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, 1998                       


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

   For the transition period from                        to      

   Commission file number (1-14588)


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


                  Maine                            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:
   Common Stock, $1.00 par value           American Stock Exchange

<PAGE> 2

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 14, 1998, was $23,072,595 based on the last 
reported sales price of the Company's common stock on the American Stock 
Exchange as of the close of business on such date.   Although directors and 
executive officers of the registrant and its subsidiaries were assumed to be 
"affiliates" of the registrant for the purposes of this calculation, this 
classification is not to be interpreted as an admission of such status.  There
were 2,614,285 shares of the registrant's common stock issued and outstanding 
as of September 14, 1998.


                          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:

                                      Form 10-K Part into Which the Document is 
   Document                           Incorporated
   --------                           -----------------------------------------
                                      
   Proxy Statement for the            III
   1998 Annual Meeting of
   Shareholders

                                  PART I

Item 1.  Business
         ________

General
-------
   Northeast Bancorp, a Maine corporation chartered in April 1987, is a unitary
savings and loan holding company whose primary subsidiary and principal asset 
is Northeast Bank, F.S.B. (the "Bank").  Prior to 1996, the Company operated 
under the name Bethel Bancorp.  The Company, through its ownership of the Bank,
is engaged principally in the business of originating and purchasing 
residential and commercial real estate loans in the State of Maine and its 
primary source of earnings is derived from the income generated by the Bank.  
Although historically the Bank has been primarily a residential real estate 
lender, it also generates other loans and provides other services and products 
<PAGE> 3

traditionally furnished to customers by full service banks.  The overall 
strategy of the Company is to increase the core earnings of the Bank by 
developing strong interest margins, non-interest fee income, and increasing 
volume by expanding its market area.  As of June 30, 1998, the Company, on a 
consolidated basis, had total assets of approximately $323 million, total 
deposits of approximately $184 million, and stockholders' equity of 
approximately $25 million.  Unless the context otherwise requires, references 
herein to the Company include the Company and the Bank on a consolidated basis.

   The Bank (which was formerly known as Bethel Savings Bank F.S.B. ("Bethel"))
is a federally-chartered savings bank which was originally organized in 1872 as
a Maine-chartered mutual savings bank.  The Bank received its federal charter 
in 1984.  In 1987, Bethel converted to a stock form of ownership and in 
subsequent years has engaged in a strategy of both geographic and product 
expansion.  In October 1997, the Company completed its merger of Cushnoc Bank &
Trust, a commercial bank located in Augusta, Maine ("Cushnoc"), with and into 
the Bank.  As a result of the merger, the Bank added two branches which have 
expanded its market area to include Maine's capital city and surrounding 
communities, an area that management believes offers significant growth 
opportunities.  With the addition of the two Augusta area branches, the Bank 
now has a total of eleven banking branches.
     
   From its eleven retail banking branches located throughout western, central,
and the mid-coastal regions of the State of Maine, and through the Bank's 
subsidiaries and other affiliations, the Bank offers its customers access to a 
broad range of real estate, commercial, and consumer financial products, 
including, but not limited to loans, deposit and investment services, trust 
services, credit cards, ATM access, debit cards, electronic transfer services, 
leasing, and other services.  The Bank believes that the local character of its
business and its "community bank" management philosophy allows it to compete 
effectively in its market area.  The Bank has branch locations in Auburn, 
Augusta, Bethel, Brunswick, Buckfield, Harrison, Lisbon Falls, Richmond, and 
South Paris, Maine.

   In connection with its conversion into a federal savings bank in 1984, the 
Bank retained its then-authorized powers as a Maine-chartered mutual savings 
bank.  Under applicable regulations, except as otherwise determined by the 
Office of Thrift Supervision ("OTS"), the Bank retains the authority that it 
was permitted to exercise as a mutual savings bank under the state law existing
at the time of the conversion.  Historically, Maine-chartered savings banks 
have had certain lending, investment, and other powers that have only recently 
been granted to federal savings institutions, including commercial lending 
authority and the ability to offer personal checking and negotiable order of 
withdrawal ("NOW") accounts.  Accordingly, the Bank has had broad powers to 
engage in non-residential lending activities.  In addition, the unitary savings
and loan holding company charter is widely recognized for the broad range of 
powers that is provided thereunder.
     
   The Bank's corporate philosophy is to offer a wide array of financial 
products and services with an emphasis on a high level of personalized service,
thereby enhancing its ability to generate significant income diversity.  In the
past, the Bank has been primarily a residential mortgage lender.  As a result, 
the Bank's business has historically consisted of attracting deposits from the 
general public through its retail banking offices and applying those funds 
primarily to the origination, retention, servicing, investing in and selling 
first mortgage loans on single and multi-family residential real estate.  
During the past few years, the Bank has placed additional emphasis on consumer 
<PAGE> 4

lending and small business, home equity, and commercial loans.  The Bank also 
lends funds to retail banking customers by means of home equity and installment
loans, and originates loans secured by commercial property and multi-family 
dwellings.  The Bank also has developed the ability to generate indirect dealer
consumer loans used for the purchase of mobile homes and automobiles.  
Management's community banking strategy emphasizes the development of full 
banking relationships with the Bank's customers by providing consistent, high 
quality service.  With the goal of providing a full range of banking services 
to its customers and in an effort to develop strong primary banking 
relationships with businesses and individuals, the Bank has expanded its 
commercial banking operations by selectively making commercial loans to small 
and medium sized companies.  In this regard, the Bank's business development 
efforts have been directed towards full service credit packages and financial 
services, as well as competitively priced mortgage packages.  At June 30, 1998,
the Bank's loan portfolio consisted of 61% residential real estate mortgages, 
17% commercial real estate mortgages, 10% commercial loans, and 12% consumer 
loans.  At June 30, 1998, the Bank's lending limit was approximately $3.77 
million.  To the extent that customers credit needs exceed the bank's lending 
limits, the Bank may seek participations in such loans with other banks.  In 
addition, the Bank invests in certain U.S. government and agency obligations 
and other investments permitted by applicable law and regulations.

   Consistent with its goal of providing a full range of banking services, the 
Bank also offers to its customers financial planning, trust, and employee 
benefit services, and, through its subsidiary, Northeast Financial Services 
Corporation, it offers investment services and access to any and all lines of 
insurance products.  Northeast Financial Services Corporation, which is located
at the Company's headquarters in Auburn, Maine, offers the Bank's customers 
access to investment and annuity products.  In order to make these services 
available, Northeast Financial Services Corporation has affiliated with 
Commonwealth Equity Services, Inc., a fully licensed New York securities firm, 
which licenses the brokers who sell such products and services.

   Trust services and products are provided to Bank customers through Northeast
Trust, a division of the Bank.  First New England Benefits, which is a part of 
the Bank's trust division, designs and administers qualified retirement plans, 
such as profit sharing, pension, and 401(k) plans.  Northeast Trust, working 
with its First New England Benefits division, has made a significant investment
in the development of a "turn key" employee benefit product which is designed 
to provide a high level of service and education to its participants at a 
competitive price.  In view of the nationwide popularity of employment 
retirement programs, management anticipates growth in the revenues generated 
from this product.

   The Bank is subject to examination and comprehensive regulation by the OTS 
and its deposits are insured by the Federal Deposit Insurance Corporation (the 
"FDIC") to the extent permitted by law.  The Bank also is a member of the 
Federal Home Loan Bank ("FHLB") of Boston.  Although the Bank's deposits are 
primarily insured through the Bank Insurance Fund, deposits at the Brunswick 
branch, which represent approximately 27% of the Bank's total deposits, are 
insured through the Savings Association Insurance Fund.  

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

Recent Developments
<PAGE> 5

-------------------
   On October 24, 1997, in accordance with the terms of an Agreement and Plan 
of Merger, dated as of May 9, 1997 (the "Merger Agreement"), by and among the 
Company, the Bank, and Cushnoc, the Company consummated its acquisition of 
Cushnoc and merged it with and into the Bank.  Pursuant to the merger, 
stockholders of Cushnoc received 2.089 shares of the Company's common stock 
("Common Stock") in exchange for each share of Cushnoc common stock
held by them.  In lieu of the issuance of fractional common stock, cash was 
paid for each such fraction.  As a result of the merger, 187,940 shares of 
Common Stock were issued to former Cushnoc stockholders.  The merger was 
accounted for under the pooling-of-interests method of accounting.

   On December 15, 1997, the Company paid a 50% stock dividend on all 
outstanding shares of Common Stock held of record as of November 26, 1997.  As 
a result of the stock dividend, the number of shares of outstanding Common 
Stock increased from 1,481,734 shares to 2,222,541 shares.  In addition, the 
conversion rate at which Series A and Series B Preferred Stock may be converted
into Common Stock and all outstanding options and warrants pursuant to which 
Common Stock could be purchased upon their exercise, also were automatically 
adjusted in accordance with their terms to eliminate any dilutive effects of 
the stock dividend.
  

Market Area and Competition
___________________________

   The Bank is headquartered in Auburn, Maine with full service branches in 
Augusta, Bethel, Harrison, South Paris, Buckfield, Mechanic Falls, Brunswick, 
Richmond and Lisbon Falls, Maine.  The Bank's 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 encounters strong 
competition both in making loans and in attracting deposits.  In one or more 
aspect of its business, the Bank competes with other savings banks, commercial 
banks, credit unions, finance companies, brokerage and investment banking 
firms, asset-based nonbank lenders, and governmental organizations that offer 
subsidized financing at lower rates than those offered by the Bank.  Many of 
the Banks' competitors are larger in size and possess greater resources 
(financial and other) and have higher lending levels.

   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 enhance its ability to 
compete successfully in its market areas.  Further, the Bank now offers a wide 
range of financial services to its customers, including not only basic loan and
deposit services, but also investment services, trust services, and insurance 
products.  Management believes that the availability of such a wide range of 
financial services through a community bank oriented financial institution 
which knows and caters to its clients will prove to be an attractive 
alternative to consumers in its market area.


Regional Economic Environment
____________________________

<PAGE> 6

   The state of Maine's economy  in which the Company operates, including the 
south central and mid-coast region of Cumberland, Androscoggin, and Sagadahoc 
counties, has experienced moderate growth.

Subsidiaries
____________

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

   The Bank itself 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. 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 June 30, 1998, investment in and loans to its 
subsidiary constituted 0.14% of the Company's total assets.  This 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., a 
New Hampshire corporation which specialized in the design and administration of
qualified retirement plans (such as profit sharing, pension, and 401(k) plans).
In fiscal 1997, Northeast Financial Services purchased the remaining 37.5% of 
outstanding shares of First New England Benefits and merged it with and into 
the Bank.  It currently operates as part of the Bank's trust division.  
Northeast Trust, working with its New England Benefits division, has made a 
significant investment in the development of a "turn key" employee benefit 
product which it offers to its business clients.  

Employees
_________

   As of June 30, 1998, the Company and the Bank together employed 126 full-
time and 26 part-time employees.  The Company's employees are not represented 
by any collective bargaining unit.  The Company believes that its relations 
with its employees are good.

Supervision and Regulation
__________________________

   General
   _______

   The banking industry is extensively regulated under both federal and state
law, and is undergoing significant change.  These laws and regulations are 
<PAGE> 7

intended primarily to protect depositors and the federal deposit insurance 
funds, and not for the protection of shareholders.  The following discussion 
summarizes certain aspects of the banking laws and regulations that affect the 
Company or the Bank.  Proposals to change the laws and regulations governing 
the banking industry are frequently raised in Congress, in state legislatures, 
and before various banking agencies.  Although such proposals are actively 
being considered and discussed by such legislative bodies, the likelihood and 
timing of any changes, and the impact that such changes might have on the 
Company or the Bank, are impossible to predict with any certainty.  A change in
the applicable laws or regulations, or in the way such laws or regulations 
are interpreted by regulatory agencies or the courts, may have a material 
impact on the business or prospects of the Company and the Bank.

   To the extent that the following information describes statutory and 
regulatory provisions, it is qualified in its entirety by reference to the 
particular statutory and regulatory provisions.
   
   The Company is an unitary savings and loan holding company, subject to 
regulation, examination, supervision, and reporting requirements of  the OTS 
and the State of Maine Department of Banking (the "Department").  The Bank is a
federally chartered savings and loan association under the Home Owners Loan 
Act, as amended ("HOLA"), and is a member of the FHLB system, subject to 
examination and supervision of the FDIC, and subject to the regulations of the 
Federal Reserve Board governing reserve requirements.  As a Maine financial 
institution,  the Company is registered with the Maine Superintendent of 
Banking (the "Superintendent").

Recent Developments in Savings Institution Regulation
_____________________________________________________

   On May 13, 1998, the House of Representatives passed the Financial Services 
Act of 1997, H.R. 10, originally introduced in early 1997 by Representative Jim
Leach, Chairman of the Banking Committee of the United States House of 
Representatives.  The Act as approved by the House on May 13, 1998, will be 
considered by the United States Senate.  Unlike prior versions of H.R. 10, the 
Act that was passed does not eliminate the thrift charter and the unitary 
thrift holding company.  Instead, the Act provides a "grandfather" provision 
under which companies which are unitary thrift holding companies as of March 
31, 1998 (or have an application to establish a federal savings association 
before such date) may continue to engage in all activities which were permitted
prior to the Act.   To be eligible for the "grandfather" provision, the Act 
requires that the Bank comply with any lending restrictions which were imposed 
on it as a savings and loan association, and that the Bank continue to meet the
qualified thrift lending test.  See "--- Savings Institution Regulation --- 
Qualified Thrift Lender Requirement."  The Act also provides for the creation 
of financial holding companies, which under certain circumstances may engage in
a broad variety of financial services activities not permitted for banking 
holding companies under the current law.  The Act provides for broader 
insurance and securities powers for financial institutions, subject to the 
implementation of regulations.  The Act also instructs the Secretary of the 
Treasury to formulate plans for consolidating the OTS with the Office of the 
Comptroller of the Currency within two years after enactment.  
   
   On September 30, 1996, the President signed into law the Omnibus 
Consolidated Appropriations Act which included, among other provisions, the 
Deposit Insurance Funds Act of 1996 (the "DIFA"). The principal purpose of the 
DIFA was to recapitalize the Savings Associate Insurance Fund (the "SAIF") so 
<PAGE> 8

that over time its deposit insurance assessments could be reduced to parity 
with those of the Bank Insurance Fund (the "BIF"), and to provide for the 
eventual merger of the SAIF and the BIF and the adoption of a single standard 
federal charter.  Specifically, the DIFA requires, in pertinent part: (i) a 
one-time special assessment on all financial institutions holding SAIF deposits
on March 31, 1995, calculated at 65.7 basis points, to recapitalize the SAIF; 
(ii) full pro rata sharing by BIF and SAIF members of the debt service 
obligations of the Financing Corp.  ("FICO") beginning no later than January 1,
2000, and non-pro rata sharing (with adjustable, semi-annual premiums of 
approximately 6.44 basis points for SAIF members and 1.29 basis points for BIF 
members) until that date; and (iii) a merger of the BIF and the SAIF into a new
Deposit Insurance Fund (the "DIF") on January 1, 1999, if bank and savings 
association charters have been combined by that date.  Commencing on January 1,
2000 and continuing through 2017, banks will be assessed a flat fee of 2.43 
basis points on deposits.

   The legislation mandates a Treasury Department study to develop a common 
depository institution charter.  It also contains environmental liability 
provisions indicating that lenders who do not participate in the management of 
environmentally contaminated property or who do not cause the contamination are
not liable for environmental clean-up costs.  In addition, the legislation 
contains over 40 regulatory burden relief provisions in various areas, 
including truth in lending and other regulatory reform measures designed to 
reduce the burden and costs imposed on financial institutions to comply with 
consumer protection provisions.

   The Small Business Job Protection Act of 1996 contained provisions requiring
the thrift industry to recapture tax deductions taken pursuant to the reserve 
method for accounting for bad debts of savings institutions.  Based upon the 14
provisions, bad debt reserves taken prior to January 1, 1988 would not be 
recaptured, and bad debt reserves taken after January 1, 1988 would be 
recaptured over a six-year period beginning with the 1996 tax year. 

   The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act") allows bank holding companies to acquire existing 
banks across state lines, regardless of state statutes.  Further, under the 
Interstate Banking Act, effective June 1, 1997, a bank holding company may 
consolidate interstate bank subsidiaries into branches, and a bank may merge 
with an unaffiliated bank across state lines to the extent that the applicable 
states have not "opted out" of interstate branching prior to such effective 
date.  States were permitted to elect to allow interstate mergers prior to June
1, 1997.  The Interstate Banking Act also permits de novo branching to the 
extent that a particular state "opts into" the de novo branching provisions.  
The Interstate Banking Act generally prohibits an interstate acquisition (other
than an initial entry into a state by a bank holding company), which would 
result in either the control of more than (i) 10 percent of the total amount of
insured deposits in the United States, or (ii) 30 percent of the total insured 
deposits in the home state of the target bank unless such 30 percent limitation
is waived by the home state on a basis which does not discriminate against out 
of state institutions.

Federal Savings and Loan Holding Company Regulation
___________________________________________________
   General.  
   ________
  
   As the owner of all of the outstanding capital stock of the Bank, the 
<PAGE> 9

Company is a savings and loan holding company subject to regulation by the OTS 
under HOLA.  As a unitary savings and loan holding company owning only one 
savings institution, the Company generally is allowed to engage and invest in a
broad range of business activities not permitted to commercial bank holding
companies or savings and loan holding companies owning multiple savings 
institutions (a "multiple savings and loan holding company"); provided, that, 
the Bank continues to continue to qualify as a "qualified thrift lender".  
See "---Savings Institution Regulation---Qualified Thrift Lender Requirements."
In the event of any acquisition by the Company  of another savings association
subsidiary, except for a supervisory acquisition, the Company would become a 
multiple savings and loan holding company and would be subject to limitations 
on the types of business activities in which it could engage.

   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 from 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 OTS, as part of an acquisition of stock issued by an undercapitalized 
savings institution or its holding company approved by 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.  Control of a savings institution or a savings and loan holding 
company is conclusively presumed to exist if, among other things, a person 
acquires more than 25% or any class of voting stock of the institution or 
holding company or controls in any manner the election of a majority of the 
directors or the insured institution or the holding company.  Control is 
rebuttably presumed to exist if, among other things, a person acquires 10% or 
more of any class of voting stock (or 25% of any class of stock) and is subject
to any of certain specified "control factors."

   The HOLA also allows 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 OTS, acquire control of a savings 
institution located in a state other than Maine if the 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 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.

Restrictions with Affiliates
____________________________

   Pursuant to the HOLA, transactions engaged in by a savings association or 
one of its subsidiaries with affiliates of the savings association generally 
<PAGE> 10

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 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
________________________________________________________________


   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 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 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 
<PAGE> 11

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 " --
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 OTS, the FHLB'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 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 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 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 "--- Savings Institution Regulation --- Insurance of  
Deposits."

Capital Requirements.  
_____________________
   General.
   ________
   Since 1989, OTS capital regulations have established capital 
standards applicable to all savings institutions, including a core capital 
requirement (or leverage ratio), a tangible capital requirement and a risk-
based capital requirement. The OTS also has established pursuant to FDICIA five
classifications for institutions based upon the capital requirements: well 
capitalized, adequately capitalized, under capitalized, significantly under 
capitalized, and critically under capitalized.  At June 30, 1998, the Bank was 
"well capitalized".  Failure to maintain an adequately capitalized status 
would result in greater regulatory oversight or restrictions on the Bank's 
activities.  The capital requirements established by the OTS requires 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 
adjusted 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 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.  Since most national banks are required 
to maintain a level of core capital of at least 100 to 200 basis points above 
<PAGE> 12

the 3% minimum, savings institutions are generally required to satisfy the 
higher core capital standards.

   Under the OTS regulations, the term "core capital" includes common 
stockholders' equity, noncumulative perpetual preferred stock and related 
surplus, nonwithdrawable accounts and pledged deposits of mutual savings 
associations, and minority interests in the equity accounts of fully 
consolidated subsidiaries, less intangible assets, other than certain amounts 
of supervisory goodwill, and up to 90% of the fair market value of readily 
marketable mortgage servicing rights ("MSRs") (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 purchased MSRs included in core capital as 
tangible capital (subject to certain conditions, including any limitations 
imposed by the FDIC on the maximum percentage of the tangible capital 
requirement that may be satisfied with such servicing rights).  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.

   In determining total risk-weighted assets for purposes of the risk-based 
capital 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% (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, mandatorily convertible securities, 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%.  As of June 30, 1998, 
the Bank's total of risk-based capital to total risk-weighted assets was 
11.20%.

   See Item 8a. "Financial Statements and Supplementary Data - Footnote 10" for
a table reflecting the Bank's minimum regulatory capital requirements, actual 
capital and the level of excess capital by category.

   In addition, the OTS requires institutions with an "above-normal" degree of 
interest rate risk to maintain an additional amount of capital.  The test of 
"above-normal" is determined by postulating a 200 basis point shift (increase 
or decrease) in interest rates and determining the effect on the market value 
of an institution's portfolio equity. If the decline is less than 2 percent, no
addition to risk-based capital is required (i.e., an institution has only a 
normal degree of interest rate risk).  If the decline is greater than 2 
<PAGE> 13

percent, the institution must add additional capital equity to one-half the 
difference between its measured interest rate risk and 2 percent multiplied by 
the market value of its assets.  Management believes that the Bank's interest 
rate risk is within the normal range.

   In March 1998, the OTS issued a final rule which requires savings 
associations to comply with an overlapping set of regulatory capital standards,
as follows: (i) Tangible equity: to be deemed other than "critically 
undercapitalized", the minimum ratio, as a percentage of tangible assets, is 
2%; (ii) Tier 1 or leverage capital: to be deemed "adequately capitalized" or 
"well capitalized", the minimum ratios, as a percent of adjusted total assets, 
are 4% or 5%, respectively; (iii) Tier 1 risk-based capital: to be deemed 
"adequately capitalized" or "well capitalized", the minimum ratios, as a 
percent of risk-weighted assets, are 4% or 6%, respectively; and (iv) Total 
risk-based capital: to be deemed "adequately capitalized" or "well 
capitalized", the minimum ratios, as a percent of risk-weighted assets, are 8% 
or 10%, respectively.

