FORM 10-K


                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

(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, 1997                       


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

   For the transition period from                        to      

   Commission file number (0-16123)


                              Northeast Bancorp
          (Exact name of registrant as specified in its charter)


                  Maine                            01-0425066
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)


232 Center Street, Auburn, Maine                     04210
(Address of principal executive offices)         (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:
<PAGE>  2

   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__    No _____.

   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. [   ]

   The aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of September 19, 1997, was $14,345,253.  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.

   As of September 19, 1997, 1,292,132 shares of the registrant's common stock
were issued and outstanding.


                          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                                Part
   --------                                ----

   Proxy Statement for the                 III
   1997 Annual Meeting of
   Shareholders

                                  PART I

Item 1.  Business
_________________

   (a) General Development of Business
   ___________________________________

   The Registrant, Northeast Bancorp (the "Company"), is a Maine Corporation 
   chartered in April 1987 for the purpose of becoming a savings and loan 
   holding company. The Office of Thrift Supervision ("OTS") is the Company's 
   primary regulator.  The Company has one wholly-owned banking subsidiary, 
   Northeast Bank, FSB (the "Bank"), which has branches located in Auburn, 
   Bethel, Harrison, South Paris, Buckfield, Mechanic Falls, Brunswick, 
   Richmond and Lisbon Falls, Maine.

<PAGE>  3

   In May of 1992, the Company entered into a Stock Purchase Agreement with 
   Square Lake Holding Corporation ("Square Lake") and, on February 9, 1994, 
   following receipt of regulatory and shareholder approval, the Company issued
   71,428 shares of a newly designated Series B convertible preferred stock to 
   Square Lake at an aggregate price of approximately $1 million, or $14.00 per
   share.  As part of the transaction, the Company also issued Square Lake a 
   warrant with a term of seven years to purchase 116,882 shares of the 
   Company's common stock at a price of $14.00 per share.  As a result of the 
   exercise of certain of such warrants and the application of anti-dilution 
   provisions pursuant to which such warrants were issued, 108,764 shares 
   remain subject to such warrants at a purchase price of $7.00 per share.   
   The Series B Preferred Stock is convertible into shares of the Company's 
   common stock on a two-for-one basis and carries a dividend rate equal to 2% 
   below the prime rate of The First National Bank of Boston, not to be less 
   than 7%.  The rights and preferences of the Series B Preferred Stock issued 
   pursuant to this transaction are similar to, and on a parity with, the  
   Company's Series A Preferred Stock.  

   In fiscal year 1993, the Company moved its headquarters from Bethel, Maine 
   to Portland, Maine.  The Company also acquired a controlling interest in ASI
   Data Services, Inc. ("ASI"), an existing company which provided sales and 
   service of computer related hardware and software, as well as a full line of
   data processing support systems.  On July 1, 1996, the operations of ASI, 
   which consists primarily of providing data processing support to the Bank 
   and the Company, were transferred to the Bank.

   During fiscal 1995 the Company acquired four branches from Key Bank of 
   Maine, located in Buckfield, Mechanic Falls, Richmond and Lisbon Falls, 
   Maine. The total deposits and repurchase agreements acquired from the four 
   branches were approximately $27,749,000.  The premium paid to Key Bank of 
   Maine for these deposits was $1,590,228.  The cost of the real estate, 
   buildings and equipment purchased from Key Bank of Maine was $498,500.

   On July 1, 1996 the Company's then two wholly-owned banking subsidiaries, 
   Bethel Savings Bank, F.S.B. ("Bethel"), a federally - chartered savings bank
   with its principal place of business in Bethel, Maine and Brunswick Federal 
   Savings, F.A. ("Brunswick"), a federally - chartered savings association 
   with its principal place of business in Brunswick, Maine merged following 
   receipt of regulatory approval.  The merged banking subsidiary was renamed 
   Northeast Bank, FSB. In 1996, the Company amended its Articles of 
   Incorporation to change its name from Bethel Bancorp to Northeast Bancorp 
   and relocated its headquarters from Portland, Maine to 158 Court Street, 
   Auburn, Maine.

   In Fiscal 1997, the Company relocated its corporate headquarters and opened 
   a new retail banking facility at 232 Center Street, Auburn, Maine. During 
   fiscal 1997, there were no bankruptcy, receivership or similar proceedings 
   with respect to the Company or the Bank.

   On May 9, 1997 the Company entered into a definitive agreement to merge the 
   Bank with Cushnoc Bank and Trust Company ("Cushnoc") of Augusta, Maine. The
   agreement has been approved by the Company's and Cushnoc's Board of 
   Directors and is subject to approval by Cushnoc's shareholders at a special 
   meeting to be held October 14, 1997.  On August 29, 1997, the Company 
   received approval from OTS, subject to certain conditions, to merge the Bank
   and Cushnoc. At March 31, 1997, Cushnoc had approximately $21,000,000 in 
   total assets and $2,200,000 in stockholder's equity. Under the terms of the 
<PAGE>   4

   agreement, the Company will issue 2.089 shares of common stock for each 
   share of Cushnoc, which has 90,000 common shares outstanding. The 
   acquisition will be accounted for under the pooling of interest method. The 
   merger of Cushnoc and the Bank is expected to occur during the fourth 
   quarter of Calendar 1997.

   (b)  Financial Information About Industry Segments
   __________________________________________________

         Not applicable.


   (c)  Narrative Description of Business 
   ______________________________________

General
_______

   The Company is a unitary savings and loan holding company whose primary 
asset is its subsidiary, the Bank.
        
   The Bank (which was formerly known as Bethel Savings Bank, F.S.B.), is a 
federally-chartered stock savings bank which was organized in 1872 as a Maine-
chartered mutual savings bank and received its federal charter in 1984 and is 
the successor by merger to Brunswick Federal Savings, F.A., a federally-
chartered savings association formed in 1988.
     
   In connection with its conversion to a federal stock savings bank in 1984,
the Bank retained its then-authorized powers as a Maine-chartered mutual 
savings bank.  Under applicable federal regulations, the Bank may exercise any 
authority it was allowed to exercise as a mutual savings bank under state law 
and regulation at the time of its conversion to a federal savings bank.  In 
exercising such "grandfathered" powers, the Bank may continue to comply with 
applicable state laws and regulations in effect at the time of its conversion 
to federal charter except as otherwise determined by the OTS.  The Bank, 
however, may not use its grandfathered powers to engage in activities to a 
greater degree than would be allowed under the most liberal construction of 
either state or federal law or regulations.

   Historically, Maine-chartered savings banks have had certain lending,
investment and other powers only recently authorized for federal institutions,
including commercial lending authority and the ability to offer personal 
checking and negotiable order of withdrawal (NOW) accounts.  The Bank also has 
broader securities investment authority than other federal thrift institutions 
(i.e. savings banks and savings and loan associations) as a result of its 
retention of state powers.  

   The Bank's primary business has historically consisted of attracting savings
deposits from the general public and applying these funds primarily to the
origination and retention of first mortgage loans on residential real estate.  
Over the past several years, the Bank has concentrated its lending efforts 
on the origination of loans that are shorter-term or interest rate sensitive.  
Of the Bank's loan portfolio at June 30, 1997, 85% was invested in real estate
loans (including residential, construction and commercial mortgage loans), 8% 
in commercial loans and 7% in consumer loans.  

   The Bank's deposits are insured by the Federal Deposit Insurance Corporation
<PAGE> 5

(the "FDIC"), primarily through the Bank Insurance Fund. Deposits at the 
Brunswick branch are insured through the Savings Association Insurance Fund and
represent 33% of the Bank's total deposits at June 30, 1997.  The Bank is a
member of the Federal Home Loan Bank of Boston (the "FHLB").

   At June 30, 1997, the legal lending limit of the Bank was approximately 
$2,800,000.  When, on occasion, customers' credit needs exceed the Bank's 
lending limits, the Bank may seek participations of such loans with other 
banks.

Market Area and Competition
___________________________

   The Bank is headquartered in Auburn, Maine with full service branches in 
Bethel, Harrison, South Paris, Buckfield, Mechanic Falls, Brunswick, Richmond 
and Lisbon Falls, Maine. The Banks market area is characterized by a 
diversified economy and a strong emphasis on the tourist industry.

   The banking business in the Bank's market areas has become increasingly
competitive over the past several years.  The Bank's major competitors in 
attracting deposits and lending funds consist principally of other Maine-based 
banks, regional and money center banks, and nonbank financial institutions.  
Many of the Banks' competitors are larger in size and 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.  Additionally, the Bank believes that the local character of its 
business and its "community bank" management philosophy will improve its 
ability to compete successfully in its market areas.

Regional Economic Environment
____________________________

   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 stabilized with moderate growth.

Subsidiaries
____________

   The Company acquired a wholly-owned subsidiary, ASI Data Services, Inc. 
("ASI")through two stock purchases during 1993-1994 for an aggregate purchase 
price of $465,840.  ASI initially provided data processing services to the 
Company and its subsidiaries.  The Company's board of directors voted to 
transfer the operations of ASI  to the Bank as of July 1, 1996.  ASI continues 
to exist as a separate legal entity, but is now inactive.

   The Bank has one wholly-owned subsidiary, Northeast Financial Services 
Corporation, which was organized in 1982.  Through Northeast Financial Services
Corporation, the Bank has participated in certain real estate development 
projects.  While the Bank does not actively pursue such projects, several 
projects of varying sizes have been undertaken in the past few years.  Any 
proposed development project is examined for its profit potential and its 
ability to enhance the communities served by the Bank. There are no definitive
plans for additional real estate development projects at the present time.  At
<PAGE>   6

June 30, 1997, investment in and loans to its subsidiary constituted 0.4% of 
the Company's total assets.  The service corporation 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. The service corporation receives rental fee income, from Commonwealth, 
derived from the sales activity of local in-house security sales people. The 
service corporation has not invested in any assets in its business relationship
with Commonwealth.

   In 1994, Northeast Financial Services Corporation invested $375,000 of 
capital and became the majority owner of First New England Benefits, Inc.. In 
fiscal 1997, Northeast Financial Services purchased the remaining 37.5% of 
outstanding shares of First New England Benefits for $213,750. First New 
England Benefits has been merged into and will continue to operate as part of 
the Bank's trust division.  First New England was an employee benefits 
consulting firm which specialized in the design and administration of qualified
retirement and 401(k) plans.

Employees
_________

   As of June 30, 1997, the Company and its consolidated subsidiaries had 112 
full-time and 21 part-time employees.  The Company's employees are not 
represented by any collective bargaining unit.  Relations between the Company
and its employees are considered good.

Regulation
__________

   General
   _______

   The Company, as a savings and loan holding company, is subject to
regulation, examination and supervision by the OTS under the Home Owners Loan
Act.  The Company is also deemed a Maine financial institution holding company.
As such, the Company is registered with the Maine Superintendent of Banking 
(the "Superintendent") and will be subject to periodic examinations and 
reporting requirements of the Superintendent.

   Recent Developments in Savings Institution Regulation
   _____________________________________________________

Federal Deposit Insurance Corporation Improvement Act of 1991
_____________________________________________________________

   The Federal Deposit Insurance Corporation Improvement Act of 1991 
("FDICIA"), which was enacted on December 19, 1991, contains various provisions
intended to recapitalize the Bank Insurance Fund ("BIF") and also effects a 
number of regulatory reforms that will impact all insured depository 
institutions, regardless of the insurance fund in which they participate. Due 
to the FDICIA Act, SAIF insurance premiums were increased, commencing January 
1,1991, to 0.23% of the assessment base. FIDICIA grants, among other things, 
the OTS broad regulatory authority to take prompt corrective action against
insured institutions that do not meet capital requirements, including placing  
undercapitalized institutions into conservatorship or receivership or that are 
otherwise operating in an unsafe and unsound manner. Since the Bank exceeded 
all capital requirements at June 30, 1997, these provisions did not have any 
<PAGE>   7

significant impact on its operations. On September 5, 1995, the FDIC announced 
that the BIF was fully recapitalized at the end of May 1995.  As a result, the 
premium rates for the healthiest banks (1A category) were decrease from 0.23% 
to 0.04% of the assessment base.  During fiscal 1996, premium rates for the 
healthiest banks (1A category) were decreased from 0.04% to an annual fee of 
$2,000.

    The Deposit Insurance Funds Act of 1996, which was enacted in September of 
1996, amended the FDIC BIF-SAIF deposit insurance assessment on institution 
deposits. Legislation imposed a one-time assessment on institutions holding 
SAIF insured deposits on March 31, 1995, in an amount necessary for the SAIF to
reach its 1.25% Designated Reserve ratio. Institutions with SAIF deposits were 
required to pay an assessment rate of 65.7 cents per $100 of domestic deposits 
held as of March 31, 1995. Commencing in 1997 and continuing through 1999, 
annual premium rates for the healthiest banks (1A category) are 1.29 cents for 
every $100 of domestic BIF insured deposits and 6.44 cents for every $100 of 
domestic SAIF insured deposits. Commencing in 2000 and continuing through 2017,
banks will be required to pay a flat annual assessment of 2.43 cents for every 
$100 of domestic deposits. The Bank is 1A category bank.  All of the Bank's 
deposits, except for the Brunswick's branch deposits, which represented 33% of 
the Bank's total deposits  at June 30, 1997, are BIF insured.

   Savings and Loan Holding Company Regulation
   ___________________________________________

   General.  
   ________
   Under the Home Owners Loan Act (the "HOLA"), as amended by the Financial 
Institution Return Recovery and Enforcement Act of 1989, the Director of the 
OTS is the operating head of the Federal Savings and Loan Insurance Corporation
(the "FSLIC"), with jurisdiction over savings and loan holding companies.  
Thus,  the Company, as a savings and loan holding company within the meaning of
the HOLA, is now subject to regulation, supervision and examination by, and the
reporting requirements of, the Director of the OTS.

   The HOLA prohibits a savings and loan holding company such as the Company, 
directly or indirectly, or through one or more subsidiaries, from (I)
acquiring control of, or acquiring by merger with or purchase of the assets of,
another savings institution or a savings and loan holding company without the
prior written approval of the Director of the OTS; (ii) acquiring more than 5% 
of the issued and outstanding shares of voting stock of another savings 
institution or savings and loan holding company, except as part of an 
acquisition of control approved by the Director of the OTS, as part of an 
acquisition of stock issued by an undercapitalized savings institution or its 
holding company approved by the Director of the OTS or except under certain 
specified conditions (such as an acquisition of stock in a fiduciary capacity) 
which negate a finding of control; or (iii) acquiring or retaining control of a
financial institution that does not have SAIF or BIF insurance of accounts.  
The HOLA also allows the Director of the OTS to approve transactions resulting 
in the creation of multiple savings and loan holding companies controlling 
savings institutions located in more than one state in both supervisory and 
nonsupervisory transactions, subject to the requirement that, in nonsupervisory
transactions, the law of the state in which the savings institution to be 
acquired is located must specifically authorize the proposed acquisition, by
language to that effect and not merely by implication.  As a result, the 
Company may, with the prior approval of the Director of the OTS, acquire 
control of a savings institution located in a state other than Maine if the 
<PAGE>   8

acquisition is expressly permitted by the laws of the state in which the 
savings institution to be acquired is located.  No director, officer, or 
controlling shareholder of the Company may, except with the prior approval of 
the Director of the OTS, acquire control of any savings institution which is 
not a subsidiary of the Company.  Restrictions relating to service as an 
officer or director of an unaffiliated holding company or savings institution 
are applicable to the directors and officers of the Company and its savings 
institution subsidiaries under the Depository Institution Management Interlocks
Act.

   Pursuant to the HOLA, transactions engaged in by a savings association or 
one of its subsidiaries with affiliates of the savings association generally 
are subject to the affiliate transaction restrictions contained in Sections 23A
and 23B of the Federal Reserve Act in the same manner and to the same extent as
such restrictions now apply to transactions engaged in by a member bank or one 
of its subsidiaries with affiliates of the member bank.  Section 23A of the 
Federal Reserve Act imposes both quantitative and qualitative restrictions on 
transactions engaged in by a member bank or one of its subsidiaries with an 
affiliate, while Section 23B of the Federal Reserve Act requires, among other 
things, that all transactions with affiliates be on terms substantially the 
same, and at least as favorable to the member bank or its subsidiary, as the 
terms that would apply to, or would be offered in, a comparable transaction 
with an unaffiliated party.  Exemptions from, and waivers, of, the provisions 
of Sections 23A and 23B of the Federal Reserve Act may be granted only by the 
Federal Reserve Board, but the Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 ("FIRRE Act"), authorizes the Director of the OTS 
to impose additional restrictions on transactions with affiliates if the 
Director determines such restrictions are necessary to ensure the safety and 
soundness of any savings institution.

   Restrictions on Activities of Savings and Loan Holding Companies
   _________________________________________________________________________

   The Company is a savings and loan holding company by virtue of its control 
of the Bank.  Under applicable federal regulations, savings and loan holding 
companies and their noninsured subsidiaries are prohibited from engaging in 
any activities other than (I) furnishing or providing management services for 
the savings association; (ii) conducting an insurance agency or escrow 
business; (iii) holding, managing or liquidating assets owned or acquired from 
the savings association; (iv) holding or managing properties used or occupied 
by the savings association; (v) acting as trustee under deeds of trust; (vi) 
engaging in any other activity in which savings and loan holding companies were
authorized by regulation to engage as of March 5, 1987; and (vii) engaging in 
any activity which the Board of Governors of the Federal Reserve System has 
permitted for bank holding companies under its regulations (unless the Director
of the OTS, by regulation, prohibits or limits any such activity for savings 
and loan holding companies).  The activities in which savings and loan holding 
companies were authorized by regulation to engage as of March 5, 1987 consist 
of activities similar to those permitted for service corporations of federally
chartered savings institutions and include, among other things, various types 
of lending activities, furnishing or performing clerical, accounting and 
internal audit services primarily for affiliates, certain real estate 
development and leasing activities,underwriting credit life or credit health 
and accident insurance in connection with extension of credit by savings 
institutions or their affiliates and the performance of a range of other
services primarily for their affiliates, their savings association subsidiaries
and service corporation subsidiaries thereof.  The activities which the Board 
<PAGE>   9

of Governors of the Federal Reserve System by regulation has permitted for bank
holding companies generally consist of those activities that the Board of 
Governors of the Federal Reserve System has found to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto, 
and include, among other things, various lending activities, certain real and 
personal property leasing activities, certain securities brokerage activities, 
acting as an investment or financial advisor subject to certain conditions, and
providing management consulting to depository institutions, subject to certain 
conditions.  OTS regulations do not limit the extent to which savings and loan 
holding companies and their nonsavings institution subsidiaries may engage in 
activities permitted for bank holding companies pursuant to the regulations 
adopted by the Governors of the Federal Reserve System, although prior OTS 
approval is required to commence such activity whether de novo or by an 
acquisition (in whole or part) of a going concern.

   The Company could be prohibited from engaging in any activity (including 
those otherwise permitted under the HOLA) not allowed for bank holding 
companies if the Bank fails to constitute a qualified thrift lender.  See 
"Regulation -- Savings Institution Regulation -- Qualified Thrift Lender 
Requirement."

Savings Institution Regulation
______________________________

   General.  
   ________
   As a federally chartered institution, the Bank is subject to supervision 
and regulation by the Director of the OTS, the FHLBB's successor under the 
FIRRE Act.  As a result of its conversion to a federal mutual savings bank
in 1984, the Bank retains the then-authorized powers of a Maine-chartered 
mutual savings bank.  Under OTS regulations, the Bank is required to obtain 
audits by independent accountants and to be examined periodically by the 
Director of the OTS. These examinations must be conducted no less frequently 
than every twelve (12) months.  The Bank is subject to assessments by the OTS 
and the FDIC to cover the costs of such examinations.  The OTS may revalue 
assets of the Bank, based upon appraisals, and require the establishment of 
specific reserves in amounts equal to the difference between such revaluation 
and the book value of the assets.  The Director of the OTS is also authorized 
to promulgate regulations to ensure the safe and sound operations of savings 
institutions and may impose various requirements and restrictions on the 
activities of savings institutions.  The FIRRE Act requires that all 
regulations and policies of the Director of the OTS for the safe and sound 
operations of savings institutions be no less stringent than those established 
by the Office of the Comptroller of the Currency (the "OCC") for national 
banks. The Bank is also subject to regulation and supervision by the FDIC, in 
its capacity as insurer of deposits in the Bank, to ensure the safety and 
soundness of the BIF and the SAIF.  See "Regulation -- Savings Institution 
Regulation -- Insurance of  Deposits."

   Capital Requirements.  
   _____________________
   As required by amendments of the HOLA enacted as part of the FIRRE Act, the 
Director of the OTS has adopted capital standards which require savings 
institutions to maintain (I) "core capital" in an amount of not less than 3% of
total assets, (ii) "tangible capital" in an amount not less than 1.5% of total 
assets and (iii) a level of risk-based capital equal to 8.0% of risk-weighted
assets.  The capital standards established for savings institutions must 
<PAGE>  10

generally be no less stringent than those applicable to national banks and must
use all relevant substantive definitions used in the capital standards for 
national banks.  Under the OTS regulations, the term "core capital" includes 
common stockholders equity, noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated 
subsidiaries, less intangible assets, other than certain amounts of supervisory
goodwill, and up to 90% of the fair market value of readily marketable 
purchased mortgage servicing rights ("PMSRs") (subject to certain conditions). 
The term "tangible capital," for purposes of the HOLA, is defined as core 
capital minus intangible assets (as defined by the OCC for national banks), 
provided, however, that savings institutions may include up to 90% of the
fair market value of readily marketable PMSRs 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).  In determining compliance with capital standards,
a savings institution must deduct from capital its entire investment in and 
loans to any subsidiary engaged as principal in activities not permissible for 
a national bank, other than subsidiaries (I) engaged in such nonpermissible 
activities solely as agent for their customers; (ii) engaged in mortgage 
banking activities, or (iii) that are themselves savings institutions, or 
companies the only investment of which is another savings institution, acquired
prior to May 1, 1989.  With respect to investments in and loans to subsidiaries
engaged as of April 12, 1989 in activities not permitted for national banks, 
the required deduction from capital was to be phased-in over a period ending 
June 30, 1995.

   In determining total risk-weighted assets for purposes of the risk-based
requirement, (I) each off-balance sheet asset must be converted to its 
on-balance sheet credit equivalent amount by multiplying the face amount of 
each such item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the asset), (ii) the credit equivalent amount of each 
off-balance sheet asset and the book value of each on-balance sheet asset must 
be multiplied by a risk factor ranging from 0% to 100% (again depending upon 
the nature of the asset) and (iii) the resulting amounts are added together and
constitute total risk-weighted assets.  Total capital, for purposes of the 
risk-based capital requirement, equals the sum of core capital plus 
supplementary capital (which, as defined, includes, among other items, 
perpetual preferred stock, not counted as core capital, limited life preferred 
stock, subordinated debt, and general loan and lease loss allowances up to 
1.25% of risk-weighted assets), less certain deductions.  The amount of 
supplementary capital that may be counted towards satisfaction of the total 
capital requirement may not exceed 100% of core capital, and OTS regulations 
require the maintenance of a minimum ratio of core capital to total risk-
weighted assets of at least 4.0%.

   In August 1993, the OTS issued a final ruling adding an interest rate risk
component for purposes of risk-based capital requirements.  The interest rate 
risk component now takes into account, for risk-based capital purposes, the 
effect that a change in interest rates would have on the value of a savings 
institution's portfolio.  The final rule and amendments became effective July 
1, 1994.

   Any insured depository institution which falls below the minimum capital
standards must submit a capital restoration plan. In general, undercapitalized
institutions will be precluded from increasing their assets, acquiring other
institutions, establishing additional branches, or engaging in new lines of 
business without an approved capital plan and an agency determination that such
<PAGE>  11

actions are consistent with the plan. Savings institutions that are 
significantly undercapitalized or critically undercapitalized are subject to 
additional restrictions and may be required to (I) raise additional capital; 
(ii) limit asset growth; (iii) limit the amount of interest paid on deposits to
the prevailing rate of interest in the region where the institution is located;
(iv) divest or liquidate any subsidiary which the OTS determines poses a 
significant risk; (v) order a new election for members of the board of 
directors; (vi) require the dismissal of a director or senior executive 
officer, or (vii) take such other action as the OTS determines is appropriate. 
Under FDICIA, the OTS is required to appoint a conservator or receiver for
a critically undercapitalized institution no later than 9 months after the 
institution becomes critically undercapitalized, subject to a limited exception
for institutions which are in compliance with an approved capital plan and 
which the OTS and the FDIC certify are not likely to fail.

   FDICIA prohibits any depository institution that is not well capitalized 
from accepting deposits through a deposit broker.  Previously, only troubled 
institutions were prohibited from accepting brokered deposits.  The FDIC may 
allow adequately capitalized institutions to accept brokered deposits for 
successive periods of up to 90 days.  FDICIA also prohibits undercapitalized 
institutions from offering rates of interest on insured deposits that 
significantly exceed the prevailing rate in their normal market area or the 
area in which the deposits would otherwise be accepted.

   Capital requirements higher than the generally applicable minimum 
requirement may be established for a particular savings institution if the OTS 
determines that the institution's capital was or may become inadequate in view 
of its particular circumstances.  Individual minimum capital requirements may 
be appropriate where the savings institution is receiving special supervisory 
attention, has a high degree of exposure to interest rate risk, or poses other 
safety or soundness concerns.

