**UNITED
          STATES**
 **SECURITIES
          AND EXCHANGE COMMISSION**
 **Washington,
          D.C. 20549**
 
 FORM
          10
          Q
 
 *X* Quarterly
          report pursuant to Section 13 or 15 (d) of the Securities Exchange Act
          of
          1934
 
 For
                    the quarterly period ended
                March
                    31, 2007
 Or
 ___
          Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange
          Act of 1934
 
 For
          the
          transition period for _______________ 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 incorporation or organization)
                (I.R.S.
                    Employer Identification No.)500
                    Canal Street, Lewiston, Maine
                  ___________________________________
                04240
                  ____________________________________(Address
                    of Principal executive offices)
                (Zip
                    Code)
 
 (207)
          786-3245
 Registrant's
          telephone number, including area code
 
 Not
          Applicable
 Former
          name, former address and former fiscal year, if changed since last
          report.
 
 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 subjected to such filing requirements
          for the past 90 days.  Yes X No ___
 
 Indicate
          by check mark whether the registrant is a large accelerated filer, an
          accelerated filer, or a non-accelerated filer. See definition of "accelerated
          filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (check
          one): Large accelerated filer __ Accelerated filer __ Non-accelerated filer X
 
 Indicate
          by check mark whether the registrant is a shell company (as defined by
          Rule
          12b-2 of the Exchange Act). Yes_ No X
  Indicate
          the number of shares outstanding of each of the issuer's classes of common
          stock, as of the latest practicable date. As of May 11, 2007, the registrant
          had
          outstanding 2,452,632 shares of common stock, $1.00 stated value per
          share.
  1
 Part
                    I.
                Financial
                    InformationItem
                    1.
                Consolidated
                    Financial StatementsConsolidated
                    Balance Sheets
                  March
                    31, 2007 (Unaudited) and June 30, 2006Consolidated
                    Statements of Income (Unaudited)
                  Three
                    Months ended March 31, 2007 and 2006Consolidated
                    Statements of Income (Unaudited)
                  Nine
                    Months ended March 31, 2007 and 2006Consolidated
                    Statements of Changes in Stockholders' Equity (Unaudited)
                  Nine
                    Months Ended March 31, 2007 and 2006Consolidated
                    Statements of Cash Flows (Unaudited)
                  Nine
                    Months ended March 31, 2007 and 2006Notes
                    to Consolidated Financial Statements (Unaudited)Item
                    2.
                Management's
                    Discussion and Analysis of Results of Operations and Financial
                    ConditionItem
                    3.
                Quantitative
                    and Qualitative Disclosure about Market RiskItem
                    4.
                Controls
                    and ProceduresPart
                    II.
                Other
                    InformationItem
                    1.
                Legal
                    ProceedingsItem
                    1.a.
                Risk
                    FactorsItem
                    2.
                Unregistered
                    Sales of Equity Securities and Use of ProceedsItem
                    3.
                Defaults
                    Upon Senior SecuritiesItem
                    4.
                Submission
                    of Matters to a Vote of Security HoldersItem
                    5.
                Other
                    InformationItem
                    6.
                Exhibits
  2
 **PART
                      1 - FINANCIAL INFORMATION**Item
                      1. Financial Statements**NORTHEAST
                      BANCORP AND SUBSIDIARY**Consolidated
                      Balance SheetsMarch
                      31,2007
                  
                  June
                      30,(Unaudited)
                  
                  2006AssetsCash
                      and due from banks
                  
                  $
                  7,543,407
                  
                  $
                  9,573,908Interest-bearing
                      deposits
                  
                  
                  1,419,691
                  
                  
                  1,099,813Federal
                      Home Loan Bank overnight deposits
                  
                  
                  11,475,000
                  
                  
                  1,430,000Total
                      cash and cash equivalents
                  
                  
                  20,438,098
                  
                  
                  12,103,721Available-for-sale
                      securities, at market value
                  
                  
                  80,452,530
                  
                  
                  86,137,707Loans
                      held-for-sale
                  
                  
                  5,049,251
                  
                  
                  681,143Loans
                      receivable
                  
                  
                  425,682,352
                  
                  
                  435,662,529Less
                      allowance for loan losses
                  
                  
                  5,756,000
                  
                  
                  5,496,000Net
                      loans
                  
                  
                  419,926,352
                  
                  
                  430,166,529Premises
                      and equipment, net
                  
                  
                  7,228,309
                  
                  
                  7,315,881Acquired
                      assets - net
                  
                  
                  -
                  
                  
                  10,384Accrued
                      interest receivable
                  
                  
                  2,490,192
                  
                  
                  2,678,558FHLB
                      and FRB stock, at cost
                  
                  
                  5,285,200
                  
                  
                  5,957,800Goodwill
                  
                  
                  2,506,538
                  
                  
                  407,897Intangible
                      assets, net of accumulated amortization of $2,600,858 at 03/31/07and
                      $2,366,564 at 6/30/06
                  
                  
                  3,970,371
                  
                  
                  1,919,665Bank
                      owned life insurance (BOLI)
                  
                  
                  9,156,180
                  
                  
                  8,895,326Other
                      assets
                  
                  
                  5,609,978
                  
                  
                  6,643,191Total
                      assets
                  
                  $
                  562,112,999
                  
                  $
                  562,917,802Liabilities
                      and Stockholders' EquityLiabilities:DepositsDemand
                  
                  $
                  35,564,366
                  
                  $
                  38,137,357NOW
                  
                  
                  55,119,699
                  
                  
                  54,432,157Money
                      market
                  
                  
                  9,154,662
                  
                  
                  9,430,378Regular
                      savings
                  
                  
                  21,484,342
                  
                  
                  24,247,324Brokered
                      time deposits
                  
                  
                  36,511,112
                  
                  
                  51,859,091Certificates
                      of deposit
                  
                  
                  224,612,061
                  
                  
                  217,187,070Total
                      deposits
                  
                  
                  382,446,242
                  
                  
                  395,293,377FHLB
                      advances
                  
                  
                  79,266,820
                  
                  
                  75,888,598Capital
                      lease obligation
                  
                  
                  2,686,094
                  
                  
                  2,781,046Other
                      borrowings
                  
                  
                  1,992,000
                  
                  
                  57,129Securities
                      sold under repurchase agreements
                  
                  
                  34,205,331
                  
                  
                  29,637,426Junior
                      subordinated notes issued to affiliated trusts
                  
                  
                  16,496,000
                  
                  
                  16,496,000Other
                      liabilities
                  
                  
                  3,398,695
                  
                  
                  3,668,101Total
                      liabilities
                  
                  
                  520,491,182
                  
                  
                  523,821,677Commitments
                      and contingent liabilitiesStockholders'
                      equityPreferred
                      stock, cumulative, $1 par value, 1,000,000 shares
                      authorizedand
                      none issued and outstanding
                  