   Any insured depository institution which falls below 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
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.  
____________________________________
<PAGE> 14

   In order for the Bank to exercise the powers granted to federally chartered 
savings institutions, and maintain full access to FHLB advances, it must 
satisfy a "qualified thrift lender" ("QTL")test.  In order to qualify as a QTL,
the Bank must maintain at least 65% of its total "Portfolio Assets" in 
"Qualified Thrift Investments".  This level must be maintained on a monthly 
average basis in nine out of every twelve months.  Qualified Thrift Investments
generally include (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 issued by the federal deposit insurance agencies,  and (iii) shares
of stock issued by any FHLB, 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, Portfolio Assets  means the savings institution's total assets 
minus (i) goodwill and other intangible assets, (ii)the value of property  used 
by the savings institution to conduct its business, and (iii)liquid assets held
by the savings institution in an amount up to 20% of its total assets.

   In December 1996, the Economic Growth and Regulatory Paperwork Reduction Act
of 1996 (EGRPRA) amended the QTL requirements to give thrifts a choice of 
tests. A thrift must qualify either by meeting the HOLA QTL test described 
above, as amended by the EGRPRA, or by meeting the Internal Revenue Service's 
(IRS) domestic building and loan tax code (DBLA) test. The EGRPRA amended the 
QTL test to allow (1) educational loans, small business loans and credit card
loans to count as Qualified Thrift Investments without limit, and (2) loans for
personal, family or household purposes (other than those included in the 
without limit category) to count as Qualified Thrift Investments in the 
category limited to 20 percent of Portfolio 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 FHLB advances and, beginning three years after 
the loss of QTL status, will be required to repay all outstanding FHLB 
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 Requirements.  
<PAGE> 15
_______________________

   Under OTS regulations, savings institutions are required to maintain average
daily balances of liquid assets (which includes cash, certain time deposits, 
certain bankers' acceptances, certain corporate debt securities and highly 
rated commercial paper, securities of certain mutual funds, balances maintained
in FRB, 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 
deposit accounts plus short-term borrowings payable in one year or less.  This 
liquidity requirement may vary from time to time by the OTS to any amount 
within the range of 4% to 10%, depending upon economic conditions and the 
deposit flows of member institutions. Effective November 24, 1997, the OTS 
amended its liquidity regulations to, among other things, provide that a 
savings institution shall maintain liquid assets of not less than 4% of the 
liquidity base at the end of the preceding calendar quarter.  Prior to November
1997, the required liquid asset ratio was 5%.  The amendment to the liquidity 
rules also eliminated the requirement that institutions hold assets equal to 
1% of the liquidity base in cash or short-term liquid assets.  At June 30, 
1998, the Bank was in compliance with the liquidity ratio regulatory 
requirements.  In addition, the 1997 amendment to the liquidity rules also 
streamlined the calculations used to measure compliance with liquidity 
requirements, expanded the types of investments considered to be liquid assets 
to conform with provisions of FIRREA, and reduced the liquidity base by 
modifying the definition of net withdrawable account to exclude accounts with
maturities exceeding one year. This rule permits savings associations to use 
either the previously existing or the newly promulgated method of calculating 
their liquidity base. The new method requires the calculation to be made once 
each quarter rather than monthly. Another rule change removed the requirement 
that certain obligations must mature in five years or less in order to qualify
as a liquid asset. Simply meeting the minimum liquidity requirement does not 
automatically mean a thrift institution has sufficient liquidity for safe and 
sound operation. The new rule includes a separate additional requirement that 
each thrift must maintain sufficient liquidity to ensure its safe and sound 
operation.  Adequate liquidity may vary from institution to institution 
depending on a thrift's asset/liability structure, market conditions, the 
activities of financial service competitors and the requirements of its own 
deposit and loan customers.

Loans to One Borrower Limitations.  
__________________________________
   Savings institutions generally are required to comply with the limitations 
on loans to one borrower which are 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).  Exceptions from the generally applicable 
limits on loans to one borrower are available under any 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 
institution's loans to one borrower may be imposed by the OTS if necessary to 
protect the safety and soundness of the savings institution.  

   Pursuant to its authority to impose more stringent requirements on savings 
<PAGE> 16

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.  
_______________________________
   The aggregate amount of commercial real estate loans that a federal savings 
institution may make is limited to an amount not in excess of 400% of the 
savings institution's capital.  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 
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 OTS and conduct any activities of the 
<PAGE> 17

subsidiary in accordance with regulations and orders of the OTS.  The OTS has 
the power to require a savings institution to divest any subsidiary or 
terminate any activity conducted by a subsidiary that 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.   
______________________
   General.
   --------
   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 OTS and all reports of condition filed by 
the Bank with 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. 

   Any insured institution which does not operate in accordance with or conform
to FDIC regulations, policies and directives may be sanctioned for non-
compliance.  

   The FDIC has the authority, after notice and hearing, to suspend or 
terminate insurance of deposits upon the finding that the institution has 
engaged in unsafe or unsound practices, is operating in an unsafe or unsound 
condition, or has violated any applicable law, regulation, rule, order or 
condition imposed by, or written agreement with, the FDIC.  In addition, if 
insurance termination proceedings are initiated against a savings institution, 
under certain circumstances the FDIC has the authority to temporarily suspend 
insurance on new deposits received by an institution.  If insurance of deposits
is terminated by the FDIC, the deposits in the institution will continue to be 
insured by the FDIC for a period of two years following the date of 
termination.  The FDIC requires an annual audit by independent accountants and 
also periodically makes its own examinations of insured institutions.

   Insured institutions are members of either the SAIF or the BIF.  Pursuant to
the Financial Institutions Reform, Recovery and Enforcement Act of 1989 
("FIRREA"), an insured institution may not convert from one insurance fund to 
the other without the advance approval of the FDIC.  FIRREA also provides, 
generally, that the moratorium on insurance fund conversions shall not be 
construed to prohibit a SAIF member from converting to a bank charter during 
the moratorium, as long as the resulting bank remains a SAIF member during that
period.  When a conversion is permitted, each insured institution participating
in the conversion must pay an "exit fee" to the insurance fund it is leaving 
and an "entrance fee" to the insurance fund it is entering.

   Under applicable law, any company that controls an undercapitalized savings 
institution is required, in connection with the submission of a capital 
restoration plan by the savings institution, to guarantee that the institution 

<PAGE> 18

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.

Insurance Premiums and Regulatory Assessments.
______________________________________________
   As an insurer, the FDIC issues regulations, conducts examinations and 
generally supervises the operations of its insured members.  FDICIA directed 
the FDIC to establish a risk-based premium system under which each premium 
assessed against the Bank would generally depend upon the amount of the Bank's 
deposits and the risk that it poses to the SAIF.  The FDIC was further directed
to set semiannual assessments for insured depository institutions to maintain 
the reserve ratio of the SAIF at 1.25 percent of estimated insured deposits.  
The FDIC may designate a higher reserve ratio if it determines there is a 
significant risk of substantial future loss to the particular fund.  Under the 
FDIC's risk-related insurance regulations, an institution is classified 
according to capital and supervisory factors.  Institutions are assigned to one
of three capital groups: "well capitalized," "adequately capitalized" or 
"undercapitalized."  Within each capital group, institutions are assigned to 
one of three supervisory subgroups.  There are nine combinations of groups and 
subgroups (or assessment risk classifications) to which varying assessment 
rates are applicable.  During fiscal 1998, the Bank paid $60,097 to the FDIC 
for such assessments.  See "--Recent Developments in Savings Institution 
Regulations." 

   In addition to deposit insurance premiums, savings institutions also must 
bear a portion of the administrative costs of the OTS through an assessment 
based on the level of total assets of each insured institution and which 
differentiates between troubled and nontroubled savings institutions.  During 
fiscal 1998, the Bank paid $70,078 to the OTS for such assessments.  
Additionally, the OTS assesses fees for the processing of various applications.

Federal Home Loan Bank System
_____________________________

   General.
   ________
   The Bank is a member of the FHLB system, which consists of 12 regional 
FHLBs subject to supervision and regulation by the Federal Housing Finance 
Board ("FHFB").  The FHLBs maintain central credit facilities primarily for 
member institutions.

   The Bank, as a member of the FHLB of Boston, is required to acquire and hold
shares of capital stock in the FHLB of Boston in an amount at least equal to 
the greater of: (i) 1% of the aggregate outstanding principal amount of its 
unpaid residential mortgage loans, home purchase contracts, and similar 
obligations as of the beginning of each year, (ii) 5% of its advances 
(borrowings) from the FHLB of Boston, or (iii) $500.  The Bank is in compliance
with these requirements with an investment in stock of the FHLB of Boston at 
June 30, 1998 of $5,680,500.

Advances from Federal Home Loan Bank.
_____________________________________
   Each FHLB serves as a reserve or central bank for its member institutions 
<PAGE> 19

within its assigned regions.  It is funded primarily from proceeds derived from
the sale of obligations of the FHLB System.  A FHLB makes advances (i.e., 
loans) to members in accordance with policies and procedures established by its
Board of Directors.  The Bank is authorized to borrow funds from the FHLB of 
Boston to meet demands for withdrawals of savings deposits, to meet seasonal 
requirements, and for the expansion of its loan portfolio. Advances may be made
on a secured or unsecured basis depending upon a number of factors, including 
the purpose for which the funds are being borrowed and existing advances.  
Interest rates charged for advances vary depending upon maturity, the cost of 
funds to the regional FHLB and the purpose of the borrowing.  The maximum 
amount which the FHLB will advance fluctuates from time to time in accordance 
with changes in the policies of the FHLB and the FHLB of Boston, and the 
maximum amount generally is reduced by borrowings from any other source.  In 
addition, the amount of FHLB advances that a savings institution may obtain 
will be restricted in the event that the institution fails to qualify as a 
"qualified thrift lender".  See "--- 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
depository institutions to maintain non-interest bearing reserves against their
net transaction accounts (primarily NOW accounts), subject to certain 
exemptions.  Federal Reserve regulations currently require financial 
institutions to maintain average daily reserves equal to 3% on all amounts from
$4.7 million to $47.8 million of net transactions, plus 10% on the remainder. 
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.

   Members of the FHLB system also are authorized to borrow from the 
appropriate Federal Reserve Bank's "discount window."  However, 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
_________

   The Department interprets applicable Maine law as giving the Department the 
authority to make examinations of the Company and any subsidiaries and to 
require periodic and other reports.  In addition, 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 Department.  The Department has by 
regulation determined that, with the prior approval of the Department, 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. 
<PAGE> 20
   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.    

Federal Securities Laws
_______________________

   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.

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.


Item 2.  Properties
         __________

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

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


Item 3.  Legal Proceedings
         _________________   

<PAGE> 21

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


Item 4.  Submission of Matters to a Vote of Security Holders
         ___________________________________________________ 

   There were no matters submitted to a vote of the Company's securities-
holders during the fourth quarter of the fiscal year ended June 30, 1998.

Item 4A.   Executive Officers of the Registrant
           ____________________________________

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

     
  Name                   Age          Position with Company and/or Bank
  ____                   ___          _________________________________
James D. Delamater. . . .46    President and Chief Executive Officer (1)
A. William Cannan . . . .56    Executive Vice President and Chief Operating 
                                Officer (1)
Philip C. Jackson . . . .54    Senior Vice President of Bank - Trust Operations
Richard E. Wyman, Jr. . .42    Chief Financial Officer (1)
Henry Korsiak . . . . . .55    Senior Vice President of Bank - Operations
Marilyn Wyman . . . . . .47    Senior Vice President of Bank - Human Resources
Sterling Williams . . . .47    Senior Vice President of Bank - Commercial 
                                Lending
Marcel Blais. . . . . . .39    Senior Vice President of the Bank - Retail 
                                Banking
Ariel Rose Gill . . . . .49    Clerk (1)
________________
(1) Each of these individuals serve both the Company and the Bank in the same 
    capacities as indicated above.
     
    James D. Delamater has been President, Chief Executive Officer, and a 
director of the Company and the Bank since 1987.
     
   A. William Cannan has been Executive Vice President and Chief Operating 
Officer of the Company and the Bank since 1993, and a director of the Company 
and the Bank since 1996.  From 1991 to 1993 Mr. Cannan served as President of 
Casco Northern Bank, N.A., located in Portland, Maine.

   Philip C. Jackson has been a director of the Company and the Bank since 
<PAGE> 22

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

   Richard E. Wyman, Jr. has been the Chief Financial Officer of the Company 
and the Bank since 1992.
   
   Henry Korsiak has been the Senior Vice President of the Bank - Operations 
since 1994.  From 1993 to 1994, Mr. Korsiak was a Vice President of ASI Data 
Services, Inc., a data processing subsidiary of the Company.  He was a manager 
of Systems Analysis for Fleet Services Corp. from 1991 to 1993.  He served as 
Vice President of Data Processing at Maine National Bank from 1978 until June
1991.

   Marilyn Wyman has been the Senior Vice President of the Bank - Human 
Resources since 1987.  From 1982 to 1987, she served as the Executive Vice-
President and Administrative Vice-President of the Bank's predecessor, Bethel 
Savings Bank.

   Sterling Williams has been the Senior Vice President of the Bank - 
Commercial Lending since 1994.  From 1984 to 1994, Mr. Williams served as a 
Vice President of Fleet Bank of Maine when he was a commercial loan officer and
officer in its Managed Assets Division.  As of September 1998, the Company has 
been informed that Mr. Williams will be resigning his position with the Bank.

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

   Ariel Rose Gill has been Clerk of the Company since joining the Company in 
1994.  


                            Part II

Item 5.  Market Prices of Common Stock and Dividends Paid
         ________________________________________________

The Common Stock of Northeast Bancorp trades on the American Stock Exchange 
("AMEX") under the symbol NBN.  As of the close of business on September 14, 
1998, there were approximately 2,614,285 of shares of common stock outstanding 
held by approximately 470 stockholders of record.

The following table sets forth the high and low closing sales prices of the 
Company's Common Stock as reported on NASDAQ - NMS through April 13, 1997 and 
thereafter on AMEX, and dividends paid during each quarter for fiscal years 
ending June 30, 1997 and 1998.  All information set forth on the table below 
has been revised to reflect a 50% stock dividend paid December 15, 1997.

<TABLE>
<CAPTION>

1997-98            High     Low     Div Pd 
_______            ____________     ______
<S>                <C>              <C>
<PAGE> 23

Jul 1- Sep 30      13.33   9.66      .053
Oct 1 - Dec 31     18.66  18.50      .053
Jan 1 - Mar 31     19.50  17.00      .053
Apr 1 - Jun 30     18.00  15.00      .053

1996-97            High     Low     Div Pd
_______            ____________     ______
Jul 1 - Sep 30      9.00   8.33      .053
Oct 1 - Dec 31      9.33   8.67      .053
Jan 1 - Mar 31      9.50   8.83      .053
Apr 1 - Jun 30      9.83   9.17      .053

</TABLE>

The amount and timing of future dividends payable on the Company's Common Stock
will depend on, among other things, the financial condition of the Company, 
regulatory considerations, and other factors, including the ability of the Bank
to pay dividends to the Company, the amount of cash on hand, and any 
obligations to pay dividends to holders of its preferred stock.

The Company has 45,454 shares of Series A preferred stock outstanding.  The 
Series A preferred stock is convertible into Common Stock on a three-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 only one holder of the Series A preferred stock, and there is no 
trading market for the Series A preferred stock.  Although convertible into 
three shares of Common Stock, each share of Series A preferred stock is 
entitled only to one vote on all matters submitted to a vote of the Company's 
stockholders.


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

<TABLE>
<CAPTION>

                                             Years Ended June 30,              
                               ------------------------------------------------
                                 1998      1997      1996      1995      1994  
                               --------  --------  --------  --------  --------
                                (Dollars in thousands)                         
<S>                            <C>       <C>       <C>       <C>       <C>     
Interest income                $ 24,283  $ 21,936  $ 20,105  $ 18,953  $ 15,668
Interest expense                 12,810    11,291    10,087     8,841     7,124
                               --------  --------  --------  --------  -------- 
Net interest income              11,473    10,645    10,018    10,112     8,544
Provision for loan losses           706       614       639       691     1,045
Other operating income 1          2,384     1,827     1,909     1,760     2,209
Net securities gains                288       259       279       419       347
Other operating expenses 2        9,560     9,608     9,442     9,093     8,053
Writedowns on equity and                                                       
 debt securities                    172       110        94         0        84
                               --------  --------  --------  --------  --------
Income before income taxes        3,707     2,399     2,031     2,507     1,918
Income tax expense                1,303       909       738       878       697
<PAGE> 24

Cumulative effect of change in                                                 
 accounting principle                -         -         -         -        260
                               --------  --------  --------  --------  --------
Net income                     $  2,404  $  1,490  $  1,293  $  1,629  $  1,481
                               ========  ========  ========  ========  ========

Basic earnings per share 3     $   1.00  $   0.63  $   0.56  $   0.77  $   0.76
Diluted earnings per share 3   $   0.86  $   0.56  $   0.50  $   0.66  $   0.67
                               ========  ========  ========  ========  ========
Cash dividends per common 
 share                         $   0.21  $   0.21  $   0.16  $   0.11  $   0.11
                               ========  ========  ========  ========  ========
Common dividend payout ratio 3   24.42%    37.49%    32.00%    16.66%    16.41%
                               ========  ========  ========  ========  ========

                                                 At June 30,                   
                               ------------------------------------------------
                                 1998      1997      1996      1995      1994  
                               --------  --------  --------  --------  --------
Total assets                   $322,533  $284,077  $244,782  $231,856  $212,072
Total loans                     282,031   222,682   187,210   187,777   175,687
Total deposits                  184,024   172,921   164,855   168,682   142,972
Total borrowings                105,433    81,793    54,140    38,274    49,051

Total stockholders' equity       25,140    22,096    20,364    19,388    17,730
                                                
Return on assets                                                               
 (net income/average assets)      0.83%     0.57%     0.55%     0.71%     0.73%
Return on equity
 (net income/average equity)     10.35%     7.05%     6.31%     8.81%     8.73%
Average equity/average assets     7.99%     8.09%     8.67%     8.10%     8.34%

</TABLE>

1 Includes fees for services to customers and gains on sale of loans.
2 Includes salaries, employee benefits and occupancy.
3 Per share data for the years prior to 1996 has been retroactively restated as
  a result of the stock split in December 1995 and has been restated as a 
  result of the 50% stock split in December 1997.  The 1994 through 1997 
  earnings per share calculations have been restated to comply with FASB No. 
  128 "Earnings Per Share".  Also, the common dividend payout ratios, for 1994 
  through 1997 and  dividends per share have been changed to correspond to the 
  change in the earnings per share calculations for the effect of adopting FASB
  No. 128.


Item 7.  Management's Discussion 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 
"Bank"), which has branches located in Auburn, Augusta, Bethel, Harrison, South
Paris, Buckfield, Mechanic Falls, Brunswick, Richmond and Lisbon Falls, Maine. 
<PAGE> 25

The Bank's deposits are primarily BIF-insured.  Deposits at the Brunswick 
branch are SAIF-insured and represent approximately 27% of the Bank's total 
deposits at June 30, 1998.

On October 24, 1997 the Company completed the merger of Cushnoc Bank and Trust 
Company, a commercial bank located in Augusta, Maine ("Cushnoc"), with and into
the Bank. On October 24, 1997, Cushnoc had approximately $21,000,000 in total 
assets and $2,200,000 in stockholders' equity. Under the terms of the merger, 
the Company issued 187,940 shares of its common stock in exchange for all of 
the outstanding common stock of Cushnoc (an exchange ratio of 2.089 shares of 
the Company's common stock for each share of Cushnoc common stock). The merger 
expanded the Company's geographic market area to Augusta, Maine, the State's 
capital, and will increase the Company's ability to deliver its wide variety of
products for future growth. The Cushnoc acquisition was accounted for under the
pooling of interests method. In accordance with the pooling of interests 
accounting method, the Company's financial statements and information provided 
for previous reporting periods have been restated to include Cushnoc's 
financial information and are more fully described in footnote 1 and 15 to the 
financial statements.

This Management's Discussion and Analysis of Financial Condition and Results of
Operations presents a review of the material changes in the financial condition
of the Company from June 30, 1997 to June 30,1998, and the results of 
operations for the fiscal years ended June 30, 1998, 1997, and 1996. This 
discussion and analysis is intended to assist in understanding the financial 
condition and results of operations of the Company. Accordingly, this section 
should be read in conjunction with the consolidated financial statements and 
the related notes and other statistical information contained herein.

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 deposit and loan 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 experienced 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 enhances its ability to
compete in its market areas. The Company has enhanced its product lines and now
provides a wide range of financial services such as loans and deposits, 
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 provides insurance products through its affiliation with 
local insurance agencies.

The Company believes that its level of capital is adequate and that its capital
position will support future growth and development as well as allow for 
<PAGE> 26

additional provisions to the allowance for loan losses, if needed, without 
significant impairment of the financial stability of the Company. As of June 
30,1998, the Company's total equity represents 7.79% of its total assets. The 
Company's assets totaled $322,532,594 as of June 30, 1998, an increase of 
$38,455,163 compared to June 30, 1997, primarily due to loan growth. Loan 
volume was enhanced during the 1998 fiscal year due to whole loan purchases on 
the secondary market, increased commercial loans, and automobile dealer
finance loans. The increase in loans was funded with advances from the Federal 
Home Loan Bank of Boston ("FHLB"), increased deposits, and the reduction in 
available for sale securities. The Company has focused its business development
efforts on full service credit packages and financial services, as well as 
competitively priced mortgage packages.

Cash and cash equivalents decreased by $6,622,378 at June 30, 1998 compared to 
June 30, 1997.  The decrease in cash equivalents was primarily due to the use 
of excess cash to fund loan growth during fiscal 1998.

The Bank's loan portfolio had a balance of $282,030,950 as of June 30, 1998, 
which represents an increase of $59,348,816 compared to June 30, 1997. From 
June 30, 1997 to June 30, 1998, the loan portfolio increased by $32,594,000 in 
real estate mortgage loans, $19,108,000 in consumer loans, and by $7,647,000 in
commercial loans. The Bank established a new automobile dealer finance 
department during the fiscal 1998 and the increase in consumer loans was due 
primarily to the volume generated from this new department. The Bank does not
anticipate that it will experience the same growth in real estate mortgage and 
automobile dealer finance loans in the current fiscal year as was experienced 
in 1998. During fiscal 1998, the Bank purchased approximately $66,284,000 of 
residential whole loans on the secondary market. The purchase consisted of 1-4 
family adjustable and fixed rate mortgages secured by property located 
primarily in the State of Maine and certain Midwestern states. The expansion 
into new markets diversifies the credit risk and the potential economic risks 
of the credits held in the Bank's purchased loan portfolio, such that the 
portfolio is not effected solely by the local State of Maine economy. The 
Bank's local market, as well as the secondary market, continues to be very 
competitive for loan volume.  The local competitive environment and customer 
response to favorable secondary market rates have affected the Bank's ability 
to increase the loan portfolio.  In the effort to increase loan volume, the 
Bank's interest rates for its loan products have been reduced to compete in the
various markets.

