                                                                                                                   
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      liabilities and stockholders' equity                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Interest
      rate spread                                                                                                                
|Net
      yield on interest earning assets (5)                                                                                            
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|June
      30, 2000                                                                                                                       
|                                                                                                                                          
|Assets:                                                                                                                                   
|                                                                                                                                          
|Interest
      earning-assets:                                                                                                            
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      interest-earning assets/interest                                                                                              
|income/average
      rates earned                                                                                                         
|                                                                                                                                          
|                                                                                                                                          
|Non-interest
      earning assets:                                                                                                        
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      non-interest earning assets                                                                                                   
|                                                                                                                                          
|                                                                                                                                          
|Total
      assets                                                                                                                        
|                                                                                                                                          
|                                                                                                                                          
|Liabilities
      & Net Worth:                                                                                                            
|                                                                                                                                          
|Interest-bearing
      liabilities:                                                                                                       
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      interest-earning liabilities/                                                                                                 
|interest
      expense/average rates paid                                                                                                 
|                                                                                                                                          
|                                                                                                                                          
|Total
      non-interest bearing liabilities:                                                                                             
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      liabilities                                                                                                                   
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      liabilities and stockholders' equity                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Interest
      rate spread                                                                                                                
|Net
      yield on interest earning assets (5)                                                                                            
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|June
      30, 1999                                                                                                                       
|                                                                                                                                          
|Assets:                                                                                                                                   
|                                                                                                                                          
|Interest
      earning-assets:                                                                                                            
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      interest-earning assets/interest                                                                                              
|income/average
      rates earned                                                                                                         
|                                                                                                                                          
|                                                                                                                                          
|Non-interest
      earning assets:                                                                                                        
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      non-interest earning assets                                                                                                   
|                                                                                                                                          
|                                                                                                                                          
|Total
      assets                                                                                                                        
|                                                                                                                                          
|                                                                                                                                          
|Liabilities
      & Net Worth:                                                                                                            
|                                                                                                                                          
|Interest-bearing
      liabilities:                                                                                                       
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      interest-earning liabilities/                                                                                                 
|interest
      expense/average rates paid                                                                                                 
|                                                                                                                                          
|                                                                                                                                          
|Total
      non-interest bearing liabilities:                                                                                             
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      liabilities                                                                                                                   
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Total
      liabilities and stockholders' equity                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|                                                                                                                                          
|Interest
      rate spread                                                                                                                
|Net
      yield on interest earning assets (5)                                                                                            

|(1) | Taxable. The yield information does not give effect to
      changes in fair value that are reflected as a component of stockholders
      equity.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Non-accruing loans included in computation of average balance.                                                                                    
|(3) | Interest income on loans includes amortization of net deferred costs of
      $814 in 2001, $698 in 200, and $590 in 1999.                        
|(4) | Short term investments include FHLB overnight deposits and other
      interest-bearing deposits.                                                 
|(5) | The net yield on average earning assets is net interest income divided
      by average interest-earning assets.                                  

Page 55



|Northeast Bancorp
      Consolidated                                                                   |               |  |              |  |               |  |              
|------------------------------------------------------------------------------------------------------ | ------------- |  | ------------ |  | ------------- |  | -------------
|Maturities and
      Repricing of Loans ($ in thousands)                                               |               |  |              |  |               | 
|As of June 30,
      2001                                                                              |               |  |              |  |               |  |              
|                                                                                                       |               |  |              |  |               |  |              
|                                                                                                       | 1
      Year  |  | 1
      to 5 |  | 5
      to 10 |  | Over
      10
|                                                                                                       | or
      Less |  | Years        |  | Years         |  | Years        
|                                                                                                       | ________      |  | ________     |  | ________      |  | ________     
|Mortgages:                                                                                             |               |  |              |  |               |  |              
|Residential                                                                                            | $50,049       |  | $16,432      |  | $12,534       |  | $106,970     
|Commercial                                                                                             | 32,665        |  | 29,702       |  | 3,838         |  | 2,364        
|Construction                                                                                           | 4,005         |  | 873          |  | 0             |  | 0            
|                                                                                                       |               |  |              |  |               |  |              
|Non-Mortgage Loans :                                                                                   |               |  |              |  |               |  |              
|Commercial                                                                                             | 17,616        |  | 25,202       |  | 651           |  | 1,969        
|Consumer and other                                                                                     | 1,540         |  | 21,905       |  | 6,709         |  | 42,624       
|                                                                                                       | ________      |  | ________     |  | ________      |  | ________     
|Total Loans                                                                                            | 105,875       |  | 94,114       |  | 23,732        |  | 153,927      
|                                                                                                       | ========      |  | =======      |  | =======       |  | =======      
|                                                                                                       |               |  |              |  |               |  |              
|Type of Interest Rate:                                                                                 |               |  |              |  |               |  |              
|Predetermined rate, maturity                                                                           |               |  |              |  |               |  |              
|greater than 1 year                                                                                    | 220,371       |  |              |  |               |  |              
|Floating or adjustable rate                                                                            |               |  |              |  |               |  |              
|due after one year                                                                                     | 51,402        |  |              |  |               |  |              
|                                                                                                       | ________      |  |              |  |               |  |              
|Total due after 1 year:                                                                                | 271,773       |  |              |  |               |  |              
|                                                                                                       | =======       |  |              |  |               |  |              
|                                                                                                       |               |  |              |  |               |  |              
|Scheduled repayments are
      reported in the maturity category in which the payment is due. Demand  
|loans and overdrafts are
      reported in one year or less. Maturities are based upon contract terms.

|Northeast Bancorp Consolidated               |  |                                       |  |                      |  |                    
|-------------------------------------------- |  | ------------------------------------- |  | -------------------- |  | -------------------
|Investment Securities
      Portfolio        |  |                                       |  |                      |  |                    
|At June 30,                                  |  |                                       |  |                      |  |                    
|                                             |  |                                       |  |                      |  |                    
|                                             |  | At June 30,                          
|                                             |  | _____________________________________
|                                             |  | 2001                                  |  | 2000                 |  | 1999               
|                                             |  | ________                              |  | ________             |  | ________           
|Available for Sale (1)                       |  | ($ in thousands)                     
|                                             |  |                                       |  |                      |  |                    
|U.S. Government and Agency
      Obligations |  | $
               248                  |  | $
               346 |  | $
              598
|                                             |  |                                       |  |                      |  |                    
|Mortgage-backed Securities                   |  | 18,663                                |  | 21,446               |  | 16,027             
|                                             |  |                                       |  |                      |  |                    
|Other Bonds                                  |  | 152                                   |  | 193                  |  | 200                
|                                             |  |                                       |  |                      |  |                    
|Equity Securities                            |  | 1,110                                 |  | 1,174                |  | 1,229              
|                                             |  | ________                              |  | ________             |  | ________           
|Total Available for Sale (2):                |  | $
           20,173                   |  | $      23,159        |  | $
           18,054
|                                             |  | =======                               |  | =======              |  | =======            

|(1) | Carried at estimated market value. Northeast Bancorp does not have any
      securities being held to maturity.                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Cost of such securities ($ in thousands) was $20,442 as of June 30,
      2001, $24,335 as of June 30, 2000 and $18,720 as of June 30, 1999.