                  
                  -
                  
                  
                  -Common
                      stock, at stated value, 15,000,000 shares authorized; 2,452,632
                      and2,447,132
                      shares outstanding at March 31, 2007 and June 30, 2006,
                      respectively
                  
                  
                  2,452,632
                  
                  
                  2,447,132Additional
                      paid-in capital
                  
                  
                  4,779,308
                  
                  
                  4,675,258Retained
                      earnings
                  
                  
                  35,331,480
                  
                  
                  34,596,204Accumulated
                      other comprehensive loss
                  
                  
                  (941,603
                  )
                  
                  (2,622,469
                  )Total
                      stockholders' equity
                  
                  
                  41,621,817
                  
                  
                  39,096,125Total
                      liabilities and stockholders' equity
                  
                  $
                  562,112,999
                  
                  $
                  562,917,802




3


**NORTHEAST
                  BANCORP AND SUBSIDIARY**Consolidated
                  Statements of Income(Unaudited)Three
                  Months EndedMarch
                  31,2007
              
              2006Interest
                  and dividend income:Interest
                  on loans
              
              $
              7,695,332
              
              $
              7,635,409Interest
                  on FHLB overnight deposits
              
              
              33,449
              
              
              3,389Interest
                  and dividends on available-for-sale securities
              
              
              902,134
              
              
              869,736Dividends
                  on FHLB and FRB stock
              
              
              92,478
              
              
              92,628Other
                  interest income
              
              
              14,714
              
              
              9,617Total
                  interest and dividend income
              
              
              8,738,107
              
              
              8,610,779Interest
                  expense:Deposits
              
              
              3,365,204
              
              
              2,808,774Securities
                  sold under repurchase agreements
              
              
              398,246
              
              
              251,767FHLB
                  advances
              
              
              936,768
              
              
              819,227Capital
                  lease obligation
              
              
              33,517
              
              
              35,064Other
                  borrowings
              
              
              23,615
              
              
              1,962Junior
                  subordinated notes issued to affiliated trusts
              
              
              270,912
              
              
              264,548Total
                  interest expense
              
              
              5,028,262
              
              
              4,181,342Net
                  interest and dividend income before provision for loan
                  losses
              
              
              3,709,845
              
              
              4,429,437Provision
                  for loan losses
              
              
              200,043
              
              
              325,356Net
                  interest and dividend income after provision for loan
                  losses
              
              
              3,509,802
              
              
              4,104,081Noninterest
                  income:Fees
                  and service charges on loans
              
              
              104,254
              
              
              89,128Fees
                  for other services to customers
              
              
              236,867
              
              
              261,950Net
                  securities gains
              
              
              8,443
              
              
              1,683Gain
                  on sales of loans
              
              
              418,303
              
              
              46,927Investment
                  commissions
              
              
              664,042
              
              
              492,082Insurance
                  commissions
              
              
              749,097
              
              
              711,747BOLI
                  income
              
              
              96,614
              
              
              91,123Other
                  income
              
              
              194,352
              
              
              149,836Total
                  noninterest income
              
              
              2,471,972
              
              
              1,844,476Noninterest
                  expense:Salaries
                  and employee benefits
              
              
              3,194,836
              
              
              2,797,359Occupancy
                  expense
              
              
              451,585
              
              
              478,938Equipment
                  expense
              
              
              337,586
              
              
              316,578Intangible
                  assets amortization
              
              
              81,193
              
              
              66,762Other
              
              
              1,200,050
              
              
              1,032,572Total
                  noninterest expense
              
              
              5,265,250
              
              
              4,692,209Income
                  before income tax expense
              
              
              716,524
              
              
              1,256,348Income
                  tax expense
              
              
              191,557
              
              
              382,607Net
                  income
              
              $
              524,967
              
              $
              873,741Earnings
                  per common share:Basic
              
              $
              0.21
              
              $
              0.35Diluted
              
              $
              0.21
              
              $
              0.35Net
                  interest margin (tax equivalent basis)
              
              
              2.91
              %
              
              3.40
              %Net
                  interest spread (tax equivalent basis)
              
              
              2.42
              %
              
              2.97
              %Return
                  on average assets (annualized)
              
              
              0.38
              %
              
              0.63
              %Return
                  on average equity (annualized)
              
              
              5.13
              %
              
              8.80
              %Efficiency
                  ratio
              
              
              85
              %
              
              75
              %




4


**NORTHEAST
                  BANCORP AND SUBSIDIARY**Consolidated
                  Statements of Income(Unaudited)Nine
                  Months EndedMarch
                  31,2007
              
              2006Interest
                  and dividend income:Interest
                  on loans
              
              $
              23,455,283
              
              $
              23,306,553Interest
                  on FHLB overnight deposits
              
              
              93,376
              
              
              58,476Interest
                  on federal funds sold
              
              
              -
              
              
              6,724Interest
                  and dividends on available-for-sale securities
              
              
              2,795,758
              
              
              2,402,957Dividends
                  on FHLB and FRB stock
              
              
              279,766
              
              
              257,729Other
                  interest income
              
              
              38,321
              
              
              24,063Total
                  interest and dividend income
              
              
              26,662,504
              
              
              26,056,502Interest
                  expense:Deposits
              
              
              10,068,020
              
              
              8,093,243Securities
                  sold under repurchase agreements
              
              
              1,143,623
              
              
              636,407FHLB
                  advances
              
              
              2,795,425
              
              
              2,541,479Capital
                  lease obligation
              
              
              103,244
              
              
              95,518Other
                  borrowings
              
              
              32,978
              
              
              3,277Junior
                  subordinated notes issued to affiliated trusts
              
              
              825,786
              
              
              792,950Total
                  interest expense
              
              
              14,969,076
              
              
              12,162,874Net
                  interest and dividend income before provision for loan
                  losses
              
              
              11,693,428
              
              
              13,893,628Provision
                  for loan losses
              
              
              876,375
              
              
              925,964Net
                  interest and dividend income after provision for loan
                  losses
              
              
              10,817,053
              
              
              12,967,664Noninterest
                  income:Fees
                  and service charges on loans
              
              
              271,637
              
              
              459,214Fees
                  for other services to customers
              
              
              765,208
              
              
              837,983Net
                  securities gains
              
              
              30,707
              
              
              11,450Gain
                  on sales of loans
              
              
              658,795
              
              
              214,235Investment
                  commissions
              
              
              1,673,034
              
              
              1,210,837Insurance
                  commissions
              
              
              1,602,665
              
              
              1,524,568BOLI
                  income
              
              
              289,917
              
              
              274,310Other
                  income
              
              
              663,506
              
              
              419,417Total
                  noninterest income
              
              
              5,955,469
              
              
              4,952,014Noninterest
                  expense:Salaries
                  and employee benefits
              