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. As the Bank expands its purchase of loans in
other states, management researches the strength of the economy in the 
respective state and underwrites every loan before purchase. These steps are 
taken to better evaluate and minimize the credit risk of out-of-state 
purchases. The Bank also maintains a well collateralized position in real 
estate mortgages.

At June 30, 1998, residential real estate mortgages made up 61% of the total 
loan portfolio, in which 54% of the residential loans are variable rate 
products, as compared to 63% and 49%, respectively, at June 30, 1997. It has 
been management's intent to increase the proportion of variable rate 
residential real estate loans to reduce the interest rate risk in this area. 
The Bank has primarily purchased adjustable rate residential loans and sold 
fixed rate residential loans. However, during the last quarter of fiscal 1998, 
the Bank sold approximately $8,000,000 in adjustable rate residential loans and
<PAGE> 27

purchased approximately the same amount in fixed rate residential loans.  This 
purchase and sale improved the Company's asset/liability management position 
during the declining rate environment. Due to repositioning the asset/liability
mix, the Bank was able to take advantage of current market prices to attain 
gains on the sale of those loans.

At June 30, 1998, 17% of the Bank's total loan portfolio is commercial real 
estate mortgages. Commercial real estate loans have minimal interest rate risk 
as 88% of the portfolio consists of variable rate products. At June 30, 1997, 
commercial real estate mortgages made up 21% of the total loan portfolio, in 
which 89% of the commercial real estate loans were variable rate products. The 
Bank tries to mitigate credit risk by lending in its local market areas as well
as maintaining a well collateralized position in real estate.

Commercial loans made up 10% of the total loan portfolio at June 30, 1998. 
Variable rate loans comprise 59% of this loan portfolio at June 30, 1998. At 
June 30, 1997 commercial loans made up 9% of the total loan portfolio, of which
83% of the balance were variable rate instruments. Variable rate commercial 
loans have decreased during fiscal 1998, when compared to 1997, due to the 
increased market demand for fixed rate loans. The credit loss exposure on 
commercial loans is highly dependent on the cash flow of the customers' 
business. The Bank mitigates losses by strictly adhering to the Company's 
underwriting and credit policies.

Consumer loans make up 12% of the total loan portfolio as of June 30, 1998 
which compares to 7% at June 30, 1997. Since these loans are primarily fixed 
rate products, they have interest rate risk when market rates increase. These 
loans also have credit risk with minimal security. As stated previously, the 
increase in consumer loans was primarily due to the volume generated from the 
automobile dealer finance department. This department underwrites all the 
automobile dealer finance loans to protect credit quality. The Bank primarily 
pays a nominal one time origination fee on the loans. The fees are deferred and
amortized over the life of the loans as a yield adjustment.  Management 
attempts to mitigate credit and interest rate risk by keeping the products 
offered short-term, receiving a rate of return commensurate with the risk, and 
lending to individuals in the Bank's known market areas.

The Bank's allowance for loan losses was $2,978,000 as of June 30, 1998 versus
$2,741,809 as of June 30, 1997, representing 1.06% and 1.23% of total loans, 
respectively. The Bank had non-performing loans totaling $2,248,000 and 
$2,881,000 at June 30, 1998 and 1997, which was .80% and 1.29% of total loans, 
respectively. Non-performing loans represented .70% and 1.01% of total assets 
at June 30, 1998 and 1997, respectively. Non-performing loans are generally 
loans ninety days delinquent or greater for which the Bank does not accrue
interest income. The Bank's allowance for loan losses was equal to 132% and 95%
of the total non-performing loans at June 30, 1998 and 1997, respectively.  At 
June 30, 1998, the Bank had approximately $100,000 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, 1998, the amount of such loans has decreased from the June 30, 
1997 amount by $486,000. 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, 1998 and 1997:    

<TABLE>
<PAGE> 28

<CAPTION>

              Description          June 30, 1998       June 30, 1997           
         ---------------------   -----------------   -----------------       
         <S>                     <C>                 <C>              
         1-4 Family Mortgages    $       783,000     $     1,072,000  
         Commercial Mortgages            956,000           1,247,000  
         Commercial Loans                509,000             521,000  
         Consumer Installment                  0              41,000  
                                 -----------------   -----------------
          Total non-performing   $     2,248,000     $     2,881,000  
                                 =================   =================

</TABLE>

Although non-performing, delinquent and substandard loans have decreased the 
past several years, 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 1998 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>     
          06/30/95        06/30/96        06/30/97        06/30/98  
            2.46%           3.24%           1.93%           1.09%

</TABLE>

At June 30, 1998, loans classified as non-performing included approximately 
$823,000 of loan balances that are current and paying as agreed, but which the 
Bank maintains as non-performing until the borrower has demonstrated a 
sustainable period of performance.  Excluding these loans, the Bank's total 
delinquencies 30 days or more past due, as a percentage of total loans, would 
be .80% as of June 30, 1998. 

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, 1998 compared to June 30, 
1997. The decrease in the level of allowance for loan losses as a percentage of
total loans was primarily due to the increase in purchased loans as well as 
loans originated in the Bank's local market. The loans purchased were 
residential mortgages and carry less risk than commercial and consumer loans. 
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 1998 fiscal year, when compared to the 
1997 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 $469,909, $633,490, and $539,234, 
for the years ended June 30, 1998, June 30, 1997, and June 30, 1996, 
respectively. 
<PAGE> 29

At June 30, 1998, total impaired loans were $1,623,720, of which $927,355 had 
related allowances of $251,474.  This compares to  total impaired loans of 
$1,661,698, of which $844,457 had related allowances of $369,474, at June 30,
1997.  During the year ended June 30, 1998, the income recognized related to 
impaired loans was $19,693 and the average balance of outstanding impaired 
loans was $1,956,488.  This compares to income recognized related to impaired 
loans of $50,690 and the average balance of impaired loans of $1,330,983 at 
June 30, 1997.  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 Office of Thrift 
Supervision was on September 22, 1997. At the time of the exam the regulators 
proposed no additions to the allowance for loan losses.

At June 30, 1998, the Bank had a total of $350,496 in other real estate owned 
versus $563,207 as of June 30, 1997. 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 $5,100 at June 30, 1998 versus $50,839 at 
June 30, 1997. The Company provided for this allowance through a charge against
earnings of $62,300 and $39,000 for the years ended June 30, 1998 and 1997, 
respectively. In 1998 and 1997, write downs of other real estate owned totaled 
$108,039 and $88,161, respectively. Management periodically receives 
independent appraisals to assist in its valuation of the other real estate 
owned portfolio. As a result of its 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.

The Company's investment portfolio has been primarily classified as available 
for sale at June 30, 1997 and 1998. 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. 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, 1998 was $13,706,472 and $13,608,823,
respectively.  The reduction in carrying value from the cost was primarily 
<PAGE> 30

attributable to the decline in market value of equity securities, which was due
to the change in market prices from the price at the time of purchase. The 
decrease of $15,201,802 in securities available for sale, from June 30, 1998 to
June 30, 1997, was due to the Company repositioning the fixed rate mortgage-
backed securities portfolio, taking advantage of price fluctuations in the 
current market.  The sale of these securities strengthens the Company's asset/
liability management position and helps mitigate the Company's interest rate
risk in an increasing rate environment. The cash from the sale of securities 
was utilized to fund loan growth during fiscal 1998. The net unrealized loss on
mortgage-backed securities has decreased from $410,000 at June 30, 1997 to 
$9,500 at June 30, 1998 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 minimal 
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 1998, 1997 and 
1996, there have been other than temporary declines in values of individual 
equity securities in the amounts of $172,235, $110,000, and $93,819, 
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 $1,559,500, compared to 
June 30, 1997, due to the increase in FHLB borrowings.  The Bank increased FHLB
borrowings to fund loan growth. The FHLB requires institutions to hold a 
certain level of FHLB stock based on advances outstanding.

The Bank continues to attract new local deposit relationships. The Bank 
utilizes, as alternative sources of funds, brokered C.D.'s when national 
deposit interest rates are less than the interest rates on local market 
deposits. Brokered C.D.'s are also used 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. FHLB advances are also used to fund short-term liquidity 
demands.

Total deposits were $184,024,097 and securities sold under repurchase 
agreements were $5,205,594 as of June 30, 1998. These amounts represent an 
increase of $11,102,811 and $106,972, respectively, as compared to June 30, 
1997. The increase in deposits was primarily due to the $9,000,000 increase in 
NOW demand deposits. The increase in NOW deposits was attributable to the 
development of a demand account where the interest rate increases as deposit 
balances increase. Brokered deposits represented $7,574,710 of total deposits 
at June 30, 1998, which increased by $389,144 compared to June 30, 1997's 
$7,185,566 balance.  Total borrowings from the FHLB were $104,439,952 as of 
<PAGE> 31

June 30, 1998, for an increase of $23,945,481 compared to June 30, 1997. 
Mortgages, free of liens, pledges and encumbrances and certain non-pledged 
mortgage-backed securities are pledged to secure FHLB advances. The increase in
deposits, repurchase agreements and FHLB advances were utilized to fund the 
loan growth during fiscal 1998.

Other liabilities increased by $561,508 compared to June 30, 1997, due 
primarily to increases in accrued expenses, escrow accounts and a payable 
account resulting from the settlement of a loan sale transaction.

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 $17,000,000 over and above the 1998 end-of-year advances. The 
Company's ability to access the principal sources of liquid funds listed above 
is immediate and adequate to support the Company's needs.

Cross selling strategies are employed by the Bank to develop  deposit growth. 
Even though deposit interest rates increased during fiscal 1998, 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 base.

Total equity of the Company was $25,139,527 as of June 30, 1998 versus 
$22,095,580 at June 30, 1997. On December 15, 1997, the Company authorized a 
50% stock dividend to all shareholders. As a result of the stock dividend, the 
Company's common shares outstanding increased by 740,807 shares. The June 30, 
1997 book value per common share has been restated as a result of the stock
dividend.  In October of 1997, the Company merged with Cushnoc in a transaction
accounted for as a pooling of interests and as a result issued 2.089 shares of 
its common stock for each share of Cushnoc, which had 90,000 common shares 
outstanding. The number of common shares issued to Cushnoc shareholders was 
187,940 shares and all fractional shares were paid in cash. Earnings per share 
have been restated as a result of the stock dividend and the merger with 
Cushnoc Bank under the pooling of interests method of accounting.

In March of 1997 Square Lake Holding Corporation exercised 25,000 warrants at 
an aggregate price of $175,000 and in fiscal 1998 exercised the remaining 
163,146 warrants at an aggregate price of $761,433. There are no additional 
warrants outstanding. During the final quarter of fiscal 1998, Square Lake 
Holding Corporation converted their Series B preferred stock into common stock,
in which a total of 214,284 shares of common stock were issued. Square Lake 
Holding Corporation is a Maine corporation and a subsidiary of a Canadian
corporation of which Ronald Goguen is a 95% shareholder and director. Mr. 
Goguen, also is a director, and, through the ownership of his affiliates, a 
principal shareholder of the Company. During fiscal 1998 and 1997, 46,000 and 
30,000 stock options, respectively, 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, 1998, 444,000 shares of unissued common stock are 
<PAGE> 32

reserved for issuance pursuant to stock options.
Based on the 50% stock dividend, the converted preferred stock, the exercise of
warrants and options, and the merger with Cushnoc, the common shares 
outstanding increased to 2,614,285 shares at June 30, 1998.

The Company repurchased 3,050 treasury shares at a cost of $44,988 during 
fiscal 1998, 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  for the employee stock bonus and option plans as well as 
the exercise of warrants.

The total equity to total assets ratio of the Company was 7.79% as of June 30, 
1998 and 7.78% at June 30, 1997. Book value per common share was $9.23 as of 
June 30, 1998 versus $9.16 at June 30, 1997.

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

FDICIA defines specific capital categories based on an institution's capital 
ratios. The 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%. The prompt 
corrective action regulations define specific capital categories based on an 
institution's capital ratios. The capital categories, in declining order, are 
"well capitalized", "adequately capitalized", "undercapitalized", 
"significantly undercapitalized", and "critically undercapitalized". As of June
30, 1998 and 1997, the most recent notification from the OTS categorized the 
Bank as well capitalized. There are no conditions or events since that 
notification that management believes has changed the institution's category.
Regulatory capital requirements are also discussed and illustrated in footnote 
10 of the consolidated financial statements.

RESULTS OF OPERATIONS
---------------------
Net income for the year ended June 30, 1998 was $2,403,783 versus $1,489,745 
for the year ended June 30, 1997 and $1,292,849 for the year ended June 30, 
1996. Basic earnings per share was $1.00 and diluted earnings per share was 
$.86 for the year ended June 30, 1998.  Basic and diluted earnings per share 
were $.63 and $.56, respectively, for the year ended June 30, 1997 and $.56 and
$.50, respectively for the year ended June 30, 1996. In the first quarter of 
fiscal 1998, the Company adopted FASB Statement No. 128, "Earnings Per Share".
Earnings per share for prior periods have been restated in accordance with the 
requirements of Statement No. 128. In addition, net income and earnings per 
share have been restated for fiscal years 1997 and 1996 to consider the merger 
with Cushnoc under the pooling of interests method of accounting and the effect
of the Company's 50% stock dividend. Also, the weighted average number of 
shares outstanding in fiscal 1996, as well as the reported earnings per share, 
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, 1998, 
<PAGE> 33

when compared to June 30, 1997, was primarily due to the increase in net 
interest income and total noninterest income. 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. The Company's overall return on average
assets ("ROAA") was .83% for the year ended June 30, 1998, .57% for the year 
ended June 30, 1997, and .55% for the year ended June 30, 1996.

The Company completed the acquisition of Cushnoc in the quarter ended December 
31, 1997. The one-time costs associated with the merger totaled approximately 
$435,000 before tax of which approximately $424,000 before tax was recognized 
in the quarter ended December 31, 1997.  The Company's net income, before the 
aforementioned one-time expense for the merger with Cushnoc, would have been 
$2,686,542, basic earnings per share would have been $1.13 and diluted earnings
per share would have been $.96 for the year ended June 30, 1998.

In September of 1996, Congress enacted comprehensive legislation amending the 
FDIC BIF-SAIF deposit insurance assessment on savings and loan institution 
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.  The net effect of the one 
time assessment was $296,860 and decreased the Company's basic earnings per 
share by $.09 and the diluted earnings per share by $.08 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 will 
be required to pay a flat annual assessment of 2.43 cents for every $100 of 
domestic deposits.

The Company's net interest income for the years ended June 30, 1998, 1997 and 
1996 was $11,472,940, $10,644,833, and $10,018,230, respectively. Net interest 
income for fiscal 1998 increased $828,107, or 7.78%, compared to the amount at 
June 30, 1997.  Total interest and dividend income increased $2,347,290 for the
year ended June 30, 1998 compared to the year ended June 30, 1997, resulting 
primarily from an increase in the volume of loans offset in part by a decrease 
in investment volume and rates. The increase in total interest expense of 
$1,519,183 for the twelve months ended June 30, 1998 resulted primarily from 
the increased volume of borrowings and deposits. The changes in net interest 
income, as explained above, are also presented in the schedule below.

Northeast Bancorp
Rate/Volume Analysis for the Year ended
June 30, 1998 versus June 30, 1997

<TABLE>
<CAPTION>
                                       Difference Due to
                                    Volume            Rate            Total   
                                 ------------     ------------     ------------
<S>                              <C>              <C>              <C>         
Investments                      $  (722,905)     $   (27,766)     $  (750,671)
Loans                              3,377,029         (361,725)       3,015,304
FHLB & Other                          79,042            3,615           82,657
                                 ------------     ------------     ------------
<PAGE> 34

 Total Interest Earning Assets     2,733,166         (385,876)       2,347,290

Deposits                             390,474           92,868          483,342
Repurchase Agreements                 14,929           (7,731)           7,198
Borrowings                         1,092,794          (64,151)       1,028,643
                                 ------------     ------------     ------------
 Total Interest-Bearing          
  Liabilities                      1,498,197           20,986        1,519,183 
                                 ------------     ------------     ------------
  Net Interest Income            $ 1,234,969      $  (406,862)     $   828,107 
                                 ============     ============     ============

</TABLE>

Rate/Volume amounts spread proportionately between Volume and Rate.

Net interest income for fiscal 1997 increased $626,603, or 6.25%, compared to 
the amount at June 30, 1996.  Total interest and dividend income increased 
$1,830,582 for the year ended June 30, 1997 compared to the year ended June 30,
1996, resulting primarily from an increase in the volume of loans and 
investments offset in part by a decrease in rates. The increase in total 
interest expense of $1,203,979 for fiscal 1997 compared to 1996 resulted 
primarily from the increased volume of borrowings offset in part by a decrease 
in rates. 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>
<CAPTION>

                                       Difference Due to
                                    Volume            Rate            Total    
                                 ------------     ------------     ------------
<S>                              <C>              <C>              <C>         
Investments                      $   970,843      $    21,363      $   992,206 
Loans                              1,573,250         (454,479)       1,118,771
FHLB & Other                        (243,375)         (37,020)        (280,395)
                                 ------------     ------------     ------------
 Total Interest Earning Assets     2,300,718         (470,136)       1,830,582 
                                    
Deposits                             (36,114)        (208,713)        (244,827)
Repurchase Agreements                 46,631          (13,388)          33,243
Borrowings                         1,533,310         (117,747)       1,415,563
                                 ------------     ------------     ------------
 Total Interest-Bearing 
  Liabilities                      1,543,827         (339,848)       1,203,979
                                 ------------     ------------     ------------
 Net Interest Income             $   756,891      $  (130,288)     $   626,603 
                                 ============     ============     ============

</TABLE>

Rate/Volume amounts spread proportionately between Volume and Rate.

<PAGE> 35

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 21% 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 34% 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 $706,100 for fiscal 1998 compared to $614,427
and $638,860 for 1997 and 1996, respectively. Net charge-offs amounted to 
$469,909 during fiscal 1998 versus $633,490 and $539,234 for 1997 and 1996, 
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 $2,671,531 for the year ended June 30, 1998, $2,086,241
for June 30, 1997 and $2,187,593 for June 30, 1996.  Included in non-interest 
income were service charges and fees for other services which totaled $803,071 
for the year ended June 30, 1998, $851,725 for the year ended June 30, 1997 and
$817,162 for June 30, 1996. The decrease in service charges and fees at June 
30, 1998, when compared to June 30, 1997, was primarily due to the change in 
the mix of deposit accounts and decreased deposit fee income.

Net securities gains were $287,513, $259,430, and $278,895 for fiscal 1998, 
1997 and 1996, respectively. The major reason for the increase in 1998 was that
the Company sold some of its available for sale securities, taking advantage of
the fluctuation in higher market prices.

Gains on the sale of loans amounted to $726,599 for fiscal 1998 and was an 
increase of $525,181 compared to the balance in fiscal 1997.  Gains on the sale
of loans amounted to $201,418 for fiscal 1997 and was a decrease of $50,179 
compared to $251,597 for fiscal 1996. The increase in gain on sale of loans in 
1998, compared to 1997, was due to 1-4 family mortgage and SBA guaranteed loan 
sales. The Bank had an increase of approximately $5,100,000 in its underwriting
and selling of Freddie Mac and Fannie Mae loans, which was a component of the 
increase in gain on sale of loans at June 30, 1998, when compared to June 30, 
1997. In addition, loans were sold from the Bank's portfolio to improve its 
asset/liability management position while at the same time taking advantage of 
market prices, which also accounted for part of the increase in gain on sale of
loans in 1998. 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. 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 
<PAGE> 36

loans increased from approximately $42,509,000 at June 30, 1997 to $55,581,000 
at June 30, 1998.

Other income was $626,939 at June 30, 1998 and an increase of $128,767, when 
compared to June 30, 1997. The increase in other income was primarily due to 
income generated from the Bank's trust department and revenue from the sale of 
investments to customers through the Bank's relationship with Commonwealth 
Financial Services, Inc..

Total non-interest expense for the Company was $9,731,717 for fiscal 1998, 
$9,718,337 for fiscal 1997, and $9,536,288 for fiscal 1996. The increase in 
non-interest expense of $13,380 for fiscal 1998 compared to 1997 was due, in 
part, to the expenses from the merger with Cushnoc offset by the reduction in 
FDIC deposit insurance expense.

The increase in non-interest expense of $182,049 for fiscal 1997 compared to 
1996 was due, in part, to the following items: (I) occupancy expense increased 
by $26,459 due to the expenses associated with the opening of the new Auburn 
retail branch, (II) equipment expense increased by $30,500 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 
$236,209 primarily due to the SAIF assessment described above. The non-interest
expense increases above were offset by the reduction of $72,752 in compensation
expense due to the Company restructuring its internal departments.

Other expenses decreased by $38,367 in fiscal 1997 compared to 1996 primarily 
due to the following: a decrease of $8,000 in business insurances and computer 
services, a decrease of $78,000 in other real estate owned  and the provision 
for other real estate owned expenses, a decrease of $9,000 in telephone 
expenses due to the Company's telephone network system,  a decrease of $27,000 
in travel & meeting expenses, and a decrease of $31,000 in correspondent 
banking fees, and decreases in the Company's other general business expenses. 
These decreases in other expenses were primarily offset by the following 
increases: an increase of $49,000 due to hiring third party consultants for
marketing and compliance, an increase of $22,000 in supplies expense, and an 
increase of $109,000 in advertising expense to continue the Company's strategy 
in increasing market exposure.

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 monitor and coordinate the Company's sources, 
uses and pricing of funds. The committee is also involved in formulating the 
economic projections for the Company's budget and strategic plan.

<PAGE> 37

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, 1998, 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 presents 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, 1998, with comparative summary balances for 1997.
The expected maturity categories take into consideration historical prepayment 
speeds as well as actual amortization of principal and do not take into 
consideration reinvestment of cash. Principal prepayments are the amounts of
principal reduction, over and above normal amortization, that the Company has 
experienced in the past twenty four months. The Company's assets and 
liabilities that do not have a stated maturity date, as in cash equivalents and
certain deposits, are considered to be long term in nature by the Company and 
are reported in the thereafter column. The Company does not consider these 
financial instruments materially sensitive to interest rate fluctuations and 
historically the balances have remained fairly constant over various economic
conditions. The weighted average interest rates for the various assets and 
liabilities presented are actual as of June 30, 1998.