Page 56



|Northeast Bancorp
      Consolidated                                                                       |                             |  |                    |          |                   |                    |                   |                  |                   
|---------------------------------------------------------------------------------------------------------- | --------------------------- |  | ------------------ | -------- | ----------------- | ------------------ | ----------------- | ---------------- | ------------------
|Investment
      Maturity                                                                                  |                             |  |                    |          |                   |                    |                   |                  |                   
|($ in thousands)                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|At June
      30,                                                                                          |                             |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           |                             |  |                    |          |                   | After One Year     |                   | After Five Years
|                                                                                                           |                             |  |                    |          |                   | But Within         |                   | But Within      
|                                                                                                           |                             |  | Within One Year    |          | 5 Years           |                    | 10 Years         
|                                                                                                           |                             |  | _________________  |          | _________________ |                    | _________________
|                                                                                                           |                             |  | Amount             | Yield    |                   | Amount             | Yield             |                  | Amount            
|                                                                                                           |                             |  | ________           | ________ |                   | ________           | ________          |                  | ________          
|At June 30, 2001                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | U. S. Government and        |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | agencies obligations        |  | $     
      248   | 4.93%    |                   | $
               0 | 0.00%             |                  | $         
      0
|                                                                                                           | Mortgage-backed securities  |  | 0                  | 0.00%    |                   | 19                 | 6.44%             |                  | 346               
|                                                                                                           | Other bonds                 |  | 0                  | 0.00%    |                   | 152                | 5.95%             |                  | 0                 
|                                                                                                           | Equity securities           |  | 1,110              | 7.08%    |                   | 0                  | 0.00%             |                  | 0                 
|                                                                                                           |                             |  | ________           | ________ |                   | ________           | ________          |                  | ________          
|                                                                                                           |                             |  | $   
      1,358   | 6.69%    |                   | $
           171   | 6.00%             |                  | $
           346  
|                                                                                                           |                             |  | ======             | ======   |                   | ======             | ======            |                  | ======            
|                                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|At June 30, 2000                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | U. S. Government and        |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | agencies obligations        |  | $
           248   | 5.89%    |                   | $
             98  | 7.23%             |                  | $          0      
|                                                                                                           | Mortgage-backed securities  |  | 0                  | 0.00%    |                   | 32                 | 6.20%             |                  | 434               
|                                                                                                           | Other bonds                 |  | 51                 | 7.20%    |                   | 142                | 5.95%             |                  | 0                 
|                                                                                                           | Equity securities           |  | 1,174              | 7.75%    |                   | 0                  | 0.00%             |                  | 0                 
|                                                                                                           |                             |  | ________           | ________ |                   | ________           | ________          |                  | ________          
|                                                                                                           |                             |  | $
        1,473    | 7.42%    |                   | $
           272   | 6.44%             |                  | $     
      434  
|                                                                                                           |                             |  | ======             | ======   |                   | ======             | ======            |                  | ======            
|                                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           |                             |  | After 10 Years     |          | Total             |                    |                   |                 
|                                                                                                           |                             |  | _________________  |          | _________________ |                    |                   |                 
|                                                                                                           |                             |  | Amount             | Yield    |                   | Amount             | Yield             |                  |                   
|                                                                                                           |                             |  | ________           | ________ |                   | ________           | ________          |                  |                   
|At June 30, 2001                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | U. S. Government and        |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | agencies obligations        |  | $          0       | 0.00%    |                   | $
           248   | 4.93%             |                  |                   
|                                                                                                           | Mortgage -backed securities |  | 18,298             | 6.85%    |                   | 18,663             | 6.85%             |                  |                   
|                                                                                                           | Other bonds                 |  | 0                  | 0.00%    |                   | 152                | 5.95%             |                  |                   
|                                                                                                           | Equity securities           |  | 0                  | 0.00%    |                   | 1,110              | 7.08%             |                  |                   
|                                                                                                           |                             |  | ________           | ________ |                   | ________           | ________          |                  |                   
|                                                                                                           |                             |  | $
       18,298    | 6.85%    |                   | $  20,173          | 6.83%             |                  |                   
|                                                                                                           |                             |  | ======             | ======   |                   | ======             | ======            |                  |                   
|                                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|At June 30, 2000                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | U. S. Government and        |  |                    |          |                   |                    |                   |                  |                   
|                                                                                                           | agencies obligations        |  | $         
      0 | 0.00%    |                   | $
           346   | 6.27%             |                  |                   
|                                                                                                           | Mortgage -backed securities |  | 20,980             | 6.88%    |                   | 21,446             | 6.88%             |                  |                   
|                                                                                                           | Other bonds                 |  | 0                  | 0.00%    |                   | 193                | 6.28%             |                  |                   
|                                                                                                           | Equity securities           |  | 0                  | 0.00%    |                   | 1,174              | 7.75%             |                  |                   
|                                                                                                           |                             |  | ________           | ________ |                   | ________           | ________          |                  |                   
|                                                                                                           |                             |  | $
       20,980    | 6.88%    |                   | $ 
      23,159    | 6.91%             |                  |                   
|                                                                                                           |                             |  | ======             | ======   |                   | ======             | ======            |                  |                   
|                                                                                                           |                             |  |                    |          |                   |                    |                   |                  |                   
|The average yield
      on investments held for sale is based on the amortized cost of the
      security. |                            