   Qualified Thrift Lender Requirement.  
   ____________________________________
   In order for the Bank to exercise the powers granted to federally chartered
savings institutions, and maintain full access to FHLB advances, it must 
constitute a "qualified thrift lender" ("QTL").  Pursuant to recent amendment 
effected by FDICIA, a savings institution will constitute a QTL if the  
institution's qualified thrift investments continue to equal or exceed 65% of 
the savings association's portfolio assets on a monthly average basis in 9 out 
of every 12 months.  As amended by FDICIA, qualified thrift investments 
generally consist of (I) various housing related loans and investments (such as
residential construction and mortgage loans, home improvement loans, mobile 
home loans, home equity loans and mortgage-backed securities), (ii) certain 
obligations of the FSLIC, the FDIC, the FSLIC Resolution fund and the RTC (for
limited periods of time), and (iii) shares of stock issued by any Federal Home 
Loan Bank, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association.  In addition, the following assets may be categorized as
qualified thrift investments in an amount not to exceed 20% in the aggregate of
portfolio assets: (I) 50% of the dollar amount of residential mortgage loans
originated and sold within 90 days of origination; (ii) investments in 
securities of a service corporation that derives at least 80% of its income 
from residential housing finance; (iii) 200% of loans and investments made to 
acquire, develop or construct starter homes or homes in credit needy areas 
(subject to certain conditions); (iv) loans for the purchase or construction of
churches, schools, nursing homes and hospitals; and (v) consumer loans (in an 
amount up to 20% of portfolio assets).  For purposes of the QTL test, as 
<PAGE>  12

amended by FDICIA, the term "portfolio assets" means the savings institution's 
total assets minus goodwill and other intangible assets, the value of property 
used by the savings institution to conduct its business, and liquid assets 
held by the savings institution in an amount up to 20% of its total assets.

   OTS regulations provide that any savings institution that fails to meet the 
new QTL test must either convert to a national bank charter or limit its future
investments and activities (including branching and payments of dividends) to
those permitted for both savings institutions and national banks. Additionally,
any such savings institution that does not convert to a bank charter will be 
ineligible to receive further FHL Bank advances and, beginning three years 
after the loss of QTL status, will be required to repay all outstanding FHL 
Bank advances and dispose of or discontinue any pre-existing investments and 
activities not permitted for both savings institutions and national banks.  
Further, within one year of the loss of QTL status, the holding company of a 
savings institution 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 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.

   Liquidity.  
   __________
   Under OTS regulations, savings institutions are required to maintain an 
average daily balance of liquid assets (including cash, certain time deposits,
certain bankers' acceptances, certain corporate debt securities and highly 
rated commercial paper, securities of certain mutual funds and specified United
States government, state or federal agency obligations) equal to a monthly 
average of not less than a specified percentage of the average daily balance of
the savings institution's net withdrawable deposits plus short-term borrowings.
Under the HOLA, this liquidity requirement may be changed from time to time by 
the Director of the OTS to any amount within the range of 4% to 10%, depending 
upon economic conditions and the deposit flows of member institutions, and the 
required ratio currently is 5%.  OTS regulations also require each savings 
institution to maintain an average daily balance of short term liquid assets at
a specified percentage (currently 1%) of the total of the average daily balance
of its net withdrawable deposits and short-term borrowings.

   Loans to One Borrower Limitations.  
   __________________________________
   The HOLA, as amended by the FIRRE Act, generally requires savings 
institutions to comply with the loans to one borrower limitations applicable to
national banks.  National banks generally may not make loans to a single 
borrower in excess of 15% to 25% of their unimpaired capital and unimpaired 
surplus (depending upon the type of loans and the collateral therefor).  The 
HOLA, as amended by the FIRRE Act, provides exceptions from the generally 
applicable national bank limits, under which a savings institution may make 
loans to one borrower in excess of such limits under one of the following 
circumstances: (I) for any purpose, in an amount not to exceed $500,000; (ii) 
to develop domestic residential housing units, in an amount not to exceed the 
lesser of $30 million or 30% of the savings institution's unimpaired capital 
and unimpaired surplus, provided other conditions are satisfied; or (iii) to 
finance the sale of real property which it owns as a result of foreclosure, in 
an amount not to exceed 50% of the savings institution's unimpaired capital and
unimpaired surplus.  In addition, further restrictions on a savings 
<PAGE>  13

institution's loans to one borrower may be imposed by the Director of the OTS 
if necessary to protect the safety and soundness of the savings institution.  
The new loans to one borrower limits apply prospectively to loan commitments 
issued after the date of enactment of the FIRRE Act, and legally binding loan 
commitments issued prior to that date in compliance with the pre-FIRRE Act 
limits may be funded even if the amount of the loan would cause the institution
to exceed the FIRRE Act limits.

   Pursuant to its authority to impose more stringent requirements on savings
associations to protect safety and soundness, however, the OTS has promulgated
a rule limiting loans to one borrower to finance the sale of real property 
acquired in satisfaction of debts to 15% of unimpaired capital and surplus. The
rule provides that purchase money mortgages received by a savings association 
to finance the sale of such real property do not constitute "loans" (provided 
that the savings association is not placed in a more detrimental position 
holding the note than holding the real estate) and, therefore, are not subject 
to the loan-to-one-borrower limitations. 


   Commercial Real Property Loans.  
   _______________________________
   Another of the FIRRE Act amendments to the HOLA limits the aggregate amount 
of commercial real estate loans that a federal savings institution may make to 
an amount not in excess of 400% of the savings institution's capital (as 
compared with the 40% of assets limitation in effect prior to the enactment of 
the FIRRE Act).  However, the new limit does not require the divestiture of 
loans made prior to enactment of the FIRRE Act.  The OTS has the authority
to grant exceptions to the limit if the additional amount will not pose a 
significant risk to the safe or sound operation of the savings institution 
involved, and is consistent with prudent operating practices.


   Regulatory Restrictions on the Payment of Dividends by Savings Institutions.
   ____________________________________________________________________________
   OTS regulations establish uniform treatment for all capital distributions by
savings associations (including dividends, stock repurchases and cash-out 
mergers).  Under the rules, a savings association is classified as a tier 1 
institution, a tier 2 institution or a tier 3 institution, depending on its 
level of regulatory capital both before and after giving effect to a proposed 
capital distribution.  A tier 1 institution (i.e., one that both before and 
after a proposed capital distribution has net capital equal to or in excess of 
its fully phased-in regulatory capital requirement) is allowed, subject to any 
otherwise applicable statutory or regulatory requirements or agreements entered
into with regulators, to make capital distributions in any calendar year up to 
100% of its net income to date during the capital year plus the amount that 
would reduce by one-half its surplus capital ratio (i.e., the percentage by 
which (x) its ratio of capital to assets exceeds (y) the ratio of its fully 
phased-in capital requirement to assets) as of the beginning of the calendar 
year, adjusted to reflect current earnings.  No regulatory approval of the 
capital distribution is required, but prior notice has to be given to the OTS. 
A tier 2 institution (i.e., one that both before and after a proposed capital 
distribution has net capital equal to its then-applicable minimum capital 
requirement but would fail to meet its fully phased-in capital requirement 
either before or after the distribution) may make only limited capital 
distributions without prior regulatory approval.  A tier 3 institution (i.e., 
one that either before or after a proposed capital distribution fails to meet 
its then-applicable minimum capital requirement) may not make any capital
<PAGE>  14

distributions without prior OTS approval.  In addition, the OTS may prohibit a
proposed capital distribution, which otherwise would be permitted by the
regulation, if the OTS determines that such a distribution would constitute an
unsafe or unsound practice.  Also, an institution meeting the tier 1 criteria 
which has been notified that it needs more than normal supervision will be 
treated as a tier 2 or tier 3 institution, unless the OTS deems otherwise.

   Activities of Subsidiaries.
   ___________________________
   The FIRRE Act requires a savings institution seeking to establish a new 
subsidiary, acquire control of an existing company (after which it would be a 
subsidiary), or conduct a new activity through a subsidiary, to provide 30 days
prior notice to the FDIC and the Director of the OTS and conduct any activities
of the subsidiary in accordance with regulations and orders of the Director of 
the OTS.  The Director of the OTS has the power to require a savings 
institution to divest any subsidiary or terminate any activity conducted by a 
subsidiary that the Director of the OTS determines is a serious threat to the 
financial safety, soundness or stability of such savings institution or is 
otherwise inconsistent with sound banking practices.

   Insurance of Deposits.   
   ______________________
   Federal deposit insurance is required for all federal savings institutions. 
Federal savings institutions' deposits are insured to a maximum of $100,000 for
each insured depositor by the BIF or the SAIF.  As a FDIC-insured institution, 
the Bank is subject to regulation and supervision by the FDIC, to the extent 
deemed necessary by the FDIC to ensure the safety and soundness of BIF and 
SAIF.  The FDIC is entitled to have access to reports of examination of the
Banks made by the Director of the OTS and all reports of condition filed by the
Bank with the Director of the OTS, and may require the Bank to file such 
additional reports as the FDIC determines to be advisable for insurance 
purposes.  The FDIC may determine by regulation or order that any specific 
activity poses a serious threat to BIF or SAIF and that no BIF or SAIF 
member may engage in the activity directly.  The FDIC is also authorized to
issue and enforce such regulations or orders as it deems necessary to prevent
actions of savings institutions that pose a serious threat to BIF or SAIF.

   Insurance of deposits may be terminated by the FDIC after notice and 
hearing, upon finding by the FDIC that the savings institution has engaged in 
unsafe or unsound practices, is in an unsafe or unsound condition to continue 
operations, or has violated any applicable law, rule, regulation, order or 
condition imposed by, or written agreement with, the FDIC.  Additionally, if 
insurance termination proceedings are initiated against a savings institution, 
the FDIC may temporarily suspend insurance on new deposits received by an 
institution under certain circumstances.

   Effective December 19, 1992, FDICIA requires any company that controls an
undercapitalized savings institution, in connection with the submission of a 
capital restoration plan by the savings institution, to guarantee that the 
institution will comply with the plan and to provide appropriate assurances of 
performance. The aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (I) 5% of the savings institution's assets
at the time it became undercapitalized; or (ii) the amount necessary to bring 
the savings institution into capital compliance as of the time the institution 
fails to comply with the terms of its capital plan.

Federal Home Loan Bank System
<PAGE> 15

_____________________________


   The Federal Home Loan Bank System consists of 12 regional FHL Banks, each
subject to supervision and regulation by the Federal Housing Finance Board (the
"FHFB"), a new agency established pursuant to the FIRRE Act.  The FHL Banks
provide a central credit facility for member savings institutions.  The Bank, 
as a member of the FHLB, is required to own shares of capital stock in that 
FHL Bank in an amount at least equal to 1% of the aggregate principal amount 
of their unpaid residential mortgage loans, home purchase contracts and similar 
obligations at the beginning of each year, or 1/20 of their advances 
(borrowings) from the FHL Bank, whichever is greater.  The Bank is in 
compliance with this requirement.  The maximum amount which the FHLB will 
advance fluctuates from time to time in accordance with changes in policies of 
the FHFB and the FHLB, and the maximum amount generally is reduced by 
borrowings from any other source.  In addition, the amount of FHL Bank advances
that a savings institution may obtain will be restricted in the event the 
institution fails to constitute a QTL.  See "Regulation -- Savings Institution 
Regulation -- Qualified Thrift Lender Requirement."

   Federal Reserve Board
   _____________________

   Pursuant to the Depository Institutions Deregulation and Monetary Control 
Act of 1980 (the "Deregulation Act"), Federal Reserve Board regulations require
savings institutions to maintain reserves against their net transaction 
accounts (primarily NOW accounts), subject to certain exemptions.  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.  
Because required reserves must be maintained in the form of vault cash or a 
non-interest bearing account at a Federal Reserve Bank, the effect of this 
reserve requirement is to reduce the institution's interest-earning assets.

   The Deregulation Act also gives savings institutions authority to borrow 
from the appropriate Federal Reserve Bank's "discount window."  Current Federal
Reserve regulations require savings institutions to exhaust all FHLB sources 
before borrowing from the Federal Reserve Bank.  The FDICIA places limitations 
upon a Federal Reserve Bank's ability to extend advances to undercapitalized 
and critically undercapitalized depository institutions. The FDICIA provides 
that a Federal Reserve bank generally may not have advances outstanding to an 
undercapitalized institution for more than 60 days in any 120-day period.

   Maine Law
   _________

   Under Maine law, a Maine financial institution holding company such as the
Company may not engage in any activity other than managing or controlling
financial institutions, or other activities deemed permissible by the 
Superintendent.  The Superintendent has by regulation determined that, with the
prior approval of the Superintendent, a financial institution holding company 
may engage in those activities deemed closely related pursuant to Section 408 
of the National Housing Act, unless that activity is prohibited by the Maine 
Banking Code or regulations. 

   Securities and Exchange Commission
   __________________________________

<PAGE>  16

   The Company has registered its common stock with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended.  As a result of such registration, the proxy and tender offer
rules, periodic reporting requirements, insider trading restrictions and 
reporting requirements, as well as certain other requirements, of such Act are 
applicable.

   Restrictions on the Payment of Dividends
   ________________________________________


   The Maine Business Corporation Act permits the Company to pay dividends on 
its capital stock only from its unreserved and unrestricted earned surplus or 
from its net profits for the current fiscal year and the next preceding fiscal 
year taken as a single period.


   Applicable rules further prohibit the payment of a cash dividend by the 
Company if the effect thereof would cause its net worth to be reduced below 
either the amount required for the liquidation account or the net worth 
requirements imposed by federal laws or regulations.  The Company is prohibited
from paying dividends on their capital stock if it is in default in the payment
of any assessment to the FDIC.

   Earnings appropriated to bad debt reserves for losses and deducted for 
federal income tax purposes are not available for dividends without the payment
of taxes at the current income tax rates on the amount used.    

   Restrictions on the Acquisition of the Company
   ______________________________________________

   The savings and loan holding company provisions of the HOLA (the "Holding
Company Provisions") provide that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or 
through one or more transactions, may acquire "control" of an insured savings 
institution at any time without the prior approval of the OTS.  In addition, 
any company that acquires such control becomes a "savings and loan holding 
company" subject to registration, examination and regulation under the Holding 
Company Provisions and the regulations promulgated thereunder.  "Control" in 
this context means ownership, control of, or holding proxies representing more 
than 25% of the voting shares of, an insured institution, the power to control 
in any manner the election of a majority of the directors of such institution 
or the power to exercise a controlling influence over the management or 
policies of the institution. 

   In addition, the Change in Bank Control Act (the "Control Act") provides 
that no "person," acting directly or indirectly or through or in concert with 
one or more other persons, may acquire "control" of an insured institution 
unless at least 60 days' prior written notice has been given to the OTS and the
OTS has not objected to the proposed acquisition.  "Control" is defined for 
this purpose as the power, directly or indirectly, to direct the management or 
policies of an insured institution or to vote 25% or more of any class of 
voting securities of an insured institution.  Under both the Holding Company 
Provisions and the Control Act (as well as the regulations referred to below) 
the term "insured institutions" includes state and federally chartered 
SAIF-insured institutions, federally chartered savings banks insured under the 
<PAGE>  17

BIF and holding companies thereof.

   OTS regulations establish a uniform set of regulations under both the 
Control Act and the Holding Company Provisions.  Under these regulations, prior
to obtaining control of an insured institution, a person (under the Control 
Act) must give 60 days notice to the OTS and have received no OTS objection to 
such acquisition of control, and a company (under the Holding Company 
Provisions) must apply for and receive OTS approval of the acquisition.  
"Control," for purposes of the regulations, means the acquisition of 25% or 
more of the voting stock (or irrevocable proxies for 25% of more of the voting 
stock) of the institution, control in any manner of the election of a majority 
of the institution's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling 
influence over, the management or policies of the institution.  Acquisition of 
more than 10% of an institution's voting stock, if the acquiror also is subject
to any one of eight "control factors," constitutes a rebuttable determination 
of control under the new regulations.  The determination of control may be 
rebutted by submission to the OTS, prior to the acquisition of stock or the 
occurrence of any other circumstance giving rise to such determination, of a 
statement setting forth facts and circumstances which would support a finding 
that no control relationship will exist and containing certain undertakings.  
The regulations provide that persons or companies which acquire beneficial 
ownership exceeding 10% or more of any class of an insured institution's stock 
after the effective date of the regulations must file with the OTS a 
certification that the holder is not in control of such institution, is not 
subject to a rebuttable determination of control and will take no action which 
would result in a determination or rebuttable determination of control without 
prior notice to or approval of the OTS, as applicable.

   Other Regulations
   _________________

   The policies of regulatory authorities, including the Federal Reserve Board,
the OTS and the FDIC, have had a significant effect on the operating results 
of financial institutions in the past and are expected to do so in the future. 
Policies of these agencies may be influenced by many factors, including 
inflation, unemployment, short-term and long-term changes in the international 
trade balance and fiscal policies of the United States government.  
Supervision, regulation or examination of the Company and the Bank by such 
regulatory agencies is not intended for the protection of the Company's 
shareholders.

   The United States Congress has periodically considered and adopted
legislation which has resulted and could result in further deregulation of the
Bank and other financial institutions.  Such legislation could relax or 
eliminate geographic restrictions on banks and bank holding companies and could
place the Company in more direct competition with other financial institutions,
including mutual funds, securities brokerage firms and investment banking 
firms.  

   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 8 b.

<PAGE>  18

   (d)  Financial Information About Foreign and Domestic
          Operations and Export Sales                     
   _____________________________________________________

         Not applicable.


Item 2.  Properties
         __________

   The only real property which the Company owns is the real estate in Auburn,
Maine on which various operational functions are performed for the Bank.  It
utilizes the premises and equipment of the Bank with no payment of any rental
fee to the Bank.

   The Bank owns its branch offices in Bethel, Harrison, Buckfield,
Mechanic Falls, Brunswick, Richmond and Lisbon Falls, Maine.  The branch 
offices in Auburn and South Paris, Maine is leased.

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
         ___________________________________________________ 

   Not applicable


                               PART II
Item 5.  Market Prices of Common Stock and Dividends Paid
         ------------------------------------------------

The common stock of Northeast Bancorp trades on the American Stock Exchange 
under the symbol NBN.  The number of shares of common stock outstanding as of 
June 30, 1997 was 1,274,969. The number of stockholders of record as of 
September 19, 1997 was approximately 400.

The following table sets forth the high and low sales prices of the Company's 
common shares and dividends paid during each quarter for fiscal years ending 
June 30, 1996 and 1997.

<TABLE>
<CAPTION>

     1996-97            High           Low         Div. Pd 
<PAGE>  19

-----------------     ---------     ---------     ---------    
<S>                   <C>           <C>           <C>       
Jul 1 - Sep 30           13.50         12.50           .08  
Oct 1 - Dec 31           14.00         13.00           .08     
Jan 1 - Mar 31           14.25         13.25           .08      
Apr 1 - Jun 30           14.75         13.75           .08        
                                                            
     1995-96            High           Low         Div. Pd   
-----------------     ---------     ---------     ---------
Jul 1 - Sep 30           11.38*        10.75*          .04*
Oct 1 - Dec 31           12.00*        10.75*          .04*
Jan 1 - Mar 31           13.25         11.00           .08
Apr 1 - Jun 30           13.25         12.50           .08
</TABLE>

*Adjusted to reflect 100% stock dividend paid on 12/15/95

Northeast Bancorp has 45,454 shares of Series A preferred stock outstanding.  
The Series A preferred stock is convertible into common stock on a two-for-one 
basis and carries a dividend rate of two percent below the prime rate of the 
First National Bank of Boston, but in no event to be less than 7% per annum.  
There is no trading market for the Series A preferred stock. 

Northeast Bancorp has 71,428 shares of Series B preferred stock outstanding.  
The Series B preferred stock is convertible into common stock on a two-for-one 
basis and carries a dividend rate of two percent below the prime rate of the 
First National Bank of Boston, but in no event to be less than 7% per annum.  
There is no trading market for the Series B preferred stock.

On July 1, 1997, the Company issued a total of 1,070 shares of its common 
stock, $1.00 par value per share, to Company employees under its 1996 Employee 
Stock Bonus Plan (the "Plan").  Each employee, other than executive officers 
who are not eligible to participate in the Plan, received 10 shares.  The Plan 
is a non-voluntary, non-contributory employee bonus plan.  No consideration
(other than past services of the employees) was paid for the shares.  No 
underwriter was involved in the issuance of the shares, and there was no 
underwriting discount or commission.  There was no solicitation.  The shares 
were not registered under the Securities Act of 1933, as amended, in reliance 
on SEC Rels. No. 33-6188 and 33-6281.


Item 6.  Selected Financial Data
         -----------------------

<TABLE>
<CAPTION>
                                                 Years Ended
                                                   June 30,             
                               ------------------------------------------------
                                 1997      1996      1995      1994      1993  
                               --------  --------  --------  --------  --------
                                (Dollars in thousands)                         
<S>                            <C>       <C>       <C>       <C>       <C>     
Interest income                $ 20,029  $ 17,994  $ 16,923  $ 14,036  $ 14,359
Interest expense                 10,500     9,128     8,053     6,479     7,155
                               --------  --------  --------  --------  --------
Net interest income               9,529     8,866     8,870     7,557     7,204
<PAGE>  20

Provision for loan losses           578       603       641     1,021       852
Other operating income 1          1,753     1,818     1,697     2,111     1,342
Net securities gains                259       279       419       347       108
Other operating expenses 2        8,438     8,355     7,988     7,011     5,734
Writedowns on equity and debt                                                  
  securities                        110        93         0        84        61
                               --------  --------  --------  --------  --------
Income before income taxes        2,415     1,912     2,358     1,899     2,008
Income tax expense                  908       719       869       698       786
Cumulative effect of change in                                                 
  accounting principle               -         -         -        260        - 
                               --------  --------  --------  --------  --------
Net income                     $  1,507  $  1,193  $  1,489  $  1,461  $  1,222
                               ========  ========  ========  ========  ========
Primary earnings per share 3   $  1.03  $   0.83  $   1.10  $   1.13  $   1.07
Fully diluted earnings per                                                     
  share 3                      $  0.96  $   0.79  $   1.02  $   1.08  $   1.07
Cash dividends per common                                                      
  share                        $  0.32  $   0.32  $   0.32  $   0.32  $   0.32
Common dividend payout ratio     33.33%    40.51%    15.69%    14.81%    15.02%
                                                                               
                                                                               
                                                 At June 30,
                               ------------------------------------------------
                                 1997      1996      1995      1994      1993  
                               --------  --------  --------  --------  --------
Total assets                   $261,800  $222,290  $207,509  $190,600  $178,914
Total loans                     206,356   169,851   170,140   158,461   150,756
Total deposits                  154,411   145,195   147,120   124,306   122,497
Total borrowings                 80,292    53,625    37,710    48,420    40,500
                                                                               
Total stockholders' equity       19,901    18,151    17,275    15,756    14,067
                                                                               
Return on assets                                                               
 (net income/average assets)      0.63%     0.56%     0.73%     0.80%     0.72%
Return on equity                                                               
 (net income/average net worth    7.96%     6.52%     9.08%     9.72%     9.01%
Average equity/average assets     7.90%     8.62%     8.02%     8.23%     7.85%

</TABLE>

1 Includes fees for services to customer and gains on sale of loans.
2 Includes salaries, employee benefits and occupancy.
3 Per share data for the years prior to 1996 have been retroactively restated 
  as a result of the stock split in December 1995.


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

DESCRIPTION OF OPERATIONS
-------------------------
Northeast Bancorp (the "Company"), is a unitary savings and loan holding 
company with the Office of Thrift Supervision ("OTS") as its primary regulator.
The Company has one wholly-owned banking subsidiary, Northeast Bank, FSB (the 
<PAGE>  21

"Bank"), which has branches located in Auburn, Bethel, Harrison, South Paris, 
Buckfield, Mechanic Falls, Brunswick, Richmond and Lisbon Falls, Maine.

Prior to July 1, 1996, the Company conducted business as Bethel Bancorp. The 
Company's board of directors voted to assume the name of Northeast Bancorp as 
of July 1, 1996. At the 1996 annual meeting, the Company's shareholders 
approved changing the Company's name from Bethel Bancorp to Northeast Bancorp. 
On July 1, 1996, the Company's two wholly-owned banking subsidiaries, Bethel 
Savings Bank, F.S.B. and Brunswick Federal Savings, F.A. merged following 
receipt of regulatory approval. The merged banking subsidiary's name was 
changed to Northeast Bank, FSB.

The Bank's deposits are primarily BIF-insured. Deposits at the Brunswick branch
are SAIF-insured and represent 33% of the Bank's total deposits at June 30, 
1997.

The Company relocated its corporate headquarters and opened a new retail 
banking facility at 232 Center Street, Auburn, Maine, in February, 1997.


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, non-interest fee 
income, and by increasing volume through a larger market area.

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 stabilized with moderate  growth. The banking business has become
increasingly competitive over the past several years. 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 Bank believes that the local character of its 
business and its "community bank" management philosophy will improve its 
ability to compete in its market areas. The Company has enhanced its product 
lines and now provides a range of financial services such as loans, deposits 
and investments through its relationship with Commonwealth Financial Services, 
Inc., trust services through the Bank's trust department, employee retirement 
benefits through First New England Benefits ("FNEB"), a division of the Bank's 
trust department, and leasing services through its relationship with LGIC 
Leasing.

The Company believes that it has adequate capital, as total equity represents 
7.60% of total assets and that its capital position will support future growth 
and development as well as allow for additional provisions to the allowance for
loan losses, if needed, without significant impairment of the financial 
stability of the Company. The Company's assets totaled $261,799,706 as of June 
30, 1997, an increase of $39,510,091 compared to June 30, 1996. Loan volume was
enhanced during the 1997 fiscal year due to whole loan purchases on the 
secondary market. The loans purchased were funded with advances through the 
Federal Home Loan Bank of Boston ("FHLB"). The Bank has focused its business
development efforts towards full service credit packages and financial 
services, as well as competitively priced mortgage packages.
<PAGE>  22

Cash and cash equivalents increased by $4,095,115 at June 30, 1997 compared to 
June 30, 1996.  The increase in cash equivalents was primarily the result of 
the timing of cash items clearing through the Federal Reserve and increased 
liquidity requirements due to the growth of the Bank during fiscal 1997.