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. FHLB stock
does not have a market and the fair value is unknown. The fair value of loans 
are estimated in portfolios with similar financial characteristics and takes 
into consideration discounted cash flows through the estimated maturity or 
repricing dates using estimated market discount rates that reflect credit risk.
The fair value of loans held for sale is based on bid quotations from loan 
dealers. The fair value of demand deposits, NOW, money market, and savings 
<PAGE> 38

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.

There have been no substantial changes in the Company's market risk from the 
preceding year and the assumptions are consistent with prior year assumptions.


Market Risk
June 30, 1998
(In Thousands)

<TABLE>
<CAPTION>
                                        Expected Maturity Date
                                                                                          1998              1997
                                                                         There-  1998     Fair     1997     Fair 
                           6/30/99  6/30/00  6/30/01  6/30/02  6/30/03   after   Total    Value    Total    Value
                           -------- -------- -------- -------- -------- ------- -------- -------- -------- --------
<S>                        <C>      <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>      <C> 

Financial Assets:       
Cash                       $   -    $   -    $   -    $   -    $   -    $ 6,822 $  6,822 $  6,822 $  6,112 $  6,112
Interest Bearing Deposits       
  Variable Rate                -        -        -        -        -      5,330    5,330    5,330   12,662   12,662
  Weighted Average Interest        
   Rate                        -        -        -        -        -      5.76%    5.76%     -       5.77%     -
Available for Sale                 
 Securities                                   
 US Government Treasuries &                           
   Agencies                                       
  Fixed Rate                    347     -         399     -        -      3,951    4,697    4,698    2,949    2,905
  Weighted Average Interest 
   Rate                       5.87%     -       5.40%     -        -      7.17%    6.98%     -       6.57%     -  
 Corporate Bonds
  Fixed Rate                   -        -          54     -        -        149      203      204      260      253
  Weighted Average Interest 
   Rate                        -        -       7.20%     -        -      5.95%    6.28%     -       5.95%     -

<PAGE> 39

 Mortgage Backed Securities
  Fixed Rate                    524      577      635      698      769   4,521    7,724    7,714   25,212   24,802
  Weighted Average Interest 
   Rate                       6.89%    6.89%    6.89%    6.89%    6.89%   6.89%    6.89%     -       7.15%     -
 Equity Securities            1,083     -        -        -        -       -       1,083      993      897      851
  Dividend Yield              2.64%     -        -        -        -       -       2.64%     -       3.82%     -
FHLB Stock (1)                 -        -        -        -        -      5,681    5,681    5,681    4,121    4,121
  Weighted Average Interest 
   Rate                        -        -        -        -        -      6.40%    6.40%     -       6.50%     -
Loans Held For Sale
  Fixed Rate                    370     -        -        -        -       -         370      372      240      242
  Weighted Average Interest 
   Rate                       7.08%     -        -        -        -       -       7.08%     -       8.19%     -
Loans
 Residential Mortgages
  Fixed Rate                  8,792    8,582    9,443   10,533   11,919  29,281   78,550   78,713   66,454   67,844
  Weighted Average Interest 
   Rate                       8.49%    8.61%    8.63%    8.66%    8.61%   8.61%    8.60%     -       8.91%     -
  Variable Rate              10,072   10,184   11,059   12,450   17,240  32,950   93,955   94,554   73,861   73,507
  Weighted Average Interest 
   Rate                       8.70%    8.59%    8.52%    8.55%    8.44%   8.45%    8.51%     -       8.79%     -
 Commercial Real Estate
  Fixed Rate                    709      645      483    1,994    1,030     797    5,658    5,594    6,381    5,917
  Weighted Average Interest 
   Rate                       9.42%    9.19%    9.37%    9.34%    9.12%   9.08%    9.26%     -       9.22%     -
  Variable Rate               6,601    6,044    6,100    6,156    6,285  11,714   42,900   42,014   41,744   40,906
  Weighted Average Interest 
   Rate                      10.00%    9.92%    9.83%    9.90%    9.92%   9.89%    9.91%     -      10.11%     -
 Commercial                    
  Fixed Rate                  1,240    1,182    3,513    2,591    2,119     563   11,208   11,104    4,978    4,821
  Weighted Average Interest 
   Rate                       9.35%   10.51%   10.76%   10.81%   10.36%  10.81%   10.52%     -      10.37%     -
  Variable Rate               7,152    1,061    1,893    2,059    1,989   1,706   15,860   15,426   14,472   14,077
  Weighted Average Interest 
   Rate                       9.59%   10.14%   10.14%   10.05%   10.15%  10.13%    9.88%     -      10.18%     -
 Consumer

<PAGE> 40

  Fixed Rate                  2,745    2,689    4,316    4,117    8,713  10,500   33,080   33,809   13,618   13,038
  Weighted Average Interest 
   Rate                      10.08%   10.36%    9.56%   10.58%   10.88%  10.71%   10.53%     -      10.42%     -
  Variable Rate                  82      173       73       96       95     301      820      806    1,174    1,156
  Weighted Average Interest 
   Rate                       7.89%    8.91%    8.07%    7.74%    8.66%   8.77%    8.53%     -       8.87%     -
Interest Receivable           1,934     -        -        -        -       -       1,934    1,934    1,640    1,640
                               
Finanicial Liabilities:             
Deposits (with no stated               
 maturity)                          
 Demand Deposits               -        -        -        -        -     15,209   15,209   15,209   13,784   13,784
 NOW                           -        -        -        -        -     23,430   23,430   23,430   14,368   14,368
  Weighted Average Interest 
   Rate                        -        -        -        -        -      3.11%    3.11%     -       1.26%     -
 Money Market                  -        -        -        -        -     11,993   11,993   11,993   15,236   15,236
  Weighted Average Interest 
   Rate                        -        -        -        -        -      2.74%    2.74%     -       3.44%     -
 Regular Savings               -        -        -        -        -     20,306   20,306   20,306   22,484   22,484
  Weighted Average Interest 
   Rate                        -        -        -        -        -      2.75%    2.75%     -       2.60%     -
Time Deposits
  Fixed Rate                 73,691   22,865    8,789    5,010    1,739      11  112,105  112,507  107,049  106,421
Weighted Average Interest 
   Rate                       5.62%    5.97%    6.05%    6.38%    5.80%   5.03%    5.76%     -       6.42%     -
  Variable Rate                 814      167     -        -        -       -         981      981    1,120    1,120
  Weighted Average Interest 
   Rate                       5.09%    5.09%     -        -        -       -       5.09%     -       5.03%     - 
Repurchase Agreements
  Fixed Rate                    504     -        -        -        -       -         504      504      616      616
  Weighted Average Interest 
   Rate                       5.20%     -        -        -        -       -       5.20%     -       5.18%     -
  Variable Rate               4,702     -        -        -        -       -       4,702    4,702    4,483    4,483
  Weighted Average Interest 
   Rate                       4.09%     -        -        -        -       -       4.09%     -       4.12%
FHLB Advances

<PAGE> 41

  Fixed Rate                 42,745    4,000    1,213    1,139    9,632  44,711  103,440  101,052  79,494    79,488
  Weighted Average Interest 
   Rate                       5.64%    6.17%    5.71%    6.08%    5.76%   5.34%    5.55%     -       5.80%
  Variable Rate               1,000     -        -        -        -       -       1,000    1,000    1,000    1,003
  Weighted Average Interest 
   Rate                       5.95%     -        -        -        -       -       5.95%     -       6.20%
Note Payable
  Fixed Rate                    306      306      306       75     -       -         993      993    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.

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

Year 2000
---------
The Company is currently addressing the Year 2000 issue. Many existing computer
programs and hardware configurations use only two digits to identify a year in 
the date field. Since these programs did not take into consideration the 
upcoming change in the century, many computer applications could create 
erroneous results by the year 2000 if not corrected. The Year 2000 issue will 
affect this Company and it will affect virtually all companies and 
organizations, including the Company's borrowers. The Company has organized a 
Year 2000 committee, comprised of senior officers and a full time consultant, 
to research, develop and implement a plan that will correct this issue within 
the time lines established by the Company's regulators. The Office of Thrift 
Supervision (OTS) has issued a formal regulation and comprehensive plan 
concerning the Year 2000 issue for financial institutions, for which the OTS 
has oversight. The Company has adopted the regulatory comprehensive plan which 
has the following phases.

Awareness Phase
This phase consists of defining the Year 2000 problem; developing the resources
necessary to perform compliance work, establishing a Year 2000 program 
committee and developing an overall strategy that encompasses in-house systems,
service bureaus for systems that are outsourced, vendors, auditors, customers, 
and suppliers (including correspondents). This phase has been completed by the 
Company's committee.

<PAGE> 42

Assessment Phase
This phase consists of assessing the size and complexity of the problem and 
detailing the magnitude of the effort necessary to address the Year 2000 issue.
This phase must identify all hardware, software, networks, automated teller 
machines, other various processing platforms, and customer and vendor 
interdependencies affected by the Year 2000 date change. The assessment must go
beyond information systems and include environmental systems that are dependent
on embedded microchips, such as security systems, elevators and vaults. During 
this phase management also must evaluate the Year 2000 effect on other 
strategic business initiatives. The assessment should consider the potential 
effect that mergers and acquisitions, major system development, corporate 
alliances, and system interdependencies will have on existing systems and/or 
the potential Year 2000 issues that may arise from acquired systems. The 
financial institution or vendor should also identify resource needs and 
establish time frames and sequencing of Year 2000 efforts. Resource needs 
include appropriately skilled personnel, contractors, vendor support, budget 
allocations, and hardware capacity. This phase should clearly identify 
corporate accountability throughout the project, and policies should define 
reporting, monitoring, and notification requirements. Finally, contingency 
plans should be developed to cover unforeseen obstacles during the renovation 
and validation phases and include plans to deal with lesser priority systems
that would be fixed later in the renovation phase.

The assessment phase has been materially completed, but is considered an 
ongoing phase for the Company. The Company is in the process of developing its 
contingency plan. The Company has instituted a comprehensive plan to 
communicate with all its borrowers that the Company considers to be at risk 
concerning the Year 2000 issue.  The Company considers this plan necessary to 
mitigate the risk associated with borrowers not having the ability to make loan
payments due to a Year 2000 issue.  The Company has currently estimated the 
following costs associated with the Year 2000 issue, (1) computer hardware 
replacement $130,000, (2) software replacement $72,000, (3) testing and 
administrative costs $84,000, and (4) potential contingency costs $60,000. As 
of June 30, 1998, the Company has incurred $38,400 of Year 2000 expenses. These
costs are under continuous review and will be revised as needed. As of June 30,
1998, the Company's current computer hardware and software have been 
substantially depreciated and the costs associated with the replacement of the 
mainframe, software and data-communications is a component of Company's general
business expenses for fiscal 1999.

Renovation Phase
This phase includes code enhancements, hardware and software upgrades, system 
replacements, vendor certification, and other associated changes. Work should 
be prioritized based on information gathered during the assessment phase. For 
institutions relying on outside servicers or third-party software providers, 
ongoing discussions and monitoring of vendor progress are necessary. Each 
servicer and vendor has been contacted and has or will provide information to 
the Company concerning their efforts to comply with the Year 2000 issue. The
Company anticipates to have this phase completed by December 31, 1998.

Validation Phase
Testing is a multifaceted process that is critical to the Year 2000 project and
inherent in each phase of the project management plan. This process includes 
the testing of incremental changes to hardware and software components. In 
addition to testing upgraded components, connections with other systems must be
verified, and all changes should be accepted by internal and external users. 
Management will establish controls to assure the effective and timely 
<PAGE> 43

completion of all hardware and software testing prior to final implementation. 
As with the renovation phase, the Company will be in ongoing discussions with 
their vendors on the success of their validation efforts. The Company 
anticipates to have this phase completed by December 31, 1998.

Implementation Phase
In this phase, systems should be validated as Year 2000 compliant and be 
accepted by the business users. For any system failing certification, the 
business effect must be assessed clearly and the organization's Year 2000 
contingency plans should be implemented. Any potentially noncompliant mission-
critical system should be brought to the attention of executive management 
immediately for resolution. In addition, this phase must ensure that any new 
systems or subsequent changes to verified systems are compliant with Year 2000
requirements. The Company anticipates to have this phase completed by March 31,
1999.

In summary, the Company recognizes the Year 2000 as a global issue with 
potentially catastrophic results if not addressed. The Company has and will 
continue to undertake all the necessary steps to protect itself and its 
customers concerning the Year 2000 issue. Management is confident that all the 
instituted phases will be completed and in place prior to the year 2000.

RECENT ACCOUNTING DEVELOPMENTS
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. Comparative financial statements provided for earlier periods 
are required to be reclassified to reflect the provisions of this statement. 
The Company will adopt Statement 130 the first quarter of fiscal 1999. 
Management anticipates that the only difference between net income and 
comprehensive income will be the net unrealized gains or losses on available
for sale securities.

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 
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 does not anticipate that the Company will 
be impacted by Statement 131.

In June of 1998, FASB issued Statement of Financial Accounting Standard No. 
133, "Accounting for Derivative Instruments and Hedging Activities", 
("Statement 133"). Statement 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded 
<PAGE> 44

in other contracts, and for hedging activities. It requires that Companies 
recognize all derivatives as other assets or liabilities in the statements of 
financial position and measure those instruments at fair value. The accounting 
for changes in the fair value of a derivative depends on the internal use of 
the derivative and the resulting designation. Statement 133 is effective for 
all fiscal quarters of fiscal years beginning after June 15, 1999. Management 
has not determined the impact of the adoption of Statement 133.

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, such as statements relating to financial 
condition and future prospects, loan loss reserve adequacy, year 2000 
readiness, simulation of changes in interest rates, prospective results of 
operations, capital spending and financing sources, and revenue sources. 
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. 
Such forward-looking statements reflect the current view of management and are 
based on information currently available to them, and upon current 
expectations, estimates, and projections regarding the Company and its 
industry, management's belief with respect there to, and certain assumptions 
made by management. These forward-looking statements are not guarantees of 
future performance and are subject to risks, uncertainties, and other factors. 
Accordingly, actual results could differ materially from those set forth in 
forward-looking statements due to a variety of factors, including, but not 
limited to, those related to the economic environment, particularly in the 
market areas in which the Company operates, competitive products and pricing, 
fiscal and monetary policies of the U.S. Government, changes in government 
regulations affecting financial institutions, including regulatory fees and 
capital requirements, changes in prevailing interest rates, acquisitions and 
the integration of acquired businesses, credit risk management, asset/liability
management, changes in technology, changes in the securities markets, and the 
availability of and the costs associated with sources of liquidity.

Item  7A. Quantiture and Qualitative Disclosure about Market Risk
          _______________________________________________________

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

Item 8.   Financial Statements and Supplementary Data
          ___________________________________________

      a.  Financial Statements Required by Regulation S-X

<TABLE>
<CAPTION>
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and 1997

          ASSETS                                     1998             1997     
         --------                               --------------   --------------
<PAGE> 45

<S>                                             <C>              <C>           
Cash and due from banks                         $   6,821,574    $   6,112,425 
Interest bearing deposits                             421,392          443,021 
Federal Home Loan Bank overnight deposits           4,909,000       12,218,898 
                                                --------------   --------------
                                                   12,151,966       18,774,344 
                                                                               
Trading account securities, at market value            50,000           25,000 
Available for sale securities, at market value
 (notes 2, 7 and 9)                                13,608,823       28,810,625 
Loans held for sale                                   369,500          240,000 
Loans receivable (notes 3 and 7):
 Mortgage loans:
  Residential real estate                         171,903,751      139,633,099 
  Construction loans                                3,521,427        3,673,584 
  Commercial real estate                           47,052,134       46,443,071 
                                                --------------   --------------
                                                  222,477,312      189,749,754 
                                                                               
  Undisbursed portion of construction loans        (1,421,847)      (1,076,936)
  Net deferred loan origination (fees) costs            7,270         (203,819)
                                                --------------   --------------
  Total mortgage loans                            221,062,735      188,468,999 
                                                                               
 Commercial loans                                  27,068,416       19,421,552 
 Consumer and other loans                          33,899,799       14,791,583 
                                                --------------   -------------- 
                                                  282,030,950      222,682,134
 Less allowance for loan losses                     2,978,000        2,741,809 
                                                --------------   --------------
  Net loans                                       279,052,950      219,940,325 
                                                                               
Premises and equipment - net (note 4)               4,473,885        4,774,561 
Other real estate owned - net (note 5)                350,496          563,207 
Accrued interest receivable - loans                 1,710,704        1,344,360 
Accrued interest receivable - investments             222,994          295,733 
Federal Home Loan Bank stock, at cost (note 7)      5,680,500        4,121,000 
Goodwill, net of accumulated amortization of                                   
$1,532,807 in 1998 and $1,236,433 in 1997           1,923,915        2,220,289 
Other assets (note 14)                              2,936,861        2,967,987 
                                                --------------   --------------
                                                $ 322,532,594    $ 284,077,431 
                                                ==============   ==============
                                                                               
LIABILITIES AND STOCKHOLDERS' EQUITY                 1998             1997     
-------------------------------------           --------------   --------------
Liabilities:                                                                   
 Deposits (note 6):                                                            
  Demand                                        $  15,209,219    $  13,784,339 
  NOW                                              23,429,512       14,368,105 
  Money market                                     11,993,110       15,236,189 
  Regular savings                                  20,305,953       22,483,976 
  Brokered deposits                                 7,574,710        7,185,566 
  Certificates of deposit under $100,000           86,156,463       81,154,696 
  Certificates of deposit $100,000 or more         19,355,130       18,708,415 
                                                --------------   --------------
<PAGE> 46

  Total deposits                                  184,024,097      172,921,286 
 FHLB Borrowings (note 7)                         104,439,952       80,494,471 
 Note payable (note 8)                                993,055        1,298,611 
 Securities sold under repurchase agreements                                   
  (notes 2 and 9)                                   5,205,594        5,098,622 
 Other liabilities                                  2,730,369        2,168,861 
                                                --------------   --------------
  Total liabilities                               297,393,067      261,981,851 
                                                                               
Commitments and contingent liabilities                                         
 (notes 8, 16 and 17)                                                          
                                                                               
Stockholders' equity (notes 10, 11, 12 and 16):                                
 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 in 1997; 71,428 shares issued                                     
  and outstanding in 1997                                -             999,992 
 Common stock, $1 par value, 3,000,000 shares                                  
  authorized; 2,614,285 and 1,462,909 shares                                   
  issued and outstanding at June 30, 1998 and                                  
  1997, respectively                                2,614,285        1,462,909 
 Additional paid-in capital                         9,258,107        7,699,882 
 Retained earnings                                 12,331,595       11,266,984 
 Net unrealized losses on available for sale                                   
 securities (note 2)                                  (64,448)        (334,175)
                                                --------------   --------------
  Total stockholders' equity                       25,139,527       22,095,580 
                                                --------------   --------------
                                                $ 322,532,594    $ 284,077,431 
                                                ==============   ==============
</TABLE>
See accompanying notes.



<TABLE>
<CAPTION>
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1998, 1997 and 1996

                                        1998           1997           1996     
                                    -------------  -------------  -------------
<S>                                 <C>            <C>            <C>          
Interest and dividend income:                                                  
 Interest on loans                  $ 21,988,864   $ 18,973,560   $ 17,854,789 
 Interest on Federal Home Loan                                                
  Bank overnight deposits                514,113        429,531        707,262 
 Interest and dividends on                                                     
  available for sale securities        1,461,024      2,277,573      1,359,423 
 Dividends on Federal Home Loan                                                
  Bank stock                             300,664        227,360        155,256
 Other interest income                    18,346         27,697         28,409 
<PAGE> 47

                                    -------------  -------------  -------------
  Total interest income               24,283,011     21,935,721     20,105,139 
                                                                               
Interest expense:                                                              
 Deposits (note 6)                     7,586,717      7,103,375      7,348,202  
 Repurchase agreements                   206,651        199,453        166,210 
 Borrowed funds                        5,016,703      3,988,060      2,572,497 
                                    -------------  -------------  -------------
 Total interest expense               12,810,071     11,290,888     10,086,909 
                                    -------------  -------------  -------------
  Net interest income before                                                   
   provision for loan losses          11,472,940     10,644,833     10,018,230 
                                                                               
Provision for loan losses (note 3)       706,100        614,427        638,860 
                                    -------------  -------------  -------------
  Net interest income after                                                    
   provision for loan losses          10,766,840     10,030,406      9,379,370 
                                                                               
Noninterest income:                                                            
 Fees and service charges on loans       206,961        194,020        201,504 
 Fees for other services to                                                    
  customers                              596,110        657,705        615,658 
 Net securities gains (note 2)           285,716        171,080        231,344 
 Gain on trading securities                1,797         88,350         47,551 
 Gain on sales of loans                  726,599        201,418        251,597 
 Loan servicing fees                     227,409        275,496        302,261 
 Other income                            626,939        498,172        537,678 
                                    -------------  -------------  -------------
  Total noninterest income             2,671,531      2,086,241      2,187,593 
                                                                               
Noninterest expense:                                                           
 Salaries and employee benefits                                                
  (notes 15 and 16)                 $  4,638,813   $  4,614,802   $  4,687,554 
 Occupancy expense (note 4)              903,978        783,434        756,975 
 Equipment expense (note 4)              863,580        893,605        863,105 
 FDIC insurance expense (note 10)         60,097        390,494        154,285 
 Other (notes 2, 13 and 15)            3,265,249      3,036,002      3,074,369 
                                    -------------  -------------  -------------
  Total noninterest expense            9,731,717      9,718,337      9,536,288 
                                    -------------  -------------  -------------
Income before income taxes             3,706,654      2,398,310      2,030,675 
                                                                               
Income tax expense (note 14)           1,302,871        908,565        737,826 
                                    -------------  -------------  -------------
  Net income                        $  2,403,783   $  1,489,745   $  1,292,849 
                                    =============  =============  =============
                                                                               
Earnings per share                                                             
  (notes 11 and 16):                                                           
 Basic                                     1.00            .63            .56  
 Diluted                                    .86            .56            .50  

</TABLE>
See accompanying notes.