Page 57



|Northeast Bancorp Consolidated |  |                     |  |                | 
|------------------------------ |  | ------------------- |  | -------------- | 
|Loan Portfolio                 |  |                     |  |                | 
|($ in thousands)               |  |                     |  |                | 
|At June 30,                    |  |                     |  |                | 
|                               |  |                     |  | Percent of     | 
|June 30,2001                   |  | Amount              |  | Total Loans    | 
|                               |  | ____________        |  | _____________ 
|Loan Portfolio                 |  |                     |  |                | 
|                               |  |                     |  |                | 
|Residential Mortgage           |  | $
          185,985 |  | 49.25%         | 
|Commercial real estate         |  | 68,569              |  | 18.16%         | 
|Construction                   |  | 4,878               |  | 1.29%          | 
|Commercial                     |  | 45,438              |  | 12.03%         | 
|Consumer & Other               |  | 72,778              |  | 19.27%         | 
|                               |  | ____________        |  | ____________  
|Total Loans                    |  | 377,648             |  | 100.00%        | 
|                               |  |                     |  | ____________  
|Less:                          |  |                     |  |                | 
|Allowance for loan losses      |  | 3,778               |  |                | 
|Net deferred loan (costs) fees |  | (2,835)             |  |                | 
|                               |  | ____________        |  |                | 
|Net Loans                      |  | $    
      376,705 |  |                | 
|                               |  | ============        |  |                | 
|                               |  |                     |  |                | 
|                               |  |                     |  | Percent of     | 
|June 30,2000                   |  | Amount              |  | Total Loans    | 
|                               |  | ____________        |  | _____________ 
|Loan Portfolio                 |  |                     |  |                | 
|                               |  |                     |  |                | 
|Residential Mortgage           |  | $
          194,288 |  | 51.24%         | 
|Commercial real estate         |  | 61,924              |  | 16.33%         | 
|Construction                   |  | 7,406               |  | 1.95%          | 
|Commercial                     |  | 41,518              |  | 10.95%         | 
|Consumer & Other               |  | 74,028              |  | 19.53%         | 
|                               |  | ____________        |  | ____________  
|Total Loans                    |  | 379,164             |  | 100.00%        | 
|                               |  |                     |  | ______________
|Less:                          |  |                     |  |                | 
|Allowance for loan losses      |  | 3,498               |  |                | 
|Net deferred loan (costs) fees |  | (2,660)             |  |                | 
|                               |  | ____________        |  |                | 
|Net Loans                      |  | $ 
         378,326 |  |                | 
|                               |  | ============        |  |                | 
|                               |  |                     |  |                | 
|                               |  |                     |  | Percent of     | 
|June 30,1999                   |  | Amount              |  | Total Loans    | 
|                               |  | ____________        |  | _____________ 
|Loan Portfolio                 |  |                     |  |                | 
|                               |  |                     |  |                | 
|Residential Mortgage           |  | $    
      182,244 |  | 57.37%         | 
|Commercial real estate         |  | 55,438              |  | 17.45%         | 
|Construction                   |  | 1,686               |  | 0.53%          | 
|Commercial                     |  | 34,647              |  | 10.91%         | 
|Consumer & Other               |  | 43,643              |  | 13.74%         | 
|                               |  | ____________        |  | ____________  
|Total Loans                    |  | 317,658             |  | 100.00%        | 
|                               |  |                     |  | ____________  
|Less:                          |  |                     |  |                | 
|Allowance for loan losses      |  | 2,924               |  |                | 
|Net deferred loan (costs) fees |  | (1,328)             |  |                | 
|                               |  | ____________        |  |                | 
|Net Loans                      |  | $    
      316,062 |  |                | 
|                               |  | ============        |  |                | 
|                               |  |                     |  |                | 
|                               |  |                     |  | Percent of     | 
|June 30,1998                   |  | Amount              |  | Total Loans    | 
|                               |  | ____________        |  | _____________ 
|Loan Portfolio                 |  |                     |  |                | 
|                               |  |                     |  |                | 
|Residential Mortgage           |  | $
          171,903 |  | 61.10%         | 
|Commercial real estate         |  | 47,053              |  | 16.73%         | 
|Construction                   |  | 2,100               |  | 0.75%          | 
|Commercial                     |  | 26,967              |  | 9.58%          | 
|Consumer & Other               |  | 33,305              |  | 11.84%         | 
|                               |  | ____________        |  | ____________  
|Total Loans                    |  | 281,328             |  | 100.00%        | 
|                               |  |                     |  | ____________  
|Less:                          |  |                     |  |                | 
|Allowance for loan losses      |  | 2,978               |  |                | 
|Net deferred loan (costs) fees |  | (703)               |  |                | 
|                               |  | ____________        |  |                | 
|Net Loans                      |  | $
          279,053 |  |                | 
|                               |  | ============        |  |                | 
|                               |  |                     |  |                | 
|                               |  |                     |  | Percent of     | 
|June 30,1997                   |  | Amount              |  | Total Loans    | 
|                               |  | ____________        |  | _____________ 
|Loan Portfolio                 |  |                     |  |                | 
|                               |  |                     |  |                | 
|Residential Mortgage           |  | $    
      139,633 |  | 62.64%         | 
|Commercial real estate         |  | 46,443              |  | 20.84%         | 
|Construction                   |  | 2,597               |  | 1.17%          | 
|Commercial                     |  | 19,421              |  | 8.71%          | 
|Consumer & Other               |  | 14,792              |  | 6.64%          | 
|                               |  | ____________        |  | ____________  
|Total Loans                    |  | 222,886             |  | 100.00%        | 
|                               |  |                     |  | ____________  
|Less:                          |  |                     |  |                | 
|Allowance for loan losses      |  | 2,742               |  |                | 
|Net deferred loan (costs) fees |  | 204                 |  |                | 
|                               |  | ____________        |  |                | 
|Net Loans                      |  | $    
      219,940 |  |                | 
|                               |  | ===========         |  |                | 

Page 58



|Northeast Bancorp
      Consolidated        |  |                           |  |              
|------------------------------------------- |  | ------------------------- |  | -------------
|Allowance for Loan
      Losses             |  |                           |  |              
|As of June 30,
      2001                   |  |                           |  |              
|($ in thousands)                            |  |                           |  |              
|                                            |  |                           |  |              
|                                            |  |                           |  | Percent of   
|                                            |  |                           |  | Loans in Each
|                                            |  |                           |  | Category to  
|June
      30, 2001                         |  | Amount                    |  | Total Loans  
|                                            |  | __________                |  | ____________ 
|Allowance for Loan
      Losses (thousands) |  |                           |  |              
|                                            |  |                           |  |              
|Real Estate                                 |  | $
                    437 |  | 49.25%       
|Commercial
      Mortgage                   |  | 929                       |  | 18.16%       
|Construction                                |  | 0                         |  | 1.29%        
|Commercial                                  |  | 620                       |  | 12.03%       
|Consumer                                    |  | 1,356                     |  | 19.27%       
|Unallocated                                 |  | 436                       |  | 0.00%        
|                                            |  | __________                |  | __________   
|Total                                       |  | $            3,778        |  | 100.00%      
|                                            |  | ==========                |  | ==========   
|                                            |  |                           |  |              
|                                            |  |                           |  | Percent of   
|                                            |  |                           |  | Loans in Each
|                                            |  |                           |  | Category to  
|June
      30, 2000                         |  | Amount                    |  | Total Loans  
|                                            |  | __________                |  | ____________ 
|Allowance for Loan
      Losses (thousands) |  |                           |  |              
|                                            |  |                           |  |              
|Real Estate                                 |  | $              
      405 |  | 51.24%       
|Commercial
      Mortgage                   |  | 799                       |  | 16.33%       
|Construction                                |  | 0                         |  | 1.95%        
|Commercial                                  |  | 412                       |  | 10.95%       
|Consumer                                    |  | 1,244                     |  | 19.53%       
|Unallocated                                 |  | 638                       |  | 0.00%        
|                                            |  | __________                |  | __________   
|Total                                       |  | $
                 3,498  |  | 100.00%      
|                                            |  | ==========                |  | ==========   
|                                            |  |                           |  |              
|                                            |  |                           |  | Percent of   
|                                            |  |                           |  | Loans in Each
|                                            |  |                           |  | Category to  
|June
      30, 1999                         |  | Amount                    |  | Total Loans  
|                                            |  | __________                |  | ____________ 
|Allowance for Loan
      Losses (thousands) |  |                           |  |              
|                                            |  |                           |  |              
|Real Estate                                 |  | $               378       |  | 57.37%       
|Commercial
      Mortgage                   |  | 882                       |  | 17.45%       
|Construction                                |  | 0                         |  | 0.53%        
|Commercial                                  |  | 508                       |  | 10.91%       
|Consumer                                    |  | 497                       |  | 13.74%       
|Unallocated                                 |  | 659                       |  | 0.00%        
|                                            |  | __________                |  | __________   
|Total                                       |  | $
                 2,924  |  | 100.00%      
|                                            |  | ==========                |  | ==========   
|                                            |  |                           |  |              
|                                            |  |                           |  | Percent of   
|                                            |  |                           |  | Loans in Each
|                                            |  |                           |  | Category to  
|June
      30, 1998                         |  | Amount                    |  | Total Loans  
|                                            |  | __________                |  | ____________ 
|Allowance for Loan
      Losses (thousands) |  |                           |  |              
|                                            |  |                           |  |              
|Real Estate                                 |  | $              
      352 |  | 61.10%       
|Commercial
      Mortgage                   |  | 762                       |  | 16.73%       
|Construction                                |  | 0                         |  | 0.75%        
|Commercial                                  |  | 582                       |  | 9.58%        
|Consumer                                    |  | 380                       |  | 11.84%       
|Unallocated                                 |  | 902                       |  | 0.00%        
|                                            |  | __________                |  | __________   
|Total                                       |  | $
                 2,978  |  | 100.00%      
|                                            |  | ==========                |  | ==========   
|                                            |  |                           |  |              
|                                            |  |                           |  | Percent of   
|                                            |  |                           |  | Loans in Each
|                                            |  |                           |  | Category to  
|June
      30, 1997                         |  | Amount                    |  | Total Loans  
|                                            |  | __________                |  | ____________ 
|Allowance for Loan
      Losses (thousands) |  |                           |  |              
|                                            |  |                           |  |              
|Real Estate                                 |  | $             
      308  |  | 62.64%       
|Commercial
      Mortgage                   |  | 821                       |  | 20.84%       
|Construction                                |  | 0                         |  | 1.17%        
|Commercial                                  |  | 436                       |  | 8.71%        
|Consumer                                    |  | 159                       |  | 6.64%        
|Unallocated                                 |  | 1,018                     |  | 0.00%        
|                                            |  | __________                |  | __________   
|Total                                       |  | $          
      2,742   |  | 100.00%      
|                                            |  | ==========                |  | ==========   
|                                            |  |                           |  |              

|This table shows
      how the allowance for loan losses was allocated for the periods indicated.                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The allowance for
      loan losses is established through a provision for loan losses charged to operations. Loan
      losses are charged against the allowance when management believes that the
      collectibility of
      the loan principal is unlikely. Recoveries on loans previously charged off are credited to
      the allowance.                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The allowance is an
      amount that management believes will be adequate to absorb possible loan losses based on
      evaluations of collectibility and prior loss experience. The evaluation
      takes into consideration such
      factors as changes in the nature and volume of the portfolio, overall
      portfolio quality, specific
      problem loans and current economic conditions that may affect the
      borrowers' ability
      to pay. Management also obtains appraisals when considered necessary.