              
              8,906,441
              
              
              7,908,937Occupancy
                  expense
              
              
              1,279,550
              
              
              1,262,218Equipment
                  expense
              
              
              1,122,626
              
              
              1,086,189Intangible
                  assets amortization
              
              
              234,294
              
              
              174,266Other
              
              
              3,356,171
              
              
              3,103,519Total
                  noninterest expense
              
              
              14,899,082
              
              
              13,535,129Income
                  before income tax expense
              
              
              1,873,440
              
              
              4,384,549Income
                  tax expense
              
              
              476,449
              
              
              1,397,515Net
                  income
              
              $
              1,396,991
              
              $
              2,987,034Earnings
                  per common share:Basic
              
              $
              0.57
              
              $
              1.19Diluted
              
              $
              0.57
              
              $
              1.17Net
                  interest margin (tax equivalent basis)
              
              
              2.97
              %
              
              3.44
              %Net
                  interest spread (tax equivalent basis)
              
              
              2.58
              %
              
              3.11
              %Return
                  on average assets (annualized)
              
              
              0.33
              %
              
              0.70
              %Return
                  on average equity (annualized)
              
              
              4.55
              %
              
              9.82
              %Efficiency
                  ratio
              
              
              84
              %
              
              72
              %
  5


**NORTHEAST
                  BANCORP AND SUBSIDIARY**Consolidated
                  Statements of Changes in Stockholders' EquityNine
                  Months Ended March 31, 2007 and 2006(Unaudited)AccumulatedAdditional
              
              
              
              OtherCommon
              
              Paid-in
              
              Retained
              
              ComprehensiveStock
              
              Capital
              
              Earnings
              
              Loss
              
              TotalBalance
                  at June 30, 2005
              
              $
              2,519,832
              
              $
              6,530,836
              
              $
              31,489,092
              
              $
              (670,187
              )
              $
              39,869,573Net
                  income for nine months ended 3/31/06
              
              
              
              
              
              
              
              
              2,987,034
              
              
              
              
              
              2,987,034Other
                  comprehensive income net of income tax:Net
                  unrealized holding losses on investmentsavailable-for-sale,
                  net of income taxes
              
              
              
              
              
              
              
              
              
              
              
              (923,593
              )
              
              (923,593
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,063,441Dividends
                  on common stock at $0.27 per share
              
              
              
              
              
              
              
              
              (677,115
              )
              
              
              
              
              (677,115
              )Purchase
                  of 90,200 shares of Company stock
              
              
              (90,200
              )
              
              (2,052,050
              )
              
              
              
              
              
              
              
              (2,142,250
              )Common
                  stock issued in connection withemployee
                  benefit and stock option plan
              
              
              14,500
              
              
              174,482
              
              
              
              
              
              
              
              
              188,982Balance
                  at March 31, 2006
              
              $
              2,444,132
              
              $
              4,653,268
              
              $
              33,799,011
              
              $
              (1,593,780
              )
              $
              39,302,631Balance
                  at June 30, 2006
              
              $
              2,447,132
              
              $
              4,675,258
              
              $
              34,596,204
              
              $
              (2,622,469
              )
              $
              39,096,125Net
                  income for nine months ended 3/31/07
              
              
              
              
              
              
              
              
              1,396,991
              
              
              
              
              
              1,396,991Other
                  comprehensive income net of income tax:Net
                  unrealized holding gain on investmentsavailable-for-sale,
                  net of income taxes
              
              
              
              
              
              
              
              
              
              
              
              1,680,866
              
              
              1,680,866Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,077,857Dividends
                  on common stock at $0.27 per share
              
              
              
              
              
              
              
              
              (661,715
              )
              
              
              
              
              (661,715
              )Common
                  stock issued in connection withemployee
                  benefit and stock option plan
              
              
              500
              
              
              6,050
              
              
              
              
              
              
              
              
              6,550Common
                  stock issued in connection withthe
                  purchase of branch real estate
              
              
              5,000
              
              
              98,000
              
              
              
              
              
              
              
              
              103,000Balance
                  at March 31, 2007
              
              $
              2,452,632
              
              $
              4,779,308
              
              $
              35,331,480
              
              $
              (941,603
              )
              $
              41,621,817




6


**NORTHEAST
                  BANCORP AND SUBSIDIARY**Consolidated
                  Statements of Cash Flows(Unaudited)Nine
                  Months EndedMarch
                  31,2007
              
              2006Cash
                  (used) provided by operating activities:
              $
              (2,086,027
              )
              $
              3,387,360Cash
                  flows from investing activities:Federal
                  Reserve Bank stock purchased
              
              -
              
              
              (54,000
              )Proceeds
                  from redemption of Federal Home Loan Bank stock
              
              672,600
              
              
              -Available-for-sale
                  securities purchased
              
              (4,436,070
              )
              
              (17,802,139
              )Available-for-sale
                  securities matured
              
              10,972,676
              
              
              6,774,941Available-for-sale
                  securities sold
              
              1,672,592
              
              
              739,480Net
                  change in loans
              
              9,904,452
              
              
              23,734,922Net
                  capital expenditures
              
              (493,331
              )
              
              (950,416
              )Proceeds
                  from sale of premises and equipment
              
              246,610
              
              
              -Proceeds
                  from sale of acquired assets
              
              4,000
              
              
              242,842Cash
                  paid in connection with purchase of branch real estate
              
              (297,000
              )
              
              -Cash
                  paid for acquision of business
              
              (2,175,000
              )
              
              -Net
                  cash provided by investing activities
              
              16,071,529
              
              
              12,685,630Cash
                  flows from financing activities:Net
                  change in deposits
              
              (12,847,135
              )
              
              (12,822,077
              )Net
                  change in securities sold under repurchase agreements
              
              4,567,905
              
              
              380,523Dividends
                  paid
              
              (661,715
              )
              
              (677,115
              )Proceeds
                  from stock issuance
              
              6,550
              
              
              188,982Company
                  stock repurchased
              
              -
              
              
              (2,142,250
              )Advances
                  from the Federal Home Loan Bank
              
              46,000,000
              
              
              80,000,000Net
                  repayments of Federal Home Loan Bank advances
              
              (42,621,778
              )
              
              (84,104,717
              )Repayment
                  on capital lease obligation
              
              (94,952
              )
              
              (80,656
              )Net
                  cash used by financing activities
              
              (5,651,125
              )
              
              (19,257,310
              )Net
                  increase (decrease) in cash and cash equivalents
              
              8,334,377
              
              
              (3,184,320
              )Cash
                  and cash equivalents, beginning of period
              
              12,103,721
              
              
              13,873,235Cash
                  and cash equivalents, end of period
              $
              20,438,098
              