<PAGE> 48

<TABLE>
<CAPTION>

NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1998, 1997 and 1996

                                              Preferred Stock       Common
                                              Series A and B        Stock     
                                              ---------------   ---------------
<S>                                           <C>               <C>            
Balance at June 30, 1995                      $    1,999,980    $      735,442 
                                                                               
 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 $.16 per share            -                 -   
                                              ---------------   ---------------
Balance at June 30, 1996                           1,999,980         1,421,950 
                                                                
 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 $.21 per share            -                 -    
                                              ---------------   ---------------
Balance at June 30, 1997                           1,999,980         1,462,909 
                                                                               
 Net income                                             -                 -    
 Decrease in net unrealized losses on                                          
  available for sale securities                         -                 -    
 Issuance of common stock                               -                  939 
 Conversion of preferred stock Series B             (999,992)          214,284 
 Stock split in the form of a dividend                  -              740,807 
 Stock options exercised and treasury                                          
  stock purchased                                       -               32,200 
 Treasury stock sold                                    -                 -    
 Exercise of stock warrants                             -              163,146 
 Dividends on preferred stock                           -                 -    
 Dividends on common stock at $.21 per share            -                 -    
                                              ---------------  ----------------
Balance at June 30, 1998                      $      999,988   $     2,614,285 
<PAGE> 49

                                              ===============  ================
</TABLE>


<TABLE>
<CAPTION>

                                                Net Unrealized
  Additional                                     Losses on
   Paid-in         Treasury        Retained      Available for 
   Capital          Stock          Earnings     Sale Securities      Total     
--------------  --------------  --------------  ---------------  --------------
<C>             <C>             <C>             <C>              <C>            
$   6,703,434   $        -      $  10,044,825   $      (95,507)  $ 19,388,174
         -               -          1,292,849             -         1,292,849
      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)
--------------  --------------  --------------  ---------------  --------------
    7,516,227         (52,277)     10,315,041         (837,354)    20,363,567
                                                                              
         -               -          1,489,745             -         1,489,745
       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)
--------------  --------------  --------------  ---------------  --------------
    7,699,882            -         11,266,984         (334,175)    22,095,580  
                                                                               
         -               -          2,403,783             -         2,403,783  
         -               -               -             269,727        269,727 
       15,730            -               -                -            16,669 
      785,708            -               -                -              -    
         -               -           (741,902)            -            (1,095)
      158,500         (44,988)           -                -           145,712 
         -             44,988            -                -            44,988 
      598,287            -               -                -           761,433 
         -               -           (125,827)            -          (125,827)
         -               -           (471,443)            -          (471,443)
--------------  --------------  --------------  ---------------  --------------
$   9,258,107   $        -      $  12,331,595   $      (64,448)  $ 25,139,527 
==============  ==============  ==============  ===============  ==============
</TABLE>
See accompanying notes.



<TABLE>
<PAGE> 50

<CAPTION>
NORTHEAST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998, 1997 and 1996

                                        1998           1997           1996     
                                   -------------- -------------- --------------
<S>                                <C>            <C>            <C>           
Cash flows from operating                                                      
 activities:                                                                   
 Net income                        $   2,403,783  $   1,489,745  $   1,292,849 
 Adjustments to reconcile net                                                  
  income to net cash provided                                                  
  by operating activities:                                                     
   Provision for loan losses             706,100        614,427        638,860 
   Provision for losses on other                                               
    real estate owned                     62,300         39,000         94,711 
   Deferred income tax expense                                                 
    (benefit)                            (14,949)       (72,290)        42,236 
   Depreciation of premises and                                                
    equipment and other                  617,628        665,193        745,638 
   Goodwill amortization                 296,374        296,374        308,913 
   Net gain on sale of available                                               
    for sale securities                 (285,716)      (171,080)      (231,344)
   Net gains on sales of loans          (726,599)      (201,418)      (251,597)
   Originations of loans held for                                              
    sale                              (7,251,700)    (2,178,115)   (11,585,640)
   Proceeds from sale of loans                                                 
    held for sale                      7,287,744      2,430,823     11,781,652 
   Net change in trading account                                              
    securities                           (25,000)       172,621       (196,246)
   Other                                  41,035       (103,988)       (68,105)
   Change in other assets and                                                  
    liabilities:                                                              
    Interest receivable                 (293,605)      (125,996)      (209,848)
    Other assets and liabilities         466,597        (17,869)      (110,294)
                                   -------------- -------------- -------------- 
 Net cash provided by operating                                                
  activities                           3,283,992      2,837,427      2,251,785 
                                                                               
Cash flows from investing                                                      
 activities:                                                                   
 Proceeds from the sale of                                                    
  available for sale securities       27,974,991     12,377,154     16,858,706 
 Purchase of available for sale                                                
  securities                         (15,666,889)   (12,129,135)   (39,604,596)
 Proceeds from maturities and                                                  
  principal payments on available                                              
  for sale securities                  3,588,092      3,256,713      2,778,278 
 Proceeds from sale of loans          17,479,139           -              -    
 Purchases of loans                  (66,283,950)   (25,425,642)          -    
 Net increase in loans               (10,509,720)   (10,910,942)       (19,928)
 Additions to premises and                                                     
  equipment                             (363,562)    (1,043,176)      (424,061)
 Proceeds from sale of other real                                              
  estate owned                           214,884        519,871        681,386
<PAGE> 51

 Purchase of Federal Home Loan                                                 
  Bank stock                          (1,559,500)    (1,362,700)      (506,200)
                                   -------------- -------------- --------------
 Net cash used by investing                                                    
  activities                         (45,126,515)   (34,717,857)   (20,236,415)
                                                                               
Cash flows from financing                                                      
 activities:                                                                   
 Net increase (decrease) in                                                    
  deposits                         $  11,102,811  $   8,066,043  $  (3,826,275)
 Net increase in repurchase                                                    
  agreements                             106,972      1,335,656      1,177,579 
 Dividends paid                         (597,270)      (537,802)      (424,890)
 Treasury stock purchased                (44,988)       (28,420)       (52,277)
 Treasury stock sold                      44,988           -              -    
 Stock options exercised                 190,700        103,450        190,000 
 Warrants exercised                      761,433        175,000        700,000 
 Issuance of common stock                 16,669         13,487         11,558
 Stock split - payment for                                                    
  fractional shares                       (1,095)          -              -    
 Net borrowings from the Federal                                               
  Home Loan Bank                      23,945,481     27,856,994     16,363,190 
 Principal payments on notes                                                  
  payable                               (305,556)      (203,581)      (507,899)
                                   -------------- -------------- --------------
 Net cash provided by financing                                                
  activities                          35,220,145     36,780,827     13,630,986 
                                   -------------- -------------- --------------
                                                                               
Net (decrease) increase in cash                                                
 and cash equivalents                 (6,622,378)     4,900,397     (4,353,644)
                                                                               
Cash and cash equivalents,                                                     
 beginning of year                    18,774,344     13,873,947     18,227,591
                                   -------------- -------------- --------------
Cash and cash equivalents,                                                     
 end of year                       $  12,151,966  $  18,774,344  $  13,873,947 
                                   ============== ============== ============= 
                                                                               
Supplemental schedule of cash                                                  
 flow information:                                                            
 Interest paid                     $  12,727,917  $  11,159,387  $  10,103,852 
 Income taxes paid                       972,000        641,000        919,000 
                                                                               
Supplemental schedule of noncash                                               
 investing and financing                                                       
 activities:                                                                   
  Transfer from loans to other                                                 
   real estate owned               $      56,861  $     538,019  $     387,468 
  Loans originated to finance                                                  
   the sales of other real                                                     
   estate owned                             -              -           184,732 
  Net change in valuation for                                                  
   unrealized losses on available                                              
   for sale securities                   269,727        503,179        741,847 
  Net change in deferred taxes for                                            
   unrealized losses on available                                             
<PAGE> 52

   for sale securities                   138,949        259,214        382,164 
                                                                               
</TABLE>
See accompanying notes.



NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996


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.

   Merger
   ------
   On October 24, 1997, the Company merged with Cushnoc Bank and Trust Company
   in a transaction accounted for as a pooling of interest.  All financial
   information includes the financial position and results of operations of 
   Cushnoc Bank and Trust Company for all periods presented prior to the date 
   of the merger (See note 15).  Cushnoc Bank and Trust Company had a fiscal 
   year based on the twelve months ending December 31.  The financial 
   information for Cushnoc Bank and Trust Company has been included using the 
   same fiscal year presentation as Northeast Bancorp.  The effect of the 
   different fiscal years is not significant to the consolidated financial 
   statements.  Upon consummation of the merger, Cushnoc Bank and Trust Company
   was merged into the Company's banking subsidiary, Northeast Bank, F.S.B. 

   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.

   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 
   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 


<PAGE> 53
   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 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
   ----------------
   For purposes of presentation in the cash flow statements, cash equivalents 
   consist of cash and due from banks, Federal Home Loan Bank overnight 
   deposits and interest bearing deposits.  The Company is required to maintain
   a certain reserve balance in the form of cash or deposits with the Federal 
   Reserve Bank.  At June 30, 1998, the reserve balance was approximately 
   $872,000.

   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
     -----------------------------
     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 on the trade
     date using the specific identification method.

   Federal Home Loan Bank Stock
   ----------------------------
   Federal Home Loan Bank stock is carried at cost.

<PAGE> 54

   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.  The carrying value of loans held for sale 
   approximates the market value at June 30, 1998 and 1997.  Gains and losses 
   on sales of loans are determined using the specific identification method 
   and recorded as gain on sales of loans in the consolidated statements of 
   income.

   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, 1998 and 1997 is
   not material and is included in other assets in the consolidated statements 
   of financial position.  Mortgage servicing rights are amortized on an 
   accelerated method over the estimated weighted average life of the loans.  
   The Company's assumptions with respect to prepayments, which affect the 
   estimated average life of the loans, are adjusted periodically to reflect 
   current circumstances.  The Company evaluates the estimated life of its 
   servicing portfolio based on data which is disaggregated to reflect note 
   rate, type and term on the underlying loans.

   Loans
   -----
   Loans are carried at the principal amounts outstanding plus premiums paid
   and net deferred loan costs reduced by partial charge-offs. Loan origination
   fees and certain direct loan origination costs are deferred and recognized 
   in interest income as an adjustment to the loan yield over the life of the 
   related loans.  Loan premiums paid to acquire loans are recognized as a 
   reduction of interest income over the estimated life of the loans.  Loans 
   are generally placed on nonaccrual status when they are past due 90 days as 
   to either principal or interest, or when in management's judgment the 
   collectibility of interest or principal of the loan has been significantly 
   impaired.  When a loan has been placed on nonaccrual status, previously 
   accrued and uncollected interest is reversed against interest on loans.  A 
   loan can be returned to accrual status when collectibility of principal is 
   reasonably assured and the loan has performed for a period of time, 
   generally six months.  Loans are classified as impaired when it is probable 
   that the Company will not be able to collect all amounts due according to 
   the contractual terms of the loan agreement.  Factors considered by 
<PAGE> 55

   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
   ----------------------
   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 then current 
   period.

   Income Taxes
   ------------
   Deferred tax assets and liabilities are recognized for the future tax 
   consequences attributable to differences between the financial statement 
   carrying amounts of existing assets and liabilities and their respective tax
   bases.  Deferred tax assets and liabilities are measured using enacted tax 
   rates expected to apply to taxable income in the years in which those 
   temporary differences are expected to be recovered or settled.  The effect 
   on deferred tax assets and liabilities of a change in tax rates is 
   recognized in income in the period that includes the enactment date.

   Other Real Estate Owned
   -----------------------
   Other real estate owned is comprised of properties acquired through 
   foreclosure proceedings, or acceptance of a deed or title in lieu of 
<PAGE> 56

   foreclosure.  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.

   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 
   basis of the asset.

   Advertising Expense
   -------------------
   Advertising costs are expensed as incurred.  Advertising costs were
   approximately $172,000, $187,000, and $78,000 for the years ended June 30, 
   1998, 1997 and 1996, 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, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                       1998                      1997 
                             ------------------------  ------------------------
                                             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             $ 4,696,659  $ 4,698,266  $ 2,948,527  $ 2,905,402
   Corporate bonds               202,952      203,484      259,749      252,805
   Mortgage-backed                                                             
    securities                 7,723,843    7,714,332   25,211,935   24,801,836
   Equity securities           1,083,018      992,741      896,739      850,582
                             -----------  -----------  -----------  -----------
                             $13,706,472  $13,608,823  $29,316,950  $28,810,625
                             ===========  ===========  ===========  ===========
</TABLE>                                                                       
                                                                               
   The gross unrealized gains and unrealized losses on available for sale      
   securities are as follows:                                                 

<TABLE>
<PAGE> 57

<CAPTION>

                                       1998                      1997          
                             ------------------------  ------------------------
                                Gross        Gross        Gross        Gross
                             Unrealized   Unrealized   Unrealized   Unrealized
                                Gains       Losses        Gains       Losses   
                             -----------  -----------  -----------  -----------
<S>                          <C>          <C>          <C>          <C>        
   Debt securities issued                                                      
    by the U. S. Treasury                                                      
    and other U. S.                                                            
    Government corporations                                                    
    and agencies             $     4,157  $     2,550  $      -     $    43,125
   Corporate bonds                   789          257         -           6,944
   Mortgage-backed                                                             
     securities                   27,730       37,241       37,503      447,602
   Equity securities              16,676      106,953       28,965       75,122
                             -----------  -----------  -----------  -----------
                             $    49,352  $   147,001  $    66,468  $   572,793
                             ===========  ===========  ===========  ===========
</TABLE>

   At June 30, 1998, investment securities with a market value of approximately
   $8,547,000 were pledged as collateral to secure outstanding repurchase 
   agreements.

   At June 30, 1998 and 1997, included in net unrealized losses on available 
   for sale securities as a reduction to stockholders' equity are net 
   unrealized losses of $97,649 and $506,325, respectively, net of the deferred
   tax effect of $33,201 and $172,150, respectively.

   The cost and fair values of available for sale securities at June 30, 1998 
   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                                  $   347,253    $   347,253 
   Due after one year through five years                452,952        450,984 
   Due after five years through ten years             1,100,000      1,103,200 
   Due after ten years                                2,999,406      3,000,313 
                                                    ------------   ------------
                                                      4,899,611      4,901,750 
                                                                               
   Mortgage-backed securities (including                                       
    securities with interest rates ranging                                     
    from 5.15% to 9.0% maturing                                               
    September 2003 to February 2026)                  7,723,843      7,714,332 
   Equity securities                                  1,083,018        992,741 
                                                    ------------   ------------
                                                    $13,706,472    $13,608,823 
<PAGE> 58

                                                    ============   ============
</TABLE>

   The realized gains and losses on available for sale securities for the year 
   ended June 30, 1998 were $288,196 and $2,480, respectively, for the year
   ended June 30, 1997 were $171,205 and $125, respectively, and for the year 
   ended June 30, 1996 were $248,542 and $17,198, respectively.

   Based on management's assessment of available for sale securities, there has
   been more than a temporary decline in fair value of certain securities.  At 
   June 30, 1998, 1997 and 1996, write-downs of available for sale securities 
   were $172,235, $110,000 and $93,819, respectively, and are included in other
   expense in the statements of income.

3. Loans
   -----
   The Company's lending activities are predominantly conducted in south 
   central and western Maine.  However, the Company does purchase residential 
   mortgage loans in the open market out of this geographical area. The Company
   grants single-family and multi-family residential loans, commercial real 
   estate loans, commercial loans and a variety of consumer loans.  In 
   addition, the Company grants loans for the construction of residential 
   homes, multi-family properties, commercial real estate properties and for 
   land development.  Also, the Company participates in indirect lending 
   arrangements for automobile and mobile home loans.  The Company's indirect 
   lending activities are conducted in south central and western Maine.  Most 
   loans granted by the Company are collateralized by real estate.  The ability
   and willingness of residential and commercial real estate, commercial and 
   construction loan borrowers to honor their repayment commitments is 
   generally dependent on the health of the real estate 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 
   $2,219,800 and $2,165,044 at June 30, 1998 and 1997, respectively. In 1998,
   new loans granted to related parties totaled $1,432,402; payments and 
   reductions amounted to $1,377,646.  New loans granted to related parties in 
   1997 totaled $413,169; payments and reductions amounted to $913,409.  

   Included in the loan portfolio are unamortized premiums on purchased loans 
   of $1,016,498 and $297,839 at June 30, 1998 and 1997, respectively.

   Activity in the allowance for loan losses was as follows:     
<TABLE>
<CAPTION>
                                                 Years Ended June 30,
                                       ----------------------------------------
                                           1998          1997          1996    
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>         
   Balance at beginning of year        $ 2,741,809   $ 2,760,872   $ 2,661,246 
   Provision charged to operating                                              
    expenses                               706,100       614,427       638,860 
   Loans charged off                      (785,111)     (772,250)     (620,301)
   Recoveries on loans charged off         315,202       138,760        81,067 
<PAGE> 59

                                       ------------  ------------  ------------
     Net loans charged off                (469,909)     (633,490)     (539,234)
                                       ------------  ------------  ------------
   Balance at end of year              $ 2,978,000   $ 2,741,809   $ 2,760,872 
                                       ============  ============  ============
</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 allowance for loan losses includes impairment reserves related to loans
   that are identified as impaired, which are based on discounted cash flows 
   using the loan's effective interest rate, 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. 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 
   has taken possession of the collateral, regardless of whether formal 
   foreclosure proceedings take place.

   At June 30, 1998, total impaired loans were $1,623,720 of which $927,355
   had related allowances of $251,474.  During the year ended June 30, 1998, 
   the income recognized related to impaired loans was $19,693 and the average 
   balance of outstanding impaired loans was $1,956,488.  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.  During the year ended June 30, 
   1996, the average balance of outstanding impaired loans was $1,799,087 and 
   income recognized on impaired loans was $87,128.  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, 1998 and 1997 totaled approximately $2,248,000 and $2,881,000, 
   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, 1998, 1997 and 1996, totaled approximately 
   $165,000, $203,000, $251,000, 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 
<PAGE> 60

   of which have been modified.

   The Company was servicing for others, mortgage loans of approximately 
   $55,581,000, $42,509,000 and $49,616,000 at June 30, 1998, 1997 and 1996, 
   respectively.  

4. Premises and Equipment
   ----------------------
   Premises and equipment at June 30, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                        1998           1997    
                                                    ------------   ------------
<S>                                                 <C>            <C>         
   Land                                             $ 1,037,503    $ 1,044,109 
   Buildings                                          2,503,254      2,573,698 
   Leasehold and building improvements                1,130,270      1,061,448 
   Furniture, fixtures and equipment                  4,480,402      4,180,570
                                                    ------------   ------------
                                                      9,151,429      8,859,825 
   Less accumulated depreciation                      4,677,544      4,085,264 
                                                    ------------   ------------
   Net premises and equipment                       $ 4,473,885    $ 4,774,561 
                                                    ============   ============
</TABLE>

   Depreciation and amortization of premises and equipment, included in 
   occupancy and equipment expense, was $615,591, $660,871 and $741,180 for the
   years ended June 30, 1998, 1997 and 1996, respectively.

5. Other Real Estate Owned
   -----------------------
   The following table summarizes the composition of other real estate owned 
   at June 30:

<TABLE>
<CAPTION>
                                                        1998           1997
                                                    ------------   ------------
<S>                                                 <C>            <C>         
   Real estate properties acquired in settlement                               
    of loans                                        $   355,596    $   614,046 
   Less allowance for losses                              5,100         50,839
                                                    ------------   ------------
                                                    $   350,496    $   563,207 
                                                    ============   ============
</TABLE>

   Activity in the allowance for losses on other real estate owned was as 
   follows:

<TABLE>
<CAPTION>

                                           1998          1997          1996    
                                       ------------  ------------  ------------
<PAGE> 61

<S>                                    <C>           <C>           <C>         
   Balance at beginning of year        $    50,839   $   100,000   $     5,289 
   Provision for losses on other                                               
     real estate owned                      62,300        39,000        94,711 
   Other real estate owned write-downs    (108,039)      (88,161)         -    
                                       ------------  ------------  ------------
   Balance at end of year              $     5,100   $    50,839   $   100,000 
                                       ============  ============  ============
</TABLE>

6. Deposits
   --------
   Deposits at June 30 are summarized as follows:

<TABLE>
<CAPTION>

                           Weighted
                           Average  
                             Rate           1998                  1997         
                           at June  --------------------- ---------------------
                           30, 1998    Amount     Percent    Amount     Percent
                           -------- ------------- ------- ------------- -------
<S>                        <C>      <C>           <C>     <C>           <C>    
   Demand                    0.00%  $ 15,209,219    8.3%  $ 13,784,339    8.0% 
   NOW                       3.11     23,429,512   12.7     14,368,105    8.3  
   Money market              2.74     11,993,110    6.5     15,236,189    8.8  
   Regular savings           2.75     20,305,953   11.0     22,483,976   13.0  
   Certificates of deposit:                                                    
        1.00 - 3.75%         1.00        360,674     .2        328,940     .2  
        3.76 - 5.75%         5.45     55,603,422   30.2     56,951,216   32.9  
        5.76 - 7.75%         6.09     57,105,075   31.0     49,635,723   28.7  
        7.76 - 9.75%         8.04         17,132     .1        132,798     .1
                           -------- ------------- ------- ------------- -------
                             4.42%  $184,024,097  100.0%  $172,921,286  100.0%
                           ======== ============= ======= ============= =======

</TABLE>
 
   At June 30, 1998, scheduled maturities of certificates of deposit are as 
   follows:

<TABLE>
<CAPTION>
                                                                         There-
                  1999        2000        2001       2002       2003     after 
               ----------- ----------- ---------- ---------- ---------- -------
<S>            <C>         <C>         <C>        <C>        <C>        <C>    
  1.00 - 3.75% $   311,876 $    48,798 $     -    $     -    $     -    $  - 
  3.76 - 5.75%  47,742,033   5,193,177  1,257,912    357,928  1,041,829  10,543
  5.76 - 7.75%  26,433,161  17,791,377  7,531,021  4,652,184    697,332    -   
  7.76 - 9.75%      17,132        -          -          -          -       -   

</TABLE>

   Interest expense on deposits for the years ended June 30, 1998, 1997 and 
   1996 is summarized as follows:

<PAGE> 62

<TABLE>
<CAPTION>
                                           1998          1997          1996    
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>         
   NOW                                 $   269,412   $   216,437   $   319,899 
   Money market                            466,453       536,623       555,919 
   Regular savings                         569,901       592,148       642,216 
   Certificates of deposit               6,280,951     5,758,167     5,830,168 
                                       ------------  ------------  ------------
                                       $ 7,586,717   $ 7,103,375   $ 7,348,202 
                                       ============  ============  ============
</TABLE>

7. Federal Home Loan Bank Borrowings
   ---------------------------------
   A summary of borrowings from the Federal Home Loan Bank are as follows:

<TABLE>
<CAPTION>

                               June 30, 1998                          
          -------------------------------------------------------
             Principal           Interest            Maturity    
              Amounts              Rates               Dates          
          ---------------     ---------------     ---------------
          <C>                 <C>                 <C>             
          $   43,745,440       5.55% - 6.00%           1999        
               4,000,000       5.88% - 6.27%           2000         
               1,212,676       5.56% - 6.40%           2001             
               1,138,627       6.21% - 6.49%           2002          
               9,631,854       5.69% - 6.64%           2003           
               1,711,355       6.36% - 6.67%           2004          
               9,000,000       5.25% - 6.65%           2005         
              34,000,000       4.89% - 5.68%           2008          
          ---------------                                              
          $  104,439,952                                           
          ===============                                            
                                                                         
                                  June 30, 1997                              
          -------------------------------------------------------    
             Principal           Interest            Maturity     
              Amounts              Rates               Dates      
          ---------------     ---------------     ---------------
          <C>                 <C>                 <C>              
          $   55,458,706       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
                 740,762       6.61% - 6.64%           2003
               1,973,614       6.36% - 6.67%           2004
               2,000,000           6.65%               2005
          ---------------
          $   80,494,471
          ===============
<PAGE> 63

</TABLE>

   Residential mortgages on one to four family owner occupied homes, 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.  Several 
   of the Federal Home Loan Bank borrowings held at June 30, 1998 are 
   adjustable and, therefore, the rates are subject to change.