Page 59



|Northeast Bancorp
      Consolidated                                                               |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|-------------------------------------------------------------------------------------------------- | ----------------------- | -------------------------------------------------- | ---------------- | ----------------- | ---------------- | ----------------- | ---------------- | ----------------- | ----------------
|Non-performing
      Ratios ($ in thousands)                                                       |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|As of June 30,                                                                                     |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|                                                                                                   |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|                                                                                                   |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|                                                                                                   |                         | At June 30,                                       
|                                                                                                   |                         | __________________________________________________
|                                                                                                   |                         | 2001                                               |                  | 2000              |                  | 1999              |                  | 1998              |                 
|                                                                                                   |                         | ________                                           |                  | ________          |                  | ________          |                  | ________          |                 
|Non-accrual loans:                                                                                 |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|                                                                                                   | Residential mortgage    | $      
      577                                  |                  | $      
      191 |                  | $      
      235 |                  | $
            640 |                 
|                                                                                                   | Commercial Real Estate  | 1,635                                              |                  | 650               |                  | 595               |                  | 317               |                 
|                                                                                                   | Commercial Loans        | 483                                                |                  | 80                |                  | 0                 |                  | 468               |                 
|                                                                                                   | Consumer and other      | 390                                                |                  | 185               |                  | 197               |                  | 0                 |                 
|                                                                                                   |                         | ________                                           |                  | ________          |                  | ________          |                  | ________          |                 
|                                                                                                   | Total non-accrual loans | 3,085                                              |                  | 1,106             |                  | 1,027             |                  | 1,425             |                 
|Accruing loans
      contractually past                                                            |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|due 90 days or
      more                                                                          | 544                     |                                                    | 72               |                   | 117              |                   | 823              |                   | 1,222           
|                                                                                                   |                         | ________                                           |                  | ________          |                  | ________          |                  | ________          |                 
|Total
      non-performing loans                                                                   | 3,629                   |                                                    | 1,178            |                   | 1,144            |                   | 2,248            |                   | 2,881           
|Acquired assets                                                                                    | 385                     |                                                    | 278              |                   | 194              |                   | 350              |                   | 563             
|                                                                                                   |                         | ________                                           |                  | ________          |                  | ________          |                  | ________          |                 
|Total
      non-performing assets                                                                  | $   
      4,014        |                                                    | $
         1,456 |                   | $   
      1,338 |                   | $   
      2,598 |                   | $
         3,444
|                                                                                                   |                         | ======                                             |                  | ======            |                  | ======            |                  | ======            |                 
|Non-performing
      loans to total loans                                                          | 0.96%                   |                                                    | 0.31%            |                   | 0.36%            |                   | 0.80%            |                   | 1.29%           
|Non-performing
      assets to total assets                                                        | 0.93%                   |                                                    | 0.34%            |                   | 0.37%            |                   | 0.81%            |                   | 1.21%           
|                                                                                                   |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|As of June 30, 2001, there
      were no troubled debt restructured loans.                        
|                                                                                                   |                         |                                                    |                  |                   |                  |                   |                  |                   |                 
|See additional information
      concerning non-performing and impaired loans in footnote 3 of the
|consolidated financial
      statements as well as in the Management's Discussion and Analysis.   

Page 60



|Northeast Bancorp
      Consolidated                                                                           |                        |             
|-------------------------------------------------------------------------------------------------------------- | ---------------------- | ------------
|Summary of Loan
      Losses Experience ($ in thousands)                                                       |                        |             
|As of June 30,                                                                                                 |                        |             
|                                                                                                               |                        |             
|                                                                                                               |                        | June 30,    
|                                                                                                               |                        | 2001        
|                                                                                                               |                        | ________    
|Average net loans
      outstanding                                                                            |                        |             
|                                                                                                               | during the period (1)  | $  381,922  
|                                                                                                               |                        | =======     
|                                                                                                               |                        |             
|Net loans at end
      of period (1)                                                                           | $  376,705             | $  378,326  
|                                                                                                               |                        | =======     
|                                                                                                               |                        |             
|Allowance at
      beginning of period                                                                         | $      3,498           | $     2,924 
|                                                                                                               |                        |             
|Loans charged-off
      during the period:                                                                     |                        |             
|                                                                                                               | Residential mortgage   | 27          
|                                                                                                               | Commercial real estate | 0           
|                                                                                                               | Commercial             | 69          
|                                                                                                               | Consumer and other     | 648         
|                                                                                                               |                        | ________    
|Total loans
      charged-off                                                                                  | 744                    | 764         
|                                                                                                               |                        | ________    
|                                                                                                               |                        |             
|Recoveries on
      loans previously                                                                           |                        |             
|                                                                                                               | charged-off:           |             
|                                                                                                               | Residential Mortgage   | 16          
|                                                                                                               | Commercial Real Estate | 29          
|                                                                                                               | Commercial             | 120         
|                                                                                                               | Consumer and other     | 78          
|                                                                                                               |                        | ________    
|Total Recoveries                                                                                               | 243                    | 266         
|                                                                                                               |                        | ________    
|                                                                                                               |                        |             
|Net loans charged
      off during the period                                                                  | 501                    | 498         
|Provision for loan
      losses                                                                                | 781                    | 1,072       
|                                                                                                               |                        | ________    
|Allowance at end
      of period                                                                               | $      3,778           | $      3,498
|                                                                                                               |                        | =======     
|                                                                                                               |                        |             
|Ratio of net
      charge-offs to                                                                              |                        |             
|average loans
      outstanding                                                                                | 0.13%                  | 0.14%       
|                                                                                                               |                        |             
|                                                                                                               |                        |             
|Allowance as a
      percentage of total                                                                       |                        |             
|portfolio loans                                                                                                | 0.99%                  | 0.92%       
|                                                                                                               |                        |             
|Allowance as a
      percentage of                                                                             |                        |             
|non-performing and
      non-accrual loans                                                                     | 104.11%                | 296.94%     
|                                                                                                               |                        |             
|(1) Excludes loans
      held for sale.                                                                        |                        |             
|                                                                                                               |                        |             
|The allowance for loan losses
      as a percentage of net loans decreased at the end of each fiscal year     
|from 1997 to 2000. The
      reduction in each fiscal year was due to the purchase of residential             
|mortgages as well as portfolio
      loan growth. In the fiscal years 1997 to 1999, the decrease was          
|supported by the Company's
      lower delinquency levels and decreased non-performing and                    
|substandard loans. The
      percentage increased in fiscal year 2001 in recognition of increases in          
|non-performing loans. Although
      the delinquency level and non-performing and substandard loans           
|increased in fiscal 2001,
      management considers the percentages to be low and in control.                
|                                                                                                               |                        |             
|This table summarizes loans
      outstanding at the end of each period indicated and the average amount      
|of loans outstanding, changes
      in the allowance for loan losses and other selected statistics during each
|period indicated.                                                                                             