              $
              10,688,915Cash
                  and cash equivalents include cash on hand, amounts due from banks,
                  and
                  interest-bearing deposits.Supplemental
                  schedule of noncash activities:Net
                  change in valuation for unrealized gains/losses, net of income
                  tax,on
                  available-for-sale securities
              
              
              
              
              $
              1,680,866
              
              $
              (923,593
              )Net
                  transfer from loans to acquired assets
              
              -
              
              
              161,800Common
                  stock issued in connection with purchase of branch real
                  estate
              
              103,000
              
              
              -Capital
                  lease asset and related obligation
              
              -
              
              
              2,892,702Security
                  settlement due to broker
              
              -
              
              
              352,209Reclassified
                  from loan loss allowance to off-balance sheet credit risk
                  reserve
              
              -
              
              
              204,086Supplemental
                  disclosures of cash paid during the period for:Income
                  taxes paid, net of refunds
              $
              809,500
              
              $
              1,950,561Interest
                  paid
              
              14,775,509
              
              
              11,594,687Insurance
                  agency acquisitions - see Note 9




7


**NORTHEAST
        BANCORP AND SUBSIDIARY**
 **Notes
        to Consolidated Financial Statements**
 **March
        31, 2007**
 (Unaudited)
 
 1. Basis
        of Presentation
 
 The
        accompanying unaudited condensed and consolidated financial statements have
        been
        prepared in accordance with accounting principles generally accepted in the
        United States of America for interim financial information and with the
        instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
        they do
        not include all of the information and footnotes required by accounting
        principles generally accepted in the United States of America for complete
        financial statements. In the opinion of management, the accompanying
        consolidated financial statements contain all adjustments (consisting
        principally of normal recurring accruals) considered necessary for a fair
        presentation of the Company's financial position at March 31, 2007, the results
        of operations for the three and nine month periods ended March 31, 2007 and
        2006, the changes in stockholders' equity for the nine months ended March
        31,
        2007 and 2006, and the cash flows for the nine months ended March 31, 2007
        and
        2006. Operating results for the nine month period ended March 31, 2007 are
        not
        necessarily indicative of the results that may be expected for the fiscal
        year
        ending June 30, 2007. For further information, refer to the audited consolidated
        financial statements and footnotes thereto for the fiscal year ended June
        30,
        2006 included in the Company's Annual Report on Form 10-K. Certain June 30,
        2006
        amounts have been reclassified to be consistent with the March 31, 2007
        financial statements.
 
 2. Junior Subordinated Notes
 
 NBN
        Capital Trust II and III were created in December 2003 and NBN Capital Trust
        IV
        was created December 2004. Each such trust is a Delaware statutory trust
        (together, the "Private Trusts"). The exclusive purpose of the Private Trusts
        was (i) issuing and selling Common Securities and Preferred Securities in
        a
        private placement offering, (ii) using the proceeds of the sale of the Private
        Trust Preferred Securities to acquire Junior Subordinated Deferrable Interest
        Notes ("Junior Subordinated Notes"); and (iii) engaging only in those other
        activities necessary, convenient, or incidental thereto. Accordingly the
        Junior
        Subordinated Notes are the sole assets of each of the Private Trusts.
 
 The
        following table summarizes the junior subordinated notes issued by the Company
        to each affiliated trust and the trust preferred and common securities issued
        by
        each affiliated trust. Amounts include the junior subordinated notes acquired
        by
        the affiliated trusts from the Company with the capital contributed by the
        Company in exchange for the common securities of such trust. The trust preferred
        securities were sold in two separate private placement offerings. The Company
        has the right to redeem the junior subordinated notes, in whole or in part,
        on
        or after March 30, 2009, for NBN Capital Trust II and III, and on or after
        February 23, 2010, for NBN Capital Trust IV at the redemption price specified
        in
        the Indenture plus accrued but unpaid interest to the redemption
        date.
 
 Affiliated
                  Trusts
              
              Trust
                Preferred
                Securities
              
              Common
                Securities
              
              Junior
                Subordinated
                Notes
              
              Interest
                Rate
              
              
              Maturity
                  DateNBN
                  Capital Trust II
              
              $
              3,000,000
              
              $
              93,000
              
              $
              3,093,000
              
              
              8.15
              %
              
              March
                  30, 2034NBN
                  Capital Trust III
              
              
              3,000,000
              
              
              93,000
              
              
              3,093,000
              
              
              6.50
              %
              
              March
                  30, 2034NBN
                  Capital Trust IV
              
              
              10,000,000
              
              
              310,000
              
              
              10,310,000
              
              
              5.88
              %
              
              February
                  23, 2035Total
              
              $
              16,000,000
              
              $
              496,000
              
              $
              16,496,000
              
              
              6.42
              %
 
 NBN
        Capital Trust II pays a variable rate based on three month LIBOR, NBN Capital
        Trust III pays a 6.50% fixed rate until March 30, 2009 when the rate changes
        to
        a variable rate based on three month LIBOR, and NBN Capital Trust IV pays
        a
        5.88% fixed rate until February 23, 2010 when the rate changes to a variable
        rate based on three month LIBOR. Accordingly, the Preferred Securities of
        the
        Private Trusts currently pay quarterly distributions at an annual rate of
        8.15%
        for the stated liquidation amount of $1,000 per Preferred Security for NBN
        Capital Trust II, an annual rate of 6.50% for the stated liquidation amount
        of
        $1,000 per Preferred Security for NBN Capital Trust III and an annual rate
        of
        5.88% for the stated liquidation amount of $1,000 per Preferred Security
        for NBN
        Capital Trust IV. The Company has fully and unconditionally guaranteed all
        of
        the obligations of each trust. The guaranty covers the quarterly distributions
        and payments on liquidation or redemption of the Private Trust Preferred
        Securities, but only to the extent of funds held by the trusts. Based on
        the
        current rates, the annual interest expense is approximately
        $1,059,000.
 