The Bank's loan portfolio had a balance of $206,356,137 as of June 30, 1997, 
which represents an increase of $36,505,213 compared to June 30, 1996. From 
June 30, 1996 to June 30, 1997, the loan portfolio increased by $33,663,000 in 
real estate mortgage loans, $400,000 in consumer loans, and by $2,443,000 in 
commercial loans. During fiscal 1997, the Bank purchased approximately 
$25,000,000 of residential whole loans on the secondary market. The loans 
purchased are secured by properties located throughout the State of Maine and 
were originated and are being serviced by a local Maine bank. The loan 
portfolio contains elements of credit and interest rate risk. The Bank 
primarily lends within its local market areas, which management believes helps 
it to better evaluate credit risk. The Bank also maintains a well 
collateralized position in real estate mortgages.

At June 30, 1997, residential real estate mortgages made up 66% of the total 
loan portfolio, in which 53% of the residential loans are variable rate 
products, as compared to 68% and 48%, respectively, at June 30, 1996. It is 
management's intent to increase the proportion of variable rate residential 
real estate loans to reduce the interest rate risk in this area.

At June 30, 1997, 19% of the Bank's total loan portfolio is commercial real 
estate mortgages. Commercial real estate loans have minimal interest rate risk 
as 87% of the portfolio consists of variable rate products. At June 30, 1996, 
commercial real estate mortgages made up 15% of the total loan portfolio, in 
which 83% of the commercial real estate loans were variable rate products. 
Similar to the residential mortgages, 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 make up 8% of the total loan portfolio in which 74% of the 
balance were variable rate instruments at June 30, 1997. At June 30, 1996 
commercial loans made up 8% of the total loan portfolio, of which 87% of the 
balance were variable rate instruments. The credit loss exposure on commercial 
loans is highly dependent on the cash flow of the customers' business. The Bank
attempts to mitigate losses through lending in accordance with the Company's 
credit policies.

Consumer loans make up 7% of the total loan portfolio as of June 30, 1997 which
compares to 9% at June 30, 1996. Since these loans are primarily fixed rate 
products, they have interest rate risk when market rates increase. These loans 
also have credit risk with, at times, minimal collateral security. Management 
attempts to mitigate these risks 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.

In fiscal year 1997, the Company adopted FASB Statement No. 122, "Accounting 
for Mortgage Servicing Rights an amendment of FASB Statement No. 65" and 
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets 
and Extinguishments of Liabilities". The effect of adopting the new accounting 
standards did not have a significant effect on the Company's financial 
condition, liquidity, or results of operations. These statements are more fully
described in footnote 1 to the consolidated financial statements.

<PAGE>  23


The Banks's allowance for loan losses was $2,517,000 as of June 30, 1997 versus
$2,549,000 as of June 30, 1996, representing 1.22% and 1.50% of total loans, 
respectively. The Bank had non-performing loans totaling $2,424,000 and 
$2,603,000 at June 30, 1997 and 1996, which was 1.17% and 1.53% of total loans,
respectively. Non-performing loans represented .93% and 1.17% of total assets 
at June 30, 1997 and 1996, respectively. The Bank's allowance for loan losses 
was equal to 104% and 98% of the total non-performing loans at June 30, 1997 
and 1996, respectively. At June 30, 1997, the Bank had approximately $586,000 
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.  As of June 30, 1997, the amount of such loans has 
decreased from the June 30, 1996 amount by $1,955,000. This decrease was 
primarily due to substandard loans being classified as non-performing or 
liquidated through the sale of foreclosed assets. Management takes an 
aggressive posture in reviewing its loan portfolio to classify certain loans 
substandard.  The following table represents the Bank's non-performing loans as
of June 30, 1997 and 1996: 

<TABLE>
<CAPTION>

                          Description           June 30, 1997     June 30, 1996
                   -------------------------    -------------     -------------
                   <S>                          <C>               <C>          
                   1-4 Family Mortgages         $    983,000      $  1,092,000 
                   Commercial Mortgages              913,000         1,154,000 
                   Commercial Installment            492,000           283,000 
                   Consumer Installment               36,000            74,000 
                                                -------------     -------------
                   Total non-performing         $  2,424,000      $  2,603,000 
                                                =============     =============
</TABLE>

Although the growth in non-performing, delinquent and substandard loans has 
been reversed, management continues to allocate substantial resources to the 
collection area in an effort to control the amount of such loans. The Bank's 
delinquent loan accounts, as a percentage of total loans, decreased during the 
1997 fiscal year.  This decrease was largely due to improved collection efforts
and the increase in the Bank's loan portfolio.

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:

<TABLE>
         <C>             <C>             <C>             <C>
         6/30/94         6/30/95         6/30/96         6/30/97
          2.64%           2.60%           2.77%           1.60%

</TABLE>

The level of the allowance for loan losses as a percentage of total loans 
decreased and the level of the allowance for loan losses as a percentage of 
total non-performing loans increased at June 30, 1997 compared to June 30, 
1996. The decrease in the level of allowance for loan losses as a percentage of
total loans was primarily due to the increase in the Bank's total loan 
<PAGE>  24

portfolio. The decrease was also supported by the Bank's lower delinquency 
levels and decreased non-performing and substandard loans. As previously 
discussed, loans classified substandard decreased in the 1997 fiscal year, when
compared to the 1996 fiscal year. Classified loans are also considered in 
management's analysis of the adequacy of the allowance for loan losses. Based 
on reviewing the credit risk and collateral of these 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 
$610,427, $449,860, and $707,634, for the three years ended June 30, 1997, June
30, 1996, and June 30, 1995, respectively. 

At June 30, 1997, total impaired loans were $1,661,698, of which $844,457 had 
related allowances of $369,474.  This compares to  total impaired loans of 
$1,530,650, of which $1,063,720 had related allowances of $499,200, at June 30,
1996. During the year ended June 30, 1997, the income recognized related to 
impaired loans was $50,690 and the average balance of outstanding impaired 
loans was $1,330,983.  This compares to income recognized related to impaired 
loans of $87,128 and the average balance of impaired loans being $1,799,087 at 
June 30, 1996.  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 evaluates the adequacy of the Bank's
allowance for loan losses.  The process of evaluating the allowance involves a 
high degree of management judgment.  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.

Management believes that the allowance for loan losses is adequate considering 
the level of risk in the loan portfolio. While management uses its best 
judgement in recognizing loan losses in light of available information, 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 OTS was on August 19, 
1996. At the time of the exam the regulators proposed no additions to the 
allowance for loan losses.

At June 30, 1997, the Bank had a total of $492,411 in other real estate owned 
versus $513,831 as of June 30, 1996. The Bank has an allowance for losses on 
other real estate owned that was established to provide for declines in real 
estate values and to consider estimated selling costs. The allowance for losses
on other real estate owned totaled $50,839 at June 30, 1997 versus $100,000 at 
June 30, 1996. The Company provided for this allowance through a charge against
earnings of $39,000 and $94,711 for the years ended June 30, 1997 and 1996, 
respectively. In 1997 and 1996, write downs of other real estate owned totaled 
$88,161 and $-0-, respectively.  The Company increased the June 30, 1996 
allowance for losses on other real estate owned to provide for additional 
losses due to its plan to aggressively sell the other real estate owned 
property. Management periodically receives independent appraisals to assist in 
its valuation of the other real estate owned portfolio. As a result of its 
<PAGE>  25

review of the independent appraisals and the other real estate owned portfolio,
the Company believes the allowance for losses on other real estate owned is 
adequate to state the portfolio at lower of cost, or fair value less estimated 
selling costs.
 
As of June 30, 1997, trading account securities had decreased by $172,621 
compared to the balance of such assets at June 30, 1996. This decrease was 
attributed to the sale of securities in which management traded for net 
securities gains. Trading account securities consist of equity securities 
purchased with the intent to be subsequently sold to provide net securities 
gains, and are carried at market value. Realized and unrealized gains and 
losses on trading account securities are recognized in the statements of income
as they occur. Transactions are accounted for as of the trade date using the 
specific identification method.

Since the last quarter of fiscal 1995, the remainder of the Company's total 
securities portfolio has been classified as available for sale. Equity 
securities, and debt securities which may be sold prior to maturity, are 
classified as available for sale and are carried at market value. Changes in 
market value, net of applicable income taxes, are reported as a separate 
component of stockholder's 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, 1997 was $27,603,256 and $27,096,931, respectively.  The reduction in 
carrying value from the cost was primarily attributable to the decline in 
market value of mortgage-backed securities, which was due to the change in 
current market prices from the price at the time of purchase. The net 
unrealized loss on mortgage-backed securities has decreased from $1,164,000 at 
June 30, 1996 to $410,000 at June 30, 1997 due to improvements in interest 
rates. Substantially all of the mortgage-backed securities are high grade 
government backed securities. As in any long term earning asset in which the 
earning rate is fixed, the market value of mortgage-backed securities will 
fluctuate based on changes in market interest rates from the time of purchase.
Since these mortgage-backed securities are backed by the U.S. Government, there
is no risk of loss of principal.  Management believes that the yields currently
received on this portfolio are satisfactory and intends to hold these 
securities for the foreseeable future.

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 1997, 1996 and 
1995, there have been other than temporary declines in values of individual 
equity securities in the amounts of $110,000, $93,819, and $-0-, respectively.
Such securities have been written down through an adjustment against earnings 
and are included in other expenses in the statements of income.

The Company increased its investment in FHLB stock by $1,293,500, compared to 
June 30, 1996, due to the increase in FHLB borrowings.  As discussed below, the
Bank had a large increase in FHLB borrowings to fund loan growth. The FHLB 
requires institutions to hold a certain level of FHLB stock based on advances 
outstanding.

The Bank has used off-balance-sheet risk financial instruments in the normal 
course of business to meet the financing needs of its customers and to reduce 
<PAGE>  26

its own exposure to fluctuations in interest rates. These financial instruments
include commitments to extend credit and standby letters of credit. The Bank 
uses the same credit policies in making commitments as it does for on-balance-
sheet instruments. Hence, these instruments have the same elements of credit 
and interest rate risk. The Company limits its involvement in derivative 
financial instruments to covered call and put contracts. Gains and losses from 
entering into these contracts were immaterial to the results of operations of 
the Company in fiscal 1997, 1996 and 1995. 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. Off-balance-sheet risk financial
instruments are more fully described in footnote 18 to the financial 
statements.

The Company's premises and equipment increased by a net of $384,317 during 
fiscal 1997.  The increase was primarily due to the construction of the new 
Auburn retail branch as well as the relocation of the Company's headquarters to
the Auburn location.

The increase in accrued interest receivable on loans of $125,908 during fiscal 
1997 was primarily due to the increase in the loan portfolio. The increase in 
other assets during fiscal 1997 of $463,774 was primarily due to the increase 
in federal tax receivables and in deferred tax assets, caused by temporary 
differences between the Company's financial statements and its tax returns. The
balance in real estate held for investment decreased by $98,166, during fiscal 
1997 when compared to June 30, 1996, due to the Company establishing an 
allowance for losses on real estate held for investment of $100,000. The 
allowance for losses in real estate held for investment totaled $100,000 at 
June 30, 1997 versus $-0- at June 30, 1996.  The Company provided for this 
allowance through a charge against earnings of $100,000 for the year ended June
30, 1997.

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 as well as to supplement the growth in earning assets. 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 as well as to
fund short-term liquidity demands.

Total deposits were $154,410,687 and securities sold under repurchase 
agreements were $5,098,622 as of June 30, 1997. These amounts represent an 
increase of $9,215,318 and $1,335,656, respectively, compared to June 30, 1996.
Broker deposits represented $7,185,566 of total deposits at June 30, 1997, 
which increased by $1,538,428 compared to June 30, 1996's $5,647,138 balance.  
Total borrowings from the FHLB were $78,993,361 as of June 30, 1997, for an 
increase of $26,870,361 compared to June 30, 1996. Mortgages, free of liens, 
pledges and encumbrances and certain non-pledged mortgage-backed securities are
required to be pledged to secure FHLB advances. The increase in deposits, 
repurchase agreements and FHLB advances were utilized to fund the loan growth 
during fiscal 1997.

Notes payable decreased by $203,581 during the 1997 fiscal year due to the 
scheduled principal payments on the Fleet Bank of Maine loan incurred to 
finance, in part, the purchase of a bank in prior years.  The note is payable 
in eighteen quarterly principal payments of $76,389. Interest is payable 
<PAGE>  27

monthly at an 8% fixed rate.  Other liabilities increased by $542,966 compared 
to June 30, 1996, due primarily to increases in accrued expenses and escrow 
accounts.


CAPITAL RESOURCES & LIQUIDITY
-----------------------------
Liquidity is defined as the ability to meet unexpected deposit withdrawals and 
increased loan demand of a short-term nature with a minimum loss of principal. 
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 current advance
availability, subject to the satisfaction of certain conditions, is 
approximately $35,000,000 over and above the 1997 end-of-year advances 
reported. The Company's ability to access the principal sources of liquid funds
listed above is immediate and adequate to support the Company's budgeted 
growth.

Cross selling strategies are employed by the Bank to develop deposit growth. 
Even though deposit interest rates increased during fiscal 1997, the rate of 
return was much stronger in other financial instruments such as mutual funds 
and annuities. Like other companies in the banking industry, the Bank will be 
challenged to maintain and or increase its core deposit liquidity base.

Total equity of the Company was $19,900,613 as of June 30, 1997 versus 
$18,151,242 at June 30, 1996.  In March of 1997 Square Lake Holding Corporation
exercised 25,000 warrants at an aggregate price of $175,000. Square Lake 
Holding Corporation is a Maine corporation and subsidiary of a Canadian 
corporation of which Ronald Goguen is a 95% shareholder and director. Mr. 
Goguen, who is also a director of this Company, and the affiliates he controls,
owns approximately 22.8% of common shares outstanding of the Company. During 
fiscal 1997, 20,000 stock options were exercised by various employees of the 
Company.  The proceeds from the exercised warrants and options were utilized as
general working capital and contributed to the growth of the Company's total 
equity. As of June 30, 1997, 296,000 shares of unissued common stock are 
reserved for issuance pursuant to stock options as well as 108,764 outstanding 
warrants.  The Company repurchased 2,030 treasury shares at a cost of $28,420 
during fiscal 1997 and 4,100 treasury shares at a cost of $52,277 during fiscal
1996.  These treasury shares were utilized in fiscal 1997, for the employee 
stock bonus and options plans as well as the exercise of warrants. On December 
15, 1995, the Company paid a 100% stock dividend to all shareholders. The 1996 
and 1995 earnings per share have been restated as a result of the stock 
dividend. Based in part on this dividend, the common shares outstanding 
increased to 1,229,910 shares on June 30, 1996.

The total equity to total assets ratio of the Company was 7.60% as of June 30, 
1997 and 8.17% at June 30, 1996. The reduction in the equity to assets ratio 
during fiscal 1997, when compared to fiscal 1996, was primarily due to the 
Company leveraging the Bank in the purchase of mortgage loans through the 
increased use of FHLB advances.  Book value per common share was $14.04 as of 
June 30, 1997 versus $13.13 at June 30, 1996.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), 
which was enacted on December 19, 1991, contains various provisions intended to
recapitalize the Bank Insurance Fund ("BIF") and also affects a number of 
<PAGE>  28

regulatory reforms that impact all insured depository institutions, regardless 
of the insurance fund in which they participate. Among other things,  FDICIA 
grants 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 OTS broader regulatory authority to take corrective action 
against insured institutions that are otherwise operating in an unsafe and 
unsound manner.

Regulations implementing the prompt corrective action provisions of FDICIA 
became effective December 19, 1992 and defined specific capital categories 
based on an institution's capital ratios. OTS has issued regulations requiring 
a minimum regulatory tangible capital equal to 1.5% of adjusted total assets, 
core capital of 3.0%, leverage capital of 4.0% and a risk-based capital 
standard of 8.0%.  Regulatory capital requirements are also discussed in 
footnote 11 of the consolidated financial statements. At June 30, 1997, the 
Bank was in compliance with regulatory capital requirements as follows:

<TABLE>
<CAPTION>
                                    Northeast Bank, F.S.B.
                        Actual Capital        Required Capital   Excess Capital
                       Amount     Ratio       Amount     Ratio      Amount    
                    ------------- ------   ------------- ------   -------------
<S>                 <C>           <C>      <C>           <C>      <C>          
Tangible capital    $ 17,733,000   6.83%    $  3,892,000  1.50%   $ 13,841,000 
Core capital        $ 17,733,000   6.83%    $  7,785,000  3.00%   $  9,948,000 
Leverage capital    $ 17,733,000   6.83%    $ 10,380,000  4.00%   $  7,353,000 
Risk-based capital  $ 18,840,000  11.89%    $ 12,677,000  8.00%   $  6,163,000 

</TABLE>


RESULTS OF OPERATIONS
---------------------
Net income for the year ended June 30, 1997 was $1,507,103 versus $1,193,420 
for the year ended June 30, 1996 and $1,489,381 for the year ended June 30, 
1995. Primary earnings per share was $1.03 and fully diluted earnings per share
was $.96 for the year ended June 30, 1997. Primary and fully diluted earnings 
per share were $.83 and $.79, respectively, for the year ended June 30, 1996 
and $1.10 and $1.02, respectively for the year ended June 30, 1995. The 
weighted average number of shares outstanding in fiscal 1996 and 1995, as well 
as the reported earnings per share for these two years, have been restated as a
result of the Company's 100% stock dividend in December, 1995. The increase in
net income for the year ended June 30, 1997, when compared to June 30, 1996, 
was primarily due to the increase in net interest income and the reduction in 
the Company's operational expenses, exclusive of the one time FDIC SAIF 
assessment described below. The Company experienced a reduction in net income 
in fiscal 1996, as compared to fiscal 1995, primarily due to the expenses 
attributed to the merger and name change of the subsidiary banks, the costs 
associated with the acquisition of the Key Bank branches, and the general 
growth in infrastructure expenses of the Company. The Company's overall return 
on average assets ("ROAA") was .63% for the year ended June 30, 1997, .56% for 
the year ended June 30, 1996, and .73% for the year ended  June 30, 1995.

In September of 1996, Congress enacted comprehensive legislation amending the 
FDIC BIF-SAIF deposit insurance assessment on savings and loan institution 
<PAGE>  29

deposits. The legislation imposed a one-time assessment on institutions 
holding SAIF insured deposits on March 31, 1995, in an amount necessary for the
SAIF to reach its 1.25% Designated Reserve Ratio. Institutions with SAIF 
deposits were required to pay an assessment rate of 65.7 cents per $100 of 
domestic deposits held as of March 31, 1995. The Bank held approximately 
$57,900,000 of SAIF deposits as of March 31,1995. This resulted in an expense 
of $380,000 which was reflected in the Company's September 30, 1996 quarter end
financial statements. During the December 31, 1996 quarter, Congress issued 
final legislation which enabled certain qualifying institutions to apply for a 
20% discount on the special assessment. The Bank received a credit of $83,140 
reducing the assessment expense in the December 31, 1996 quarter. The net 
effect of the one time assessment was $296,860 and decreased the Company's 
primary earnings per share by $.15 and the fully diluted earnings per share by 
$.12 for the fiscal year ended June 30, 1997. Commencing in 1997 and continuing
through 1999, the Bank is required to pay an annual assessment of 1.29 cents 
for every $100 of domestic BIF insured deposits and 6.44 cents for every $100 
of domestic SAIF insured deposits. Commencing in 2000 and continuing through 
2017, banks would be required to pay a flat annual assessment of 2.43 cents for
every $100 of domestic deposits. If there are no additional deposit assessments
in the future, it is anticipated that the Company may save approximately 
$80,000 annually commencing in fiscal 1998.

The Company's net interest income for the years ended June 30, 1997, June 30, 
1996 and June 30, 1995 was $9,529,044, $8,866,458 and $8,870,005, respectively.
Net interest income for fiscal 1997 increased $662,586, or 7.47%, compared to 
the amount at June 30, 1996.  Total interest and dividend income increased 
$2,034,278 for the year ended June 30, 1997 compared to the year ended June 30,
1996, resulting from the following items: (I) interest income on loans 
increased by $1,215,252 resulting from an increase of $1,576,666 due to an 
increase in the volume of loans, which was offset by the decrease of $361,414 
due to decreased interest rates on loans, (II) interest and dividend income on
investment securities increased by $996,594 resulting from a $986,222 increase 
due to increased volume and an increase of $10,372 due to increased interest 
rates on investments, and (III) interest income on short term liquid funds 
decreased by $177,568 resulting from a $149,079 decrease due to decreased 
volume and a decrease of $28,489 due to decreased interest rates on deposits at
the FHLB and other institutions.

The increase in total interest expense of $1,371,692  for fiscal 1997 compared 
to 1996 resulted from the following items: (I) interest expense on deposits 
decreased by $71,369 resulting from a $120,230 increase due to increased 
deposits, which was more than offset by the decrease of $191,599 due to 
decreased deposit interest rates, (II) interest expense on repurchase 
agreements increased by $33,243 resulting from a $46,631 increase due to 
increased volume offset, in part, by a decrease of $13,388 due to decreasing 
interest rates, and (III) interest expense on borrowings increased $1,409,818 
resulting from an increase of $1,468,418 due to an increase in volume which was
offset by the decrease of $58,600 due to the change in the mix of interest 
rates on borrowings. The changes in net interest income, as explained above, 
are also presented in the schedule below.


Northeast Bancorp
Rate/Volume Analysis for the Year ended
June 30, 1997 versus June 30, 1996

<TABLE>
<PAGE>  30

<CAPTION>
                                               Difference Due to
                                    Volume            Rate            Total
                                 ------------     ------------     ------------
<S>                              <C>              <C>              <C>         
Investments                      $   986,222      $    10,372      $   996,594 
Loans                              1,576,666         (361,414)       1,215,252 
FHLB & Other Deposits               (149,079)         (28,489)        (177,568)
                                 ------------     ------------     ------------
  Total Interest Earning Assets    2,413,809         (379,531)       2,034,278 

Deposits                             120,230         (191,599)         (71,369)
Repurchase Agreements                 46,631          (13,388)          33,243 
Borrowings                         1,468,418          (58,600)       1,409,818 
                                 ------------     ------------     ------------
  Total Interest-Bearing                                                       
    Liabilities                    1,635,279         (263,587)       1,371,692 
                                 ------------     ------------     ------------
    Net Interest Income          $   778,530      $  (115,944)     $   662,586 
                                 ============     ============     ============
</TABLE>

Rate/Volume amounts spread proportionately between Volume and Rate.

Net interest income for fiscal 1996 decreased $3,547, or .04%, compared to the 
amount for the year ended June 30, 1995.  Total interest and dividend income 
increased $1,071,937 for the year ended June 30, 1996 compared to the year 
ended June 30, 1995, resulting from the following items: (I) interest income on
loans increased by $925,547 resulting from an increase of $518,349 due to an 
increase in the volume of loans and an increase of $407,198 due to increased 
interest rates on loans, (II) interest and dividend income on investment 
securities decreased by $22,088 resulting from a $11,381 increase due to 
increased volume, which was more than offset by the decrease of $33,469 due to 
decreased interest rates on investments, and (III) interest income on short 
term liquid funds increased by $168,478 resulting from a $154,590 increase due 
to increased volume and an increase of $13,888 due to increased interest rates 
on deposits at the FHLB and other institutions.

The increase in total interest expense of $1,075,484  for fiscal 1996 compared 
to 1995 resulted from the following items: (I) interest expense on deposits 
increased by $983,069 resulting from a $328,965 increase due to increased 
deposits and an increase of $654,104 due to higher deposit interest rates, (II)
interest expense on repurchase agreements increased by $81,289 resulting from 
an $82,258 increase due to increased volume offset, in part, by a decrease of 
$969 due to decreasing interest rates, and (III) interest expense on borrowings
increased $11,126 resulting from a decrease of $161,857 due to a decrease in 
volume which was more than offset by the increase of $172,983 due to the change
in the mix of interest rates on borrowings. The changes in net interest income,
as explained above, are also presented in the schedule below. 

Northeast Bancorp
Rate/Volume Analysis for the Year ended
June 30, 1996 versus June 30, 1995

<TABLE>
<CAPTION>
                                               Difference Due to
<PAGE>  31

                                    Volume            Rate            Total    
                                 ------------     ------------     ------------
<S>                              <C>              <C>              <C>         
Investments                      $    11,381      $   (33,469)     $   (22,088)
Loans                                518,349          407,198          925,547 
FHLB & Other Deposits                154,590           13,888          168,478 
                                 ------------     ------------     ------------
  Total Interest Earning Assets      684,320          387,617        1,071,937 
                                                                              
Deposits                             328,965          654,104          983,069 
Repurchase Agreements                 82,258             (969)          81,289 
Borrowings                          (161,857)         172,983           11,126 
                                 ------------     ------------     ------------
  Total Interest-Bearing                                                       
    Liabilities                      249,366          826,118        1,075,484 
                                 ------------     ------------     ------------
    Net Interest Income          $   434,954      $  (438,501)     $    (3,547)
                                 ============     ============     ============

</TABLE>

Rate/Volume amounts spread proportionately between Volume and Rate.

The majority of the Company's income is generated from the Bank. Management 
believes that the Bank is slightly asset sensitive based on its own internal 
analysis which considers its core deposits long term liabilities that are 
matched to long term assets; therefore, it will generally experience a 
contraction in its net interest margins during a period of falling rates.  
Management believes that the maintenance of a slight asset sensitive position 
is appropriate since historically interest rates tend to rise faster than they 
decline.