Page 61



|Northeast
      Bancorp Consolidated                                                                                                 |  |                          
|------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|Average
      Deposits ($ in thousands) and Rates                                                                                    |  |                          
|As of
      June 30,                                                                                                                 |  |                          
|                                                                                                                                     |  |                          
|                                                                                                                                     |  |                          
|June
      30, 2001                                                                                                                  |  | Amount                   
|                                                                                                                                     |  | ___________              
|Average Deposits:                                                                                                                    |  |                          
|                                                                                                                                     |  |                          
|Non-interest
      bearing demand deposits                                                                                           |  | $          
      25,440 
|Regular savings                                                                                                                      |  | 20,970                   
|NOW and Money
      Market                                                                                                           |  | 36,159                   
|Time deposits                                                                                                                        |  | 186,260                  
|                                                                                                                                     |  | ___________              
|Total Average
      Deposits                                                                                                         |  | $
              268,829  
|                                                                                                                                     |  | ==========               
|                                                                                                                                     |  |                          
|                                                                                                                                     |  |                          
|June
      30, 2000                                                                                                                  |  | Amount                   
|                                                                                                                                     |  | ___________              
|Average Deposits:                                                                                                                    |  |                          
|                                                                                                                                     |  |                          
|Non-interest
      bearing demand deposits                                                                                           |  | $           
      22,109
|Regular savings                                                                                                                      |  | 20,391                   
|NOW and Money
      Market                                                                                                           |  | 37,908                   
|Time deposits                                                                                                                        |  | 157,164                  
|                                                                                                                                     |  | ___________              
|Total Average
      Deposits                                                                                                         |  | $         
      237,572 
|                                                                                                                                     |  | ==========               
|                                                                                                                                     |  |                          
|                                                                                                                                     |  |                          
|June
      30, 1999                                                                                                                  |  | Amount                   
|                                                                                                                                     |  | ___________              
|Average Deposits:                                                                                                                    |  |                          
|                                                                                                                                     |  |                          
|Non-interest
      bearing demand deposits                                                                                           |  | $
                 17,132
|Regular savings                                                                                                                      |  | 20,068                   
|NOW and Money
      Market                                                                                                           |  | 40,100                   
|Time deposits                                                                                                                        |  | 125,802                  
|                                                                                                                                     |  | ___________              
|Total Average
      Deposits                                                                                                         |  | $         
      203,102 
|                                                                                                                                     |  | ==========               
|                                                                                                                                     |  |                          
|This table shows
      the average daily amount of deposits and average rates paid on such
      deposits for the periods indicated.

Page 62



|Northeast Bancorp
      Consolidated              |  |                        
|------------------------------------------------- |  | -----------------------
|Maturities of Time
      Deposits $100,000 & Over |  |                        
|As of June 30,
      2001                         |  |                        
|($ in thousands)                                  |  |                        
|                                                  |  |                        
|                                                  |  |                        
|                                                  |  | Balance                
|                                                  |  | ___________            
|3 months or less                                  |  | $            
      685
|Over 3 through 6
      months                     |  | 1,658                  
|Over 6 through 12
      months                    |  | 10,276                 
|Over 12 months                                    |  | 23,099                 
|                                                  |  | ___________            
|Total Time
      Deposits $100,000 & Over         |  | $        35,718        
|                                                  |  | ==========             

|Northeast Bancorp                                                                                                |  |                                                            |                                |                    |          |                    |  |          |         
|---------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ------------------------------ | ------------------ | -------- | ------------------ |  | -------- | --------
|Repurchase
      Agreements ($ in thousands)                                                                     |  |                                                            |                                |                   
|For Years ended June
      30,                                                                                   |  |                                                            |                                |                    |          |                    |  |          |         
|                                                                                                                 |  |                                                            | For Years ended
      June 30,
|                                                                                                                 |  | __________________________________________________________
|                                                                                                                 |  | 2001                                                       |                                | 2000               |          | 1999              
|                                                                                                                 |  | __________________                                         |                                | __________________ |          | __________________
|                                                                                                                 |  |                                                            | Weighted                       |                    |          | Weighted           |  |          | Weighted
|                                                                                                                 |  | Balance                                                    | Rate                           |                    | Balance  | Rate               |  | Balance  | Rate    
|                                                                                                                 |  | ________                                                   | ________                       |                    | ________ | ________           |  | ________ | ________
|                                                                                                                 |  |                                                            |                                |                    |          |                    |  |          |         
|Balance at year end                                                                                              |  | $
      8,819                                              | 2.66%                          |                    | $13,110  | 4.18%              |  | $11,868  | 4.07%   
|                                                                                                                 |  |                                                            |                                |                    |          |                    |  |          |         
|Average outstanding during
      year                                                                            |  | 13,573                                                     | 3.98%                          |                    | 13,768   | 4.14%              |  | 8,202    | 4.15%   
|                                                                                                                 |  |                                                            |                                |                    |          |                    |  |          |         
|Maximum Outstanding at any
      month end                                                                       |  | 16,109                                                     |                                |                    | 18,675   |                    |  | 11,868   |         
|                                                                                                                 |  |                                                            |                                |                    |          |                    |  |          |         
|These borrowings, which were
      scheduled to mature within 180 days, were collateralized by GNMA and         
|FHLMC securities with the
      market value of $14,211,000 and amortized cost of $14,388,000 at June 30,       
|2001, a market value of
      $17,006,000 and amortized cost of $17,877,000 at June 30, 2000, and a
      market
|value of $14,938,000 and
      amortized cost of $15,525,000 at June 30, 1999. Securities sold under
      these
|agreements were under the
      control of the Company during 2001, 2000 and 1999.                              

|Northeast Bancorp                                                                                             |                                                       |                   |                   |          |                 |         
|------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------- | ----------------- | -------- | --------------- | --------
|FHLB Advances Due
      in 1 Year or Less ($ in thousands)                                                    |                                                       |                  
|For Years ended June
      30,                                                                                |                                                       |                   |                   |          |                 |         
|                                                                                                              | For Years ended
      June 30,                       
|                                                                                                              | _____________________________________________________
|                                                                                                              | 2001                                                  | 2000              | 1999             
|                                                                                                              | _________________                                     | _________________ | _________________
|                                                                                                              |                                                       | Weighted          |                   | Weighted |                 | Weighted
|                                                                                                              | Balance                                               | Rate              | Balance           | Rate     | Balance         | Rate    
|                                                                                                              | ________                                              | ________          | ________          | ________ | ________        | ________
|                                                                                                              |                                                       |                   |                   |          |                 |         
|Balance at year end                                                                                           | $ 
      38,105                                       | 5.18%             | $ 
      91,580   | 6.54%    | $ 
      42,000 | 5.29%   
|                                                                                                              |                                                       |                   |                   |          |                 |         
|Average outstanding during
      year                                                                         | 65,019                                                | 6.22%             | 76,132            | 5.69%    | 37,060          | 5.16%   
|                                                                                                              |                                                       |                   |                   |          |                 |         
|Maximum Outstanding at any
      month end                                                                    | 88,574                                                |                   | 109,500           |          | 42,000          |         
|                                                                                                              |                                                       |                   |                   |          |                 |         
|This table shows the Federal
      Home Loan Advances the Company had due to mature in one year or less as of
|June 30, 2001, 2000 and 1999.                                                                                