 8
 3. Loans
  The
        following is a summary of the composition of loans at:
  March
                  31, 2007
              
              
              June
                  30, 2006Residential
                  real estate
              $
              145,386,729
              
              $
              149,099,809Commercial
                  real estate
              
              114,402,492
              
              
              115,327,157Construction
              
              5,794,913
              
              
              5,105,566Commercial
              
              43,579,552
              
              
              50,261,725Consumer
                  & Other
              
              113,918,515
              
              
              113,192,397Total
              
              423,082,201
              
              
              432,986,654Net
                  Deferred Costs
              
              2,600,151
              
              
              2,675,875Total
                  Loans
              $
              425,682,352
              
              $
              435,662,529
 
 4. Allowance
        for Loan Losses
 
 The
        following is an analysis of transactions in the allowance for loan
        losses:
  Nine
                  months Ended
                March
                  31,2007
              
              
              2006Balance
                  at beginning of period
              
              $
              5,496,000
              
              $
              5,104,000Add
                  provision charged to operations
              
              
              876,375
              
              
              925,964Reclassified
                  to off-balance sheet credit risk reserve
              
              
              --
              
              
              (204,086
              )Recoveries
                  on loans previously charged off
              
              
              91,652
              
              
              137,9416,464,027
              
              
              5,963,819Less
                  loans charged off
              
              
              708,027
              
              
              516,819Balance
                  at end of period
              
              $
              5,756,000
              
              $
              5,447,000
 
 5. Securities
 
 Securities
        available-for-sale at cost and approximate market values and maturities are
        summarized below:
 
 March
                  31, 2007
              
              June
                  30, 2006Cost
              
              Market
                Value
              
              Cost
              
              Market
                ValueDebt
                  securities issued by U. S. Government-sponsored
                    enterprises
              
              $
              21,765,972
              
              $
              21,299,599
              
              $
              25,766,682
              
              $
              24,694,409Corporate
                  bonds
              
              
              500,000
              
              
              490,100
              
              
              500,000
              
              
              477,520Municipal
                  Bonds
              
              
              11,069,217
              
              
              11,026,511
              
              
              11,075,274
              
              
              10,770,167Mortgage-backed
                  securities
              
              
              46,361,024
              
              
              45,541,893
              
              
              50,618,118
              
              
              48,126,031Equity
                  securities
              
              
              2,182,988
              
              
              2,094,427
              
              
              2,151,072
              
              
              2,069,580$
              81,879,201
              
              $
              80,452,530
              
              $
              90,111,146
              
              $
              86,137,707
 
 March
                  31, 2007
              
              June
                  30, 2006Cost
              
              Market
                Value
              
              Cost
              
              Market
                ValueDue
                  in one year or less
              
              $
              4,008,129
              
              $
              3,953,140
              
              $
              4,000,000
              
              $
              3,944,960Due
                  after one year through five years
              
              
              15,868,437
              
              
              15,520,493
              
              
              17,884,659
              
              
              17,106,005Due
                  after five years through ten years
              
              
              996,802
              
              
              989,760
              
              
              2,990,309
              
              
              2,868,150Due
                  after ten years
              
              
              12,461,821
              
              
              12,352,817
              
              
              12,466,988
              
              
              12,022,981Mortgage-backed
                  securities (including
                securities
                  with interest rates ranging from
                4.0%
                  to 6.4% maturing November 2007 to
                April
                  2036)
              
              
              46,361,024
              
              
              45,541,893
              
              
              50,618,118
              
              
              48,126,031Equity
                  securities
              
              
              2,182,988
              
              
              2,094,427
              
              
              2,151,072
              
              
              2,069,580$
              81,879,201
              
              $
              80,452,530
              
              $
              90,111,146
              
              $
              86,137,707
 
 9
 6. Advances
        from the Federal Home Loan Bank
 
 A
        summary
        of borrowings from the Federal Home Loan Bank is as follows:
 
 March
                  31, 2007Principal
                Amounts
              
              Interest
                Rates
              
              Maturity
                  Dates For Periods Ending March 31,$   34,266,820
              
              2.68% - 5.68%
              
              200830,000,000
              
              4.86% - 5.68%
              
              20092,000,000
              
              4.81%
              
              20113,000,000
              
              4.99%
              
              201210,000,000
              
              4.26%
              
              2017$  79,266,820
 
 June
                  30, 2006Principal
                  Amounts
              
              Interest
                Rates
              
              Maturity
                  Dates For Periods Ending June 30,$   34,831,900
              
              2.22% - 5.31%
              
              200731,056,698
              
              2.68% - 5.68%
              
              20085,000,000
              
              4.88% - 4.88%
              
              20095,000,000
              
              4.81% - 4.99%
              
              2011$  75,888,598
 
 The
        Federal Home Loan Bank has the option to call $23,000,000 of the outstanding
        advances at call dates subsequent to March 31, 2007. The options are
        continuously callable quarterly until maturity.
 
 7. Stock-Based
        Compensation
  The
        Company has stock-based employee compensation plans, which are described
        more
        fully in Note 14 of the June 30, 2006 audited consolidated financial statements.
        The Company adopted Statement of Financial Accounting Standard No. 123 (revised
        2004), *Shared-Based
        Payment* ("SFAS
        123-R"), effective for the fiscal year beginning July 1, 2005, superseding
        APB Opinion 25 and replacing FASB Statement No. 123. Prior to July 1, 2005,
        the Company utilized the intrinsic value methodology allowed by APB Opinion
        25.
        SFAS 123-R requires companies to measure and record compensation expense
        for
        stock options and other share-based payments based on the instruments' fair
        value reduced by expected forfeitures. Under the modified prospective approach
        adopted by the Company, the Company recognizes expense for new options awarded
        and to awards modified, repurchased or canceled after the effective date.
        Since
        there were no new options granted (or modifications of existing options)
        during
        the nine months ended March 31, 2007 and since all previously granted options
        were fully vested at the grant date, adoption of the SFAS 123-R had no impact
        on
        the March 31, 2007 financial statements.
 
 The
        following table illustrates the effect on net income and earnings per share
        as
        if the Company had applied the fair value recognition provisions of  SFAS
        123-R, *Share-Base
        Payment*, to stock-based employee compensation.
  For
                  the Three Months
                Ended
                  March 31,
              
              For
                  the Nine Months
                Ended
                  March 31,2007
              
              
              2006
              
              
              2007
              
              
              2006Net
                  Income as reported
              
              $
              524,967
              
              $
              873,741
              
              $
              1,396,991
              
              $
              2,987,034Deduct:
                  Total stock-based compensation expense determined under fair value
                  based
                  method for all awards, net of related tax effects
              
              
              -
              
              
              -
              
              
              -
              
              
              -Pro
                  forma net income
              
              $
              524,967
              
              $
              873,741
              
              $
              1,396,991
              
              $
              2,987,034Earnings
                  per shareBasic
                  - as reported
              
              $
              0.21
              
              $
              0.35
              
              $
              0.57
              
              $
              1.19Basic
                  - pro forma
              
              $
              0.21
              
              $
              0.35
              
              $
              0.57
              
              $
              1.19Diluted
                  - as reported
              
              $
              0.21
              
              $
              0.35
              
              $
              0.57
              
              $
              1.17Diluted
                  - pro forma
              
              $
              0.21
              
              $
              0.35
              
              $
              0.57
              
              $
              1.17
 
 8. Capital
        Lease
 
 The
        principal executive and administrative offices of the Company and the Bank
        were
        relocated to 500 Canal Street, Lewiston, Maine ("Headquarters Building")
        from
        158 Court Street, Auburn, Maine in August, 2005. The Bank entered into a
        fifteen
        year lease with respect to the Headquarters Building and moved our principal
        executive and administrative offices to this four story building located
        in
        downtown Lewiston along with consolidating our operations, loan processing
        and
        underwriting, loan servicing, accounting, human resources, and commercial
        lending departments. We lease the entire building, a total of 27,000 square
        feet. Since the present value of the lease payments over the fifteen years
        ($264,262 per year for each of the initial ten years of the lease term and
        $305,987 per year for each of the last five years) exceeded 90% of the fair
        value of the property, we recorded a capital lease of $2,892,702 in Premises
        and
        Equipment and an Obligation under Capital Lease Agreement. The Obligation
        under Capital Lease was $2,686,094 and $2,781,046 at March 31, 2007 and June
        30,
        2006, respectively. The capital lease asset is being amortized over the lease
        term.
 