8. Note Payable
   ------------
   The note payable at June 30, 1998 and 1997 consists of a 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 $400,000 key man life insurance policy as collateral for 
   the loan.

   The loan agreement contains certain covenants which limit 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, 
   1998, the Company complied with these covenants.

9. Securities Sold Under Repurchase Agreements
   -------------------------------------------
   During 1998 and 1997, the Company sold securities under agreements to 
   repurchase.  The weighted average interest rate on repurchase agreements was
   4.20% and 4.25% at June 30, 1998 and 1997, respectively.  These borrowings, 
   which were scheduled to mature within 180 days, were collateralized by FHLMC
   and GNMA securities with a market value of $8,547,000 and amortized cost of 
   $8,558,000 at June 30, 1998, and a market value of $9,161,000 and amortized 
   cost of $9,300,000 at June 30, 1997.  The average balance of repurchase 
   agreements was $4,917,000 and $4,566,000 during the years ended June 30, 
   1998 and 1997, respectively.  The maximum amount outstanding at any month-
   end during 1998 and 1997 was $5,737,000 and $5,214,000, respectively.  
   Securities sold under these agreements were under the control of the Company
   during 1998 and 1997.

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

<PAGE> 64

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

    As of June 30, 1998 and 1997, the most recent notification from the Office 
    of Thrift Supervision (OTS) categorized the Bank as well capitalized.  
    There are no conditions or events since that notification that management 
    believes have changed the institution's category.

    The following tables illustrate the actual and required amounts and ratios 
    for the Company and the Bank as set forth by the Federal Deposit Insurance 
    Corporation (FDIC) and the OTS at the dates indicated.

<TABLE>
<CAPTION>
                                                                To Be "Well
                                                             Capitalized" Under
                                              For Capital    Prompt Corrective 
                              Actual      Adequacy Purposes  Action Provisions 
                          --------------  -----------------  ------------------
                           Amount  Ratio    Amount   Ratio     Amount    Ratio 
                          -------- -----  ---------- ------  ---------- -------
<S>                       <C>      <C>    <C>        <C>     <C>        <C>    
   (Dollars in Thousands)                                                      
   As of June 30, 1998:                                                        
    Tier 1 (Core) capital                                                      
     (to risk weighted                                                         
      assets):                                                                 
     Northeast Bancorp    $ 22,211 10.2%  >$  8,713  >4.0%   >$ 13,070  > 6.0% 
     Northeast Bank         22,695 10.4%  >   8,711  >4.0%   >  13,067  > 6.0% 
                                                                               
    Tier 1 (Core) capital                                                      
     (to total assets):                                                        
     Northeast Bancorp    $ 22,211 6.9%   >$ 12,839  >4.0%   >$ 16,049  > 5.0% 
     Northeast Bank         22,695 7.1%   >  12,837  >4.0%   >  16,046  > 5.0% 
                                                                               
    Total capital (to risk                                                     
     weighted assets):                                                         
     Northeast Bancorp    $ 23,891 11.0%  >$ 17,427  >8.0%   >$ 21,784  >10.0% 
     Northeast Bank         24,374 11.2%  >  17,422  >8.0%   >  21,778  >10.0% 
                                                                               
                                                                     For
                                               Minimum        Classification As
                              Actual      Capital Adequacy    Well Capitalized 
                          --------------  -----------------  ------------------
                           Amount  Ratio    Amount   Ratio     Amount    Ratio 
                          -------- -----  ---------- ------  ---------- ------- 
   (Dollars in Thousands)                                                      
   As of June 30, 1997:                                                        
    Tangible capital:                                                          
     Northeast Bancorp    $ 18,180  6.4%  >$  4,232  >1.5%   >$  4,232  > 1.5% 
     Northeast Bank         19,930  7.1%  >   4,226  >1.5%   >   4,226  > 1.5% 
                                                                                   
<PAGE> 65

    Tier I (Core) capital                                                      
     (to total assets):                                                        
     Northeast Bancorp    $ 18,180  6.4%  >$  8,463  >3.0%   >$ 14,106  > 5.0% 
     Northeast Bank         19,930  7.1%  >   8,452  >3.0%   >  14,087  > 5.0% 
                                                                               
    Total capital (to risk                                                     
     weighted assets):                                                         
     Northeast Bancorp    $ 19,491 11.1%  >$ 14,022  >8.0%   >  17,528  >10.0% 
     Northeast Bank         21,237 12.2%  >  13,953  >8.0%   >  17,442  >10.0% 

</TABLE>

    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 
    regulatory authorities.  The amount of dividends paid per share on common  
    stock in the consolidated statements of changes in stockholders' equity for
    the years ended June 30, 1998, 1997 and 1996 have been restated for the 
    effects of the stock split effected in the form of a dividend in December 
    1997.

    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.

11. Earnings Per Share
    ------------------
    Earnings per share (EPS) are computed by dividing net income available to 
    common stockholders by the weighted average number of shares outstanding.  
    The following table shows the weighted average number of shares outstanding
    for each of the last three years.  All amounts have been restated to 
    reflect the three-for-two stock split effected in the form of a dividend in
    December 1997.  EPS amounts for 1997 and 1996 have also been restated to 
    give effect to Statement of Financial Accounting Standards No. 128, 
    Earnings Per Share, adopted by the Company in 1998.  Shares issuable 
    relative to stock options granted and outstanding warrants have been 
    reflected as an increase in the shares outstanding used to calculate 
    diluted EPS, after applying the treasury stock method.  The number of 
    shares outstanding for Basic and Diluted EPS are presented as follows:
        
<TABLE>
<CAPTION>
                                           1998          1997          1996    
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>         
    Average shares outstanding,                                                
     used in computing Basic EPS         2,277,165     2,152,564     2,057,890 
                                                                               
    Effect of Dilutive Securities:                                             
      Stock warrants and options            41,797       122,937       129,168 
      Options and warrants exercised       167,116        42,063        61,463 
      Convertible preferred stock          309,165       350,646       350,646 
                                       ------------  ------------  ------------
<PAGE> 66

    Average equivalent shares                                                  
     outstanding, used in computing                                            
     Diluted EPS                         2,795,243     2,668,210     2,599,167 
                                       ============  ============  ============
                                                                              
</TABLE>

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

<TABLE>
<CAPTION>
                                           1998          1997          1996    
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>         
    Net income                         $ 2,403,783   $ 1,489,745   $ 1,292,849 
                                                                               
    Preferred stock dividends             (125,827)     (139,997)     (139,999)
                                       ------------  ------------  ------------
    Net income available to common                                             
     stockholders                      $ 2,277,956   $ 1,349,748   $ 1,152,850 
                                       ============  ============  ============
</TABLE>

12. Preferred Stock
    ---------------
    The preferred stock, Series A, may be converted to common stock on a three 
    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.  In April of 1998, the preferred stock Series B was
    converted into common stock at a three to one ratio.  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.  During 1998, 163,146 
    warrants were exercised for a total capital contribution of $761,443.  At 
    June 30, 1998, all warrants have been exercised.  

13. Other Expenses
    --------------
    Other expenses includes the following for the years ended June 30, 1998, 
    1997 and 1996:

<TABLE>
<CAPTION>
                                           1998          1997          1996    
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>         
    Merger expense (note 15)           $   318,061   $      -      $      -   
    Professional fees                      310,390       398,704       350,214 
    Insurance                              104,391       125,670       133,734 
    Supplies                               265,954       263,648       241,403 
    Real estate owned expenses              50,912        64,907        87,442 
    Provision for losses on OREO            62,300        39,000        94,711 
    Goodwill amortization                  296,374       296,374       308,913 
    Write-down on securities               172,235       110,000        93,819
    Other                                1,684,632     1,737,699     1,764,133 
<PAGE> 67

                                       ------------  ------------  ------------
                                       $ 3,265,249   $ 3,036,002   $ 3,074,369 
                                       ============  ============  ============

</TABLE>

14. Income Taxes
    ------------
    The current and deferred components of income tax expense (benefit) were 
    as follows for the years ended June 30, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                           1998          1997          1996    
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>         
    Federal:                                                                   
     Current                           $ 1,265,879   $   942,244   $   664,655 
     Deferred                              (14,949)      (72,290)       42,236 
                                       ------------  ------------  ------------
                                         1,250,930       869,954       706,891 
                                                                               
    State and local - current               51,941        38,611        30,935 
                                       ------------  ------------  ------------
                                       $ 1,302,871   $   908,565   $   737,826 
                                       ============  ============  ============
</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, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                              1998               1997               1996         
                        -----------------  -----------------  -----------------
                                    % 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  $1,260,262   34.0%  $ 815,425   34.0%  $ 690,430   34.0%
    State tax, net of                                                         
     federal tax benefit   34,281     .9      25,483    1.1      20,417    1.0
    Amortization of                 
     goodwill              42,192    1.1      42,192    1.8      42,192    2.1
    Dividend received              
     deduction             (7,848)   (.2)     (6,873)   (.3)    (6,903)    (.3)
    Low income/                                                               
     rehabilitation                                                  
     credit               (20,000)   (.5)    (20,000)   (.8)    (20,000)  (1.0)
    Other                  (6,016)   (.2)     52,338    2.1      11,690     .5
                       ----------- ------  ---------- ------  ---------- ------
<PAGE> 68

                       $1,302,871   35.1%  $ 908,565   37.9%  $ 737,826   36.3%
                       =========== ======  ========== ======  ========== ======
</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, 1998 and 1997 are presented below:

<TABLE>
<CAPTION>
                                                         1998          1997    
                                                     ------------  ------------
<S>                                                  <C>           <C>         
    Deferred tax assets:                                                       
     Loans, principally due to allowance for                                   
      loan losses                                    $ 1,013,000   $   890,000 
     Deferred gain on loan sales                          51,000        67,000 
     Interest on nonperforming loans                      56,000        60,000 
     Difference in tax and financial statement                                
      bases of investments                               154,000       241,000 
     Difference in tax and financial statement                                 
      amortization of goodwill                           100,000        73,000 
     Other                                                57,000        63,000 
                                                     ------------  ------------
      Total deferred tax assets                        1,431,000     1,394,000 
                                                                               
    Deferred tax liabilities:                                                  
     Loan loss reserve - tax                             (89,000)      (73,000)
     Mortgage servicing assets                          (124,000)      (26,000)
     Other                                               (53,000)       (6,000)
                                                     ------------  ------------
      Total deferred tax liabilities                    (266,000)     (105,000)
                                                     ------------  ------------
      Net deferred tax assets, included in                                     
       other assets                                  $ 1,165,000   $ 1,289,000 
                                                     ============  ============
</TABLE>

    The Company has sufficient refundable taxes paid in available carryback 
    years to fully realize its recorded deferred tax asset of $1,431,000.  
    Accordingly, no valuation allowance has been recorded at June 30, 1998 and 
    1997.
         
    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 
<PAGE> 69

    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.
      
15. Merger
    ------
    In October 1997, the Company issued approximately 188,000 shares of its 
    common stock for all the outstanding common stock of Cushnoc Bank and Trust
    Company, of Augusta, Maine (Cushnoc).  Cushnoc shareholders received 2.089 
    shares of the Company's common stock for each share of Cushnoc common 
    stock.  The merger qualified as a tax-free reorganization and was accounted
    for as a pooling of interests.  Accordingly, the Company's consolidated 
    financial statements were restated for all periods prior to the business 
    combination to include the results of operations, financial position and 
    cash flows of Cushnoc.  No adjustments were necessary to conform Cushnoc's 
    methods of accounting to the methods used by the Company.  There were no 
    significant intercompany transactions prior to consummation of the merger. 
    The costs associated with the merger totaled approximately $435,000, 
    $117,000 is included in salaries and employee benefits and $318,000 is 
    included in other expense, in the 1998 statement of income.

    The results of operations previously reported by the separate companies 
    and the combined amounts presented in the accompanying consolidated 
    financial statements are summarized below:

<TABLE>
<CAPTION>
                                     Through        Year Ended     Year Ended  
                                 October 24, 1997  June 30, 1997  June 30, 1996
                                 ----------------  -------------  -------------
<S>                              <C>               <C>            <C>          
    Interest Income:                                                            
                                                                               
    Northeast Bancorp            $     7,280,300   $ 20,029,140   $ 17,994,862 
    Cushnoc Bank                         613,733      1,906,581      2,110,277 
                                 ----------------  -------------  -------------
    Combined                     $     7,894,033   $ 21,935,721   $ 20,105,139 
                                 ================  =============  =============
    Net Income (Loss):                                                         
                                                                               
    Northeast Bancorp            $       432,319   $  1,507,103   $  1,193,420 
    Cushnoc Bank                          29,435        (17,358)        99,429 
                                 ----------------  -------------  -------------
    Combined                     $       461,754   $  1,489,745   $  1,292,849 
                                 ================  =============  =============
</TABLE>
       
    There were no other changes in stockholders' equity prior to consummation 
    of the merger in fiscal 1998 that were material to the financial position 
    of the Company.

16. Employee Benefit Plans
    ----------------------
    Profit Sharing Plan
    -------------------
<PAGE> 70

    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, 1998, 1997 and 1996 were $43,500, $130,000 and $99,000, 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, 1998, 1997 and 
    1996, the Company contributed approximately $60,700, $38,300 and $36,800, 
    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 to employees of the Company and nonqualified 
    stock options, may be granted to employees and nonemployee directors.  All 
    options granted under the Option Plans will be required to have an exercise
    price per share equal to at least the fair market value per share of common
    stock on the date the option is granted.  Options immediately vest upon 
    being granted.  The options are exercisable for a maximum of ten years 
    after the options are granted in the case of all incentive stock options, 
    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 354,000 shares of 
    unissued common stock are reserved for issuance pursuant to incentive stock
    options and 90,000 shares of unissued common stock are reserved for 
    issuance pursuant to nonqualified stock options.  The number of shares 
    reserved for the option plans did not change in 1998, except for the effect
    of the stock split.

    The number of shares and the exercise prices in the following table have 
    been retroactively restated for the stock split effected in the form of a 
    dividend in December 1997.  A summary of the qualified and non-qualified 
    option activity for the years ended June 30 follows:

<TABLE>
<CAPTION>
                            1998                1997                1996       
                     ------------------  ------------------  ------------------
                              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                                                             
<PAGE> 71

     year            130,500  $   6.01   139,500  $   5.11   204,000  $   4.70 
    Granted           41,250     18.50    22,500      8.33      -          -   
    Exercised        (46,000)     5.11   (30,000)     3.45   (57,000)     3.33 
    Expired           (2,750)    10.18    (1,500)     8.33    (7,500)     7.50 
                     -------- ---------  -------- ---------  --------  --------
    Outstanding at                                                             
     end of year     123,000  $  10.44   130,500  $   6.01   139,500  $   5.11 
                     ======== =========  ======== =========  ======== =========
    Options                                                                    
     exercisable                                                              
     at year end     123,000  $  10.44   130,500  $   6.01   139,500  $   5.11 
</TABLE>

    The following table summarizes information about stock options outstanding 
    at June 30, 1998:

<TABLE>
<CAPTION>
                                       Options Outstanding  
                      ------------------------------------------------------
                           Number        Weighted-Average
       Range of        Outstanding at      Remaining        Weighted-Average
    Exercise Prices    June 30, 1998     Contractual Life    Exercise Price     
    ---------------   ----------------   ----------------   ----------------
    <C>               <C>                <C>                <C>              
    $3.58 to $9.50         81,750           6.0 years       $      6.37        
        $18.50             41,250           9.5                   18.50        
                      ----------------   ----------------   ----------------
                                                                              
    $3.58 to $18.50       123,000           8.0             $     10.44      
                      ================   ================   ================

</TABLE>

    The per share weighted average fair value of stock options granted during 
    1998 and 1997 was $6.24 and $3.15, respectively, on the date of the grants 
    using the Black Scholes option-pricing model as a valuation technique with 
    the following average assumptions:  expected dividend yield, 1.40% and 
    2.21%; risk-free interest rate, 5.46% and 6.45%; expected life, 8 years and
    8 years; and expected volatility, 22.49% and 10.84%, respectively.

    For financial statement purposes, the Company measures the compensation 
    costs of its stock option plans under Accounting Principles Board (APB) 
    Opinion No. 25 whereby, no compensation cost is recorded if, at the grant 
    date, the exercise price of the options is equal to the fair market value 
    of the Company's common stock.  Had the Company determined cost based on 
    the fair value at the grant date for its stock options under FASB Statement
    No. 123, Accounting for Stock-Based Compensation, the Company's net income
    and earnings per share for the year ended June 30, 1998 and June 30, 1997 
    would have been reduced to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
                               Net                    Earnings Per Share   
                              Income               Basic            Diluted    
                          ---------------     ---------------   ---------------
<PAGE> 72

<S>                       <C>                 <C>               <C>            
    June 30, 1998:                                                             
     As reported          $    2,403,783      $      1.00        $      0.86
     Pro forma            $    2,225,811      $      0.92        $      0.80
                                                                             
    June 30, 1997:                                                           
     As reported          $    1,489,745      $      0.63        $      0.56
     Pro forma            $    1,462,953      $      0.61        $      0.55

</TABLE>

    The pro forma amounts reflect only stock options granted in 1997 and
    subsequent years.  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 156,000 
    shares.

17. 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>

                                                    1998             1997      
                                               ---------------  ---------------
<S>                                            <C>              <C>            
    Commitments to originate loans:                                            
     Residential real estate mortgages         $   6,392,000   $     2,404,000 
     Commercial real estate mortgages,                                         
      including multi-family residential                                       
      real estate                                   1,510,000        2,773,000 
<PAGE> 73

     Commercial business loans                      3,460,000        1,068,000 
                                               ---------------  ---------------
                                                   11,362,000        6,245,000 
                                                                               
    Unused lines of credit                         14,585,000        9,999,000 
    Standby letters of credit                         329,000          491,000 
    Unadvanced portions of construction loans       1,422,000        1,077,000 

</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 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 $380,000, $246,000 and $167,000 for
    the years ended June 30, 1998, 1997 and 1996, respectively.

    Approximate minimum lease payments over the remaining terms of the leases 
    at June 30, 1998 are as follows:

<PAGE> 74

<TABLE>
                    <C>                 <C>
                    1999                $   324,000
                    2000                    162,000
                    2001                    132,000
                    2002                    132,000
                    2003                    132,000
                    2004 and after          480,000
                                        ------------
                                        $ 1,362,000
                                        ============
</TABLE>

18. Condensed Parent Information
    ----------------------------
    Condensed financial statements for Northeast Bancorp at June 30, 1998 and 
    1997 and for each of the years in the three year period ended June 30, 1998
    are presented below.