Approximately 22% of the Bank's loan portfolio is comprised of floating rate 
loans based on a prime rate index.  Interest income on these existing loans 
will increase as the prime rate increases, as well as approximately 36% of 
other loans in the Bank's portfolio that are based on short-term rate indices 
such as the one-year treasury bill.  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 some 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 was $578,427 for fiscal 1997 compared to $602,860
and $640,634 for 1996 and 1995, respectively. Net charge-offs amounted to 
$610,427 during fiscal 1997 versus $449,860 and $707,634 for 1996 and 1995, 
respectively. The Bank intends to continue to aggressively manage the 
non-performing assets, through sales, work-outs and charge-offs, to reduce the 
amount of non-performing assets.

Non-interest income was $2,011,856 for the year ended June 30, 1997, $2,097,191
for June 30, 1996 and $2,116,442 for June 30, 1995. Generally, the Bank 
continues to generate an increasing level of non-interest income through 
service charges and fees for other services. This component totaled $775,874 
for the year ended June 30, 1997, $737,229 for the year ended June 30, 1996 and
$679,495 for June 30, 1995. The increase in 1997 was primarily due to growth in
the deposit accounts and other branch services.
<PAGE>  32

Net securities gains were $259,430, $278,895, and $419,313 for fiscal 1997, 
1996 and 1995, respectively. The major reason for the increase in 1995 was that
the Company sold some of its available for sale and trading securities, taking 
advantage of the fluctuation in higher market prices.

Gains on the sale of loans amounted to $201,418 for fiscal 1997 and was a 
decrease of $50,179 compared to the balance in fiscal 1996. Gains on the sale 
of loans amounted to $251,597 for fiscal 1996 and was an increase of $90,615 
compared to $160,982 for fiscal 1995. The decrease in gain on sales of loans in
1997, compared to 1996, was primarily due to the Bank's reduced volume in 
underwriting and selling Freddie Mac, Fannie Mae and SBA guaranteed commercial 
loans. Gains on the sale of loans in  fiscal 1996 increased due to increased 
volume in underwriting Freddie Mac and Fannie Mae 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 that the Bank originated and sold. The outstanding balance of such loans
decreased from approximately $39,940,000 at June 30, 1996 to $34,683,000 at 
June 30, 1997. In addition to loans originated and sold by the Company, during 
1993 the Company purchased loan servicing rights from another institution. The 
balance of the loans serviced under this agreement was approximately $7,826,000
and $9,676,000 at June 30, 1997 and 1996, respectively. Fees for servicing 
loans were $275,496 for the year ended June 30, 1997 versus $302,261 and 
$306,220 for the years ended June 30, 1996 and 1995, respectively.

Total non-interest expense for the Company was $8,547,773 for fiscal 1997, 
$8,448,757 for fiscal 1996, and $7,987,877 for fiscal 1995. The increase in 
non-interest expense of $99,016 for fiscal 1997 compared to 1996 was due, in 
part, to the following items: (I) occupancy expense increased by $25,811 due to
the expenses associated with the opening of the new Auburn retail branch, (II) 
equipment expense increased by $32,005 due to the depreciation expense 
associated with the new Auburn branch equipment as well as general maintenance 
costs, and (III) FDIC deposit insurance increased by $248,833 primarily due to 
the SAIF assessment described above. The non-interest expense increases above 
were offset by the reduction of $119,782 in compensation expense due to the 
Company restructuring its internal departments.

Other operating expenses decreased by $87,851 in fiscal 1997 compared to 1996 
primarily due to the following: a decrease of $12,000 in business insurances 
and computer services due to the savings in merging the two subsidiary banks, a
decrease of $56,000 in other real estate owned expenses, a decrease of $15,000 
in deposit expenses due to the merger of the subsidiary banks, a decrease of 
$21,000 in telephone expenses due to the Company's telephone network system, a 
decrease of $17,000 in postage due to savings in bulk mailing prices, a 
decrease of $30,000 in travel & meeting expenses, a decrease of $36,000 in 
correspondent banking fees due to the merger of the subsidiary banks, and a 
decrease of $84,000 in the Company's other general business expenses. These 
decreases in other expenses were primarily offset by the following increases:
an increase of $86,000 due to hiring third party consultants for marketing and 
compliance and an increase of $98,000 in advertising expense to continue the 
Company's strategy in increasing market exposure.

The increase in non-interest expense of $460,880 for fiscal 1996 compared to 
1995 was due, in part, to the following items: (I) compensation expenses 
increased by $175,360 as the result of the additional employees from the Key 
Bank branch acquisition, general growth in the Company, as well as annual 
salary increases and other benefits expenses, (II) occupancy expense increased 

<PAGE>  33

by $100,647 due to the expense associated with the branches acquired from Key 
Bank and general maintenance on existing locations, and (III) equipment expense
increased by $69,957 due to depreciation on new assets, as well as increased 
maintenance costs from new assets acquired and the equipment acquired from Key 
Bank.

Other operating expenses increased by $114,916 in fiscal 1996  compared to 1995
due to the following: an increase of $58,000 in computer servicing expense due 
to the merger of the two subsidiary banks and increased ATM services, an 
increase of $54,000 in collection expense due to non-performing loans, an 
increase of $25,000 in postage expense due to additional customer mailings 
concerning the merger of the two subsidiary banks, an increase of $74,000 in 
goodwill expense due to a full years recognition of goodwill from the 
acquisition of the Key Bank branches, an increase of $94,000 due to the 
write-down on equity securities to current market values, a one time expense of
$166,000 due to direct expenses associated with the merger and name change of 
the two subsidiary banks, and increases due to normal business growth.  These
increases in other expenses were offset by the following reductions: a decrease
of $169,000 in deposit insurance expense due to the FDIC reducing its BIF 
deposit insurance assessment from $.23 per $100 of deposits to an annual fee of
$2,000, a decrease of $38,000 in supplies expense due to savings from bulk 
orders, a decrease of $53,000 in telephone expense due to the Company's new 
telephone network system, and a $93,000 decrease in the Company's other general
business expenses.

PENDING MERGER
--------------
On May 9, 1997 the Company entered into a definitive agreement to merge the 
Bank with Cushnoc Bank and Trust Company ("Cushnoc") of Augusta, Maine. The
agreement has been approved by the Company's and Cushnoc's Board of Directors 
and is subject to approval by Cushnoc's shareholders. On August 29, 1997, the 
Company received approval from OTS, subject to certain conditions, to merge the
Bank and Cushnoc. At March 31, 1997, Cushnoc had approximately $21,000,000 in 
total assets and $2,200,000 in stockholder's equity. Under the terms of the
agreement, the Company will issue 2.089 shares of its common stock for each 
share of Cushnoc, which has 90,000 common shares outstanding. The acquisition 
will be accounted for under the pooling of interest method. The merger of 
Cushnoc and the Bank is expected to occur during the fourth quarter of calendar
year 1997.

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  manages other risks, as in 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 is not exposed
to significant market risk from trading activities. The Company does not 
currently use derivatives to manage market and interest rate risks.

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 monitors and coordinates the 
Company's sources, uses and pricing of funds. The committee is also involved in
<PAGE>  34

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 has undertaken 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 utilizes a simulation model to analyze net interest income 
sensitivity to movements in interest rates. The simulation model projects net 
interest income based on both an immediate rise or fall in interest rates (rate
shock) over a twelve and twenty-four month period. The model is based on the 
actual maturity and repricing characteristics of interest-rate sensitive assets
and liabilities. The model incorporates assumptions regarding the impact of 
changing interest rates on the prepayment rate of certain assets and 
liabilities. The assumptions are based on the Company's historical prepayment 
speeds on assets and liabilities when interest rates increase or decrease by 
200 basis points or greater. The model factors in projections for anticipated 
activity levels by product lines offered by the Company. The simulation model 
also takes into account the Company's increased ability to control the rates on
deposit products than over adjustable-rate loans tied to published indices.

Based on the information and assumptions in effect at June 30, 1997, management
believes that a 200 basis point rate shock over a twelve month period, up or 
down, would not significantly affect the Company's annualized net interest 
income. 

The table below represents in tabular form contractual balances of the 
Company's on balance sheet financial instruments in U.S. dollars at the 
expected maturity dates as well as the fair value of those on balance sheet 
financial instruments for the period ended June 30, 1997. The expected maturity
categories take into consideration historical prepayment speeds as well as 
actual amortization of principal and does 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 
weighted average interest rates for the various assets and liabilities 
presented are actual as of June 30, 1997.

The fair value of cash, 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. FHL Bank 
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 
<PAGE>  35

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 approximate 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 the note payable approximates the carrying value due to the note 
payable's interest rate approximating market rates.



Market Risk
6/30/97
(In Thousands)

<TABLE>
<CAPTION>

                                      Expected Maturity Date
                                                                There-           Fair
                        6/30/98 6/30/99 6/30/00 6/30/01 6/30/02  after   Total   Value
                        ------- ------- ------- ------- ------- ------- ------- -------
<S>                     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Financial Assets:                                                             
Cash                    $    -- $    -- $    -- $    -- $    -- $ 5,152 $ 5,152 $ 5,152
 Weighted Average                                                              
  Interest Rate              --      --      --      --      --      --      --      --
Interest Bearning                                                            
 Deposits at other Banks                                                       
  Variable Rate              --      --      --      --      --  10,509  10,509  10,509
  Weighted Average                                                       
   Interest Rate             --      --      --      --      --   5.77%   5.77%
Available for Sale                                                             
 Securities                                                                   
 US Government                                                              
  Treasuries & Agencies                                                     
  Fixed Rate                249      --      --     250      --   1,000   1,499   1,455
  Weighted Average                                                         
   Interest Rate          5.35%      --      --   5.40%      --   7.18%   6.57%
 Corporate Bonds                                                              
  Fixed Rate                 --      --      --      --      --     149     149     143
  Weighted Average                                                         
   Interest Rate             --      --      --      --      --   5.95%   5.95%
 Mortgage Backed                                                           
<PAGE>  36

  Securities                                                                
   Fixed Rate             1,742   1,917   2,110   2,320   2,553  14,416  25,058  24,648
   Weighted Average                                                         
   Interest Rate          7.15%   7.15%   7.15%   7.15%   7.15%   7.15%   7.15%
 Equity Securities          897      --      --      --      --      --     897     851
  Dividend Yield          3.82%      --      --      --      --      --   3.82%
FHLB Stock                   --      --      --      --      --   3,950   3,950   3,950 (1)
 Weighted Average                                                         
  Interest Rate              --      --      --      --      --   6.50%   6.50%
Loans Held For Sale                                                      
 Fixed Rate                 240      --      --      --      --      --     240     242
 Weighted Average                                                         
  Interest Rate           8.19%      --      --      --      --      --   8.19%
Loans                                                                    
 Residential Mortgages                                                   
  Fixed Rate              9,211   9,263  10,165  11,139  12,225  12,497  64,500  65,950
  Weighted Average                                                  
   Interest Rate          8.80%   8.94%   8.93%   8.93%   8.93%   8.92%   8.91%
  Variable Rate          10,144  10,624  11,760  12,537  13,420  13,205  71,690  71,402
  Weighted Average                                                        
   Interest Rate          8.89%   8.82%   8.82%   8.78%   8.74%   8.71%   8.79%
 Commercial Real Estate                                                  
  Fixed Rate                605     711     746   1,087   1,082     933   5,164   4,705
  Weighted Average                                                      
   Interest Rate          9.35%   9.40%   9.17%   9.20%   9.19%   9.09%   9.22%
  Variable Rate           5,810   4,409   5,640   5,041   5,220   7,664  33,784  32,982
  Weighted Average                                                       
   Interest Rate         10.03%  10.10%  10.14%  10.15%  10.12%  10.12%  10.11%
 Commercial                                                                
  Fixed Rate              1,315     644   1,020   1,013     193      28   4,213   4,060
  Weighted Average                                                         
   Interest Rate         11.05%   9.93%  10.23%  10.13%   9.24%   8.67%  10.37%
  Variable Rate           4,400   2,022   1,173   1,653   1,311   1,690  12,249  11,896
  Weighted Average                                                        
   Interest Rate          9.81%   9.91%  10.51%  10.46%  10.53%  10.72%  10.18%
 Consumer                                                                  
  Fixed Rate              1,911   2,209   2,447   2,845   1,351   2,822  13,585  13,016
  Weighted Average                                                           
   Interest Rate         10.25%  10.39%  10.23%   9.63%  11.18%  11.15%  10.42%
  Variable Rate             254     132     216     137     142     290   1,171   1,154
  Weighted Average                                                        
   Interest Rate          9.51%   8.56%   8.75%   8.46%   8.57%   8.89%   8.87%
Interest Receivable       1,480      --      --      --      --      --   1,480   1,480
  Weighted Average                                                         
<PAGE>  37

   Interest Rate             --      --      --      --      --      --      --
                                                                         
Finanical Liabilities:                                                      
Deposits (with no                                                        
 stated maturity)                                                         
 Demand Deposits             --      --      --      --      --  12,056  12,056  12,056
  Weighted Average                                                       
   Interest Rate             --      --      --      --      --      --      --
 NOW                         --      --      --      --      --  11,429  11,429  11,429
  Weighted Average                                                   
   Interest Rate             --      --      --      --      --   1.26%   1.26%
 Money Market                --      --      --      --      --  12,318  12,318  12,318
  Weighted Average                                                         
   Interest Rate             --      --      --      --      --   3.44%   3.44%
 Regular Savings             --      --      --      --      --  20,389  20,389  20,389
  Weighted Average                                                       
   Interest Rate             --      --      --      --      --   2.60%   2.60%
 Time Deposits                                                           
  Fixed Rate             69,621  15,259   5,088   2,451   4,670      10  97,099  97,591
   Weighted Average                                                      
    Interest Rate         6.55%   5.89%   6.35%   6.20%   6.44%   5.00%   6.42%
  Variable Rate             759     361      --      --      --      --   1,120   1,120
   Weighted Average                                                       
    Interest Rate         5.01%   5.06%      --      --      --      --   5.03%
 Repurchase Agreements                                                    
  Fixed Rate                616      --      --      --      --      --     616     616
  Weighted Average                                                          
   Interest Rate          5.18%      --      --      --      --      --   5.18%
  Variable Rate           4,483      --      --      --      --      --   4,483   4,483
  Weighted Average                                                          
   Interest Rate          4.12%      --      --      --      --      --   4.12%
FHLB Advances                                                              
  Fixed Rate             53,408  15,606   3,000     273   1,442   4,264  77,993  77,987
  Weighted Average                                                         
   Interest Rate          5.71%   5.72%   6.27%   6.40%   6.30%   6.58%   5.80%
  Variable Rate           1,000      --      --      --      --      --   1,000   1,003
  Weighted Average                                                       
   Interest Rate          6.20%      --      --      --      --      --   6.20%
Notes Payable                                                              
  Fixed Rate                306     306     306     306      75      --   1,299   1,299
  Weighted Average                                                        
   Interest Rate          8.00%   8.00%   8.00%   8.00%   8.00%      --   8.00%
</TABLE>

(1)  FHLB stock does not have a market; therefore, its fair value is unknown. 

<PAGE>  38

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 many 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 February, 1997, FASB issued Statement of Financial Accounting Standards No. 
128, "Earnings Per Share" ("Statement 128"). Statement 128 supersedes APB 
Opinion No. 15,"Earnings Per Share" (APB 15) and specifies the computation, 
presentation, and disclosure requirements for earnings per share (EPS) for 
entities with publicly held common stock or potential common stock. It replaces
the presentation of primary EPS with a presentation of basic EPS and fully 
diluted EPS with diluted EPS. Statement 128 is effective for financial 
statements for both interim and annual periods ending after December 15, 1997. 
Earlier application is not permitted. After adoption, all prior period EPS data
presented shall be restated to conform with Statement 128. Management has not 
determined the impact of Statement 128.

In February 1997, FASB issued Statement of Financial Accounting Standards No. 
129, "Disclosure of Information about Capital Structure"("Statement 129"). This
Statement was issued in connection with Statement 128,"Earnings Per Share". It 
is not expected that the issuance of Statement 129 will require significant 
revision of prior disclosures since the Statement lists required disclosures 
that had been included in a number of previously existing separate statements 
and opinions. Statement 129 is effective for financial statements for periods
ending after December 15, 1997.  Management does not expect the requirements of
Statement 129 to have a material impact on capital disclosures.

In June 1997, FASB issued Statement of Financial Accounting Standards No. 130, 
"Reporting Comprehensive Income" ("Statement 130"). Statement 130 establishes 
standards for reporting and display of comprehensive income and its components 
in a full set of general purpose financial statements. This Statement requires 
all items that are required to be recognized under accounting standards as 
components of comprehensive income be reported in a financial statement that is
displayed in equal prominence with the other financial statements. It requires
that an enterprise display an amount representing total comprehensive income 
for each period. It does not require per share amounts of comprehensive income 
to be disclosed. Statement 130 is effective for both interim and annual periods
after December 15, 1997. Earlier application is permitted. Comparative 
financial statements provided for earlier periods are required to be 
reclassified to reflect the provisions of this statement. Management has not 
determined the impact of the adoption of Statement No. 130. 

In June of 1997, FASB issued Statement of Financial Accounting Standards No. 
131,"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131").  Statement 131 establishes standards for the way public 
business enterprises are to report information about operating segments in 

<PAGE>  39

annual financial statements and requires those enterprises to report selected 
information about operating segments in interim financial reports issued to 
shareholders. It also establishes standards for related disclosures about 
products and services, geographic areas, and major customers. Statement 131 is 
effective for financial statements for periods beginning after December 15, 
1997. Earlier application is encouraged. In the initial year of application, 
comparative information for earlier years is to be restated, unless it is 
impracticable to do so. Management has not determined the impact of the 
adoption of Statement 131.

FORWARD-LOOKING STATEMENTS
--------------------------
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. 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 "may", "will", "believe", "expect", 
"estimate", "anticipate", "continue", or similar terms or variations on those 
terms, or the negative of those terms. 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, the financial securities markets, and 
the availability of and the costs associated with sources of liquidity.

Item 7A.    Quantiture and Qualitative Disclosure about Market Risk
            -------------------------------------------------------
             See Item 7, above.

Item 8.     Financial Statements and Supplementary Data
            ___________________________________________

       a.     Financial Statements Required by Regulation S-X
            _________________________________________________

<TABLE>
<CAPTION>
                      NORTHEAST BANCORP AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION               
                           June 30, 1997 and 1996

     ASSETS                                      1997               1996
     ______                                 _______________   _______________
<S>                                         <C>               <C>
Cash and due from banks                     $    5,152,222    $    3,386,263
Interest bearing deposits                          443,021           650,430
Federal Home Loan Bank overnight deposits       10,066,000         7,529,435
                                            _______________   _______________ 
                                                15,661,243        11,566,128
                                                 
Trading account securities, at market value         25,000           197,621
Available for sale securities, at market 
<PAGE>  40

   value (notes 2, 8 and 10)                    27,096,931        29,650,319
Loans held for sale (note 3)                       240,000           448,475
Loans receivable (notes 4 and 8):
 Mortgage loans:
  Residential real estate                      135,607,761       111,901,516
  Construction loans                             3,220,448         5,012,583
  Commercial real estate                        37,567,609        27,123,743
                                            _______________   _______________
                                               176,395,818       144,037,842
 Less:                                      
  Undisbursed portion of construction loans      1,076,936         2,243,814
  Net deferred loan origination fees               151,609           289,340
                                            _______________   _______________
  Total mortgage loans                         175,167,273       141,504,688
 Commercial loans                               16,432,937        13,990,220
 Consumer and other loans                       14,755,927        14,356,016
                                            _______________   _______________ 
                                               206,356,137       169,850,924
 Less allowance for loan losses                  2,517,000         2,549,000
                                            _______________   _______________
  Net loans                                    203,839,137       167,301,924

Premises and equipment - net (note 5)            3,960,703         3,576,386
Other real estate owned - net (note 6)             492,411           513,831
Real estate held for investment - net of an 
   allowance for losses of $100,000 at June 
   30, 1997 and $0 at June 30, 1996                361,654           459,820
Accrued interest receivable - loans              1,220,463         1,094,555
Accrued interest receivable - investments          259,666           257,708
Federal Home Loan Bank stock, at cost 
   (note 8)                                      3,949,700         2,656,200
Goodwill, net of accumulated amortization of 
   $1,236,433 in 1997 and $940,059 in 1996 
   (note 16)                                     2,220,289         2,557,913
Other assets (note 15)                           2,472,509         2,008,735
                                            _______________   _______________
                                            $  261,799,706    $  222,289,615
                                            ===============   ===============


LIABILITIES AND STOCKHOLDERS' EQUITY             1997              1996
____________________________________        _______________   _______________
Liabilities:                                                                 
 Deposits (note 7):                                                          
  Demand                                    $   12,056,336    $   11,424,481
  NOW                                           11,428,705        13,516,135
  Money market                                  12,317,349        12,291,543
  Regular savings                               20,389,221        21,884,843
  Brokered deposits                              7,185,566         5,647,138
  Certificates of deposit under $100,000        74,259,842        64,962,559
  Certificates of deposit $100,000 or more      16,773,668        15,468,670
                                            _______________   _______________
  Total deposits                               154,410,687       145,195,369

 FHLB Borrowings (note 8)                       78,993,361        52,123,000
 Notes payable (note 9)                          1,298,611         1,502,192
 Securities sold under repurchase 
<PAGE>  41

    agreements (notes 2 and 10)                  5,098,622         3,762,966
 Other liabilities                               2,097,812         1,554,846
                                            _______________   _______________
  Total liabilities                            241,899,093       204,138,373
                                                                              
Commitments and contingent liabilities                                         
   (notes 9, 16, 17 and 18)                                                   
                                                                              
Stockholders' equity (notes 11, 12, 13                                         
   and 17):                                                                 
 Series A cumulative convertible preferred                                    
    stock; $1 par value, 1,000,000 shares                                     
    authorized; 45,454 shares issued and                                     
    outstanding                                    999,988           999,988
 Series B cumulative convertible preferred 
    stock; $1 par value, 1,000,000 shares 
    authorized; 71,428 shares issued and 
    outstanding                                    999,992           999,992
 Common stock, $1 par value, 3,000,000 
    shares authorized;   1,274,969 and 1,234,010 
    shares issued at June 30, 1997 and 1996, 
    respectively; 1,274,969 and 1,229,910 
    shares outstanding in 1997 and 1996, 
    respectively                                 1,274,969         1,234,010
 Additional paid-in capital                      5,639,507         5,455,852
 Retained earnings                              11,320,332        10,351,031
 Net unrealized losses on available for 
    sale securities (note 2)                      (334,175)         (837,354)
 Treasury stock at cost, 4,100 shares at 
    June 30, 1996                                      -             (52,277)
                                            _______________   _______________
  Total stockholders' equity                    19,900,613        18,151,242
                                            _______________   _______________
                                            $  261,799,706    $  222,289,615
                                            ===============   ===============
</TABLE>
See accompanying notes.

<TABLE>
<CAPTION>
                       NORTHEAST BANCORP AND SUBSIDIARY
                       Consolidated Statements of Income
                   Years Ended June 30, 1997, 1996, and 1995


                                      1997           1996           1995
                                  _____________  _____________  _____________
<S>                               <C>            <C>            <C>          
Interest and dividend income:                                                
 Interest on loans                $ 17,225,937   $ 16,010,685   $ 15,085,138
 Interest on Federal Home Loan     
   Bank overnight deposits             391,059        567,915        393,497
 Interest on investments held to  
   maturity, excluding mortgage   
   backed securities                       -              -           75,691    
 Interest and dividends on 
<PAGE>  42

   available for sale securities       135,307         89,684         60,159
 Interest on mortgage backed 
   securities                        2,029,224      1,149,407      1,088,420
 Dividends on Federal Home Loan 
   Bank stock                          219,916        148,762        189,980
 Other interest income                  27,697         28,409         30,040
                                  _____________  _____________  _____________ 
  Total interest income             20,029,140     17,994,862     16,922,925

Interest expense:
 Deposits (note 7)                   6,354,803      6,426,172      5,443,103
 Repurchase agreements                 199,453        166,210         84,921
 Borrowed funds                      3,945,840      2,536,022      2,524,896
                                  _____________  _____________  _____________
  Total interest expense            10,500,096      9,128,404      8,052,920
                                  _____________  _____________  _____________
  Net interest income before      
    provision for loan losses        9,529,044      8,866,458      8,870,005
                                  
Provision for loan losses (note 4)     578,427        602,860        640,634
                                  _____________  _____________  _____________
  Net interest income after 
    provision for loan losses        8,950,617      8,263,598      8,229,371
                                                 
Noninterest income:                            
Fees and service charges on loans      181,490        188,410        200,782
 Fees for other services to 
   customers                           594,384        548,819        478,713
 Net securities gains (note 2)         171,080        231,344         49,045
 Gain on trading securities             88,350         47,551        370,268
 Gain on sales of loans (note 3)       201,418        251,597        160,982
 Loan servicing fees                   275,496        302,261        306,220
 Other income                          499,638        527,209        550,432
                                  _____________  _____________  _____________
  Total noninterest income           2,011,856      2,097,191      2,116,442

Noninterest expense:
 Salaries and employee benefits 
   (note 17)                      $  4,033,378   $  4,153,160   $  3,977,800
 Occupancy expense (note 5)            636,818        611,007        510,360
 Equipment expense (note 5)            793,550        761,545        691,588
 FDIC insurance expense (note 11)      387,275        138,442        307,173
 Other (notes 2 and 14)              2,696,752      2,784,603      2,500,956
                                  _____________  _____________  _____________
  Total noninterest expense          8,547,773      8,448,757      7,987,877
                                  _____________  _____________  _____________
Income before income taxes           2,414,700      1,912,032      2,357,936

Income tax expense (note 15)           907,597        718,612        868,555
                                  _____________  _____________  _____________
  Net income                      $  1,507,103   $  1,193,420   $  1,489,381
                                  =============  =============  =============

Net income per common share 
  (notes 12 and 17):
 Primary earnings per share               1.03            .83           1.10
 Fully diluted earnings per share          .96            .79           1.02
<PAGE>  43

</TABLE>

See accompanying notes.