 10
 9. Insurance
        Agency Acquisitions
 
 On
        March
        30, 2007, Northeast Bank Insurance Group, Inc., a wholly-owned subsidiary
        of
        Northeast Bank, acquired substantially all of the assets of Southern Maine
        Insurance (“Southern Maine”) located in Scarborough, Maine for cash and
        debt. The Southern Maine acquisition purchase price was $1,350,000, of which
        $900,000 was paid in cash and the balance of $450,000 is payable to the seller
        over a term of four years and bearing an interest rate of 6.50%. The goodwill
        and customer list intangibles recorded as a result of this acquisition have
        been
        estimated and are subject to change.
 
 During
        the quarter ended December 31, 2006, Northeast Bank Insurance Group, Inc.
        acquired the stock of the Palmer Insurance Agency (“Palmer”) located in Turner,
        Maine and substantially all of the assets of Sturtevant and Ham, Inc.
        (“Sturtevant”) located in Livermore, Maine for cash and debt. The Palmer
        acquisition purchase price was $1,867,000, of which $800,000 was paid in
        cash
        and the balance of $1,067,000 is payable to the seller over a term of seven
        years and bearing an interest rate of 6.50%. The Palmer acquisition closed
        on
        November 30, 2006. The Sturtevant acquisition purchase price was $950,000
        of
        which $475,000 was paid in cash and the balance of $475,000 is payable to
        the
        seller over a term of three years and bearing an interest rate of 6.50%.
        The
        Sturtevant acquisition closed on December 1, 2006.
 
 All
        acquisitions were accounted for using the purchase method and resulted in
        increases in customer list intangibles and goodwill on the balance sheet.
        All
        agreements also call for a reduction of the purchase price should the stipulated
        minimum income levels not be attained.  The customer list intangibles will
        be amortized over twelve years. The non-compete agreements will be amortized
        over the individual’s expected years of employment plus three years. The results
        of operations of Palmer, Sturtevant, and Southern Maine have been included
        in
        the consolidated financial statements of the Company since the acquisition
        date.  There is no pro-forma disclosure included because Palmer,
        Sturtevant, and Southern Maine were not considered significant
        acquisitions.  The details of the purchases appear below.
 
 Purchase
                  Price:
              
              Palmer
              
              Sturtevant
              
              Southern
                  MaineInsuranceCash
              
              $
              800,000
              
              $
              475,000
              
              $
              900,000Debt
              
              
              1,067,000
              
              
              475,000
              
              
              450,000Acquisition
                  Costs
              
              
              8,360
              
              
              3,877
              
              
              -Total
              
              $
              1,875,360
              
              $
              953,877
              
              $
              1,350,000Allocation:Customer
                  List
              
              $
              600,000
              
              $
              550,000
              
              $
              675,000Non-compete
                  Agreement
              
              
              300,000
              
              
              75,000
              
              
              75,000Goodwill
              
              
              1,174,274
              
              
              324,367
              
              
              600,000Other
                  Assets
              
              
              5,086
              
              
              4,510
              
              
              -Deferred
                  Tax Liability
              
              
              (204,000
              )
              
              -
              
              
              -Total
              
              $
              1,875,360
              
              $
              953,877
              
              $
              1,350,000
 Item
          2. Management's
          Discussion and Analysis of Results of Operations and Financial
          Condition
 
 This
          Management's Discussion and Analysis of Results of Operations and Financial
          Condition presents a review of the results of operations for the three
          and nine
          months ended March 31, 2007 and 2006 and the financial condition at March
          31,
          2007 and June 30, 2006. This discussion and analysis is intended to assist
          in
          understanding the results of operations and financial condition of Northeast
          Bancorp and its wholly-owned subsidiary, Northeast Bank. Accordingly, this
          section should be read in conjunction with the consolidated financial statements
          and the related notes and other statistical information contained herein.
          See
          our annual report on Form 10-K, for the fiscal year ended June 30, 2006,
          for
          discussion of the critical accounting policies of the Company.
 
 A
          Note
          about Forward Looking Statements
 
 This
          report contains certain "forward-looking statements" within the meaning
          of
          federal securities law Section 27A of the Securities Act of 1933 and Section
          21E
          of the Securities Exchange Act of 1934, such as statements relating to
          our
          financial condition, prospective results of operations, future performance
          or
          expectations, plans, objectives, prospects, loan loss allowance adequacy,
          simulation of changes in interest rates, capital spending and finance sources,
          and revenue sources. These statements relate to expectations concerning
          matters
          that are not historical facts. Accordingly, statements that are based on
          management's projections, estimates, assumptions, and judgments constitute
          forward-looking statements. These forward-looking statements, which are
          based on
          various assumptions (some of which are beyond the Company's control), may
          be
          identified by reference to a future period or periods, or by the use of
          forward-looking terminology such as "believe", "expect", "estimate",
          "anticipate", "continue", "plan", "approximately", "intend", "objective",
          "goal", "project", or other similar terms or variations on those terms,
          or the
          future or conditional verbs such as "will", "may", "should", "could", and
          "would". In addition, the Company may from time to time make such oral
          or
          written "forward-looking statements" in future filings with the Securities
          and
          Exchange Commission (including exhibits thereto), in its reports to
          shareholders, and in other communications made by or with the approval
          of the
          Company.
 
 11
 Such
          forward-looking statements reflect our current views and expectations based
          largely on information currently available to our management, and on our
          current
          expectations, assumptions, plans, estimates, judgments, and projections
          about
          our business and our industry, and they involve inherent risks and
          uncertainties. Although we believe that these forward-looking statements
          are
          based on reasonable estimates and assumptions, they are not guarantees
          of future
          performance and are subject to known and unknown risks, uncertainties,
          contingencies, and other factors. Accordingly, we cannot give you any assurance
          that our expectations will, in fact, occur or that our estimates or assumptions
          will be correct. We caution you that actual results could differ materially
          from
          those expressed or implied by such 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. Accordingly, investors and others are cautioned not
          to
          place undue reliance on such forward-looking statements. For a more complete
          discussion of certain risks and uncertainties affecting the Company, please
          see
          "Item 1. Business - Forward-Looking Statements and Risk Factors" set forth
          in
          our Form 10-K for the fiscal year ended June 30, 2006. These forward-looking
          statements speak only as of the date of this report and we do not undertake
          any
          obligation to update or revise any of these forward-looking statements
          to
          reflect events or circumstances occurring after the date of this report
          or to
          reflect the occurrence of unanticipated events.
 