Page 63



|Northeast Bancorp Consolidated                                                                              
|------------------------------------------------------------------------------------------------------------
|Maturities and Repricing of
      Earning Assets & Interest-bearing Liabilities                             
|As of June 30,
      2001                                                                                   
|($ in thousands)                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Interest Earning
      Assets:                                                                              
|Investment
      securities                                                                                 
|FHLB stock                                                                                                  
|Short-term
      investments (1)                                                                            
|                                                                                                            
|Mortgage Loans:                                                                                             
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Other Loans:                                                                                                
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Total loans                                                                                                 
|                                                                                                            
|Total
      interest-earning assets                                                                         
|                                                                                                            
|                                                                                                            
|Interest-bearing
      liabilities:                                                                         
|Customer deposits:                                                                                          
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Total Customer
      deposits                                                                               
|                                                                                                            
|Borrowings:                                                                                                 
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|Total
      interest-bearing liabilities                                                                    
|                                                                                                            
|Interest
      sensitivity gap                                                                              
|                                                                                                            
|                                                                                                            
|Cumulative gap                                                                                              
|                                                                                                            
|                                                                                                            
|Cumulative gap
      ratio                                                                                  
|                                                                                                            
|Cumulative gap as
      a percentage                                                                        
|of total assets                                                                                             
|                                                                                                            
|(1) Includes FHLB overnight
      deposits, interest earning deposits and loans held for sale.              
|                                                                                                            
|This table summarizes the
      anticipated maturities and repricing of the Company's earning assets and    
|interest-bearing liabilities
      at June 30, 2001.                                                        
|                                                                                                            
|The Company's internal
      asset/liability analysis considers regular savings, NOW and money market       
|accounts core deposits. Due to
      this consideration, the Company's internal asset/liability model has   
|these core deposits designated
      in a five year or greater maturity category and not one year or less as
|the above schedule shows.
      Because of this difference, the Company does not consider its position      
|to be as negative as presented
      in the schedule above.                                                 

Page 64



|Northeast
      Bancorp Consolidated                                                                         |  |                   |                   |                   |                  
|------------------------------------------------------------------------------------------------------------ |  | ----------------- | ----------------- | ----------------- | -----------------
|Quarterly
      Data (Unaudited)                                                                             |  |                   |                   |                   |                  
|As of June 30, 2001                                                                                          |  |                   |                   |                   |                  
|                                                                                                             |  | 1st Qtr           | 2nd Qtr           | 3rd Qtr           | 4th Qtr          
|                                                                                                             |  | Sept. 30          | Dec. 31           | Mar. 31           | June 30          
|                                                                                                             |  | 2000              | 2000              | 2001              | 2001             
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Interest
      Income                                                                                        |  |                   |                   |                   |                  
|Interest
      on loans                                                                                      |  | $
      8,515,449 | $
      8,603,316 | $
      8,261,777 | $
      8,049,562
|Interest
      & dividends on investments                                                                    |  |                   |                   |                   |                  
|&
      available for sale securities                                                                        |  | 615,849           | 629,189           | 597,993           | 526,796          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Total
      Interest and Dividend Income                                                                     |  | 9,131,298         | 9,232,505         | 8,859,770         | 8,576,358        
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Interest
      Expense                                                                                       |  |                   |                   |                   |                  
|Interest
      on Deposits                                                                                   |  | 3,277,801         | 3,336,040         | 3,277,403         | 3,202,440        
|Interest
      on Repurchase Agreements                                                                      |  | 128,602           | 154,607           | 150,376           | 106,245          
|Interest
      on Borrowings                                                                                 |  | 1,972,441         | 1,998,747         | 1,829,317         | 1,613,594        
|Interest
      on Trust Preferred Securities                                                                 |  | 176,520           | 176,520           | 176,520           | 176,520          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Total
      Interest Expense                                                                                 |  | 5,555,364         | 5,665,914         | 5,433,616         | 5,098,799        
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Net
      Interest Income                                                                                    |  | 3,575,934         | 3,566,591         | 3,426,154         | 3,477,559        
|Provision
      for Loan Losses                                                                              |  | 195,511           | 195,542           | 194,614           | 195,180          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Net
      Interest Income after Provision                                                                    |  |                   |                   |                   |                  
|for
      Loan Losses                                                                                        |  | 3,380,423         | 3,371,049         | 3,231,540         | 3,282,379        
|                                                                                                             |  |                   |                   |                   |                  
|Securities
      Transactions                                                                                |  | 20,904            | 42,674            | 38,187            | 45,977           
|Other
      Operating Income                                                                                 |  | 624,158           | 607,597           | 850,127           | 852,079          
|Other
      Operating Expense                                                                                |  | 2,666,390         | 2,622,741         | 2,700,851         | 2,985,282        
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Income
      Before Income Taxes                                                                             |  | 1,359,095         | 1,398,579         | 1,419,003         | 1,195,153        
|Income
      Tax Expense                                                                                     |  | 475,822           | 490,005           | 487,314           | 434,788          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Net
      Income                                                                                             |  | $
      883,273   | $
      908,574   | $
      931,689   | $
      760,365  
|                                                                                                             |  | ==========        | ==========        | ==========        | ==========       
|                                                                                                             |  |                   |                   |                   |                  
|Earnings Per Share:                                                                                          |  |                   |                   |                   |                  
|Basic                                                                                                        |  | $
      0.33      | $
      0.34      | $
      0.35      | $
      0.29     
|Diluted                                                                                                      |  | $
      0.33      | $
      0.34      | $
      0.35      | $
      0.29     
|                                                                                                             |  |                   |                   |                   |                  
|Northeast
      Bancorp Consolidated                                                                         |  |                   |                   |                   |                  
|Quarterly Data (Unaudited)                                                                                   |  |                   |                   |                   |                  
|As of June 30, 2000                                                                                          |  |                   |                   |                   |                  
|                                                                                                             |  | 1st Qtr           | 2nd Qtr           | 3rd Qtr           | 4th Qtr          
|                                                                                                             |  | Sept. 30          | Dec. 31           | Mar. 31           | June 30          
|                                                                                                             |  | 1999              | 1999              | 2000              | 2000             
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Interest
      Income                                                                                        |  |                   |                   |                   |                  
|Interest
      on loans                                                                                      |  | $
      7,010,975 | $
      7,444,148 | $
      7,671,932 | $
      8,100,003
|Interest
      & dividends on investments                                                                    |  |                   |                   |                   |                  
|&
      available for sale securities                                                                        |  | 457,795           | 510,021           | 597,469           | 613,640          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Total
      Interest and Dividend Income                                                                     |  | 7,468,770         | 7,954,169         | 8,269,401         | 8,713,643        
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Interest
      Expense                                                                                       |  |                   |                   |                   |                  
|Interest
      on Deposits                                                                                   |  | 2,335,723         | 2,550,342         | 2,639,007         | 2,820,511        
|Interest
      on Repurchase Agreements                                                                      |  | 126,207           | 168,791           | 136,368           | 138,198          
|Interest
      on Borrowings                                                                                 |  | 1,516,348         | 1,658,679         | 1,820,771         | 2,014,916        
|Interest
      on Trust Preferred Securities                                                                 |  | 0                 | 73,932            | 176,336           | 176,323          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Total
      Interest Expense                                                                                 |  | 3,978,278         | 4,451,744         | 4,772,482         | 5,149,948        
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Net
      Interest Income                                                                                    |  | 3,490,492         | 3,502,425         | 3,496,919         | 3,563,695        
|Provision
      for Loan Losses                                                                              |  | 295,229           | 195,885           | 195,147           | 385,688          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Net
      Interest Income after Provision                                                                    |  |                   |                   |                   |                  
|for
      Loan Losses                                                                                        |  | 3,195,263         | 3,306,540         | 3,301,772         | 3,178,007        
|                                                                                                             |  |                   |                   |                   |                  
|Securities
      Transactions                                                                                |  | 5,165             | 20,697            | 34,620            | 23,541           
|Other
      Operating Income                                                                                 |  | 622,159           | 593,011           | 611,799           | 623,952          
|Other
      Operating Expense                                                                                |  | 2,587,545         | 2,617,708         | 2,591,467         | 2,746,362        
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|                                                                                                             |  |                   |                   |                   |                  
|Income
      Before Income Taxes                                                                             |  | 1,235,042         | 1,302,540         | 1,356,724         | 1,079,138        
|Income
      Tax Expense                                                                                     |  | 433,320           | 465,796           | 479,459           | 385,146          
|                                                                                                             |  | ___________       | ___________       | ___________       | ___________      
|Net
      Income                                                                                             |  | $
      801,722   | $
      836,744   | $
      877,265   | $
      693,992  
|                                                                                                             |  | ==========        | ==========        | ==========        | ==========       
|                                                                                                             |  |                   |                   |                   |                  
|Earnings Per Share:                                                                                          |  |                   |                   |                   |                  
|Basic                                                                                                        |  | $
      0.29      | $
      0.30      | $
      0.32      | $
      0.26     
|Diluted                                                                                                      |  | $
      0.29      | $
      0.30      | $
      0.32      | $
      0.26     
|                                                                                                             |  |                   |                   |                   |                  
|The decrease in net income and
      the increase in other operating expense for the quarter ending June 30,
|2001 is primarily due to the
      writedown of equity securities and increases in professional fees and    
|advertising expenses for
      additional services rendered during the fourth quarter.                      
|                                                                                                             |  |                   |                   |                   |                  
|The decrease in net income and
      the increase in other operating expense for the quarter ending June 30,
|2000 is primarily due to the
      writedown of equity securities, the increase in professional fees and the
|increase in the provision for
      loan losses.                                                            