<TABLE>
<CAPTION>

                         NORTHEAST BANCORP AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     Years Ended June 30, 1997, 1996 and 1995


                                            Preferred Stock       Common
                                            Series A and B         Stock  
                                            _______________   _______________
<S>                                         <C>               <C>
Balance at June 30, 1994                    $    1,999,980    $      547,400
                                                                              
 Net income                                            -                 -
 Decrease in net unrealized losses on       
   available for sale securities                       -                 -
 Issuance of common stock                              -                 102
 Dividends on preferred stock                          -                 - 
 Dividends on common stock at $.32 per share           -                 -
                                            _______________   _______________
Balance at June 30, 1995                         1,999,980           547,502
                                           
 Net income                                            -                 -
 Common stock - warrants exercised                     -              50,000
 Stock split in the form of a dividend                 -             597,743
 Increase in net unrealized losses on 
   available for sale securities                       -                 - 
 Treasury stock purchased                              -                 -
 Issuance of common stock                              -                 765
 Stock options exercised                               -              38,000
 Dividends on preferred stock                          -                 -
 Dividends on common stock at $.32 per share           -                 -
                                            _______________   _______________
Balance at June 30, 1996                         1,999,980         1,234,010
                                                                             
 Net income                                            -                 -
 Issuance of common stock through exercise 
   of stock options and purchase of treasury
   stock                                               -              20,000
 Exercise of stock warrants                            -              19,940
 Decrease in net unrealized losses on      
   available for sale securities                       -                 - 
 Treasury stock issued - employee stock 
   bonus                                               -                 -
 Issuance of common stock                              -               1,019
 Dividends on preferred stock                          -                 -
 Dividends on common stock at $.32 per share           -                 -
                                            _______________   _______________
Balance at June 30, 1997                    $    1,999,980    $    1,274,969
                                            ===============   ===============
</TABLE>

<PAGE>  44

See accompanying notes.

<TABLE>
<CAPTION>

                                                Net Unrealized
  Additional                                       Losses on
   Paid-in         Treasury        Retained      Available for 
   Capital          Stock          Earnings     Sale Securities      Total
______________  ______________  ______________  _______________  ______________
<C>             <C>             <C>             <C>              <C>
$  4,640,968    $        -      $  9,006,038    $     (438,023)  $ 15,756,363
         -               -         1,489,381               -        1,489,381
         -               -               -             342,516        342,516
       2,091             -               -                 -            2,193
         -               -          (140,000)              -         (140,000)
         -               -          (175,175)              -         (175,175)
______________  ______________  ______________  _______________  ______________
   4,643,059             -        10,180,244           (95,507)    17,275,278

         -               -         1,193,420               -        1,193,420
     650,000             -               -                 -          700,000
         -               -          (597,743)              -              -
         -               -               -            (741,847)      (741,847)
         -           (52,277)            -                 -          (52,277)
      10,793             -               -                 -           11,558
     152,000             -               -                 -          190,000
         -               -          (139,999)              -         (139,999)
         -               -          (284,891)              -         (284,891)
______________  ______________  ______________  _______________  ______________
   5,455,852         (52,277)     10,351,031          (837,354)    18,151,242

         -               -         1,507,103               -        1,507,103

      83,450         (28,420)            -                 -           75,030
      88,005          67,055             -                 -          175,000
         -               -               -             503,179        503,179
        (268)         13,642             -                 -           13,374
      12,468             -               -                 -           13,487
         -               -          (139,997)              -         (139,997)
         -               -          (397,805)              -         (397,805)
______________  ______________  ______________  _______________  ______________
$  5,639,507    $        -      $ 11,320,332    $     (334,175)  $ 19,900,613
==============  ==============  ==============  ===============  ==============

</TABLE>

See accompanying notes.

<TABLE>
<CAPTION>

                          NORTHEAST BANCORP AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                       Years Ended June 30, 1997, 1996 and 1995


<PAGE>  45

                                       1997           1996           1995
                                  ______________ ______________ ______________
<S>                               <C>            <C>            <C> 
Cash flows from operating                                        
 activities:                                                       
  Net income                      $  1,507,103   $  1,193,420   $  1,489,381
  Adjustments to reconcile net                                               
   income to net cash provided                                         
   by operating activities:                                
    Provision for loan losses          578,427        602,860        640,634
    Provision for losses on other
      real estate owned                 39,000         94,711        107,173
    Provision for losses on real 
      estate held for investment       100,000            -              -
    Treasury stock bonused to 
      employees                         13,374            -              -
    Deferred income tax expense 
      (benefit)                        (72,290)        19,236        122,143
    Depreciation of premises and 
      equipment and other              597,573        675,232        606,604
    Goodwill amortization              296,374        308,913        235,098
    Net gain on sale of available 
      for sale securities             (171,080)      (231,344)       (49,045)
    Net gains on sale of loans        (201,418)      (251,597)      (160,982)
    Originations of loans held 
      for sale                      (2,178,115)   (11,585,640)    (4,273,878)
    Proceeds from sale of loans 
      held for sale                  2,430,823     11,781,652      4,325,745
    Net change in trading account 
      securities                       172,621       (196,246)       171,696
    Other                              (98,542)       (52,921)       (26,174)
    Change in other assets and 
      liabilities:
        Increase in interest 
         receivable                   (127,866)      (213,557)      (291,215)
        Increase in other assets 
         and liabilities               (54,046)       (39,262)      (326,872)
                                  ______________ ______________ ______________
 Net cash provided by operating 
   activities                        2,831,938      2,105,457      2,570,308

Cash flows from investing 
 activities:
  Proceeds from the sale of 
    available for sale securities   12,379,650     16,858,222     12,179,897
  Purchase of available for sale 
    securities                     (11,277,560)   (38,104,596)    (1,265,840)
  Proceeds from maturities and 
    principal payments on 
    available for sale securities    2,384,771        851,639        335,432
  Proceeds from maturities and 
    principal payments on held to 
    maturity securities                    -              -        1,645,454
  Purchase of held to maturity 
    securities                             -              -      (12,399,309)
  Purchases of loans               (25,425,642)           -              -

<PAGE>  46

  Net increase in loans            (11,933,101)      (142,079)   (11,905,988)
  Additions to premises and 
    equipment                       (1,028,625)      (398,937)      (936,647)
  Proceeds from sale of 
    investment in real estate              -           24,251        238,189
  Purchase of investment in real 
    estate and improvements             (6,156)       (40,068)       (13,397)
  Proceeds from sale of other 
    real estate owned                  519,871        585,798        581,880
  (Purchase) sale of Federal Home 
    Loan Bank stock                 (1,293,500)      (506,200)       195,000
  Cash received from acquisition 
    of bank branches                       -              -       25,547,199
                                  ______________ ______________ ______________
 Net cash (used) provided by                                                 
   investing activities            (35,680,292)   (20,871,970)    14,201,870
                                                                    
Cash flows from financing                                            
 activities:                                                        
  Net increase (decrease) in                                          
    deposits                      $  9,215,318      $ (1,924,501)  $ (4,930,902)
  Net increase in repurchase 
    agreements                       1,335,656      1,177,579      2,585,387
  Dividends paid                      (537,802)      (424,890)      (315,175)
  Treasury stock purchased             (28,420)       (52,277)           -
  Stock options exercised              103,450        190,000            -
  Warrants exercised                   175,000        700,000            -
  Issuance of common stock              13,487         11,558          2,193
  Net borrowings (payments) from 
    (to) Federal Home Loan Bank     26,870,361     16,423,000    (10,200,000)
  Principal payments on notes 
    payable                           (203,581)      (507,899)      (510,115)
                                  ______________ ______________ ______________
 Net cash provided (used) by 
   financing activities             36,943,469     15,592,570    (13,368,612)
                                  ______________ ______________ ______________
Net increase (decrease) in cash 
  and cash equivalents               4,095,115     (3,173,943)     3,403,566

Cash and cash equivalents, 
  beginning of year                 11,566,128     14,740,071     11,336,505
                                  ______________ ______________ ______________
Cash and cash equivalents, end 
  of year                         $ 15,661,243   $ 11,566,128   $ 14,740,071
                                  ============== ============== ==============
Supplemental schedule of cash 
  flow information:
   Interest paid                  $ 10,356,006   $  9,103,639   $  7,997,123
   Income taxes paid                   620,000        913,000        794,000
                                                 
Supplemental schedule of noncash                                     
  investing and financing                                             
  activities:                                                         
   Transfer from loans to other                                        
    real estate owned             $    538,019   $    314,718   $    827,304
   Transfer from other real 
<PAGE>  47

    estate owned to loans                  -              -          382,718
   Loans originated to finance 
    the sales of other real 
    estate owned                           -          184,732        399,550
   Transfer of securities into 
    available for sale securities,
    at fair value                          -              -       18,821,933
   Transfer of securities out of 
    held to maturity securities, 
    at amortized cost                      -              -      (18,774,672)
   Net change in valuation for 
    unrealized losses on available 
    for sale securities                503,179        741,847       (295,255)
   Net change in deferred taxes 
    for unrealized losses on 
    available for sale securities      259,214        382,164       (176,446)
</TABLE>

In connection with the acquisition of bank branches in 1995, the Company 
assumed deposit liabilities (see note 16).

See accompanying notes.


                         NORTHEAST BANCORP AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         June 30, 1997, 1996 and 1995


1. Summary of Significant Accounting Policies
   __________________________________________

   The accounting and reporting policies of Northeast Bancorp and Subsidiary 
   (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.  Prior to July 1, 1996, the Company conducted business as
   Bethel Bancorp.

   Basis of Financial Statement Presentation
   _________________________________________

   The financial statements have been prepared in conformity with generally 
   accepted accounting principles.  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 
<PAGE>  48

   those estimates.

   Material estimates that are particularly susceptible to significant change 
   relate to the determination of the allowance for loan losses and the 
   valuation of real estate acquired in connection with foreclosures or in 
   satisfaction of loans.  In connection with the determination of the 
   allowance for loan losses and the carrying value of real estate acquired 
   through foreclosure, management obtains independent appraisals for 
   significant properties.

   A substantial portion (85%) of the Company's loans are secured by real 
   estate in the State of Maine.  In addition, all of the real estate acquired
   through foreclosure is located in the same market.  Accordingly, the 
   ultimate collectibility of a substantial portion of the Company's loan 
   portfolio and the recovery of the carrying amount of real estate acquired 
   through foreclosure are susceptible to changes in market conditions in 
   Maine.


   Principles of Consolidation
   ___________________________

   The accompanying consolidated financial statements include the accounts of 
   Northeast Bancorp, a savings and loan holding company, and its wholly-owned
   subsidiary, Northeast Bank, F.S.B. (including the bank's wholly-owned 
   subsidiary, Northeast Financial Services, Inc.) 

   All significant intercompany transactions and balances have been eliminated 
   in consolidation. 
   
   Cash Equivalents
   ________________
   
   Cash equivalents consist of cash and due from banks, Federal Home Loan Bank
   overnight deposits and interest bearing deposits.  For purposes of the 
   statements of cash flows, the Company considers all highly liquid debt 
   instruments with original maturities of three months or less to be cash 
   equivalents.  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,
   1997, the reserve balance was approximately $503,000.

   Investments
   ___________
     
     Trading Account Securities
     __________________________

     Trading account securities, consisting of equity securities purchased with
     the intent to be subsequently sold to provide net securities gains, are 
     carried at market value.  Realized and unrealized gains and losses on 
     trading account securities are recognized in the statements of income as 
     they occur.  Transactions are accounted for as of the trade date using the
     specific identification method.

     Available for Sale Securities
     _____________________________

<PAGE>  49

     Equity securities, and debt securities which may be sold prior to 
     maturity, are classified as available for sale and are carried at market 
     value.  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 as a 
     writedown.  Premiums and discounts are amortized and accreted over the 
     term of the securities on the level yield method adjusted for prepayments.
     Gains and losses on the sale of securities are recognized at the time of 
     the sale 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 estimated market value, estimated based on bid 
   quotations from loan dealers.

   Effective July 1, 1996, the Company adopted the provisions of Financial 
   Accounting Standards Board ("FASB") Statement No. 122, Accounting for 
   Mortgage Servicing Rights, an Amendment of FASB Statement No. 65.
   Statement No. 122 requires that the Company recognize as separate assets the
   rights to service mortgage loans for others, and requires the assessment of
   capitalized mortgage servicing rights for impairment based on the current 
   fair value of those rights.  This assessment includes servicing rights 
   capitalized prior to adoption of Statement No. 122.  As required by 
   Statement No. 122, the Company capitalizes mortgage servicing rights at 
   their allocated cost based on the relative fair values upon the sale of the 
   related loans.  The impact of adoption of Statement No. 122 was not material
   to the Company's financial position, liquidity or results of operations.  

   Effective January 1, 1997, the Company adopted FASB Statement No. 125, 
   Accounting for Transfers and Servicing of Financial Assets and 
   Extinguishments of Liabilities.  The impact of adoption of Statement No. 125
   was not material to the Company's financial position, liquidity or results 
   of operations.
   
   The Company's mortgage servicing rights asset at June 30, 1997 and 1996 is 
   not material and is included in other assets in the consolidated statements 
   of financial position.
   
   Gains and losses on sales of mortgage loans are determined using the 
   specific identification method and recorded as gain on sales of mortgage 
   loans in the consolidated statements of income.  The gains and losses 
   resulting from the sales of loans with servicing retained are adjusted to 
   recognize the present value of future servicing fee income over the 
   estimated lives of the related loans.

   Mortgage servicing rights are amortized on an accelerated method over the 
   estimated weighted average life of the loans.  Amortization is recorded as 
   a charge against loan servicing fee income.  The Company's assumptions with 
   respect to prepayments, which affect the estimated average life of the 
<PAGE>  50

   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.

   Mortgage servicing fees received from investors for servicing their loan 
   portfolios are recorded as loan servicing fees income when received.  Loan 
   servicing costs are charged to noninterest expenses when incurred.

   Loans
   _____

   Loans are carried at the principal amounts outstanding plus premiums paid 
   reduced by partial charge-offs and net deferred loan fees.  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.  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.

   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 and anticipated 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
   ______________________
<PAGE> 51


   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 or the term of the lease, if 
   shorter.  Maintenance and repairs are charged to current expense as incurred
   and the cost of major renewals and betterments are capitalized.

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

   Other Real Estate Owned
   _______________________

   Other real estate owned is comprised of (1) properties or other assets 
   acquired through foreclosure proceedings, or acceptance of a deed or title 
   in lieu of foreclosure and (2) other assets repossessed in connection with 
   non-real estate loans.  Other real estate owned is carried at the lower of 
   cost or fair value of the collateral less estimated selling expenses.  
   Losses arising from the acquisition of such properties are charged against 
   the allowance for loan losses.  Operating expenses and any subsequent 
   provisions to reduce the carrying value are charged to current period 
   earnings.  Gains and losses upon disposition are reflected in earnings as
   realized.

   Real Estate Held for Investment
   _______________________________

   Real estate properties held for investment are carried at the lower of cost,
   including costs of improvements and amenities incurred subsequent to 
   acquisition, or fair value.  Costs relating to development and improvement 
   of property are capitalized, whereas costs relating to holding property are 
   expensed.  The Company recorded an allowance for losses of $100,000 during 
   the year ended June 30, 1997 in accordance with the provisions of FASB 
   Statement No. 121.  The provision has been included as a reduction to other
   income on the statement of income.

   Goodwill
   ________

   Goodwill arising from acquisitions is being amortized on a straight-line 
   basis over ten to fifteen years.  Goodwill is reviewed for possible 
   impairment when events or changed circumstances may affect the underlying 
<PAGE>  52

   basis of the asset.

   Advertising Expense
   ___________________

   Advertising costs are expensed as incurred.  Advertising costs were 
   approximately $145,000, $47,000 and $55,000, for the years ended June 30, 
   1997, 1996 and 1995, respectively.

   Reclassification
   ________________

   Certain prior year accounts and balances in the consolidated financial 
   statements have been reclassified to conform to the current year 
   presentation.

2. Available for Sale Securities
   _____________________________

   A summary of the cost and approximate fair values of available for sale 
   securities at June 30, 1997 and 1996 follows:

<TABLE>
<CAPTION>
                                      1997                     1996   
                            ________________________  ________________________
                                            Fair                      Fair
                               Cost         Value        Cost         Value  
                            ___________  ___________  ___________  ___________
<S>                         <C>          <C>          <C>          <C>        
   Debt securities issued                                            
    by the U.S. Treasury                                            
    and other U.S.                                                     
    Government corporations                                             
    and agencies            $ 1,498,913  $ 1,455,788  $ 1,497,111  $ 1,424,690
   Corporate bonds              149,694      142,750      149,646      139,005
   Equity securities            896,739      850,582      462,167      440,330
   Mortgage-backed 
    securities               25,057,910   24,647,811   28,810,113   27,646,294
                            ___________  ___________  ___________  ___________
                            $27,603,256  $27,096,931  $30,919,037  $29,650,319
                            ===========  ===========  ===========  ===========
</TABLE>

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

<TABLE>
<CAPTION>

                                     1997                       1996  
                            ________________________  ________________________
                               Gross        Gross        Gross        Gross
                            Unrealized   Unrealized   Unrealized   Unrealized
                               Gains       Losses        Gains       Losses   
                            ___________  ___________  ___________  ___________
   <S>                      <C>          <C>          <C>          <C>        
<PAGE>  53

   Debt securities issued                                                     
    by the U. S. Treasury                                                      
    and other U. S.                                                           
    Government corporations                                                   
    and agencies            $      -     $   43,125   $      -     $    72,421
   Corporate bonds                 -          6,944          -          10,641
   Equity securities            28,965       75,122        5,321        27,158
   Mortgage-backed 
    securities                  37,503      447,602       17,664     1,181,483
                            ___________  ___________  ___________  ___________
                            $   66,468   $  572,793   $   22,985   $ 1,291,703
                            ===========  ===========  ===========  ===========
</TABLE>

   At June 30, 1997, investment securities with a market value of approximately
   $9,161,000 were pledged as collateral to secure outstanding repurchase 
   agreements.

   At June 30, 1997 and 1996, included in net unrealized losses on available 
   for sale securities as a reduction to stockholders' equity are net 
   unrealized losses of $506,325 and $1,268,718, respectively, net of the 
   deferred tax effect of $172,150 and $431,364, respectively.

   The cost and fair values of available for sale securities at June 30, 1997 
   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.

<TABLE>
<CAPTION>
                                                                    Fair
                                                      Cost         Value  
                                                  ____________   ____________
   <S>                                            <C>            <C>
   Due in one year                                $   248,913    $   248,913
   Due after one year through five years              250,000        242,500
   Due after five years through ten years             149,694        142,750
   Due after ten years                              1,000,000        964,375
                                                  ____________   ____________
                                                    1,648,607      1,598,538
   Mortgage-backed securities (including 
   securities with interest rates ranging 
   from 5.15% to 8.5% maturing September 2003 
   to January 2027)                                25,057,910     24,647,811
   Equity securities                                  896,739        850,582
                                                  ____________   ____________
                                                  $27,603,256    $27,096,931
                                                  ============   ============

</TABLE>

   The realized gains and losses on available for sale securities for the year
   ended June 30, 1997 were $171,205 and $125, respectively, for the year ended
   June 30, 1996 were $248,542 and $17,198, respectively, and for the year 
   ended June 30, 1995 were $280,257 and $231,212, respectively.

   Based on management's assessment of available for sale securities, there has
<PAGE>  54

   been more than a temporary decline in fair value of certain securities.  At 
   June 30, 1997, 1996 and 1995, write-downs of available for sale securities 
   were $110,000, $93,819 and $0, respectively, and are included in other 
   expense in the statements of income.

   During 1995, the Company purchased $12,399,000 in securities it classified 
   as held to maturity, since at the time of acquisition Company management had
   the intention, and the Company had the ability, to hold such securities 
   until maturity.  In the last quarter of fiscal 1995, as a result of its 
   planning process and changes in market conditions, Company management 
   determined that it no longer possessed the intent to hold such securities to
   maturity.  Consequently, the Company transferred its entire held to maturity
   portfolio, with an aggregate cost of $18,775,000 and an aggregate fair value
   of $18,822,000 (including unrealized gains and losses of $191,000 and 
   $144,000, respectively) to available for sale.  The Company subsequently 
   sold selected of the aforementioned securities with an aggregate cost of 
   $11,900,000 and realized gains of $273,000 and realized losses of $225,000.
   The Company's decision not to hold these securities to maturity does not 
   satisfy the limited criteria of Financial Accounting Standards No. 115 which
   specifies circumstances in which it is permissible to sell or transfer held 
   to maturity securities.  Consequently, the Company will, for the foreseeable
   future, classify its securities portfolio as available for sale, or trading.


3. Loans Held for Sale
   ___________________

   A summary of the carrying value and market value of loans held for sale at 
   June 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>

                                June 30, 1997             June 30, 1996    
                           _______________________   _______________________
                            Carrying      Market      Carrying      Market
                             Value        Value        Value        Value 
                           __________   __________   __________   __________
   <S>                     <C>          <C>          <C>          <C>
   Real estate mortgages   $ 240,000    $ 242,400    $ 448,475    $ 452,960
                           ==========   ==========   ==========   ==========
</TABLE>

   At June 30, 1997 and 1996, gross unrealized gains on loans held for sale 
   were $2,400 and $4,485, respectively, and there were no unrealized losses.

4. Loans
   _____

   The Company's lending activities are conducted in south central and western 
   Maine.  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.  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 
<PAGE>  55

   the real estate economic sector in the borrowers' geographic area and 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 
   $1,693,737 and $2,229,045 at June 30, 1997 and 1996, respectively.  New 
   loans granted to related parties in 1997 totaled $305,863; payments and 
   reductions amounted to $841,171.  In 1996, new loans granted to related 
   parties totaled $478,166; payments and reductions amounted to $813,351.

   Activity in the allowance for loan losses was as follows:      
<TABLE>
<CAPTION>
                                                  Years Ended June 30,     
                                      ________________________________________
                                          1997          1996          1995
                                      ____________  ____________  ____________
   <S>                                <C>           <C>           <C>
   Balance at beginning of year       $ 2,549,000   $ 2,396,000   $ 2,463,000
   Provision charged to operating 
     expenses                             578,427       602,860       640,634
   Loans charged off                     (739,969)     (525,653)     (760,733)
   Recoveries on loans charged off        129,542        75,793        53,099
                                      ____________  ____________  ____________
   Net loans charged off                 (610,427)     (449,860)     (707,634)
                                      ____________  ____________  ____________
   Balance at end of year             $ 2,517,000   $ 2,549,000   $ 2,396,000
                                      ============  ============  ============
</TABLE>

   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.  Except for certain restructured loans, impaired loans are loans that 
   are on nonaccrual status.  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 1997 and 1996 allowance for loan losses related to loans that are 
   identified as impaired includes impairment reserves, which are based on 
   discounted cash flows using the loan's effective interest rate, or 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, as well as, commercial loans with balances less 
   than $25,000.  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.  A loan is classified as an insubstance foreclosure when the Company 
<PAGE>  56

   has taken possession of the collateral, regardless of whether formal 
   foreclosure proceedings take place.

   At June 30, 1997, total impaired loans were $1,661,698 of which $844,457 had
   related allowances of $369,474.  During the year ended June 30, 1997, the 
   income recognized related to impaired loans was $50,690 and the average 
   balance of outstanding impaired loans was $1,330,983.  At June 30, 1996, 
   total impaired loans were $1,530,650 of which $1,063,720 had related 
   allowances of $499,200.  During the year ended June 30, 1996, the income 
   recognized related to impaired loans was $87,128 and the average balance of 
   outstanding impaired loans was $1,799,087.  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, 1997 and 1996 totaled approximately $2,424,000 and $2,603,000, 
   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, 1997, 1996 and 1995, totaled approximately 
   $176,000, $228,000 and $266,000, 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 originated and sold of 
   approximately $34,683,000, $39,940,000 and $32,560,000 at June 30, 1997, 
   1996 and 1995, respectively.  In the past, the Company purchased loan 
   servicing rights from another institution.  The balance of the loans 
   serviced under this agreement was approximately $7,826,000, $9,676,000 and 
   $12,983,000 at June 30, 1997, 1996 and 1995, respectively.
   

5. Premises and Equipment
   ______________________

   Premises and equipment at June 30, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                1997           1996
                                            ____________   ____________
   <S>                                      <C>            <C>       
   Land                                     $   784,109    $   784,109
   Buildings                                  2,114,006      2,149,215
   Leasehold and building improvements        1,007,931        636,814
   Furniture, fixtures and equipment          3,630,525      3,119,569
                                            ____________   ____________
                                              7,536,571      6,689,707
   Less accumulated depreciation              3,575,868      3,113,321
                                            ____________   ____________
   Net premises and equipment               $ 3,960,703    $ 3,576,386
                                            ============   ============
</TABLE>

   Depreciation and amortization of premises and equipment, included in 
<PAGE>  57

   occupancy and equipment expense, was $593,251, $670,774 and $599,868 for 
   the years ended June 30, 1997, 1996 and 1995, respectively.