 Overview
          of Operations
 
 This
          Overview is intended to provide a context for the following Management's
          Discussion and Analysis of the Results of Operations and Financial Condition,
          and should be read in conjunction with our unaudited consolidated financial
          statements, including the notes thereto, in this quarterly report on Form
          10-Q,
          as well as our audited consolidated financial statements for the fiscal
          year
          ended June 30, 2006 as filed on Form 10-K with the SEC. We have attempted
          to
          identify the most important matters on which our management focuses in
          evaluating our financial condition and operating performance and the short-term
          and long-term opportunities, challenges, and risks (including material
          trends
          and uncertainties) which we face. We also discuss the action we are taking
          to
          address these opportunities, challenges, and risks. The Overview is not
          intended
          as a summary of, or a substitute for review of, Management's Discussion
          and
          Analysis of the Results of Operations and Financial Condition. For comparative
          purposes, certain amounts have been reclassified to conform to the current-year
          presentation. The reclassifications had no impact on net income.
 
 Northeast
          Bank is faced with three challenges: growing earning assets, improving
          net
          interest margins, and improving the efficiency ratio.
 
 Earning
          assets have decreased compared to June 30, 2006, due principally to a decrease
          in residential real estate and commercial loans. While competition
          for residential real estate and small commercial loans is intense, we are
          originating loans that we believe are properly priced for risk and are
          not
          competing for relationships where we believe transactions do not reflect
          pricing
          or structure for risk.
 
 Originations
          of commercial real estate and commercial loans for the nine months ended
          March
          31, 2007 have exceeded originations for the same period one year ago. We
          expect
          an overall increase in commercial real estate and commercial loan originations
          for the fiscal year ending June 30, 2007 as compared to fiscal 2006.
 
 We
          expect
          purchases of investment securities will be minimal during this fiscal year
          because margins on loans are better than investment securities given the
          current
          flat yield curve.
 
 Net
          interest margins are expected to continue to decline. The competition for
          deposits and the relatively high cost of attracting new deposits is expected
          to
          increase the overall cost of funds and expected to cause net interest margins
          to
          decline. Our certificates of deposits are expected to reprice to interest
          rates
          slightly higher than one year ago. Prior to June 30, 2006, prime rate changes
          kept our yields on interest-bearing assets increasing faster than the cost
          of
          interest-bearing deposits, thereby improving our margins. There were no
          prime
          rate changes during the three or nine months ended March 31, 2007 and,
          as a
          result, assets with their yields tied to the prime rate, did not reprice
          upward.
          We believe that the prospect of additional increases in prime rate in the
          immediate future is unlikely, thus any improvement in interest income would
          result from an increased volume of new loan originations as opposed to
          rate
          increases. To reduce interest rate risk, we are extending the maturities
          of FHLB
          advances and brokered time deposits. As of December 31, 2006, the balance
          sheet
          was slightly liability sensitive. A liability sensitive balance sheet results
          from cost of interest-bearing liabilities repricing more quickly than the
          yield
          of interest-bearing assets and would generally be expected to result in
          a
          decrease in net interest income during a period of rising interest
          rates.
 
 Management
          believes that the allowance for loan losses as of March 31, 2007 was adequate,
          under present conditions, for credit risk known in the loan portfolio.
          Non-accrual loans decreased slightly compared to June 30, 2006.
 
 12
 We
          expect
          to improve non-interest income through the continued expansion of the wealth
          management division of our trust department resulting in increased trust
          fees,
          expansion of the investment brokerage division thereby increasing commission
          revenue, continued increase in sales of commercial and consumer property
          and
          casualty insurance policies which should increase commission revenue and
          the
          expansion of Northeast Bank Insurance Group, Inc. into southern Maine.
          Non-interest expense is expected to increase to support this expansion.
 
 Description
          of Operations
 
 Northeast
          Bancorp (the "Company") is a Maine corporation and a bank holding company
          registered with the Federal Reserve Bank of Boston ("FRB") under the Bank
          Holding Company Act of 1956. The FRB is the primary regulator of the Company
          and
          it supervises and examines our activities. The Company also is a registered
          Maine financial institution holding company under Maine law and is subject
          to
          regulation and examination by the Superintendent of Maine Bureau of Financial
          Institutions. We conduct business from our headquarters in Lewiston, Maine
          and,
          as of March 31, 2007, we had twelve banking offices and eleven insurance
          offices
          all located in western and south-central Maine. At March 31, 2007, we had
          consolidated assets of $562.1 million and consolidated stockholders' equity
          of
          $41.6 million.
 
 The
          Company's principal asset is all the capital stock of Northeast Bank (the
          "Bank"), a Maine state-chartered universal bank. Accordingly, the Company's
          results of operations are primarily dependent on the results of the operations
          of the Bank. The Bank's 12 offices are located in Auburn, Augusta, Bethel,
          Brunswick, Buckfield, Falmouth, Harrison, Lewiston (2), Mechanic Falls,
          Portland, and South Paris, Maine. The Bank's investment brokerage division
          offers investment, insurance and financial planning products and services
          from
          its office in Falmouth, Maine.
 
 The
          Bank's wholly owned subsidiary, Northeast Bank Insurance Group Inc, is
          our
          insurance agency. There are eleven insurance agency offices, an increase
          of one
          since the quarter ended December 31, 2006, for a total increase of three
          offices
          since June 30, 2006. Southern Maine Insurance of Scarborough, Maine was
          acquired
          on March 30, 2007. Palmer Insurance of Turner, Maine and Sturtevant and
          Ham,
          Inc. of Livermore, Maine were acquired on November 30, 2006 and December
          1,
          2006, respectively. Our other insurance agency offices are located in Anson,
          Auburn, Augusta, Bethel, Jackman, Mexico, Rangeley (its headquarters) and
          South
          Paris, Maine. All of our insurance agencies offer personal and commercial
          property and casualty insurance products. See Note 6 in our June 30, 2006
          consolidated financial statements for more information.
 
 On
          September 1, 2006, the Bank purchased the real estate located at 235 Main
          Street, South Paris, Maine, our South Paris branch, from John Schiavi for
          a
          purchase price of $400,000. Mr. Schiavi is a director of Northeast Bancorp.
          The
          price was determined through an independent third party appraisal. Mr.
          Schiavi
          was paid in the form of $297,000 in cash and 5,000 shares of Northeast
          Bancorp
          common stock (based on the $20.60 price on August 31, 2006). Management
          of
          Northeast Bancorp and the Bank believe that the transaction reflected
          arm's-length, negotiated terms.
 