Page 65



|Item 9. | Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
|------- | ------------------------------------------------------------------------------------------
|        | Not applicable                                                                            

PART III

|Item 10. | Directors and Executive Officers of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | Information relating to the name of each nominee or director of the
      Company, that person's age, positions and offices with the Company,
      business and principal occupations, directorships in other public
      experience companies, and service on the Company's board of directors set
      forth under the caption "Election of Directors" in the
      definitive 2001 proxy statement of the Company to be furnished to
      shareholders in connection with the Company's Annual Meeting to be held on
      November 13, 2001 (the "2001 Proxy Statement"), and information
      set forth under the subcaption "Section 16 Ownership
      Requirements" relating to Section 16 matters, is incorporated herein
      by reference. Information required by this Item 10 regarding the executive
      officers of the Company is set forth in Part I, Item 4A of this Form 10-K.
|Item 11. | Executive Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|         | Information with respect to current renumeration of directors and
      executive officers under the headings of "Election of Directors -
      Compensation of Directors", "Compensation of Executive
      Officers", "Compensation Committee Interlocks and Insider
      Participation", and "Certain Relationships and Related
      Transactions" in the 2001 Proxy Statement is, to the extent such
      information as required by Item 402 of Regulation S-K, hereby incorporated
      herein by reference.                                                                                                                                                                                                                                                                                                                                                                                   
|Item 12. | Security Ownership of Certain Beneficial Owners and Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Security ownership information required by Item 403 of Regulation S-K
      relating to directors and named executive officers of the company,
      beneficial holders of 5% or more of the outstanding Common Stock, and of
      all executive officers and directors as a group set forth under the
      heading "Security Ownership of Management and Certain Beneficial
      Owners" in the 2001 Proxy Statement is hereby incorporated herein by
      reference.                                                                                                                                                                                                                                                                                                                                                                                                                               
|Item 13. | Certain Relationships and Related Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | Information regarding transactions and relationships between the
      Company and its directors and executive officers under the headings
      "Certain Relationships and Related Transactions" and
      "Compensation Committee Interlocks and Insider Participations"
      in the 2001 Proxy is, to the extent such information as required by Item
      404 of Regulation S-K, hereby incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

PART IV

|Item 14. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                                                                                                                                                                                                                                                       
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)      | List of Financial Statements Filed as Part of This Report                                                                                                                                                                                                                                                                              
|         | The following financial statements are submitted herewith in response
      to Part II Item 8:                                                                                                                                                                                                                                         
|         | Consolidated Statements of Financial Condition as of June 30, 2001 and
      2000                                                                                                                                                                                                                                                      
|         | Consolidated Statements of Income for the years ended June 30, 2001,
      2000 and 1999                                                                                                                                                                                                                                               
|         | Consolidated Statements of Changes in Stockholders' Equity for the
      years ended June 30, 2001, 2000 and 1999                                                                                                                                                                                                                      
|         | Consolidated Statements of Cash Flows for the years ended June 30,
      2001, 2000 and 1999                                                                                                                                                                                                                                           
|(b)      | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                    
|         | Not applicable.                                                                                                                                                                                                                                                                                                                        
|(c)      | Exhibits                                                                                                                                                                                                                                                                                                                               
|         | The exhibits listed below are filed herewith or are incorporated herein
      by reference to other filings.                                                                                                                                                                                                                           
|2.1      | Agreement for the Purchase and Sale of Assets and Assumption of
      Liabilities dated as of May 4, 1994 between Bethel Savings Bank and Key
      Bank of Maine, incorporated by reference to Exhibit 2.1 to Northeast
      Bancorp's Current Report on Form 8-K dated May 4, 1994                                                  
|2.2      | Agreement for the Purchase and Sale of Assets and Assumption of
      Liabilities dated as of May 4, 1994 between Brunswick Federal Savings Bank
      and Key Bank of Maine, incorporated by reference to Exhibit 2.2 to
      Northeast Bancorp's Current Report on Form 8-K dated May 4, 1994                                       
|2.3      | Agreement and Plan of Merger dated as of May 9, 1997 by and among
      Northeast Bancorp, Northeast Bank, FSB and Cushnoc Bank and Trust Company,
      incorporated by reference to Exhibit 2 to Northeast Bancorp's Registration
      Statement on Form S-4 (No. 333-31797) filed with the Securities and
      Exchange Commission
|3.1      | Conformed Articles of Incorporation of Northeast Bancorp, incorporated
      by reference to Exhibit 3.1 to Northeast Bancorp's Registration Statement
      on Form S-4 (No.333-31797) filed with the Securities and Exchange
      Commission                                                                                        
|3.2      | Bylaws of Northeast Bancorp, incorporated by reference to Exhibit 3.2
      to amendment No.1 to Northeast Bancorp's Registration Statement on Form
      S-4(No.333-31797) filed with the Securities and Exchange Commission                                                                                                          
|4.1      | Form of Indenture with respect to Northeast Bancorp's
      Junior Subordinated Debentures, incorporated by reference to Exhibit 4.1 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                  
|4.2      | Form of Junior Subordinated Debentures (included in Exhibit 4.1), incorporated by reference to Exhibit 4.2 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                                            
|4.3      | Trust Agreement of NBN Capital Trust (including Certificate of Trust of NBN Capital Trust), incorporated by reference to Exhibit 4.3 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                  
|4.4      | Form of Amended and Restated Trust Agreement of NBN Capital Trust, incorporated by reference to Exhibit 4.4 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                                           
|4.5      | Form of Preferred Securities of NBN Capital Trust (included in Exhibit 4.4), incorporated by reference to Exhibit 4.5 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                                 
|4.6      | Form of Guarantee Agreement, incorporated by reference to Exhibit 4.6 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange
      Commission.                                                                                                                           
|10.1*    | 1987 Stock Option Plan of Northeast Bancorp (formerly known as Bethel
      Bancorp), incorporated by reference to Bethel Bancorp's Registration
      Statement on Form S-1 (No. 33-12815), filed with the Securities and
      Exchange Commission.                                                                                  
|10.2*    | 1989 Stock Option Plan of Northeast Bancorp (formerly known as Bethel
      Bancorp) is incorporated by reference to Exhibit 10.6 to Bethel Bancorp's
      Quarterly Report on Form 10-Q for the quarter ended September 30, 1994                                                                                                     
|10.3*    | 1992 Stock Option Plan of Northeast Bancorp (formerly known as Bethel
      Bancorp), incorporated by reference to Exhibit 10.7 to Bethel Bancorp's
      Annual Report on Form 10-K for the year ended June 30, 1992                                                                                                                  
|10.4*    | 1999 Stock Option Plan of Northeast Bancorp incorporated by reference
      to Exhibit 10 to Northeast Bancorp's Quarterly Report on Form 10-Q for
      quarter ended December 31, 1999                                                                                                                                               
|11       | Statement regarding computation of earnings per common share is submitted
      herewith as Exhibit 11                                                                                                                                                                                                                                 
|21       | A list of subsidiaries of Northeast Bancorp is filed herewith as
      Exhibit 21                                                                                                                                                                                                                                                      
|23       | The Consent of Baker Newman & Noyes, Limited Liability Company, is
      submitted herewith as Exhibit 23                                                                                                                                                                                                                              
|*        | Management or compensation plan or arrangement required to be filed as
      an Exhibit pursuant to Item 14(c) of Form 10-K                                                                                                                                                                                                            