6. Other Real Estate Owned
   _______________________

   The following table summarizes the composition of other real estate owned 
   at June 30:

<TABLE>
<CAPTION>
                                                     1997           1996
                                                 ____________   ____________
   <S>                                           <C>            <C>
   Real estate properties acquired in settlement
     of loans                                    $   543,250    $   613,831
   Less allowance for losses                          50,839        100,000
                                                 ____________   ____________
                                                 $   492,411    $   513,831
                                                 ============   ============
</TABLE>
   Activity in the allowance for losses on other real estate owned was as 
   follows:

<TABLE>
<CAPTION>
                                               1997        1996        1995
                                            __________  __________  __________
   <S>                                      <C>         <C>         <C>
   Balance at beginning of year             $ 100,000   $   5,289   $  49,405
   Provision for losses on other real 
     estate owned                              39,000      94,711     107,173
   Other real estate owned write-downs        (88,161)        -      (151,289)
                                            __________  __________  __________
   Balance at end of year                   $  50,839   $ 100,000   $   5,289
                                            ==========  ==========  ==========
</TABLE>


7. Deposits
   ________

   Deposits at June 30 are summarized as follows:

<TABLE>
<CAPTION>
                       Weighted
                       Average
                         Rate              1997                    1996
                       at June    _____________________  _____________________
                       30,1997       Amount     Percent     Amount     Percent
                       ________   _____________ _______  _____________ _______
   <S>                 <C>        <C>           <C>      <C>           <C>
   Demand                0.00%    $ 12,056,336     7.8%  $ 11,424,481     7.9%
   NOW                   1.26       11,428,705     7.4     13,516,135     9.3

<PAGE>  58

   Money market          3.44       12,317,349     8.0     12,291,543     8.5
   Regular savings       2.60       20,389,221    13.2     21,884,843    15.1
   Certificates of                                                           
     deposit:                                                                 
     1.00 - 3.75%        1.32          314,846      .2        256,272      .2
     3.76 - 5.75%        5.34       50,355,740    32.6     51,745,006    35.6
     5.76 - 7.75%        6.23       47,415,692    30.7     32,963,106    22.7
     7.76 - 9.75%        8.75          132,798      .1      1,113,983      .7
                       ________   _____________ _______  _____________ _______
                         4.38%    $154,410,687   100.0%  $145,195,369   100.0%
                       ========   ============= =======  ============= ======= 
</TABLE>

     At June 30, 1997, scheduled maturities of certificates of deposit are as 
     follows:

<TABLE>
<CAPTION>
                                                                         There-
                   1998        1999       2000       2001       2002     after 
                ___________ __________ __________ __________ __________ _______
   <S>          <C>         <C>        <C>        <C>        <C>        <C>
   1.00 - 3.75% $   283,598 $    6,992 $   24,256 $      -   $      -   $   -  
   3.76 - 5.75%  43,717,335  5,675,311    455,143    422,665     75,243  10,043
   5.76 - 7.75%  26,248,599  9,935,796  4,608,497  2,028,549  4,594,251     -
   7.76 - 9.75%     131,183      1,615        -          -          -       -
</TABLE>
     
   Interest expense on deposits for the years ended June 30, 1997, 1996 and 
   1995 is summarized as follows:

<TABLE>
<CAPTION>
                                       1997           1996           1995
                                   ____________   ____________   ____________
   <S>                             <C>            <C>            <C>
   NOW                             $   158,485    $   265,551    $   264,143
   Money market                        439,058        446,950        455,080
   Regular savings                     542,652        596,863        610,415
   Certificates of deposit           5,214,608      5,116,808      4,113,465
                                   ____________   ____________   ____________ 
                                   $ 6,354,803    $ 6,426,172    $ 5,443,103
                                   ============   ============   ============
</TABLE>
   
    

 8.  Federal Home Loan Bank Borrowings
     ---------------------------------
     A summary of borrowings from the Federal Home Loan Bank are as follows:
    
<TABLE>
<CAPTION>
     
                                  June 30, 1997  
           -------------------------------------------------------
              Principal           Interest            Maturity    
<PAGE>  59

               Amounts              Rates               Dates     
           ---------------     ---------------     ---------------
           <C>                 <C>                 <C>
           $   54,407,706       4.97% - 6.39%           1998           
               15,606,482       5.64% - 6.20%           1999           
                3,000,000           6.27%               2000           
                  273,080           6.40%               2001        
                1,441,827       6.21% - 6.49%           2002         
                  290,652           6.61%               2003      
                1,973,614       6.36% - 6.67%           2004       
                2,000,000           6.65%               2005        
           ---------------                                              
           $   78,993,361                                              
           ===============                                               

                                                                         
                                  June 30, 1996                          
           -------------------------------------------------------
              Principal           Interest            Maturity    
               Amounts              Rates               Dates      
           ---------------     ---------------     ---------------
           $   31,400,000       5.17% - 8.30%           1997      
                5,573,000       4.97% - 6.86%           1998
               14,500,000       5.64% - 6.35%           1999
                  325,000           6.40%               2001
                  325,000           6.61%               2003
           ---------------
           $   52,123,000 
           ===============

</TABLE>
    
     Mortgages, free of liens, pledges and encumbrances, investment securities 
     not otherwise pledged, and the Company's Federal Home Loan Bank stock 
     equal to at least 200% of the borrowings from that bank have been pledged 
     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.  One of the Federal Home Loan Bank borrowings held at June 30, 
     1997 is adjustable and, therefore, the rate is subject to change.

 9.  Notes Payable
     -------------
     Notes payable at June 30, 1997 and 1996 primarily consisted of a $2.5 
     million loan from an unrelated financial institution for the acquisition 
     of a bank.  The note is payable in eighteen equal quarterly principal 
     payments of $76,389.  Interest is payable monthly at 8%. The Company has 
     pledged Northeast Bank F.S.B. common stock and a $1 million key man life 
     insurance policy as collateral for the loan.

     The loan agreement contains certain covenants which limits capital 
     expenditures of the Company and the amount of nonperforming loans and 
     requires minimum loan loss reserves, capital, return on assets, and the 
     Company is required to obtain approval from the lender before the Company 
     can commit to a merger or consolidation with another entity.  At June 30, 
     1997, the Company complied with these covenants with the exception of the 
     merger and consolidation covenant which was approved by the lender.

<PAGE>  60

10.  Securities Sold Under Repurchase Agreements
     -------------------------------------------
     During 1997 and 1996, the Company sold securities under agreements to 
     repurchase.  The weighted average interest rate on repurchase agreements 
     was 4.25% at June 30, 1997 and 1996.  These borrowings, which were 
     scheduled to mature within 180 days, were collateralized by FHLMC and GNMA
     securities with a market value of $9,161,000 and amortized cost of 
     $9,300,000 at June 30, 1997, and a market value of $5,689,000 and 
     amortized cost of $5,875,000 at June 30, 1996.  The repurchase agreements 
     averaged $4,566,000 and $3,516,000 during the years ended June 30, 1997 
     and 1996, respectively.  The maximum amount outstanding at any month-end 
     during 1997 and 1996 was $5,214,000 and $4,201,000, respectively.  
     Securities sold under these agreements were under the control of the 
     Company during 1997 and 1996.

11.  Regulatory Capital and Other Matters
     ------------------------------------
     The Company 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 Company's financial statements. Under
     capital adequacy guidelines and the regulatory framework for prompt 
     corrective action, the Company must meet specific capital guidelines that 
     involve quantitative measures of the Company's assets, liabilities, and 
     certain off-balance sheet items as calculated under regulatory accounting 
     practices.  The Company'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."

     Management believes that as of June 30, 1997 and June 30, 1996, the 
     Company meets all capital adequacy requirements to which it is subject. 

     As of June 30, 1997, the most recent notification from the OTS categorized
     the Company as well capitalized.  There are no conditions or events since 
     that notification that management believes have changed the Company's 
     category.  The following is a summary of the actual capital amounts and 
     ratios, as of June 30, 1997 and June 30, 1996, compared to the OTS minimum
     bank capital adequacy requirements and their requirements for 
     classification as a well capitalized institution.
     
<TABLE>
<CAPTION>
        
                                                                     For
                                                Minimum       Classification As
                                Actual      Capital Adequacy   Well Capitalized
                           --------------   ----------------   ----------------
                            Amount  Ratio     Amount   Ratio     Amount  Ratio 
                           -------- -----   ---------- -----   --------- ------
<PAGE>  61

    <S>                    <C>      <C>     <C>        <C>     <C>       <C>   
    (Dollars in Thousands)                                                     
    As of June 30, 1997:                                                       
    Tangible capital:                                                          
     Northeast Bancorp     $15,984   6.2%   >$  3,898  >1.5%   >$ 3,898  > 1.5%
     Northeast Bank         17,733   6.8%   >   3,892  >1.5%   >  3,892  > 1.5%
                                                                               
    Core capital:                                                              
     Northeast Bancorp     $15,984   6.2%   >$  7,797  >3.0%   >$12,994  > 5.0%
     Northeast Bank         17,733   6.8%   >   7,785  >3.0%   > 12,975  > 5.0%
                                                                               
    Risked-based capital                                                       
     (total capital):                                                          
      Northeast Bancorp    $17,096  10.8%   >$ 12,709  >8.0%   >$15,886  >10.0%
      Northeast Bank        18,840  11.9%   >  12,677  >8.0%   > 15,847  >10.0%
                                                                               
   As of June 30, 1996:                                                        
    Tangible capital:                                                          
     Northeast Bancorp     $14,415   6.5%   >$  3,305  >1.5%   >$ 3,305  > 1.5%
     Northeast Bank         15,386   7.0%   >   3,291  >1.5%   >  3,291  > 1.5%
                                                                               
    Core capital:                                                              
     Northeast Bancorp     $14,415   6.5%   >$  6,611  >3.0%   >$11,018  > 5.0%
     Northeast Bank         15,386   7.0%   >   6,582  >3.0%   > 10,970  > 5.0%
                                                                               
    Risked-based capital                                                       
     (total capital):                                                          
     Northeast Bancorp     $15,378  11.8%   >$ 10,438  >8.0%   >$13,048  >10.0%
     Northeast Bank         16,349  12.6%   >  10,362  >8.0%   > 12,952  >10.0%

</TABLE>

     The Company is also subject to certain capital requirements established by
     the FDIC.  At June 30, 1997 and June 30, 1996, the Company's capital 
     exceeded the regulatory requirements.

     The Company may not declare or pay a cash dividend on, or repurchase, any 
     of its capital stock if the effect thereof would cause the capital of the 
     Company to be reduced below the capital requirements imposed by the OTS.

     In September of 1996, Congress enacted comprehensive legislation amending 
     the FDIC BIF-SAIF deposit insurance assessments on savings and loan 
     institution deposits.  The legislation imposed a one-time assessment on 
     institutions holding SAIF deposits at March 31, 1995. As a result of this 
     legislation, the Company incurred a special assessment of approximately 
     $297,000 during 1997.  This assessment is included in FDIC insurance 
     expense in the 1997 consolidated statement of income.

12.  Earnings Per Share
     ------------------
     Earnings per share have been computed on the basis of the weighted average
     number of shares of common stock outstanding. The weighted average number 
     of shares outstanding were: 1,329,000, 1,270,000 and 1,227,400 for the 
     years ended June 30, 1997, 1996 and 1995, respectively.  Common stock 
     equivalents and potentially dilutive securities were considered in the 
     calculations of weighted average shares outstanding, since their effect 
     was dilutive. Preferred stock dividends have been deducted from net income
<PAGE>  62

     in the calculation of earnings per share for each of the years.

     In February 1997, the FASB issued Statement No. 128, Earnings Per Share.  
     This Statement requires disclosure of "basic" and "diluted" earnings per 
     share.  The Statement is required to be implemented retroactively in the 
     second quarter of fiscal year 1998. Management has not determined the 
     impact of the adoption of Statement No. 128.

13.  Preferred Stock
     ---------------
     The preferred stock, Series A and B, may be converted to common stock on a
     two to one ratio at the option of the holder and carries voting rights.  
     Dividends are to be paid to the holder of the preferred stock quarterly at
     a rate equal to interest at prime rate less two percent but in no event 
     less than 7% per annum.  The Series B preferred stock was issued with 
     warrants attached for a term of seven years to purchase shares of the 
     Company's common stock at $7 per share.  During 1997 25,000 such warrants 
     were exercised for a total of $175,000.  At June 30, 1997, there remains 
     outstanding warrants to purchase 108,764 shares of the Company's common 
     stock which expire May 1999.
     
14.  Other Expenses
     --------------
     Other expenses includes the following for the years ended June 30, 1997, 
     1996 and 1995:

<TABLE>
<CAPTION>
                                           1997          1996          1995
                                       ------------  ------------  ------------
     <S>                               <C>           <C>           <C>         
     Professional fees                 $   338,670   $   305,721   $   304,547 
     Insurance                             106,057       117,998       110,029 
     Supplies                              234,052       211,126       248,951 
     Real estate owned expenses             64,907        87,442        99,272 
     Provision for losses on OREO           39,000        94,711       107,173 
     Goodwill amortization                 296,374       308,913       235,098
     Write-down on securities              110,000        93,819           --  
     Other                               1,507,692     1,564,873     1,395,886 
                                       ------------  ------------  ------------
                                       $ 2,696,752   $ 2,784,603   $ 2,500,956 
                                       ============  ============  ============

</TABLE>

15.  Income Taxes
     ------------
     The current and deferred components of income tax expense (benefit) were 
     as follows for the years ended June 30, 1997, 1996 and 1995:
     
<TABLE>
<CAPTION>
                                           1997          1996          1995    
                                       ------------  ------------  ------------
     <S>                               <C>           <C>           <C>         
     Federal:                                                                  
      Current                          $   941,276   $   668,441   $   714,055 
<PAGE>  63

      Deferred                             (72,290)       19,236       122,143 
                                       ------------  ------------  ------------
                                           868,986       687,677       836,198 
                                                                               
     State and local - current              38,611        30,935        32,357 
                                       ------------  ------------  ------------
                                       $   907,597   $   718,612   $   868,555 
                                       ============  ============  ============
</TABLE>
       
     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, 1997, 1996 and 1995:

<TABLE>
<CAPTION>

                               1997               1996              1995       
                         -----------------  ----------------- -----------------
                                     % Of               % Of              % Of 
                                    Pretax             Pretax            Pretax
                           Amount   Income    Amount   Income   Amount   Income
                        ---------- ------  ---------- ------  ---------- ------
     <S>                <C>        <C>     <C>        <C>     <C>        <C>   
     Expected income                                                           
      tax expense at                                                           
      federal tax rate  $ 820,998   34.0%  $ 650,091   34.0%  $ 801,698   34.0%
     State tax, net of                                                         
      federal tax benefit  25,483    1.1      20,417    1.1      21,562     .9
     Amortization of                                                           
      goodwill             42,192    1.7      42,192    2.2      34,671    1.5
     Dividend received                                                         
      deduction            (6,873)   (.3)     (6,903)   (.4)     (5,333)   (.2)
     Low income/                                                               
      rehabilitation                                                           
      credit              (20,000)   (.8)    (20,000)  (1.0)    (20,000)   (.9)
     Other                 45,797    1.9      32,815    1.7      35,957    1.5 
                        ---------- ------  ---------- ------  ---------- ------
                        $ 907,597   37.6%  $ 718,612   37.6%  $ 868,555   36.8%
                        ========== ======  ========== ======  ========== ======
</TABLE>
       
     The tax effect of temporary differences that give rise to significant 
     portions of the deferred tax assets and deferred tax liabilities at June 
     30, 1997 and 1996 are presented below:

<TABLE>
<CAPTION>
                                                         1997          1996    
                                                      -----------   -----------
     <S>                                              <C>           <C>        
     Deferred tax assets:                                                      
     Loans, principally due to allowance for                                   
       loan losses                                    $  842,000    $  650,000 
     Deferred gain on loan sales                          67,000        59,000 
     Interest on nonperforming loans                      60,000        77,000 
<PAGE>  64

     Difference in tax and financial statement                                 
       bases of investments                              241,000       492,000 
     Difference in tax and financial statement                                 
       amortization of goodwill                           73,000        48,000 
     Other                                                63,000        82,000 
                                                      -----------   -----------
       Total deferred tax assets                       1,346,000     1,408,000 

Deferred tax liabilities:                                                      
     Loan loss reserve - tax                             (73,000)      (61,000)
     Other                                               (32,000)      (35,000)
                                                      -----------   -----------
       Total deferred tax liabilities                   (105,000)      (96,000)
                                                      -----------   -----------
       Net deferred tax assets, included in                                    
         other assets                                 $1,241,000    $1,312,000 
                                                      ===========   ===========
</TABLE>

     The Company has sufficient refundable taxes paid in available carryback 
     years to fully realize its recorded deferred tax asset of $1,346,000.  
     Accordingly, no valuation allowance has been recorded at June 30, 1997 and
     1996.
    
     During 1997, as a result of an IRS examination and other factors, the 
     Company's deferred tax asset was increased on a net basis by $116,000, 
     with an offset to current taxes payable.

     In August 1996, the provisions repealing the then current thrift bad debt 
     rules were passed by Congress.  The new rules eliminate the 8% of taxable 
     income method for deducting additions to the tax bad debt reserves for all
     thrifts for tax years beginning after December 31, 1995. These rules also 
     require that all thrift institutions 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 new rules will have no effect on net income or federal income tax 
     expense.

     The unrecaptured base year reserves will not be subject to recapture as 
     long as the Company continues to carry on the business of banking.  In 
     addition, the balance of the pre-1988 tax bad debt reserves continue to be
     subject to provisions of present law that require recapture in the case of
     certain excess distributions to stockholders.  For federal income tax 
     purposes, the Company has designated approximately $2,400,000 of net worth
     as a reserve for tax bad debts on loans.  The use of this amount for 
     purposes other than to absorb losses on loans would result in taxable 
     income and financial statement tax expense at the then current tax rate.

16.  Mergers and Acquisitions
     ------------------------

     Merger of Bank
     --------------
     On May 9, 1997, the Company entered into a definitive agreement to merge 
     with Cushnoc Bank and Trust Company (Cushnoc) of Augusta, Maine.  The 
     agreement, which has been approved by the Company's Board of Directors and
<PAGE>  65

     by the Board of Directors of Cushnoc, is subject to approval by Cushnoc's 
     stockholders and receipt of the necessary regulatory approvals and is 
     expected to be consummated during the third or fourth quarter of calendar 
     year 1997.

     At March 31, 1997, Cushnoc had approximately $20,939,000 in total assets 
     and stockholders' equity of approximately $2,174,000.  Under the terms of 
     the agreement, the Company will issue 2.089 shares of its common stock for
     each common share of Cushnoc outstanding.  At March 31, 1997, Cushnoc had 
     90,000 common shares outstanding.  The acquisition will be accounted for 
     using the pooling of interests method.  At the closing, Cushnoc will be 
     merged into the Company's banking subsidiary, Northeast Bank, F.S.B. Pro 
     forma financial information is not presented due to immateriality.

     Acquisition of Bank Branches
     ----------------------------
     During 1995, the Company acquired four branches from Key Bank of Maine.  
     The total deposits assumed were $27,749,000.  The premium paid to Key Bank
     for these deposits was $1,590,228.  In addition to the assumed deposits, 
     the Company acquired real estate, buildings and furniture totalling 
     $498,500 and other miscellaneous assets and liabilities which are 
     immaterial.  The excess of cost over the net assets acquired is being 
     amortized over 10 years.  The acquisition was accounted for using purchase
     accounting. 

17.  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 for the profit sharing plan for the years ended June
     30, 1997, 1996 and 1995 were $130,000, $99,000 and $76,000, 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 have
     completed one year of employment. Employees may contribute between 1% and 
     15% of their base compensation to which the Company will match 50% up to 
     the first 3% contributed.  For the years ended June 30, 1997, 1996 and 
     1995, the Company contributed approximately $38,300, $36,800 and $30,800,
     respectively.

     Stock Option Plans
     ------------------
     The Company adopted Stock Option Plans in 1987, 1989 and 1992.  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 at the fair market value to employees of the 
     Company.  In the case of nonqualified stock options, which may be granted 
     to employees and nonemployee directors, the difference between the 
     exercise price and the fair market value of the common stock on the date 
     of exercise will be a tax deductible expense to the Company.  All options 
<PAGE>  66

     granted under the Option Plans will be required to have an exercise price 
     per share equal to at least the fair market value of the 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, 
     three years for nonqualified stock options in the 1987 plan and five years
     for nonqualified stock options in the 1989 and 1992 plans.

     In accordance with the Stock Option Plans, a total of 236,000 shares of 
     unissued common stock are reserved for issuance pursuant to incentive 
     stock options and 60,000 shares of unissued common stock are reserved for 
     issuance pursuant to nonqualified stock options.

     A summary of option activity for the years ended June 30 follows.  There 
     was no activity related to the non-qualified plan in 1997, 1996 and 1995, 
     nor were any such options outstanding:

<TABLE>
<CAPTION>
                            1997                1996                1995 
                     ------------------  ------------------  ------------------
                              Weighted-           Weighted-           Weighted-
                               Average             Average             Average 
                              Exercise            Exercise            Exercise 
                      Shares    Price     Shares    Price     Shares    Price  
                     -------- ---------  -------- ---------  -------- ---------
     <S>             <C>      <C>        <C>      <C>        <C>      <C>
     Outstanding at                                                            
      beginning of                                                             
      year            93,000  $   7.66   136,000  $   7.05    95,000  $   5.24 
     Granted          15,000     12.50       --        --     45,000     11.25 
     Exercised       (20,000)     5.17   (38,000)     5.00       --        --  
     Forfeited        (1,000)    12.50    (5,000)    11.25    (4,000)    11.25 
                     -------- ---------  -------- ---------  -------- ---------
     Outstanding at                                                            
      end of year     87,000  $   9.02    93,000  $   7.66   136,000  $   7.05 
                     ======== =========  ======== =========  ======== =========
     Options                                                                   
      exercisable at                                                           
      year end        87,000  $   9.02    93,000  $   7.66   136,000  $   7.05 

</TABLE>
    
     The following table summarizes information about stock options outstanding
      at June 30, 1997:

<TABLE>
<CAPTION>
                                         Options Outstanding 
                        ------------------------------------------------------  
                             Number        Weighted-Average                   
         Range of        Outstanding at       Remaining       Weighted-Average
     Exercise Prices     June 30, 1997     Contractual Life    Exercise Price 
     ----------------   ----------------   ----------------   ----------------
     <C>                <C>                <C>                <C>
     $ 5.37 to $5.69             37,000          2.0 years    $          5.52 
<PAGE>  67

     $11.25 to $13.63            50,000          8.0                    11.62 
                        ----------------                                      
     $ 5.37 to $13.63            87,000          6.0                     9.02 
                        ================
</TABLE>

     In October 1995, the FASB issued Statement No. 123, Accounting for Stock-
     Based Compensation, which became effective on July 1, 1996 for the 
     Company. This Statement establishes a fair value based method of 
     accounting for stock-based compensation plans under which compensation 
     cost is measured at the grant date based on the value of the award and is 
     recognized over the service period.

     The per share weighted average fair value of stock options granted during 
     1997 was $3.15 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, 2.21%; risk-free interest rate, 
     6.45%; expected life, 8 years; and expected volatility, 10.84%.

     Statement No. 123 allows the Company to continue to measure compensation 
     cost for such plans under Accounting Principles Board (APB) Opinion No. 
     25, Accounting for Stock Issued to Employees. Under APB Opinion No. 25, 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.  The Company has elected to continue to follow the accounting under
     APB Opinion No. 25 and, accordingly, no cost has been recognized for its 
     stock options in the financial statements. Had the Company determined cost
     based on the fair value at the grant date for its stock options under 
     Statement No. 123, the Company's net income and earnings per share for the
     year ended June 30, 1997 would have been reduced to the pro forma amounts
     indicated below.

<TABLE>
<CAPTION>
                                                    Earnings Per Share       
                                Net           -------------------------------
                              Income             Primary        Fully Diluted
                           -------------      -------------     -------------
       <S>                 <C>                <C>               <C>          
       As reported         $  1,507,103       $       1.03      $       0.96 
       Pro forma           $  1,480,311       $       1.01      $       0.94 

</TABLE>

     The pro forma amounts reflect only stock options granted in 1997. 
     Therefore, the full impact of calculating the cost for stock options under
     Statement No. 123 is not reflected in the pro forma amounts presented 
     above because the cost for options granted prior to July 1, 1995 is not 
     considered under the requirements of Statement No. 123.

     Stock Purchase Plan
     -------------------
     The Company has a stock purchase plan which covers substantially all full-
     time employees with one year of service.  Offerings under the Plan are 
     made quarterly at the market value on the offering termination date.  The 
     maximum number of shares which may be granted under the plan is 104,000 
     shares.
<PAGE>  68


18.  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: 

<TABLE>
<CAPTION>
                                                     1997             1996    
                                                 ------------     ------------ 
     <S>                                         <C>              <C>         
     Commitments to originate loans:                                          
     Residential real estate mortgages           $ 2,134,000      $ 4,975,000 
     Commercial real estate mortgages,                                        
      including multi-family residential                                       
      real estate                                  2,113,000        4,045,000 
     Commercial business loans                     1,068,000        1,565,000 
                                                 ------------     ------------
                                                   5,315,000       10,585,000 
                                                                              
     Unused lines of credit                        9,265,000        6,321,000 
     Standby letters of credit                       452,000          221,000 
     Unadvanced portions of construction loans     1,077,000        2,244,000 

</TABLE>
    
     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 

<PAGE>  69

     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.