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

<TABLE>
<CAPTION>

                                                          June 30,             
                                              ---------------------------------
                   Assets                          1998              1997
    -------------------------------------     ---------------   ---------------
    <S>                                       <C>               <C>            
    Cash and due from banks                   $    1,104,504    $      818,965 
    Investment in subsidiary                      23,908,576        21,029,151 
    Premises and equipment, net                         -              376,012 
    Goodwill, net                                    713,819           815,793 
    Other assets                                     413,620           367,118 
                                              ---------------   ---------------
      Total assets                            $   26,140,519    $   23,407,039 
                                              ===============   ===============
                                                                               
    Liabilities and Stockholders' Equity                                       
    ------------------------------------
    Note payable                              $      993,055    $    1,298,611 
    Other liabilities                                  7,937            12,848 
                                              ---------------   ---------------
                                                   1,000,992         1,311,459 
    Stockholders' equity                          25,139,527        22,095,580 
                                              ---------------   ---------------
      Total liabilities and stockholders'                                      
        equity                                $   26,140,519    $   23,407,039 
                                              ===============   ===============
</TABLE>

    Statements of Income
    --------------------

<TABLE>
<CAPTION>
<PAGE> 75

                                                    Years Ended June 30,       
                                            -----------------------------------
                                               1998        1997         1996  
                                            ----------- ----------- -----------
<S>                                         <C>         <C>         <C>        
    Income:                                                                   
     Dividends from banking subsidiary      $     -     $     -     $1,436,000 
     Management fees charged to subsidiary        -           -      2,119,992 
     Other income                               76,556      16,232      25,100 
                                            ----------- ----------- ---------- 
       Total income                             76,556      16,232   3,581,092 
                                                                               
    Expenses:                                                                 
     Amortization expense                      101,974     101,973     114,513 
     Interest on note payable                   89,884     112,753     176,140 
     Salaries and benefits                        -           -      1,326,271 
     Occupancy expense                          46,611      65,257     140,065 
     Equipment expense                            -           -        179,977 
     General and administrative expenses        97,969      86,457     422,411 
                                            ----------- ----------- -----------
       Total expenses                          336,438     366,440   2,359,377 
                                            ----------- ----------- -----------
                                                                               
     Income (loss) before income tax                                            
      benefit, and equity in undistributed                                      
      net income of subsidiary                (259,882)   (350,208)  1,221,715 
                                                                               
    Income tax benefit                          53,967      82,371      31,771 
                                            ----------- ----------- -----------
     Income (loss) before equity in                                            
      undistributed net income of                                              
      subsidiary                              (205,915)   (267,837)  1,253,486 
                                                                               
    Equity in undistributed net income                                         
     of subsidiary                           2,609,698   1,757,582      39,363 
                                            ----------- ----------- -----------
                                                                               
       Net income                           $2,403,783  $1,489,745  $1,292,849 
                                            =========== =========== ===========
                                                                               
                                                    Years Ended June 30,    
                                            -----------------------------------
    Statements of Cash Flows                    1998        1997        1996    
                                            ----------- ----------- -----------
    Cash flows from operating activities:                                      
     Net income                             $2,403,783  $1,489,745  $1,292,849 
     Adjustments to reconcile net income                                       
      to net cash provided (used) by                                           
      operations:                                                              
       Depreciation and amortization           110,658     114,775     253,569
       Treasury stock bonused                     -         13,374        -    
       Undistributed earnings of subsidiary (2,609,698) (1,757,582)    (39,363)
       (Increase) decrease in other assets     (46,502)     17,467     (72,132)
       Decrease in other liabilities            (4,911)    (56,337)    (70,375)
<PAGE> 76

                                            ----------- ----------- -----------
                                                                               
     Net cash (used) provided by operating                                     
      activities                              (146,670)   (178,558)  1,364,548 
                                                                               
    Cash flows from investing activities:                                      
     Proceeds from sale of premises and                                        
      equipment to subsidiary                  367,696     245,167      24,473 
     Purchase of premises and equipment           (368)     (7,086)   (167,217)
                                            ----------- ----------- -----------
     Net cash provided (used) by                                               
      investing activities                     367,328     238,081    (142,744)
                                                                               
    Cash flows from financing activities:                                      
     Principal payments on note payable       (305,556)   (201,389)   (500,000)
     Stock options exercised                   190,700     103,450     190,000
     Proceeds from issuance of common stock     16,669      13,487      11,558
     Treasury stock purchased                  (44,988)    (28,420)    (52,277)
     Treasury stock sold                        44,988        -           -    
     Dividends paid to stockholders           (597,270)   (537,802)   (424,890)
     Warrants exercised                        761,433     175,000     700,000
     Stock split - payment for fractional                                     
      shares                                    (1,095)       -           -    
                                            ----------- ----------- -----------
     Net cash flow provided (used) by                                          
      financing activities                      64,881    (475,674)    (75,609)
                                            ----------- ----------- -----------
     Net increase (decrease) in cash           285,539    (416,151)  1,146,195 
                                                                               
    Cash and cash equivalents, beginning                                       
     of year                                   818,965   1,235,116      88,921 
                                            ----------- ----------- -----------
    Cash and cash equivalents, end of year  $1,104,504  $  818,965  $1,235,116 
                                            =========== =========== ===========
                                                                               
    Supplemental schedule of cash flow                                         
     information:                                                              
    Interest paid                           $   91,921  $  111,490  $  157,959
    Income taxes paid                          972,000     641,000     919,000

</TABLE>

19. 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 
<PAGE> 77

    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 
    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 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.


<PAGE> 78

    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, Note 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 note 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
    -----------
    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, 1998 and 1997:

<TABLE>
<CAPTION>
                                 June 30, 1998             June 30, 1997
                           -------------------------  -------------------------
                             Carrying    Estimated      Carrying    Estimated  
                              Value      Fair Value      Value      Fair Value 
                           ------------ ------------  ------------ ------------
<S>                        <C>          <C>           <C>          <C>         

<PAGE>79

    Non-Trading                                                                
     Instruments:                                                              
    --------------                                                             
    Financial assets:                                                          
     Cash and cash                                                             
      equivalents          $12,152,000  $12,152,000   $18,774,000  $18,774,000 
     Available for sale                                                       
      securities            13,609,000   13,609,000    28,811,000   28,811,000 
     Loans held for sale       370,000      372,000       240,000      242,000 
     Loans                 279,053,000  282,020,000   219,940,000  221,266,000 
     Interest receivable     1,934,000    1,934,000     1,640,000    1,640,000 
                                                                               
    Financial liabilities:                                                     
     Deposits (with no                                                         
      stated maturity)      70,938,000   70,938,000    65,873,000   65,873,000 
     Time deposits         113,086,000  113,488,000   107,049,000  107,541,000 
     Borrowed funds        104,440,000  102,052,000    80,494,000   80,491,000 
     Note payable              993,000      993,000     1,299,000    1,299,000 
     Repurchase agreements   5,206,000    5,206,000     5,099,000    5,099,000 
                                                                               
    Trading Instruments:                                                      
    --------------------                                                      
    Financial assets:                                                         
     Trading account                                                          
      securities                50,000       50,000        25,000       25,000
</TABLE>


INDEPENDENT AUDITORS' REPORT

The Board of Directors
Northeast Bancorp and Subsidiary

We have audited the consolidated statements of financial condition of Northeast
Bancorp and Subsidiary as of June 30, 1998 and 1997, 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, 1998.  These 
consolidated financial statements are the responsibility of Northeast Bancorp's
management.  Our responsibility is to express an opinion on these consolidated 
financial statements based on our audits.  We did not audit the financial 
statements of Cushnoc Bank and Trust Company, for the years ended December 31, 
1996 and 1995, which statements reflect total assets constituting 7.8% for 1997
of the related consolidated financial statement totals, and which reflect 
interest income constituting 8.7% and 10.5% of the related consolidated 
financial statement totals for the years ended June 30, 1997 and 1996, 
respectively.  Those statements were audited by other auditors whose reports 
have been furnished to us, and in our opinion, insofar as it relates to data 
included for Cushnoc Bank and Trust Company, is based solely on the report of 
the other auditors.

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 
<PAGE> 80

statement presentation.  We believe that our audits and the reports of the 
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the 
consolidated financial statements referred to above present fairly, in all 
material respects, the consolidated financial position of Northeast Bancorp and
Subsidiary as of June 30, 1998 and 1997, and the consolidated results of their 
operations and their cash flows for each of the three years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles.

July 31, 1998                                    /s/ Baker Newman & Noyes
                                                 -------------------------
Portland, Maine                                  Limited Liability Company







INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders of
Cushnoc Bank & Trust

We have audited the balance sheets of Cushnoc Bank and Trust Company as of 
December 31,1996 and 1995, and the related statements of income, changes in 
stockholders' equity, and cash flows for each of the two years ended December 
31, 1996 (not presented separately herein). These financial statements are the 
responsibility of the Bank's management.  Our responsibility is to express an 
opinion on these 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 and the reports of the 
other auditors provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the  financial position of Cushnoc Bank and Trust 
Company as of December 31, 1996 and 1995, and the results of its operations 
and its cash flows for each of the two years ended December 31, 1996, in 
conformity with generally accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic 
financial statements taken as a whole.  The schedule of non-interest expenses 
is presented for additional analysis and is not part of the basic financial 
statements.  Such information has been subjected to the auditing procedures 
applied in our audits of basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the financial statements 
taken as a whole.

<PAGE> 81

Augusta, Maine                            /s/ Schatz Fletcher & Associates
January 31, 1997




Item 8. b  Statistical Disclosures Required by Industry Guide 3
           ----------------------------------------------------

Northeast Bancorp Consolidated
Distribution of Assets, Liabilities and Net Worth
Interest Rates and Interest Differential
Years Ending June 30, 1998, 1997 and 1996 

<TABLE>
<CAPTION>
                                                      Interest       Average
                                       Average        Income/         Yield/
June 30, 1998                          Balance        Expense          Rate    
                                    -------------  -------------  -------------
<S>                                 <C>            <C>            <C>          
Assets:                                                                        
                                                                               
Earning Assets:                                                                
 Securities Available for Sale      $ 21,766,940      1,461,024          6.71% 
 Trading Securities                       32,080              0          0.00%
 FHLB Stock                            4,646,841        300,664          6.47%
 Loans   (3)                         240,858,661     21,988,864          9.13%
 FHLB Overnight Deposits & Other       9,951,326        532,459          5.35%
                                    -------------  -------------  -------------
Total Earning Assets                 277,255,848     24,283,011          8.76%
                                    -------------  -------------  -------------
Non-interest Earning Assets:                                                   
 Cash & Due from Banks                 4,516,290
 Premise & Equip Net                   4,597,184
 Other Assets                          7,061,277
 (Allowance for Loan Loss)            (2,867,432)
                                    -------------
Total Assets                        $290,563,167
                                    =============
                                                                        
Liabilities & Net Worth:                                                     
                                                                            
Interest Bearing Liabilities:                                             
 Deposits                                            
  Now                               $ 15,399,537        269,412          1.75%
  Money Market                        14,001,795        466,453          3.33%
  Savings                             21,289,109        569,901          2.68%
  Time                               108,580,380      6,280,951          5.78%
                                    -------------  -------------  -------------
   Total Deposits                    159,270,821      7,586,717          4.76%
 Repurchase Agreements                 4,917,057        206,651          4.20%
 Other Borrowed Funds                 85,685,853      5,016,703          5.85% 
                                    -------------  -------------  -------------
Total Interest Bearing Liabilities   249,873,731     12,810,071          5.13%
                                    -------------  -------------  -------------
Non-interest Bearing Liabilities                               
<PAGE> 82

 Demand                               15,480,530                        
 Other                                 1,983,263                    
                                                                     
 Net Worth                            23,225,643                     
                                    -------------                   
Total Liabilities & Net Worth       $290,563,167                      
                                    =============                  
   Net Interest Income                             $ 11,472,940
                                                   =============
Interest Rate Spread  (1)                                                3.63%
Net yield on Interest Earning Assets (2)                                 4.14%
Equity to Assets Ratio (4)                                               7.99%


                                                      Interest         Average
                                       Average        Income/          Yield/
June 30, 1997                          Balance        Expense          Rate    
                                    -------------  -------------  -------------
Assets:

Earning Assets:
 Securities Available for Sale      $ 31,904,945      2,277,572          7.14%
 Trading Securities                      118,954          7,426          6.24%
 FHLB Stock                            3,531,428        227,360          6.44%
 Loans   (3)                         203,933,997     18,973,560          9.30%
 FHLB Overnight Deposits & Other       8,473,570        449,803          5.31%
                                    -------------  -------------  -------------
Total Earning Assets                 247,962,894     21,935,721          8.85%
                                    -------------  -------------  -------------

Non-interest Earning Assets:
 Cash & Due from Banks                 4,181,508
 Premise & Equip Net                   4,609,543
 Other Assets                          7,038,721
 (Allowance for Loan Loss)            (2,769,141)
                                    -------------
Total Assets                        $261,023,525
                                    =============

Liabilities & Net Worth:

Interest Bearing Liabilities:
 Deposits
  Now                               $ 14,813,590        216,437          1.46%
  Money Market                        15,902,113        536,623          3.37%
  Savings                             22,141,625        592,148          2.67%
  Time                               100,484,775      5,758,166          5.73%
                                    -------------  -------------  -------------
   Total Deposits                    153,342,103      7,103,374          4.63%
 Repurchase Agreements                 4,566,385        199,453          4.37%
 Other Borrowed Funds                 67,036,999      3,988,060          5.95%
                                    -------------  -------------  -------------
Total Interest Bearing Liabilities   224,945,487     11,290,887          5.02%
                                    -------------  -------------  -------------
Non-interest Bearing Liabilities
 Demand                               13,380,027
 Other                                 1,576,413

<PAGE> 83

   Net Worth                          21,121,598
                                    -------------
Total Liabilities & Net Worth       $261,023,525
                                    =============  
  Net Interest Income                              $ 10,644,834
                                                   =============  
Interest Rate Spread  (1)                                                3.83%
Net yield on Interest Earning Assets (2)                                 4.29%
Equity to Assets Ratio (4)                                               8.09%


                                                      Interest         Average
                                       Average        Income/          Yield/
June 30, 1996                          Balance        Expense          Rate    
                                    -------------  -------------  -------------
Assets:

Earning Assets:
 Securities Available for Sale      $ 19,500,579      1,359,423          6.97%
 Trading Securities                      162,430          5,474          3.37%
 FHLB Stock                            2,372,362        155,256          6.54%
 Loans   (3)                         187,117,813     17,854,789          9.54%
 FHLB Overnight Deposits & Other      13,024,645        730,197          5.61%
                                    -------------  -------------  -------------
Total Earning Assets                 222,177,829     20,105,139          9.05%
                                    -------------  -------------  -------------
Non-interest Earning Assets:
 Cash & Due from Banks                 4,216,722
 Premise & Equip Net                   4,673,170
 Other Assets                          7,752,829
 (Allowance for Loan Loss)            (2,709,526)
                                    -------------
Total Assets                        $236,111,024
                                    =============
                                                  
Liabilities & Net Worth:                              
                                                       
Interest Bearing Liabilities:                       
 Deposits                                        
  Now                               $ 17,098,811        319,899          1.87%
  Money Market                        16,148,909        555,919          3.44%
  Savings                             23,848,926        642,216          2.69%
  Time                                99,501,845      5,830,168          5.86%
                                    -------------  -------------  -------------
   Total Deposits                    156,598,491      7,348,202          4.69%
 Repurchase Agreements                 3,516,283        166,210          4.73%
 Other Borrowed Funds                 41,341,004      2,572,497          6.22%
                                    -------------  -------------  -------------
Total Interest Bearing Liabilities   201,455,778     10,086,909          5.01%
                                    -------------  -------------  -------------
Non-interest Bearing Liabilities
 Demand                               11,774,973
 Other                                 2,398,571

 Net Worth                            20,481,702
                                    -------------
<PAGE> 84

Total Liabilities & Net Worth       $236,111,024 
                                    =============
  Net Interest Income                              $ 10,018,230
                                                   =============
Interest Rate Spread  (1)                                                4.04%
Net yield on Interest Earning Assets (2)                                 4.51%
Equity to Assets Ratio (4)                                               8.67%

</TABLE>

(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, 1998 and 1997

<TABLE>
<CAPTION>

June 30, 1998 Compared to June 30, 1997
---------------------------------------
                                 Variance    Variance    Variance
                                  Due to      Due to      Due to       Total   
                                   Rate       Volume    Rate/Volume  Variance  
                                ----------- ----------- ----------- -----------
<S>                             <C>         <C>         <C>         <C>        
Interest Earning Assets:                                                       
                                                                               
Securities Available for Sale     ($22,774)  ($779,886)   ($13,889)  ($816,549)
Trading Securities                  (7,426)     (5,423)      5,423      (7,426)
FHLB Stock                           1,134      71,812         358      73,304 
Loans                             (355,683)  3,435,388     (64,401)  3,015,304 
FHLB Overnight Deposits & Other      3,588      78,444         625      82,657 
                                ----------- ----------- ----------- -----------
Total Income on Earning Assets    (381,161)  2,800,335     (71,884)  2,347,290 
                                ----------- ----------- ----------- -----------
Interest Bearing Liabilities:                                                  
                                                                               
Deposits:                                                                      
  Now                               42,723       8,561       1,690      52,974 
  Money Market                      (6,863)    (64,127)        820     (70,170)
  Savings                              575     (22,799)        (23)    (22,247)
  Time                              54,486     463,910       4,389     522,785 
                                ----------- ----------- ----------- -----------
    Total Deposits                  90,921     385,545       6,876     483,342 
                                                                               
Repurchase Agreements               (7,540)     15,317        (579)      7,198 
Borrowed funds                     (63,203)  1,109,428     (17,582)  1,028,643 
                                ----------- ----------- ----------- -----------

Total Interest Expense              20,178   1,510,290     (11,285)  1,519,183 
<PAGE> 85

                                ----------- ----------- ----------- -----------
Change in Net interest Income    ($401,339) $1,290,045    ($60,599)   $828,107 
                                =========== =========== =========== ===========
                                                                               
June 30, 1997 Compared to June 30, 1996                                        
---------------------------------------                                        
                                 Variance    Variance    Variance              
                                  Due to      Due to      Due to       Total   
                                   Rate       Volume    Rate/Volume  Variance  
                                ----------- ----------- ----------- -----------
Interest Earning Assets:                                                       
                                                                               
Securities Available for Sale   $   19,892  $  884,151  $   14,107  $  918,150 
Trading Securities                   4,666      (1,465)     (1,249)      1,952 
FHLB Stock                          (2,519)     75,853      (1,230)     72,104
Loans                             (445,769)  1,604,601     (40,061)  1,118,771
FHLB Overnight Deposits & Other    (38,811)   (255,146)     13,562    (280,395)
                                ----------- ----------- ----------- -----------
Total Income on Earning Assets    (462,541)  2,307,994     (14,871)  1,830,582 
                                ----------- ----------- ----------- -----------
Interest Bearing Liabilities:                                                  
                                                                               
Deposits:                                                                      
  Now                              (70,073)    (42,754)      9,365    (103,462)
  Money Market                     (10,968)     (8,496)        168     (19,296)
  Savings                           (4,409)    (45,975)        316     (50,068)
  Time                            (128,327)     57,593      (1,267)    (72,001)
                                ----------- ----------- ----------- -----------
    Total Deposits                (213,777)    (39,632)      8,582    (244,827)
    
Repurchase Agreements              (12,624)     49,637      (3,770)     33,243 
Borrowed funds                    (113,103)  1,598,966     (70,300)  1,415,563 
                                ----------- ----------- ----------- -----------
Total Interest Expense            (339,504)  1,608,971     (65,488)  1,203,979 
                                ----------- ----------- ----------- -----------
                                                                               
Change in Net interest Income    ($123,037) $  699,023  $   50,617  $  626,603 
                                =========== =========== =========== ===========
</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, 1998

<TABLE>
<CAPTION>

                    1 Year       1 to 5      5 to 10     Over 10      Total    
<PAGE> 86

                    or Less      Years       Years       Years        Loans    
                  ------------ ----------- ----------- ----------- ------------
<S>               <C>          <C>         <C>         <C>         <C>         
Mortgages:                                                                     
Residential       $105,857,687 $ 9,653,045 $ 9,168,415 $47,155,701 $171,834,849
Commercial          23,593,878  20,576,703   1,796,600   1,161,126   47,128,307
Construction         1,871,639     157,969      69,973           0    2,099,581
                                                                               
Non-Mortgage Loans:                                                            
Commercial          15,774,718   9,395,756     798,454   1,099,488   27,068,416
Consumer             2,657,453  11,802,824  10,578,788   8,860,733   33,899,798
                  ------------ ----------- ----------- ----------- ------------
Total Loans       $149,755,375 $51,586,297 $22,412,230 $58,277,048 $282,030,950
                  ============ =========== =========== =========== ============
                                                                               
Loans due after                                                                
  1 year:                                                                     
Fixed             $104,697,192
Variable            27,578,384
                  ------------
Total due after               
  1 year:         $132,275,576
                  ============
</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>

Securities Available for Sale                 June 30,    June 30,    June 30,
As of June 30,                                  1998        1997        1996   
                                             ----------  ----------  ----------
<S>                                          <C>         <C>         <C>       
Market Value (thousands)                                                       
                                                                               
U.S. Government and Agency Obligations       $   4,698   $   2,905   $   2,871 

Mortgage-backed Securities                       7,714      24,802      27,821

Other Bonds                                        204         253         250

Equity Securities                                  993         851         440
                                             ----------  ----------  ----------
Total Securities Available for Sale          $  13,609   $  28,811   $  31,382 
                                             ==========  ==========  ==========
</TABLE>

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


<PAGE> 87

Northeast Bancorp Consolidated
Investment Maturity

<TABLE>
<CAPTION>

                                                     Weighted        Carrying  
Securities Available for Sale                         Average          Value   
As of June 30, 1998                                    Rate         (thousands)
                                                    -----------     -----------
<S>                                                 <C>             <C>        
Due in one Year                                         5.87%       $      347 
Due after one year through five                         5.72%              451 
Due after five years through ten                        6.89%            1,103 
Due after ten years                                     7.17%            3,001 
Mortgage-backed securities maturing                                            
  September 2003 to February 2026                       6.89%            7,714 
                                                    -----------     -----------
Total Securities Available for Sale                     6.89%       $   12,616 
                                                    ===========     ===========
</TABLE>

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


Northeast Bancorp Consolidated
Loan Portfolio
As of June 30, 

<TABLE>
<CAPTION>

                                                                    Percent of 
June 30, 1998                                         Amount        Total Loans
                                                    -----------     -----------
<S>                                                 <C>             <C>        
Loan Portfolio (thousands)                                                     
                                                                               
Residential Mortgage                                $  172,505         61.17%  
Consumer & Other                                        33,900         12.02%
Commercial Mortgage                                     48,558         17.22%
Commercial                                              27,068          9.59%
                                                    -----------     -----------
     Total Loans                                       282,031        100.00%  
                                                    -----------     -----------
Less: Allowance for loan losses                          2,978
                                                    -----------
     Net Loans                                      $  279,053 
                                                    ===========


                                                                    Percent of 
June 30, 1997                                         Amount        Total Loans


                                                    -----------     -----------
<PAGE> 88

Loan Portfolio (thousands)
                                                                               
Residential Mortgage                                $  140,315         63.01%
Consumer & Other                                        14,792          6.64%
Commercial Mortgage                                     48,125         21.61%
Commercial                                              19,450          8.74%
                                                    -----------     -----------
     Total Loans                                       222,682        100.00%
                                                    -----------     -----------
Less: Allowance for loan losses                          2,742
                                                    -----------    
     Net Loans                                      $  219,940
                                                    ===========


                                                                    Percent of 
June 30, 1996                                         Amount        Total Loans
                                                    -----------     -----------
Loan Portfolio (thousands)

Residential Mortgage                                $  117,670         62.86%
Consumer & Other                                        14,491          7.74%
Commercial Mortgage                                     38,288         20.45%
Commercial                                              16,761          8.95%
                                                    -----------     -----------
     Total Loans                                       187,210        100.00%
                                                    -----------     -----------
Less: Allowance for loan losses                          2,761
                                                    ----------- 
     Net Loans                                      $  184,449
                                                    ===========


                                                                    Percent of 
June 30, 1995                                         Amount        Total Loans
                                                    -----------     -----------
Loan Portfolio (thousands)

Residential Mortgage                                $  121,510         64.71%
Consumer & Other                                        16,400          8.73%
Commercial Mortgage                                     34,270         18.25%
Commercial                                              15,597          8.31%
                                                    -----------     -----------
     Total Loans                                       187,777        100.00%
                                                    -----------     -----------
Less: Allowance for loan losses                          2,661
                                                    -----------
     Net Loans                                      $  185,116
                                                    ===========



                                                                    Percent of 
June 30, 1994                                         Amount        Total Loans
                                                    -----------     -----------
Loan Portfolio (thousands)