Page 66

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



NORTHEAST BANCORP

|Date: September 21, 2001 | By:  /s/ James D. Delamater 
|------------------------ | ----------------------------
|                         | James D. Delamater President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



|Name                                           | Title                                                                                                                                | Date              
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------
|/s/ John B. BouchardJohn B. Bouchard           | Director                                                                                                                             | September 21, 2001
|/s/ A. William CannanA. William Cannan         | Director,
      Executive Vice President and
      Acting Chief Financial Officer
      (Principal Financial and Accounting Officer) | September 21, 2001
|/s/ James D. DelamaterJames D. Delamater       | Director,
      President and Chief
      Executive Officer
      (Principal Executive Officer)                                      | September 21, 2001
|/s/ Ronald J. GoguenRonald J. Goguen           | Director                                                                                                                             | September 21, 2001
|/s/ Judith W. KellyJudith W. Kelly             | Director                                                                                                                             | September 21, 2001
|/s/ Philip C. JacksonPhilip C. Jackson         | Director                                                                                                                             | September 21, 2001
|/s/ Ronald C. KendallRonald C. Kendall         | Director                                                                                                                             | September 21, 2001
|/s/ John RosmarinJohn Rosmarin                 | Director                                                                                                                             | September 21, 2001
|/s/ John SchiaviJohn Schiavi                   | Director                                                                                                                             | September 21, 2001
|/s/ John W. Trinward, DMDJohn W. Trinward, DMD | Chairman of the Board                                                                                                                | September 21, 2001
|/s/ Stephen W. WightStephen W. Wight           | Director                                                                                                                             | September 21, 2001
|/s/ Dennis A. WilsonDennis A. Wilson           | Director                                                                                                                             | September 21, 2001

Page 67



EXHIBIT INDEX

|ExhibitNumber | Exhibit                                                                                                                                                                                                                                                                                                                           
|------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1           | Agreement for the Purchase and Sale of Assets and Assumption of
      Liabilities dated as of May 4, 1994 between Bethel Savings Bank and Key
      Bank of Maine, incorporated by reference to Exhibit 2.1 to Bethel
      Bancorp's Current Report on Form 8-K dated May 4, 1994                                                
|2.2           | Agreement for the Purchase and Sale of Assets and Assumption of
      Liabilities dated as of May 4, 1994 between Brunswick Federal Savings Bank
      and Key Bank of Maine, incorporated by reference to Exhibit 2.2 to Bethel
      Bancorp's Current Report on Form 8-K dated May 4, 1994                                     
|2.3           | Agreement and Plan of Merger dated as of May 9, 1997 by and among
      Northeast Bancorp, Northeast Bank, FSB and Cushnoc and Trust Company,
      incorporated by reference to Exhibit 2 to Northeast Bancorp's Registration
      Statement on Form S-4 (No. 333-31797) filed with the Securities and
      Exchange Commission
|3.1           | Conformed Articles of Incorporation of Northeast Bancorp, incorporated
      by reference to Exhibit 3.1 to Northeast Bancorp's Registration Statement
      on Form S-4 (333-31797) filed with the Securities and Exchange Commission                                                                                            
|3.2           | Bylaws of Northeast Bancorp, incorporated by reference to Exhibit 3.2
      to amendment No.1 to Northeast Bancorp's Registration Statement on Form
      S-4 (No.333-31797) filed with the Securities and Exchange Commission                                                                                                    
|4.1           | Form of Indenture with respect to Northeast Bancorp's
      Junior Subordinated Debentures, incorporated by reference to Exhibit 4.1 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                             
|4.2           | Form of Junior Subordinated Debentures (included in Exhibit 4.1), incorporated by reference to Exhibit 4.2 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                                       
|4.3           | Trust Agreement of NBN Capital Trust (including Certificate of Trust of NBN Capital Trust), incorporated by reference to Exhibit 4.3 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                             
|4.4           | Form of Amended and Restated Trust Agreement of NBN Capital Trust, incorporated by reference to Exhibit 4.4 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                                      
|4.5           | Form of Preferred Securities of NBN Capital Trust (included in Exhibit 4.4), incorporated by reference to Exhibit 4.5 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange Commission.                                                                            
|4.6           | Form of Guarantee Agreement, incorporated by reference to Exhibit 4.6 to Northeast Bancorp's Registration Statement on Form S-2 (No. 333-88853-01), filed with the Securities and Exchange
      Commission.                                                                                                                      
|10.1*         | 1987 Stock Option Plan of Northeast Bancorp (formerly known as Bethel
      Bancorp), incorporated by reference to Bethel Bancorp's Registration
      Statement on Form S-1 (No. 33-12815), filed with the Securities and
      Exchange Commission.                                                                             
|10.2*         | 1989 Stock Option Plan of Northeast Bancorp (formerly known as Bethel
      Bancorp) is incorporated by reference to Exhibit 10.6 to Bethel Bancorp's
      Quarterly Report on Form 10-Q for the quarter ended September 30, 1994                                                                                                
|10.3*         | 1992 Stock Option Plan of Northeast Bancorp (formerly known as Bethel
      Bancorp), incorporated by reference to Exhibit 10.7 to Bethel Bancorp's
      Annual Report on Form 10-K for the year ended June 30, 1992                                                                                                             
|10.4*         | 1999 Stock Option Plan of Northeast Bancorp incorporated by reference
      to Exhibit 10 to Northeast Bancorp's Quarterly Report on Form 10-Q for
      quarter ended December 31, 1999                                                                                                                                          
|11            | Statement regarding computation of earnings per common share is submitted
      herewith as Exhibit 11                                                                                                                                                                                                                            
|21            | A list of subsidiaries of Northeast Bancorp is filed herewith as
      Exhibit 21                                                                                                                                                                                                                                                 
|23.1          | The Consent of Baker Newman & Noyes, Limited Liability Company, is
      submitted herewith as Exhibit 23                                                                                                                                                                                                                         
|*             | Management or compensation or plan arrangement required to be filed as
      an Exhibit pursuant to Item 14 (c) of Form 10-K