     Derivative Financial Instruments
     --------------------------------
     The Company has only limited involvement with derivative financial 
     instruments and they are used for trading purposes.  The derivative 
     financial instruments used by the Company are covered call and put 
     contracts on its equity securities portfolio.  Gains and losses from 
     entering into these types of contracts have been immaterial to the results
     of operations of the Company. 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 subsidiary 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 $180,000, $101,000 and $95,000 for
     the years ended June 30, 1997, 1996 and 1995, respectively.

     Approximate minimum lease payments over the remaining terms of the leases 
     at June 30, 1997 are as follows:

<TABLE>

                 <C>                                   <C>
                 1998                                  $   256,000
                 1999                                      258,000
                 2000                                      162,000
                 2001                                      132,000
                 2002                                      132,000
                 2003 and after                            612,000
                                                       ------------
                                                       $ 1,552,000 
                                                       ============
</TABLE>

19.  Condensed Parent Information
     ----------------------------    
     Condensed financial statements for Northeast Bancorp at June 30, 1997 and 
     1996 and for each of the years in the three year period ended June 30, 
     1997 are presented below.

     Balance Sheets
     --------------

<TABLE>
<PAGE>  70

<CAPTION>
       
                                                        June 30,  
                                         -----------------------------------
                    Assets                     1997                1996      
     -------------------------------     ---------------     ---------------
     <S>                                 <C>                 <C>            
     Cash and due from banks             $      818,965      $    1,235,116 
     Investment in subsidiary                18,834,184          16,556,065 
     Premises and equipment, net                376,012             625,632 
     Goodwill, net                              815,793             917,766 
     Other assets                               367,118             385,848  
                                         ---------------     ---------------
     Total assets                        $   21,212,072      $   19,720,427 
                                         ===============     ===============

     Liabilities and Stockholders' Equity                                  
     ------------------------------------                                 
     Note payable                        $    1,298,611      $    1,500,000 
     Other liabilities                           12,848              69,185   
                                         ---------------     ---------------
                                              1,311,459           1,569,185 
     Stockholders' equity                    19,900,613          18,151,242  
                                         ---------------     ---------------
     Total liabilities and stockholders'                                     
      equity                             $   21,212,072      $   19,720,427
                                         ===============     ===============

</TABLE>
    
     Statements of Income 
     --------------------
<TABLE>
<CAPTION>
                                                 Years Ended June 30,       
                                        ---------------------------------------
                                           1997          1996          1995    
                                        -----------   -----------   -----------
     <S>                                <C>           <C>           <C>        
     Income:                                                                   
     Dividends from banking subsidiary  $      --     $1,436,000    $      --  
     Management fees charged to                                                
      subsidiary                               --      2,119,992     1,673,179 
     Other income                           16,232        25,100        30,083 
                                        -----------   -----------   -----------
       Total income                         16,232     3,581,092     1,703,262 
                                                                               
     Expenses:                                                                 
     Amortization expense                  101,973       114,513       102,939 
     Interest on note payable              112,753       176,140       205,869 
     Salaries and benefits                     --      1,326,271     1,318,246 
     Occupancy expense                      65,257       140,065       125,289 
     Equipment expense                         --        179,977       159,161 
     General and administrative expenses    86,457       422,411       383,980 
                                        -----------   -----------   -----------
          Total expenses                   366,440     2,359,377     2,295,484 
                                        -----------   -----------   -----------
<PAGE>  71

     Income (loss) before income tax                                           
      benefit, and equity (deficit) in                                         
      undistributed net income of                                              
      subsidiary                          (350,208)    1,221,715      (592,222)
                                                                               
     Income tax benefit                     82,371        31,771       166,182 
                                        -----------   -----------   -----------
     Income (loss) before equity                                               
      (deficit) in undistributed                                               
      net income of subsidiary            (267,837)    1,253,486      (426,040)
                                                                               
     Equity (deficit) in undistributed                                         
      net income of subsidiary           1,774,940       (60,066)    1,915,421 
                                        -----------   -----------   -----------
      Net income                        $1,507,103    $1,193,420    $1,489,381 
                                        ===========   ===========   ===========
                                                                               


                                                 Years Ended June 30,          
     Statements of Cash Flows              1997          1996          1995    
     ------------------------           -----------   -----------   -----------
     Cash flows from operating                                                 
      activities:                                                              
     Net income                         $1,507,103    $1,193,420    $1,489,381 
     Adjustments to reconcile net                                              
      income to net cash provided                                              
      (used) by operations:                                                    
       Depreciation and amortization       114,775       253,569       208,003 
       Treasury stock bonused               13,374           --            --  
       Undistributed (earnings) deficit                                        
         of subsidiary                  (1,774,940)       60,066    (1,915,421)
       Decrease (increase) in other                                            
        assets                              17,467       (72,132)       24,182 
       (Decrease) increase in other                                            
        liabilities                        (56,337)      (70,375)       23,242 
                                        -----------   -----------   -----------
     Net cash (used) provided by                                               
      operating activities                (178,558)    1,364,548      (170,613)

     Cash flows from investing                                                 
      activities:                                                              
     Proceeds from sale of premises                                            
      and equipment to subsidiary          245,167        24,473           --  
     Purchase of premises and                                                  
      equipment                             (7,086)     (167,217)      (84,439)
                                        -----------   -----------   -----------
     Net cash provided (used) by                                               
      investing activities                 238,081      (142,744)      (84,439)

     Cash flows from financing                                                 
      activities:                                                              
     Principal payments on note payable   (201,389)     (500,000)     (500,000)
     Stock options exercised               103,450       190,000           --  
     Proceeds from issuance of common                                          
      stock                                 13,487        11,558         2,193 
     Treasury stock purchased              (28,420)      (52,277)          --  
<PAGE>  72

     Dividends paid to stockholders       (537,802)     (424,890)     (315,175)
     Warrants exercised                    175,000       700,000           --  
                                        -----------   -----------   -----------
     Net cash flow used by financing                                           
      activities                          (475,674)      (75,609)     (812,982)
                                        -----------   -----------   -----------
     Net (decrease) increase in cash      (416,151)    1,146,195    (1,068,034)
                                                                               
     Cash and cash equivalents,                                                
      beginning of year                  1,235,116        88,921     1,156,955 
                                        -----------   -----------   -----------
     Cash and cash equivalents,                                                
      end of year                       $  818,965    $1,235,116    $   88,921 
                                        ===========   ===========   ===========

     Supplemental schedule of cash                                             
      flow information:                                                        
     Interest paid                      $  111,490    $  157,959    $  201,126 
     Income taxes paid                     620,000       913,000       794,000 
</TABLE>

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.  

     Trading Account Securities and Available for Sale Securities
     ------------------------------------------------------------
     The fair value of investment securities is estimated based on bid prices 
     published in financial newspapers or bid quotations received from 
     securities dealers.  Fair values are calculated based on the value of one 
     unit without regard to any premium or discount that may result from 
     concentrations of ownership of a financial instrument, possible tax 
     ramifications, or estimated transaction costs. If these considerations had
     been incorporated into the fair value estimates, the aggregate fair value 
     amounts could have changed.

     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
     -----
     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 
<PAGE>  73

     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.

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

     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.

     Accrued Interest Receivable
     ---------------------------
     The fair market 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, Notes Payable 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 the notes payable 
     approximates the carrying value, as the interest rate approximates market 
     rates.  The fair value of repurchase agreements approximates the carrying 
     value, as these financial instruments have a short maturity.

     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
     -----------

<PAGE>  74

     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 other real estate owned. 
     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.

     The following table presents the estimated fair value of the Company's 
     significant financial instruments at June 30, 1997 and 1996:

<TABLE>
<CAPTION>
                                 June 30, 1997              June 30, 1996      
                           -------------------------  -------------------------
                             Carrying    Estimated      Carrying    Estimated  
                              Value      Fair Value      Value      Fair Value 
                           ------------ ------------  ------------ ------------
     <S>                   <C>          <C>           <C>          <C>         
     Non-Trading                                                               
      Instruments:                                                             
     -------------                                                            
     Financal assets:                                                          
      Cash and cash                                                            
       equivalents         $ 15,661,000 $ 15,661,000  $ 11,566,000 $ 11,566,000
      Available for sale                                                       
       securities            27,097,000   27,097,000    29,650,000   29,650,000
      Loans held for sale       240,000      242,000       448,000      452,000
      Loans                 203,839,000  205,165,000   167,302,000  165,730,000
      Interest receivable     1,480,000    1,480,000     1,352,000    1,352,000
                                                                               
     Financial liabilities:                                                    
      Deposits (with no                                                        
       stated maturity)      56,192,000   56,192,000    59,117,000   59,117,000
      Time deposits          98,219,000   98,711,000    86,078,000   85,995,000
      Borrowed funds         78,993,000   78,990,000    52,123,000   51,888,000
      Notes payable           1,299,000    1,299,000     1,502,000    1,502,000
      Repurchase agreements   5,099,000    5,099,000     3,763,000    3,763,000
                                                                               
     Trading Instruments:                                                      
     --------------------                                                      
     Financial assets:                                                         
<PAGE>  75

      Trading account                                                          
       securities                25,000       25,000       198,000      198,000
</TABLE>

                   INDEPENDENT AUDITORS' REPORT


The Board of Directors
Northeast Bancorp and Subsidiary

We have audited the accompanying consolidated statements of financial condition
of Northeast Bancorp and Subsidiary as of June 30, 1997 and 1996, 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, 1997. These
consolidated financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Northeast Bancorp 
and Subsidiary as of June 30, 1997 and 1996, and the results of their 
operations and their cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.

Portland, Maine                              /s/ Baker Newman & Noyes
                                             -------------------------
August 6, 1997                               Limited Liability Company


(b)  Supplementary Financial Information
     -----------------------------------

Northeast Bancorp Consolidated                                                 
Distribution of Assets, Liabilities and Net Worth                              
Interest Rates and Interest Differential                                       
Years Ending June 30, 1997, 1996 and 1995 

<TABLE>
<CAPTION>

June 30, 1997
-------------
                                                       Interest       Average  
                                         Average        Income/       Yield/   
                                         Balance        Expense        Rate    
                                      -------------  -------------  -----------
<S>                                   <C>            <C>            <C>        
<PAGE>  76

Assets:                                                                        
Earning Assets:                                                                
   Securities Held to Maturity                 --             --           --  
   Securities Available for Sale         2,383,410        135,307        5.68% 
   Trading Securities                      118,954          7,426        6.24% 
   Mortgage-backed Securities           27,746,934      2,029,223        7.31% 
   FHLB Stock                            3,416,358        219,916        6.44% 
   Loans (3)                           186,950,210     17,225,937        9.21% 
   FHLB Overnight Deposits & Other       7,770,626        411,331        5.29% 
                                      -------------  -------------  -----------
Total Earning Assets                   228,386,492     20,029,140        8.77% 
                                      -------------  -------------  -----------
                                                                               
Non-interest Earning Assets:                                                   
   Cash & Due from Banks                 3,280,253                             
   Premise & Equip Net                   3,763,788                             
   Other Assets                          6,747,915                             
   (Allowance for Loan Loss)            (2,549,274)                            
                                      -------------                            
Total Assets                          $239,629,174                             
                                      =============                            
                                                                               
Liabilities & Net Worth:                                                       
                                                                               
Interest Bearing Liabilities:                                                  
   Deposits                                                                    
     Now                              $ 12,348,929        158,485        1.28% 
     Money Market                       13,045,542        439,058        3.37% 
     Savings                            20,407,224        542,652        2.66% 
     Time                               90,942,748      5,214,608        5.73% 
                                      -------------  -------------  -----------
       Total Deposits                  136,744,443      6,354,803        4.65% 
   Repurchase Agreements                 4,566,385        199,453        4.37% 
   Other Borrowed Funds                 66,302,613      3,945,840        5.95% 
                                      -------------  -------------  -----------
Total Interest Bearing Liabilities     207,613,441     10,500,096        5.06% 
                                      -------------  -------------  -----------
                                                                               
Non-interest Bearing Liabilities                                               
   Demand                               11,565,488                             
   Other                                 1,523,687                             
                                                                               
   Net Worth                            18,926,558                             
                                      -------------                            
Total Liabilities & Net Worth         $239,629,174                             
                                      =============                            
                                                                               
      Net Interest Income                            $  9,529,044              
                                                     =============             
Interest Rate Spread  (1)                                                3.71% 
Net yield on Interest Earning Assets (2)                                 4.17% 
Equity to Assets Ratio (4)                                               7.90% 

June 30, 1996                                                                  
-------------                                                                  
                                                       Interest       Average  
                                         Average        Income/        Yield/  
<PAGE>  77

                                         Balance        Expense         Rate   
                                      -------------  -------------  -----------
Assets:                                                                        

Earning Assets:                                                                
   Securities Held to Maturity                 --             --           --  
   Securities Available for Sale         1,432,475         89,684        6.26% 
   Trading Securities                      162,430          5,474        3.37% 
   Mortgage-backed Securities           16,013,118      1,149,407        7.18% 
   FHLB Stock                            2,270,262        148,762        6.55% 
   Loan (3)                            169,908,865     16,010,685        9.42% 
   FHLB Overnight Deposits & Other      10,523,674        590,850        5.61% 
                                      -------------  -------------  -----------
Total Earning Assets                   200,310,824     17,994,862        8.98% 
                                      -------------  -------------  -----------
                                                                               
Non-interest Earning Assets:                                                   
   Cash & Due from Banks                 3,318,095                             
   Premise & Equip Net                   3,784,213                             
   Other Assets                          7,444,099                             
   (Allowance for Loan Loss)            (2,482,368)                            
                                      -------------                            
Total Assets                          $212,374,863                            
                                      =============                            
                                                                               
Liabilities & Net Worth:                                                       
                                                                               
Interest Bearing Liabilities:                                                  
   Deposits                                                                    
     Now                              $ 14,801,458        265,551        1.79% 
     Money Market                       12,980,882        446,950        3.44% 
     Savings                            22,258,232        596,863        2.68%  
     Time                               87,364,527      5,116,808        5.86%
                                      -------------  -------------  -----------
       Total Deposits                  137,405,099      6,426,172        4.68% 
   Repurchase Agreements                 3,516,283        166,210        4.73% 
   Other Borrowed Funds                 40,797,048      2,536,022        6.22% 
                                      -------------  -------------  -----------
Total Interest Bearing Liabilities     181,718,430      9,128,404        5.02% 
                                      -------------  -------------  -----------
                                                                               
Non-interest Bearing Liabilities                                               
   Demand                               10,019,506                             
   Other                                 2,323,046                             
                                                                               
   Net Worth                            18,313,881                             
                                      -------------                            
Total Liabilities & Net Worth         $212,374,863                             
                                      =============                            
      Net Interest Income                            $  8,866,458              
                                                     =============             
Interest Rate Spread  (1)                                                3.96% 
Net yield on Interest Earning Assets (2)                                 4.43% 
Equity to Assets Ratio (4)                                               8.62% 
                                                                               
June 30, 1995                                                                  
<PAGE>  78
-------------                                                                  
                                                       Interest       Average  
                                         Average        Income/        Yield/
                                         Balance        Expense         Rate
                                      -------------  -------------  -----------
Assets:                                                                        
                                                                               
Earning Assets:                                                                
   Securities Held to Maturity        $    897,691   $     75,691        8.43% 
   Securities Available for Sale           971,763         60,159        6.19% 
   Trading Securities                      186,757          1,165        0.62% 
   Mortgage-backed Securities           15,181,721      1,088,420        7.17% 
   FHLB Stock                            2,470,616        189,980        7.69% 
   Loans (3)                           164,344,609     15,085,138        9.18% 
   FHLB Overnight Deposits & Other       7,763,217        422,372        5.44% 
                                      -------------  -------------  -----------
Total Earning Assets                   191,816,374     16,922,925        8.82% 
                                      -------------  -------------  -----------
                                                                               
Non-interest Earning Assets:                                                   
   Cash & Due from Banks                 3,342,796                             
   Premise & Equip Net                   3,594,335                             
   Other Assets                          8,078,832                             
   (Allowance for Loan Loss)            (2,569,032)                            
                                      -------------                            
Total Assets                          $204,263,305                             
                                      =============                            
                                                                               
Liabilities & Net Worth:                                                       
                                                                               
Interest Bearing Liabilities:                                                  
   Deposits                                                                    
     Now                              $ 14,673,951        264,143        1.80% 
     Money Market                       14,352,970        455,080        3.17% 
     Savings                            23,027,846        610,415        2.65% 
     Time                               80,114,965      4,113,465        5.13% 
                                      -------------  -------------  -----------
       Total Deposits                  132,169,732      5,443,103        4.12% 
   Repurchase Agreements                 1,776,296         84,921        4.78% 
   Other Borrowed Funds                 43,496,049      2,524,896        5.80% 
                                      -------------  -------------  -----------
Total Interest Bearing Liabilities     177,442,077      8,052,920        4.54% 
                                      -------------  -------------  -----------
Non-interest Bearing Liabilities                                               
   Demand                                8,526,363                             
   Other                                 1,904,767                             
                                                                               
   Net Worth                            16,390,098                             
                                      -------------                            
Total Liabilities & Net Worth         $204,263,305                             
                                      =============                            
      Net Interest Income                            $  8,870,005              
                                                     =============             
Interest Rate Spread  (1)                                                4.28% 
Net yield on Interest Earning Assets (2)                                 4.62% 
Equity to Assets Ratio (4)                                               8.02% 
                                                                               
</TABLE>
<PAGE>  79

(1)  Interest rate spread is the difference between the yield on earning assets
     and the rates paid on interest-bearing liabilities.
(2)  Net yield on interest earning assets is net interest income divided by 
     average earning assets.
(3)  Non-accruing loans are included in the average of net loans.
(4)  Average equity divided by average assets.


Northeast Bancorp Consolidated                                                 
Changes in Net Interest Income                                                 
Years Ended June 30, 1997 and 1996                                             
                                                                               
<TABLE>
<CAPTION>
                                                                               
June 30, 1997 Compared to June 30, 1996                                        
---------------------------------------
                                 Variance    Variance    Variance     
                                  Due to      Due to      Due to       Total   
                                   Rate       Volume    Rate/Volume  Variance  
                                ----------- ----------- ----------- -----------
<S>                             <C>         <C>         <C>         <C>        
Interest Earning Assets:                                                       
                                                                               
Securities Held to Maturity     $        0  $        0  $        0  $        0 
Securities Available for Sale       (8,362)     59,536      (5,551)     45,623 
Trading Securities                   4,666      (1,465)     (1,249)      1,952 
Mortgage-backed Securities          21,684     842,243      15,889     879,816 
FHLB Stock                          (2,622)     75,099      (1,323)     71,154 
Loans                             (354,969)  1,605,823     (35,602)  1,215,252 
FHLB Overnight Deposits & Other    (33,789)   (154,569)      8,839    (179,519)
                                ----------- ----------- ----------- -----------
Total Income on Earning Assets    (373,392)  2,426,667     (18,997)  2,034,278 
                                ----------- ----------- ----------- -----------
Interest Bearing Liabilities:                                                  
                                                                               
Deposits:                                                                      
  Now                              (75,590)    (44,000)     12,524    (107,066)
  Money Market                     (10,068)      2,226         (50)     (7,892)
  Savings                           (4,991)    (49,635)        415     (54,211)
  Time                            (107,373)    209,571      (4,398)     97,800 
                                ----------- ----------- ----------- -----------
    Total Deposits                (198,022)    118,162       8,491     (71,369)
                                                                               
Repurchase Agreements              (12,624)     49,637      (3,770)     33,243 
Borrowed funds                     (57,351)  1,501,117     (33,948)  1,409,818 
                                ----------- ----------- ----------- -----------
Total Interest Expense            (267,997)  1,668,916     (29,227)  1,371,692 
                                ----------- ----------- ----------- -----------
                                ----------- ----------- ----------- -----------
Change in Net interest Income   $ (105,395) $  757,751  $   10,230  $  662,586 
                                =========== =========== =========== ===========

June 30, 1996 Compared to June 30, 1995                                        
---------------------------------------                                        
                                 Variance    Variance    Variance  
                                  Due to      Due to      Due to       Total   
<PAGE>  80

                                   Rate       Volume    Rate/Volume  Variance  
                                ----------- ----------- ----------- -----------
Interest Earning Assets:                                                       
                                                                               
Securities Held to Maturity     $        0  $  (75,691) $        0  $  (75,691)
Securities Available for Sale          681      28,521         323      29,525 
Trading Securities                   5,129        (152)       (668)      4,309 
Mortgage-backed Securities           1,310      59,605          72      60,987 
FHLB Stock                         (28,090)    (15,406)      2,278     (41,218)
Loans                              401,222     510,741      13,584     925,547 
FHLB Overnight Deposits & Other     13,493     150,188       4,797     168,478 
                                ----------- ----------- ----------- -----------
Total Income on Earning Assets     393,745     657,806      20,386   1,071,937 
                                ----------- ----------- ----------- -----------
                                                                               
Interest Bearing Liabilities:                                                  
                                                                               
Deposits:                                                                      
  Now                                 (880)      2,295          (7)      1,408 
  Money Market                      39,113     (43,504)     (3,739)     (8,130) 
  Savings                            7,085     (20,401)       (236)    (13,552)
  Time                             578,747     372,225      52,371   1,003,343 
                                ----------- ----------- ----------- -----------
    Total Deposits                 624,065     310,615      48,389     983,069 
                                                                               
Repurchase Agreements                 (958)     83,185        (938)     81,289 
Borrowed funds                     178,901    (156,674)    (11,101)     11,126 
                                ----------- ----------- ----------- -----------
Total Interest Expense             802,008     237,126      36,350   1,075,484 
                                ----------- ----------- ----------- -----------
                                ----------- ----------- ----------- -----------
Change in Net interest Income   $ (408,263) $  420,680  $  (15,964) $   (3,547)
                                =========== =========== =========== ===========
</TABLE>

This table reflects changes in net interest income attributable to the change
in interest rates and the change in the volume of interest-bearing assets and 
liabilities.  Amounts attributable to the change in rate are based upon the 
change in rate multiplied by the prior year's volume.  Amounts attributable to 
the change in volume are based upon the changes in volume multiplied by the 
prior year's rate.  The combined effect of changes in both volume and rate are 
calculated by multiplying the change in rate by the change in volume.


Northeast Bancorp Consolidated                                                 
Maturities and Repricing of Loans                                              
As of June 30, 1997                                                            

<TABLE>
<CAPTION>
                     1 Year      1 to 5      5 to 10     Over 10      Total
                     or Less      Years       Years       Years       Loans
                   ----------- ----------- ----------- ----------- ------------
<S>                <C>         <C>         <C>         <C>         <C>         
Mortgages:                                                                     
Residential        $58,315,267 $13,211,892 $ 9,698,026 $54,193,232 $135,418,417
<PAGE>  81

Commercial          20,441,870  12,502,542   3,173,014   1,458,653   37,576,079
Construction         2,068,512      75,000           0           0    2,143,512
                                                                               
Non-Mortgage Loans:                                                           
Commercial          12,263,956   3,370,799     234,416     593,029   16,462,200
Consumer             2,026,418   5,589,156   2,385,080   4,755,274   14,755,928
                   ----------- ----------- ----------- ----------- ------------
Total Loans        $95,116,023 $34,749,389 $15,490,536 $61,000,188 $206,356,136
                   =========== =========== =========== =========== ============
                                                                               
Loans due after                                                                
   1 year:                                                                     
Fixed              $85,482,056
Variable            25,758,057
                   -----------
Total due after                
   1 year:         111,240,113
                   ===========
</TABLE>

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                                  

<TABLE>
<CAPTION>
                                            June 30,     June 30,     June 30, 
Securities Available for Sale As of           1997         1996         1995   
                                           ----------   ----------   ----------
<S>                                        <C>          <C>          <C>       
Market Value (thousands)                                                       
                                                                               
U.S. Government and Agency Obligations     $   1,456    $   1,425    $     239 
                                                                               
Mortgage-backed Securities                    24,648       27,646        9,298 
                                                                               
Other Bonds                                      143          139          141 
                                                                               
Equity Securities                                850          440          470 
                                           ----------   ----------   ----------
Total Securities Available for Sale        $  27,097    $  29,650    $  10,148 
                                           ==========   ==========   ==========
</TABLE>

This table sets forth the market value of securities available for sale at the 
dates indicated.

Northeast Bancorp Consolidated                                  
Investment Maturity                                                            

<TABLE>
<CAPTION>

<PAGE>  82

                                                       Weighted
Securities Available for Sale                           Average       Carrying 
As of June 30, 1997                                      Rate          Value   
-------------------------------------------           ----------     ----------
<S>                                                   <C>            <C>       
Due in one Year                                           5.35%      $     249 
Due after one year through five years                     5.40%            243 
Due after five years through ten years                    5.95%            143 
Due after ten years                                       7.18%            964 
Mortgage-backed securities maturing                                            
  September 2003 to January 2027                          7.15%         24,648 
                                                      ----------     ----------
Total Securities Available for Sale                       7.11%      $  26,247 
                                                      ==========     ==========
</TABLE>

This table sets forth the anticipated maturities of debt securities available  
for sale and the respective weighted average rates within these ranges.        