<PAGE> 89

Residential Mortgage                                $  114,570         65.22%
Consumer & Other                                        14,182          8.07%
Commercial Mortgage                                     32,312         18.39%
Commercial                                              14,623          8.32%
                                                    -----------     -----------
     Total Loans                                       175,687        100.00%
                                                    -----------     -----------
Less: Allowance for loan losses                          2,728
                                                    -----------
     Net Loans                                      $  172,959
                                                    ===========
</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,

<TABLE>
<CAPTION>
                                                                   Percent of 
                                                                  Loans in Each
                                                                   Category to 
June 30, 1998                                        Amount        Total Loans 
                                                  -------------   -------------
<S>                                               <C>             <C>          
Allowance for Loan Losses (thousands)                                          
                                                                               
Real Estate                                       $        352          61.17% 
Commercial Mortgage                                        762          17.22%
Commercial                                                 582           9.59%
Consumer                                                   380          12.02%
Unallocated                                                902           0.00%
                                                  -------------   -------------
     Total                                        $      2,978         100.00%
                                                  =============   =============


                                                                   Percent of 
                                                                  Loans in Each
                                                                   Category to 
June 30, 1997                                        Amount        Total Loans 
                                                  -------------   -------------
Allowance for Loan Losses (thousands)                                
                                                                       
Real Estate                                       $        308          63.01%
Commercial Mortgage                                        821          21.61%
Commercial                                                 436           8.74%
Consumer                                                   159           6.64%
Unallocated                                              1,018           0.00%
                                                  -------------   -------------
     Total                                        $      2,742         100.00%

                                                  =============   =============
<PAGE> 90

 
                                                                   Percent of 
                                                                  Loans in Each
                                                                   Category to 
June 30, 1996                                        Amount        Total Loans 
                                                  -------------   -------------
Allowance for Loan Losses (thousands)                           
                                                                 
Real Estate                                       $        268          62.86%
Commercial Mortgage                                        799          20.45%
Commercial                                                 501           8.95%
Consumer                                                   152           7.74%
Unallocated                                              1,041           0.00%
                                                  -------------   -------------
     Total                                        $      2,761         100.00% 
                                                  =============   =============


                                                                   Percent of 
                                                                  Loans in Each
                                                                   Category to 
June 30, 1995                                        Amount        Total Loans
                                                  -------------   -------------
Allowance for Loan Losses (thousands)                           
                                                                  
Real Estate                                       $        658          64.71%
Commercial Mortgage                                        263          18.25%
Commercial                                                 137           8.31%
Consumer                                                   279           8.73%
Unallocated                                              1,324           0.00%
                                                  -------------   -------------
     Total                                        $      2,661         100.00%
                                                  =============   =============
                                                  
                                                      
                                                                   Percent of 
                                                                  Loans in Each
                                                                   Category to 
June 30, 1994                                        Amount        Total Loans
                                                  -------------   -------------
Allowance for Loan Losses (thousands)                            
                                                                 
Real Estate                                       $        709          65.22%
Commercial Mortgage                                        279          18.39%
Commercial                                                 143           8.32%
Consumer                                                   272           8.07%
Unallocated                                              1,325           0.00%
                                                  -------------   -------------
     Total                                        $      2,728         100.00%
                                                  =============   =============

</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
<PAGE> 91

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,
                                 1998      1997      1996      1995      1994  
                               --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>
Non-performing loans                                                           
 (thousands)                                                                   
 Mortgages                     $ 1,739   $ 2,319   $ 2,786   $ 2,396   $ 2,186  
 Other                             509       562       396       261       676 
                               --------  --------  --------  --------  --------
Total non-performing loans       2,248     2,881     3,182     2,657     2,862 
                                                                               
 Other Real Estate Owned           350       563       585     1,169     1,994 
                               --------  --------  --------  --------  --------
Total non-performing assets    $ 2,598   $ 3,444   $ 3,767   $ 3,826   $ 4,856 
                               ========  ========  ========  ========  ========
                                                                               
                                                                      
Total non-performing loans     --------  --------  --------  --------  --------
 to total loans                  0.80%     1.29%     1.70%     1.42%     1.63%
                               ========  ========  ========  ========  ========
                                                                               
Total non-performing assets    --------  --------  --------  --------  --------
 to total assets                 0.81%     1.21%     1.54%     1.65%     2.29% 
                               ========  ========  ========  ========  ========

</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 
collectability is doubtful, whichever is earlier.

<PAGE> 92

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, 1998, the Company had 
approximately $100,000 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 & #3 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,
                                 1998      1997      1996      1995      1994  
                               --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>     
Average net loans outstanding,                                                 
 During period                 $237,791  $200,919  $183,947  $178,736  $167,942
                               ========  ========  ========  ========  ========
Net loans outstanding,          
 End of period                 $279,053  $219,940  $184,449  $185,116  $172,959
                               ========  ========  ========  ========  ========
Allowance for loan losses,
 Beginning of period           $  2,742  $  2,761  $  2,661  $  2,728  $  2,360
                                                                               
Loans charged off:                                                             
 Residential Mortgage               196       319       151       162       230
 Commercial Real Estate             432       128       236       296       122
 Commercial                          42       154       125       205       286
 Installment                        115       171       108       151        97
                               --------  --------  --------  --------  --------
Total loans charged off             785       772       620       814       735
                               --------  --------  --------  --------  --------
Recoveries on amounts          
 previously charged off:                          
 Residential Mortgage                87        43        10         7        25
 Commercial Real Estate              83        49        34         1         0
 Commercial                          87        13        12        16         6
 Installment                         58        34        25        32        27
                               --------  --------  --------  --------  --------
Total Recoveries                    315       139        81        56        58
                               --------  --------  --------  --------  --------
Net loans charged off               470       633       539       758       677
Provision for loan losses           706       614       639       691     1,045
                               --------  --------  --------  --------  --------
Allowance for loan losses,        
 End of period                 $  2,978  $  2,742  $  2,761  $  2,661  $  2,728
                               ========  ========  ========  ========  ========

<PAGE> 93

Net loans charged-off as a      
 percentage of average loans         
 outstanding                      0.20%     0.32%     0.29%     0.42%     0.40%
                               ========  ========  ========  ========  ========
                                      
Allowance for loan losses,                 
 as a percentage of net                   
 loans outstandingat                     
 the end of period                1.07%     1.25%     1.50%     1.44%     1.58%
                               ========  ========  ========  ========  ========

</TABLE>

The June 30, 1998 allowance for loan losses as a percentage of net loans was 
1.07%, which was a reduction when compared to June 30,1997. The reduction was 
due to the purchase of $66,000,000 in residential mortgages as well as 
portfolio loan growth during fiscal 1998. The decrease was also supported by 
the Company's lower delinquency levels and decreased non-performing and 
substandard loans.

The reduction in the June 30, 1997 allowance for loan loss percentage to net 
loans, as compared to June 30, 1996, 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 (thousands) and Rates
As of June 30, 

<TABLE>
<CAPTION>

                               June 30, 1998    June 30, 1997    June 30, 1996 
                              ---------------  ---------------  ---------------
                               Amount   Rate    Amount   Rate    Amount   Rate 
                              --------  -----  --------  -----  --------  -----
<S>                           <C>       <C>    <C>       <C>    <C>       <C>  
Average Deposits:                                                              
                                                                               
Non-interest bearing demand                                                    
 deposits                     $ 15,481  0.00%  $ 13,380  0.00%  $ 11,775  0.00%
Regular savings                 21,289  2.68%    22,141  2.67%    23,849  2.69%
NOW and Money Market            29,401  2.50%    30,716  2.45%    33,247  2.63%
Time deposits                  108,580  5.78%   100,485  5.73%    99,502  5.86%
                              --------  -----  --------  -----  --------  -----
Total Average Deposits        $174,751  4.06%  $166,722  4.26%  $168,373  4.36%
                              ========  =====  ========  =====  ========  =====

</TABLE>

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


<PAGE> 94

Northeast Bancorp Consolidated
Maturities of Time Deposits $100,000 & Over
As of June 30, 1998

<TABLE>
<CAPTION>

                                                                      Balance  
                                                                    -----------
<S>                                                                 <C>        
Time Deposits $100,000 & Over (in thousands):                                  
                                                                               
3 months or less                                                    $      471  
Over 3 through 6 months                                                  1,779 
Over 6 through 12 months                                                 7,685 
Over 12 months                                                           9,420 
                                                                    -----------
Total Time Deposits $100,000 & Over                                 $   19,355 
                                                                    ===========
</TABLE>


Northeast Bancorp Consolidated
Maturities and Repricing of Earning Assets & Interest-bearing Liabilities
As of June 30, 1998
(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                       $ 20,921  $  4,515  $ 58,800    84,236    27.43% 
  Variable                     110,402    25,873       552   136,827    44.56% 
                              --------- --------- --------- --------- ---------
Total Real Estate Loans        131,323    30,388    59,352   221,063    71.99% 
                              --------- --------- --------- --------- ---------
Non-Real Estate Loans:                                                        
  Fixed                          2,880    20,044    21,337    44,261    14.41% 
  Variable                      15,553     1,154         0    16,707     5.44% 
                              --------- --------- --------- --------- ---------
Total Non-Real Estate                                                         
Loans                           18,433    21,198    21,337    60,968    19.85% 
                              --------- --------- --------- --------- ---------
Investment Securities                                                          
 & Other Earning Assets          6,097       451    18,491    25,039     8.16% 
                              --------- --------- --------- --------- ---------
Total Earning Assets          $155,853  $ 52,037  $ 99,180  $307,070   100.00% 
                              ========= ========= ========= ========= =========
                                                                               
<PAGE> 95

INTEREST-BEARING LIABILITIES                                                   
                                                                               
Deposits:                                                                      
  Regular savings             $ 20,306                        20,306     7.27%
  NOW Accounts                  23,430                        23,430     8.38%
  Money market accounts         11,993                        11,993     4.29%
  Certificates of deposit       74,504    38,571        11   113,086    40.47% 
                              --------- --------- --------- --------- ---------
Total Deposits                 130,233    38,571        11   168,815    60.41%
                              --------- --------- --------- --------- ---------
Repurchase Agreements            5,206         0         0     5,206     1.86%
                                                                               
FHLB Borrowings & Note Payable  44,051    16,670    44,711   105,432    37.73%
                              --------- --------- --------- --------- ---------
Total Interest-bearing                                                         
 Liabilities                  $179,490  $ 55,241  $ 44,722  $279,453   100.00%
                              ========= ========= ========= ========= =========
                                                                               
Excess(deficiency) of earning                                                  
 assets over interest-bearing                                                 
 liabilities                   (23,637)   (3,204)   54,458    27,617
                              ========= ========= ========= =========

Cumulative excess (deficiency)                                         
 of earning assets over                                               
 interest-bearing liabilities  (23,637)  (26,841)   27,617    27,617
                              ========= ========= ========= =========
                                                                       
Cumulative excess (deficiency)                                          
 of earning assets over                                                   
 interest-bearing liabilities                                                  
 as a % of total assets         -7.33%    -8.32%     8.56%     8.56%
                              ========= ========= ========= ========= 

</TABLE>

This table summarizes the anticipated maturities and repricing of the Company's
earning assets and interest-bearing liabilities at June 30, 1998.

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, 1998

<TABLE>
<CAPTION>

                           1st Qtr       2nd Qtr       3rd Qtr       4th Qtr   
                           Sept. 30      Dec. 31       Mar. 31       June 30   
<PAGE> 96
                             1997          1997          1998          1998    
                         ------------  ------------  ------------  ------------
<S>                      <C>           <C>           <C>           <C>         
Interest Income          $ 5,172,282   $ 5,256,343   $ 5,323,547   $ 6,236,692 
  Interest on loans                                                            
  Interest & dividends                                                         
   on investments &                                                            
   available for sale                                                          
   securities                705,194       636,036       545,427       407,490 
                         ------------  ------------  ------------  ------------
Total Interest Income      5,877,476     5,892,379     5,868,974     6,644,182 
                         ------------  ------------  ------------  ------------
Interest Expense                                                               
  Interest on Deposits     1,883,483     1,901,610     1,845,499     1,956,125
  Interest on Repurchase 
   Agreements                 48,438        54,618        51,244        52,351
  Interest on Borrowings   1,180,294     1,128,589     1,172,303     1,535,517
                         ------------  ------------  ------------  ------------
Total Interest Expense     3,112,215     3,084,817     3,069,046     3,543,993
                         ------------  ------------  ------------  ------------
Net Interest Income        2,765,261     2,807,562     2,799,928     3,100,189
Provision for Loan 
 Losses                      162,500       227,663       156,304       159,633
                         ------------  ------------  ------------  ------------
Net Interest Income 
 after Provision for 
 Loan Losses               2,602,761     2,579,899     2,643,624     2,940,556

Securities Transactions      109,793        99,696        37,439        40,585
Other Operating Income       445,271       642,412       557,920       738,415
Other Operating Expense    2,277,221     2,765,623     2,123,636     2,565,236
                         ------------  ------------  ------------  ------------
Income Before Income 
 Taxes                       880,604       556,384     1,115,347     1,154,320
Income Tax Expense           310,039       200,318       382,986       409,529
                         ------------  ------------  ------------  ------------
Net Income               $   570,565   $   356,066   $   732,361   $   744,791
                         ============  ============  ============  ============
Earnings Per Share:                                                            
  Basic                  $      0.24   $      0.14   $      0.31   $      0.30
  Diluted                $      0.21   $      0.13   $      0.26   $      0.27


Northeast Bancorp Consolidated                                           
Quarterly Data                                                             
As of June 30, 1997
                           1st Qtr       2nd Qtr       3rd Qtr       4th Qtr
                           Sept. 30      Dec. 31       Mar. 31       June 30
                             1996          1996          1997          1997
                         ------------  ------------  ------------  ------------
Interest Income                                                                
  Interest on loans      $ 4,443,413   $ 4,652,547   $ 4,824,158   $ 5,053,442 
  Interest & dividends 
   on investments &
   available for sale 
   securities                770,896       748,268       727,258       715,739
                         ------------  ------------  ------------  ------------

<PAGE> 97

Total Interest Income      5,214,309     5,400,815     5,551,416     5,769,181
                         ------------  ------------  ------------  ------------
Interest Expense
  Interest on Deposits     1,739,594     1,727,321     1,766,509     1,869,951
  Interest on Repurchase 
   Agreements                 38,269        54,686        50,744        55,754
  Interest on Borrowings     863,412       938,321     1,088,090     1,098,237
                         ------------  ------------  ------------  ------------
Total Interest Expense     2,641,275     2,720,328     2,905,343     3,023,942
                         ------------  ------------  ------------  ------------
Net Interest Income        2,573,034     2,680,487     2,646,073     2,745,239
Provision for Loan 
 Losses                      153,814       153,443       153,452       153,718
                         ------------  ------------  ------------  ------------
Net Interest Income 
 after Provision for 
  Loan Losses              2,419,220     2,527,044     2,492,621     2,591,521

Securities Transactions       89,666        34,876        75,493        59,395
Other Operating Income       438,914       376,418       582,010       429,469
Other Operating Expense    2,638,627     2,126,897     2,456,126     2,496,687
                         ------------  ------------  ------------  ------------
Income Before Income 
 Taxes                       309,173       811,441       693,998       583,698
Income Tax Expense           117,932       300,894       273,364       216,375
                         ------------  ------------  ------------  ------------
Net Income               $   191,241   $   510,547   $   420,634   $   367,323 
                         ============  ============  ============  ============
Earnings Per Share:
  Basic                  $      0.07   $      0.22   $      0.18   $      0.15
  Diluted                $      0.08   $      0.19   $      0.16   $      0.14

</TABLE>

The decrease in net income for the quarter ending December 31,1997 was 
primarily due to the one-time cost of approximately $435,000 associated with 
the merger of Cushnoc Bank.

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.


   

Item 9.     Changes in and Disagreements with Accountants on
            ________________________________________________
            Accounting and Financial Disclosure.
            ____________________________________ 
          
            Not applicable.

            
                                 PART III
<PAGE> 98

          
Item 10.    Directors and Executive Officers of the Registrant.
            ___________________________________________________

            Information relating to the name of each nominee or director of the
            Company, that person's age, positions and offices with the Company,
            business experience and principal occupations, directorships in 
            other public companies, and service on the Company's board of 
            directors set forth under the caption "Election of Directors" in 
            the definitive 1998 proxy statement of the Company to be furnished 
            to shareholders in connection with the Company's Annual Meeting to 
            be held on November 10, 1998 (the"1998 Proxy Statement"), and 
            information set forth under the subcaption "Section 16(a) 
            Beneficial Ownership Requirements" relating to Section 16 matters, 
            is incorporated herein by reference.  Information required by this 
            Item 10 regarding the executive officers of the Company is set 
            forth in Part I, Item 4A of this Form 10-K.


Item 11.    Executive Compensation
            ______________________

            Information with respect to current renumeration of directors and 
            executive officers under the headings of "Election of Directors - 
            Compensation of Directors" and "Compensation of Executive Officers"
            in the 1998 Proxy Statement is incorporated herein by reference.


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

            Information regarding the beneficial ownership of equity securities
            of the Company by all directors and named executive officers, 
            beneficial holders of 5% or more of the outstanding Common Stock, 
            and of all executive officers and directors as a group set forth 
            under the heading "Security Ownership of Management and Certain 
            Beneficial Owners" in the 1998 Proxy Statement is Incorporated 
            herein by reference.


Item 13.    Certain Relationships and Related Transactions
            ______________________________________________ 

            Information regarding transactions and relationships between the
            Company and its directors and executive officers under the heading
            "Certain Relationships and Related Transactions" in the 1998 Proxy
            is incorporated herein by reference.


                                  PART IV


Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
            ________________________________________________________________ 

        (a) List of Financial Statements Filed as Part of This Report

<PAGE> 99
            _________________________________________________________

            The following financial statements are submitted herewith in 
            response to Part II Item 8: 
  
            Consolidated Statements of Financial Condition as of June 30, 1998 
            and 1997

            Consolidated Statements of Income for the years ended June 30, 
            1998, 1997 and 1996

            Consolidated Statements of Changes in Stockholders' Equity for the 
            years ended June 30, 1998, 1997 and 1996 
             
            Consolidated Statements of Cash Flows for the years ended June 30, 
            1998, 1997 and 1996


        (b) Reports on Form 8-K
            ___________________  

            The Company filed a Form 8-K on May 14, 1998, reporting the 
            restating of data previously submitted as part of the Company's
            Form 10-K for the fiscal year ended June 30, 1997, to give 
            retroactive effect to the acquisition of Cushnoc.


       (c)  Exhibits
            ________

            The exhibits listed below are filed herewith or are incorporated
            herein by reference to other filings.

        
2.1         Agreement for the Purchase and Sale of Assets and Assumption of 
            Liabilities dated as of May 4, 1994 between Bethel Savings Bank 
            and Key Bank of Maine, incorporated by reference to Exhibit 2.1 
            to Northeast Bancorp's Current Report on Form 8-K dated May 4, 1994

2.2         Agreement for the Purchase and Sale of Assets and Assumption of 
            Liabilities dated as of May 4, 1994 between Brunswick Federal 
            Savings Bank and Key Bank of Maine, incorporated by reference to 
            Exhibit 2.2 to Northeast Bancorp's Current Report on Form 8-K dated
            May 4, 1994

2.3         Agreement and Plan of Merger dated as of May 9, 1997 by and among
            Northeast Bancorp, Northeast Bank, FSB and Cushnoc Bank and Trust
            Company, incorporated by reference to Exhibit 2 to Northeast 
            Bancorp's Registration Statement on Form S-4 (No. 333-31797)
            filed with the Securities and Exchange Commission

3.1         Conformed Articles of Incorporation of Northeast Bancorp,
            incorporated by reference to Exhibit 3.1 to Northeast Bancorp's   
            Registration Statement on Form S-4 (No.333-31797) filed with the
            Securities and Exchange Commission

3.2         Bylaws of Northeast Bancorp, incorporated by reference to Exhibit
            3.2 to amendment No.1 to Northeast Bancorp's Registration Statement
<PAGE> 100

            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 

23.1        The Consent of Baker Newman & Noyes, Limited Liability Company, is 
            submitted herewith as Exhibit 23.1

23.2        The Consent of Shatz & Fletcher is submitted herewith as Exhibit
            23.2

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 18, 1998                    By: /s/ James D. Delamater         
                                             _____________________________
                                             James D. Delamater, President




<PAGE> 101

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

      Name                     Title                          Date
_________________________   ____________________         ___________________
                                                                               
                                                                               
/s/ John B. Bouchard        Director                     September 18, 1998
-------------------------
John B. Bouchard


/s/ A. William Cannan       Director,                    September 18, 1998   
-------------------------   Executive Vice President
A. William Cannan
                            
                                                   
/s/ James D. Delamater      Director,                    September 18, 1998 
-------------------------   President and Chief                             
James D. Delamater          Executive Officer                               
                            (Principal                                      
                            Executive Officer)                              
                                                                               
                                                                               
/s/ Ronald J. Goguen        Director                     September 18, 1998
-------------------------                                                      
Ronald J. Goguen                                                               
                                                                               
                                                                              
/s/ Judith W. Hayes         Director                     September 18, 1998
-------------------------   Vice President                                  
Judith W. Hayes                                                                

                                                                              
/s/ Philip C. Jackson       Director                     September 18, 1998 
-------------------------                                                     
Philip C. Jackson                                                              


/s/ Ronald C. Kendall       Director                     September 18, 1998
-------------------------                                                      
Ronald C. Kendall                                                              
                                                                               
               

/s/ John Rosmarin         Director                     September 18, 1998
-------------------------
John Rosmarin                                                               
             
/s/ John Schiavi          Director                     September 18, 1998
-------------------------
John Schiavi                                                                
           

/s/ John W. Trinward, DMD   Chairman of the              September 18, 1998
-------------------------   Board                                           
<PAGE> 102

John W. Trinward, DMD                                                          
                                                                               

/s/ Stephen W. Wight        Director                     September 18, 1998
-------------------------                                                      
Stephen W. Wight                                                               
                                                                               
                                                                               
/s/ Dennis A. Wilson        Director                     September 18, 1998 
-------------------------                                                    
Dennis A. Wilson                                                               
                                                                               
                                                                               
/s/ Richard E. Wyman, Jr.   Chief Financial              September 18, 1998
-------------------------   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
<PAGE> 103

          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

23.1      The Consent of Baker Newman & Noyes, Limited Liability Company, is 
          submitted herewith as Exhibit 23.1

23.2      The Consent of Shatz & Fletcher is submitted herewith as Exhibit 
          23.2

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