Northeast Bancorp Consolidated                                                 
Loan Portfolio                                                                 
As of June 30,                                                                 

<TABLE>
<CAPTION>

June 30, 1997
-------------
                                                                    Percent of 
                                                     Amount        Total Loans 
                                                  ------------     ------------
<S>                                               <C>              <C>         
Loan Portfolio (thousands)                                                     
                                                                               
Residential Mortgage                              $   136,190           66.00% 
Consumer & Other                                       14,756            7.15% 
Commercial Mortgage                                    38,948           18.87% 
Commercial                                             16,462            7.98% 
                                                  ------------     ------------
     Total Loans                                      206,356          100.00% 
                                                  ------------     ------------
Less: Allowance for loan losses                         2,517   
                                                  ------------     
     Net Loans                                    $   203,839 
                                                  ============
                                                             
                                                        
June 30, 1996                                            
-------------                                                
                                                                   Percent of 
                                                     Amount        Total Loans
                                                  ------------     ------------
Residential Mortgage                              $   113,622           66.89% 
Consumer & Other                                       14,356            8.45% 
Commercial Mortgage                                    27,883           16.42% 
Commercial                                             13,990            8.24% 
<PAGE>  83

                                                  ------------     ------------
     Total Loans                                      169,851          100.00% 
                                                  ------------     ------------
Less: Allowance for loan losses                         2,549    
                                                  ------------
     Net Loans                                    $   167,302   
                                                  ============
                                                      
June 30, 1995                                               
-------------                                            
                                                                    Percent of 
                                                     Amount        Total Loans 
                                                  ------------     ------------ 
Loan Portfolio (thousands)                                                     
                                                                               
Residential Mortgage                              $   117,795           69.24% 
Consumer & Other                                       16,115            9.47% 
Commercial Mortgage                                    23,975           14.09% 
Commercial                                             12,255            7.20% 
                                                  ------------     ------------
     Total Loans                                      170,140          100.00% 
                                                  ------------     ------------
Less: Allowance for loan losses                         2,396  
                                                  ------------ 
     Net Loans                                    $   167,744 
                                                  ============
                                                   
June 30, 1994                                           
-------------                                                
                                                                    Percent of 
                                                     Amount        Total Loans 
                                                  ------------     ------------ 
Loan Portfolio (thousands)                                                     
                                                                               
Residential Mortgage                              $   110,461           69.71% 
Consumer & Other                                       14,076            8.88% 
Commercial Mortgage                                    22,463           14.18% 
Commercial                                             11,461            7.23% 
                                                  ------------     ------------
     Total Loans                                      158,461          100.00% 
                                                  ------------     ------------
Less: Allowance for loan losses                         2,463
                                                  ------------
     Net Loans                                    $   155,998
                                                  ============

June 30, 1993                                          
-------------                                          
                                                                    Percent of 
                                                     Amount        Total Loans 
                                                  ------------     ------------
Loan Portfolio (thousands)                                                     
                                                                               
Residential Mortgage                              $   108,079           71.69% 
Consumer & Other                                       12,129            8.05% 
<PAGE>  84

Commercial Mortgage                                    20,051           13.30% 
Commercial                                             10,497            6.96% 
                                                  ------------     ------------
     Total Loans                                      150,756          100.00% 
                                                  ------------     ------------
Less: Allowance for loan losses                         2,123
                                                  ------------
     Net Loans                                    $   148,633
                                                  ============
</TABLE>

This table shows the Company's loan distribution at the end of each of the last
five years.


Northeast Bancorp Consolidated                                               
Allowance for Loan Losses                                                      
As of June 30, 1997                                                         

<TABLE>
<CAPTION>

June 30, 1997
-------------
                                                                    Percent of 
                                                                  Loans in Each
                                                                   Category to 
                                                    Amount         Total Loans 
                                                 -------------    -------------
<S>                                              <C>              <C>          
Allowance for Loan Losses (thousands)                                          
                                                                               
Real Estate                                      $        283           66.00% 
Commercial Mortgage                                       754           18.87% 
Commercial                                                400            7.98% 
Consumer                                                  146            7.15% 
Unallocated                                               934            0.00% 
                                                 -------------    -------------
     Total                                       $      2,517          100.00% 
                                                 =============    ============= 
                                                                               
June 30, 1996                                                                  
-------------                                                                  
                                                                    Percent of 
                                                                  Loans in Each
                                                                   Category to 
                                                    Amount         Total Loans
                                                 -------------    -------------
Allowance for Loan Losses (thousands)                                          
                                                                               
Real Estate                                      $        247           66.89% 
Commercial Mortgage                                       738           16.42% 
Commercial                                                463            8.24% 
Consumer                                                  140            8.45% 
Unallocated                                               961            0.00% 
                                                 -------------    -------------
<PAGE>  85

     Total                                       $      2,549          100.00% 
                                                 =============    ============= 
                                                                               
June 30, 1995                                                                  
-------------                                                                  
                                                                    Percent of 
                                                                  Loans in Each
                                                                   Category to 
                                                     Amount        Total Loans 
                                                 -------------    -------------
Allowance for Loan Losses (thousands)                                          
                                                                               
Real Estate                                      $        593           69.24% 
Commercial Mortgage                                       237           14.09% 
Commercial                                                123            7.20% 
Consumer                                                  251            9.47% 
Unallocated                                             1,192            0.00% 
                                                 -------------    -------------
     Total                                       $      2,396          100.00% 
                                                 =============    =============
                                                                               
June 30, 1994                                                                  
-------------                                                                  
                                                                    Percent of 
                                                                  Loans in Each
                                                                   Category to 
                                                     Amount        Total Loans 
                                                 -------------    -------------
Allowance for Loan Losses (thousands)                                          
                                                                               
Real Estate                                      $        640           69.71% 
Commercial Mortgage                                       252           14.18% 
Commercial                                                129            7.23% 
Consumer                                                  246            8.88% 
Unallocated                                             1,196            0.00% 
                                                 -------------    -------------
     Total                                       $      2,463          100.00% 
                                                 =============    =============
                                                                               
June 30, 1993                                                                  
-------------                                                                  
                                                                    Percent of 
                                                                  Loans in Each
                                                                   Category to 
                                                    Amount         Total Loans 
                                                 -------------    -------------
Allowance for Loan Losses (thousands)                                          
                                                                               
Real Estate                                      $      1,221           71.69% 
Commercial Mortgage                                       256           13.30% 
Commercial                                                159            6.96% 
Consumer                                                  231            8.05% 
Unallocated                                               256            0.00% 
                                                 -------------    -------------
     Total                                       $      2,123          100.00% 
                                                 =============    =============
<PAGE>  86

</TABLE>

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 and anticipated economic conditions that may affect 
the borrowers' ability to pay.  Management also obtains appraisals when 
considered necessary.
  

Northeast Bancorp Consolidated                                               
Non-performing Ratios                                                       
As of June 30,                                                                

<TABLE>
<CAPTION>
                               June 30,  June 30,  June 30,  June 30,  June 30,
                                 1997      1996      1995      1994      1993  
                               --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>     
Non-performing loans                                                           
    (thousands)                                                                
   Mortgages                   $ 1,896   $ 2,246   $ 2,383   $ 2,047   $ 2,308 
   Other                           528       357       187       676       181 
                               --------  --------  --------  --------  --------
Total non-performing loans       2,424     2,603     2,570     2,723     2,489 
                                                                               
   Other Real Estate Owned         492       514     1,069     1,994     2,308 
                               --------  --------  --------  --------  --------
Total non-performing assets    $ 2,916   $ 3,117   $ 3,639   $ 4,717   $ 4,797 
                               ========  ========  ========  ========  ========
                                                                               
Total non-performing loans     --------  --------  --------  --------  --------
   to total loans                1.17%     1.53%     1.51%     1.72%     1.65% 
                               ========  ========  ========  ========  ========
                                                                               
Total non-performing assets    --------  --------  --------  --------  --------
   to total assets               1.11%     1.40%     1.75%     2.47%     2.68% 
                               ========  ========  ========  ========  ========
</TABLE>

This table sets forth certain information concerning non-performing loans and 
assets and the ratios of non-performing loans to total loans and non-performing
assets to total assets at the dates indicated.
Non-performing loans are problem loan accounts for which the Company has ceased
accrual of interest because the loan is 90 days past due or because 

<PAGE>  87

collectability is doubtful, whichever is earlier.

Management believes that all loans that are considered potential problems are 
disclosed in the current non-performing loans table above with the exception of
loans internally rated substandard.  At June 30, 1997, the Company had 
approximately $586,000 of loans classified as substandard that could 
potentially become non-performing due to previous delinquencies or marginal 
cash flows.

No loans greater than 90 days past due are on accrual status and there are no 
troubled debt restructurings not disclosed above.

Refer to the financial statement footnotes #1 & #4 for further discussion of 
the Company's non-performing loan policy and interest income recognition.


Northeast Bancorp Consolidated                                                 
Summary of Loan Losses Experience (in thousands)                               
As of June 30,                                                                 
                                                                               
<TABLE>
<CAPTION>
                               June 30,  June 30,  June 30,  June 30,  June 30,
                                 1997      1996      1995      1994      1993  
                               --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>     
Average net loans outstanding,                                                 
   During period               $184,155  $166,965  $161,342  $153,476  $149,051
                               ========  ========  ========  ========  ========
Net loans outstanding,                                                         
   End of period               $203,839  $167,302  $167,440  $155,998  $148,633
                               ========  ========  ========  ========  ========
Allowance for loan losses,                                                     
   Beginning of period         $  2,549  $  2,396  $  2,463  $  2,123  $  1,555
                                                                               
Loans charged off:                                                             
   Residential Mortgage             295       132       136       230       177
   Commercial Real Estate           128       236       283       122        26
   Commercial                       154        53       194       285        64
   Installment                      163       105       148        93        46
                               --------  --------  --------  --------  --------
Total loans charged off             740       526       761       730       313
                               --------  --------  --------  --------  --------
Recoveries on amounts                                                          
 previously charged off:                                                       
   Residential Mortgage              36        10         7        25         1
   Commercial Real Estate            49        34         1         0         1
   Commercial                        13        11        16         6         9
   Installment                       32        21        29        18        18
                               --------  --------  --------  --------  --------
Total Recoveries                    130        76        53        49        29
                               --------  --------  --------  --------  --------
                                                                               
Net loans charged off               610       450       708       681       284
Provision for loan losses           578       603       641     1,021       852
Allowance for loan losses,     --------  --------  --------  --------  --------
   End of period               $  2,517  $  2,549  $  2,396  $  2,463  $  2,123
<PAGE>  88

                               ========  ========  ========  ========  ========
                                                                               
Net loans charged-off as a     --------  --------  --------  --------  --------
percentage of average loans                                                    
outstanding                       0.33%     0.27%     0.44%     0.44%     0.19%
                               ========  ========  ========  ========  ========
                                                                               
Allowance for loan losses,     --------  --------  --------  --------  --------
as a percentage of net loans                                                   
outstanding at the end of                                                      
period                            1.23%     1.52%     1.43%     1.58%     1.43%
                               ========  ========  ========  ========  ========
</TABLE>

The reduction in the June 30, 1997 allowance for loan loss percentage to net 
loans is primarily due  to the purchase of $25,000,000 of residential mortgages
during fiscal year 1997.

This table summarizes loans outstanding at the end of each period indicated, 
net of unearned income, 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.


Northeast Bancorp Consolidated                                                 
Average Deposits and Rates (thousands)                                         
As of June 30,                                                                 

<TABLE>
<CAPTION>
                               June 30, 1997    June 30, 1996    June 30, 1995 
                              ---------------  ---------------  ---------------
                               Amount   Rate    Amount   Rate    Amount   Rate
                              --------  -----  --------  -----  --------  -----
<S>                           <C>       <C>    <C>       <C>    <C>       <C>  
Average Deposits:                                                              
                                                                               
Non-interest bearing demand                                                    
   deposits                   $ 11,566  0.00%  $ 10,020  0.00%  $  8,526  0.00%
Regular savings                 20,407  2.66%    22,258  2.68%    23,028  2.65%
NOW and Money Market            25,394  2.35%    27,782  2.56%    29,027  2.48%
Time deposits                   90,943  5.73%    87,365  5.86%    80,115  5.13%
                              --------  -----  --------  -----  --------  -----
Total Average Deposits        $148,310  3.67%  $147,425  3.69%  $140,696  3.87%
                              ========  =====  ========  =====  ========  =====
</TABLE>

This table shows the average daily amount of deposits and average rates paid on
such deposits for the periods indicated.

Northeast Bancorp Consolidated                             
Maturities of Time Deposits $100,000 & Over                
As of June 30, 1997                                          
<TABLE>
<CAPTION>

                                                                      Balance
<PAGE>  89
                                                                    -----------
<S>                                                                 <C>        
Time Deposits $100,000 & Over (in thousands):                                  
                                                                               
3 months or less                                                    $   2,004  
Over 3 through 6 months                                                 2,152
Over 6 through 12 months                                                4,926
Over 12 months                                                          7,692
                                                                    -----------
Total Time Deposits $100,000 & Over                                 $  16,774  
                                                                    ===========
</TABLE>

Northeast Bancorp Consolidated                                                 
Maturities and Repricing of Earning Assets & Interest-bearing Liabilities      
As of June 30, 1997                                                            
(in thousands)

<TABLE>
<CAPTION>
                              Less Than    1-5     Over 5               % of
                               1 Year     Years     Years     Total     Total
                              --------- --------- --------- --------- ---------
<S>                           <C>       <C>       <C>       <C>       <C>      
EARNING ASSETS                                                                 
                                                                               
Real Estate Loans:                                                             
     Fixed                    $    898  $  2,591  $ 66,276  $ 69,765    28.11% 
     Variable                   79,927    23,198     2,248   105,373    42.46% 
                              --------- --------- --------- --------- ---------
Total Real Estate Loans         80,825    25,789    68,524   175,138    70.57% 
                              --------- --------- --------- --------- ---------
                                                                               
Non-Real Estate Loans:                                                         
     Fixed                       1,715     8,648     7,967    18,330     7.39% 
     Variable                   12,576       312         0    12,888     5.19% 
                              --------- --------- --------- --------- ---------
Total Non-Real Estate Loans     14,291     8,960     7,967    31,218    12.58% 
                              --------- --------- --------- --------- ---------
Investment Securities &                                                        
  Other Earning Assets          11,023       243    30,555    41,821    16.85% 
                              --------- --------- --------- --------- ---------
Total Earning Assets          $106,139  $ 34,992  $107,046  $248,177   100.00% 
                              ========= ========= ========= ========= =========

INTEREST-BEARING LIABILITIES                                                   
                                                                               
Deposits:                                                                      
     Regular savings, value,                                                   
       & club accounts        $ 20,389                        20,389     8.95% 
     NOW Accounts               11,429                        11,429     5.02%
     Money market accounts      12,317                        12,317     5.40%
     Certificates of deposit    70,381    27,828        10    98,219    43.13% 
                              --------- --------- --------- --------- ---------
Total Deposits                 114,516    27,828        10   142,354    62.50% 
                              --------- --------- --------- --------- ---------
Repurchase Agreements            5,099         0         0     5,099     2.24% 

<PAGE>  90

Borrowings & Notes Payable      54,713    21,315     4,264    80,292    35.26% 
                              --------- --------- --------- --------- ---------
Total Interest-bearing                                                         
  Liabilities                 $174,328  $ 49,143  $  4,274  $227,745   100.00% 
                              ========= ========= ========= ========= =========
                                                                               
Excess(deficiency) of earning --------- --------- --------- ---------
assets over interest-bearing                                                   
liabilities                    (68,189)  (14,151)  102,772    20,432  
                              ========= ========= ========= =========
                                                                     
Cumulative excess (deficiency)--------- --------- --------- ---------
of earning assets over                                                    
interest-bearing liabilities   (68,189)  (82,340)   20,432    20,432
                              ========= ========= ========= ========= 
                                                                     
Cumulative excess (deficiency)--------- --------- --------- ---------
of earning assets over                                                 
interest-bearing liabilities                                             
as a % of total assets         (30.68%)  (37.04%)    9.19%     9.19% 
                              ========= ========= ========= =========
</TABLE>

This table summarizes the anticipated maturities and repricing of the Company's
earning assets and interest-bearing liabilities at June 30, 1997.

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/liabilitiy 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.


Northeast Bancorp Consolidated                                           
Quarterly Data                                                           
As of June 30, 1997

<TABLE>
<CAPTION>
                           1st Qtr       2nd Qtr       3rd Qtr       4th Qtr   
                           Sept. 30      Dec. 31       Mar. 31       June 30   
                             1996          1996          1997          1997    
                         ------------  ------------  ------------  ------------
<S>                      <C>           <C>           <C>           <C>         
Interest Income                                                                
  Interest on loans      $ 3,987,260   $ 4,209,837   $ 4,405,483   $ 4,623,357 
  Interest & dividends                                                         
   on investments &                                                           
   available for sale                                                          
   securities                729,374       707,752       692,600       673,477 
                         ------------  ------------  ------------  ------------
Total Interest Income      4,716,634     4,917,589     5,098,083     5,296,834 
                         ------------  ------------  ------------  ------------
Interest Expense                                                               
  Interest on Deposits     1,539,567     1,533,721     1,586,983     1,694,532 
  Interest on Repurchase                                                       
<PAGE>  91

   Agreements                 38,269        54,686        50,745        55,753 
  Interest on Borrowings     854,846       929,928     1,079,816     1,081,250 
                         ------------  ------------  ------------  ------------
Total Interest Expense     2,432,682     2,518,335     2,717,544     2,831,535 
                         ------------  ------------  ------------  ------------
Net Interest Income        2,283,952     2,399,254     2,380,539     2,465,299 
Provision for Loan                                                             
  Losses                     144,814       144,443       144,452       144,718 
                         ------------  ------------  ------------  ------------
Net Interest Income                                                            
  after Provision for                                                          
  Loan Losses              2,139,138     2,254,811     2,236,087     2,320,581 
                                                                               
Securities Transactions       89,666        34,876        75,493        59,395 
Other Operating Income       416,018       356,180       568,045       412,183 
Other Operating Expense    2,343,829     1,819,013     2,153,840     2,231,091 
                         ------------  ------------  ------------  ------------
Income Before Income                                                           
  Taxes                      300,993       826,854       725,785       561,068 
Income Tax Expense           116,732       299,694       274,796       216,375 
                         ------------  ------------  ------------  ------------
Net Income               $   184,261   $   527,160   $   450,989   $   344,693 
                         ============  ============  ============  ============
Net Income Per Common                                                          
  Share:                                                                       
   Primary earnings                                                            
    per share            $      0.11   $      0.37   $      0.31   $      0.24 
   Fully diluted                                                               
    earnings per share   $      0.11   $      0.33   $      0.29   $      0.23 

</TABLE>
                                                                               
                                                                               
Northeast Bancorp Consolidated                                                 
Quarterly Data                                                                 
As of June 30, 1996                                                            

<TABLE>
<CAPTION>
                           1st Qtr       2nd Qtr       3rd Qtr       4th Qtr   
                           Sept. 30      Dec. 31       Mar. 31       June 30   
                             1995          1995          1996          1996    
                         ------------  ------------  ------------  ------------
<S>                      <C>           <C>           <C>           <C>         
Interest Income                                                                
  Interest on loans      $ 4,098,178   $ 4,059,758   $ 4,003,840   $ 3,848,909 
  Interest & dividends                                                         
    on investments &                                                           
    available for sale                                                         
    securities               384,493       445,954       522,346       631,385 
                         ------------  ------------  ------------  ------------
Total Interest Income      4,482,671     4,505,712     4,526,186     4,480,294 
                         ------------  ------------  ------------  ------------
Interest Expense                                                               
  Interest on Deposits     1,635,482     1,652,178     1,611,581     1,526,929 
  Interest on Repurchase                                                       
   Agreements                 33,913        48,880        42,872        40,545 
<PAGE>  92

  Interest on Borrowings     599,959       592,950       654,874       688,239
                         ------------  ------------  ------------  ------------
Total Interest Expense     2,269,354     2,294,008     2,309,327     2,255,713 
                         ------------  ------------  ------------  ------------
Net Interest Income        2,213,317     2,211,704     2,216,859     2,224,581 
Provision for Loan                                                             
  Losses                     147,855       147,708       159,960       147,337 
                         ------------  ------------  ------------  ------------
Net Interest Income                                                            
  after Provision for                                                          
  Loan Losses              2,065,462     2,063,996     2,056,899     2,077,244 
                                                                               
Securities Transactions      120,593        92,797        35,280        30,225 
Other Operating Income       493,700       457,681       420,186       446,727 
Other Operating Expense    2,015,938     1,916,693     2,029,985     2,486,141 
                         ------------  ------------  ------------  ------------
Income Before Income                                                           
  Taxes                      663,817       697,781       482,380        68,055 
Income Tax Expense           242,180       254,345       180,575        41,512
                         ------------  ------------  ------------  ------------ 
Net Income               $   421,637   $   443,436   $   301,805   $    26,543 
                         ============  ============  ============  ============
Net Income Per Common                                                          
  Share:                                                                       
   Primary earnings per                                                        
    share                $      0.32   $      0.32   $      0.20   $     (0.01)
   Fully diluted                                                               
    earnings per share   $      0.29   $      0.29   $      0.19   $      0.02 

</TABLE>

The decrease in net income for the quarter ending June 30, 1997 is primarily 
due to the writedown of equity securities and the provision for real estate 
held for investment.

The reduction of net income for the quarter ending September 30, 1996 is 
primarily due to the FDIC-SAIF deposit assessment of $380,000.

The reduction of net income for the quarter ending June 30, 1996 is primarily 
a result of increased operating expenses due to the Bank merger, the writedown 
of equity securities and the provision for other real estate owned.


        (2)  Information on the Effects of Changing Prices
             _____________________________________________       

             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 many 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 

<PAGE>  93

             inflation.  Over short periods of time, interest rates may not
             necessarily move in the same direction or in the same magnitude 
             as inflation.

        (3)  Information About Oil and Gas Producing Activities
             __________________________________________________ 

             Not Applicable.


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.
             ___________________________________________________

             The "Election of Directors" and "Section 16(a) Beneficial 
             Ownership Reporting Compliance" sections of the Company's         
             definitive Proxy Statement for the 1997 Annual Meeting of         
             Shareholders is incorporated herein by reference.


Item 11.     Executive Compensation
             ______________________

             The "Executive Compensation and Other Information" section of the 
             Company's definitive Proxy Statement for the 1997 Annual Meeting 
             of Shareholders is incorporated herein by reference.

             
Item 12.     Security Ownership of Certain Beneficial Owners and Management
             ______________________________________________________________

             The "Election of Directors" and "Common Stock Ownership of        
             Certain Beneficial Owners" sections of the Company's definitive   
             Proxy Statement for the 1997 Annual Meeting of Shareholders is    
             incorporated herein by reference.


Item 13.     Certain Relationships and Related Transactions
             ______________________________________________ 

             The "Transactions with Management" section of the Company's       
             definitive Proxy Statement for the 1997 Annual Meeting of 
             Shareholders is incorporated herein by reference.

                                  PART IV

<PAGE>  94

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, 
             1997 and 1996

             Consolidated Statements of Income for the years ended June 30,
             1997, 1996 and 1995

             Consolidated Statements of Changes in Stockholders' Equity for 
             the years ended June 30, 1997, 1996 and 1995 
             
             Consolidated Statements of Cash Flows for the years ended June 
             30, 1997, 1996 and 1995


        (b)  Reports on Form 8-K
             ___________________  

             The Company filed a Form 8-K on May 22, 1997, reporting the       
             execution of an 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.


        (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   
<PAGE>  95

             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 

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

11           Statement regarding computation of per share earnings 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

27           A Financial Data Schedule is submitted herewith as Exhibit 27

*            Management or compensation plan or arrangement required to be 
             filed as an Exhibit pursuant to Item 14(c) of Form 10-K



                                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 19, 1997                    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.

<PAGE>  96

      Name                     Title                          Date
_________________________   ____________________         ___________________

/s/ John B. Bouchard        Director                     September 19, 1997
-------------------------
John B. Bouchard


/s/ A. William Cannan       Director,                    September 19, 1997   
-------------------------   Executive Vice President
A. William Cannan

                            
/s/ James D. Delamater      Director,                    September 19, 1997 
-------------------------   President and Chief                             
James D. Delamater          Executive Officer                               
                            (Principal                                      
                            Executive Officer)                              
                                                                               
                                                                               
/s/ Ronald J. Goguen        Director                     September 19, 1997
-------------------------                                                      
Ronald J. Goguen                                                               
                                                                               
                                                                              
/s/ Philip C. Jackson       Director                     September 19, 1997
-------------------------   Vice President                                  
Philip C. Jackson                                                             
                                                                               
/s/ Ronald C. Kendall       Director                     September 19, 1997
-------------------------                                                      
Ronald C. Kendall                                                              
                                                                               
                                                                               
/s/ Judith W. Hayes         Director                     September 19, 1997 
-------------------------                                                     
Judith W. Hayes                                                                
                                                                               

/s/ Normand R. Houde        Director                     September 19, 1997
-------------------------
Normand R. Houde
                                                                              

/s/ John W. Trinward, DMD   Chairman of the              September 19, 1997
-------------------------   Board                                           
John W. Trinward, DMD                                                          
                                                                               
                                                                               
/s/ Edmond J. Vachon        Director                     September 19, 1997 
-------------------------                                                 
Edmond J. Vachon                                                               
                                                                               
/s/ Stephen W. Wight        Director                     September 19, 1997
-------------------------                                                      
Stephen W. Wight                                                               
                                                                               
<PAGE>  97
                                                                               
/s/ Dennis A. Wilson        Director                     September 19, 1997 
-------------------------                                                    
Dennis A. Wilson                                                               
                                                                               
/s/ Richard E. Wyman, Jr.   Chief Financial              September 19, 1997 
-------------------------   Officer (Principal
Richard E. Wyman, Jr.       Financial and                                   
                            Accounting Officer)                             




EXHIBIT INDEX

Exhibit
Number                            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

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

<PAGE>  98

11        Statement regarding computation of per share earnings 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

27        A Financial Data Schedule is submitted herewith as Exhibit 27

*         Management or compensation or plan arrangement required to be filed 
          as an Exhibit pursuant to Item 14(c) of Form 10-K