 Bank
          Strategy
 
 The
          principal business of the Bank consists of attracting deposits from the
          general
          public and applying those funds to originate or acquire residential mortgage
          loans, commercial loans, commercial real estate loans, and a variety of
          consumer, indirect auto and indirect recreational vehicle loans. The Bank
          sells,
          from time to time, fixed rate residential mortgage loans into the secondary
          market. The Bank also invests in mortgage-backed securities, securities
          issued
          by United States government sponsored enterprises, corporate and municipal
          securities. The Bank's profitability depends primarily on net interest
          income,
          which is the difference between interest income earned from interest-earning
          assets (i.e. loans and investments) and interest expense incurred on
          interest-bearing liabilities (i.e. customer deposits and borrowed funds).
          The
          relative balances of interest-earning assets and interest-bearing liabilities,
          and the rates paid on these balances affect net interest income. The Bank
          also
          emphasizes the growth of non-interest sources of income from investment
          and
          insurance brokerage, trust management, and financial planning to reduce
          its
          dependency on net interest income.
 
 Our
          goal
          is to continue modest, but profitable, growth by increasing our loan and
          deposit
          market share in our existing markets in western and south-central Maine,
          closely
          managing the yields on earning assets and rates on interest-bearing liabilities,
          introducing new financial products and services, increasing the number
          of bank
          services sold to each household, increasing non-interest income from expanded
          trust services, investment and insurance brokerage services, and controlling
          the
          growth of non-interest expenses. It also is part of our business strategy
          to
          make targeted acquisitions in our current market areas from time to time
          when
          opportunities present themselves.
 
 Net
          interest income continues to be our largest source of revenue, and is affected
          by the level of interest rates, changes in interest rates and by changes
          in the
          amount and composition of interest-earning assets and interest-bearing
          liabilities. The level of the provision for loan losses, non-interest income
          and
          expenses of the Company and the Bank, and the effective tax rate also affect
          profitability. Noninterest income consists primarily of loan and deposit
          service
          fees; trust, investment brokerage and insurance brokerage fees; and gains
          on the
          sales of loans and investments. Noninterest expenses consist of salaries
          and
          employee benefits, occupancy related expenses, deposit insurance premiums
          paid
          to the FDIC, and other operating expenses, which include advertising, computer
          services, supplies, telecommunication, and postage expenses.
 
 13
 **Results
          of Operations**
 
 Comparison
          of the Three and Nine months ended March 31, 2007 and 2006
 
 General
 
 The
          Company reported consolidated net income of $524,967, or $0.21 per diluted
          share, for the three months ended March 31, 2007 compared with $873,741,
          or
          $0.35 per diluted share, for the three months ended March 31, 2006, a decrease
          of $348,774, or 40%. Net interest and dividend income decreased $719,592,
          or
          16%, as a result of a lower net interest margin and decreased earning assets.
          Noninterest income increased $627,496, or 34%, primarily from increased
          investment brokerage commissions, insurance commission, and gain on the
          sale of
          commercial loans. Noninterest expense increased $573,041, or 12%, primarily
          due
          to increased salaries and employee benefits.
 
 Annualized
          return on average equity ("ROE") and return on average assets ("ROA") were
          5.13%
          and 0.38%, respectively, for the quarter ended March 31, 2007 as compared
          to
          8.80% and 0.63%, respectively, for the quarter ended March 31, 2006. The
          decrease in the returns on average equity and average assets was primarily
          due
          to lower net income for the most recent quarter.
 
 Net
          Interest and Dividend Income
 
 Net
          interest and dividend income for the three months ended March 31, 2007
          decreased
          to $3,709,845, as compared to $4,429,437 for the same period in 2006. The
          decrease in net interest and dividend income of $719,592, or 16%, was primarily
          due to a 49 basis point decrease in net interest margin, on a tax equivalent
          basis, and a decrease in average earning assets of $10,231,738, or 2%,
          for the
          quarter ended March 31, 2007 as compared to the quarter ended March 31,
          2006.
          The decrease in average earning assets was primarily due to a decrease
          in
          average loans of $9,668,099, or 2%, a decrease in average investment securities
          from the principal pay downs of mortgage-backed and average regulatory
          stock of
          $3,170,027, or 4% from the redemption of FHLB stock. The decrease in average
          loans, investments, and regulatory stock was partially offset by an increase
          in
          average interest-bearing deposits. Average loans as a percentage of average
          earning assets was 83%, respectively, for quarters ended March 31, 2007
          and
          2006. Our net interest margin, on a tax equivalent basis, was 2.91% and
          3.40%
          for the quarters ended March 31, 2007 and 2006, respectively. Our net interest
          spread, on a tax equivalent basis, for the three months ended March 31,
          2007 was
          2.42%, a decrease of 55 basis points from 2.97% for the same period a year
          ago.
          Comparing the three months ended March 31, 2007 and 2006, the yields on
          earning
          assets increased 23 basis points compared to a 78 basis point increase
          in the
          cost of interest-bearing liabilities. The increases in our yield on earning
          assets and in the cost of interest-bearing liabilities reflect the competitive
          pressure on interest rates to attract new customers and retain existing
          customer
          relationships and general rising interest rate environment. We were not
          able to
          increase our net interest spread due to the volume of interest-bearing
          liabilities (primarily certificates of deposits), that repriced to higher
          rates,
          the slightly liability sensitive balance sheet, resulting in the cost of
          interest-bearing liabilities repricing more quickly then the yield of
          interest-bearing assets, and a steady prime rate during the quarter ended
          March
          31, 2007.
  The
          changes in net interest and dividend income, on a tax equivalent basis,
          are
          presented in the schedule below, which compares the three months ended
          March 31,
          2007 and 2006.
 
 Difference
                    Due toVolume
                
                Rate
                
                TotalInvestments
                
                $
                (41,883
                )
                $
                82,613
                
                $
                40,730Loans,
                    net
                
                
                (169,012
                )
                
                228,935
                
                
                59,923FHLB
                    & Other Deposits
                
                
                30,065
                
                
                5,092
                
                
                35,157Total
                    Interest-earnings Assets
                
                
                (180,830
                )
                
                316,640
                
                
                135,810Deposits
                
                
                (135,087
                )
                
                691,517
                
                
                556,430Securities
                    sold under repurchase Agreements
                
                
                62,754
                
                
                83,725
                
                
                146,479Borrowings
                
                
                22,802
                
                
                121,209
                
                
                144,011Total
                    Interest-bearing Liabilities
                
                
                (49,531
                )
                
                896,451
                
                
                846,920Net
                    Interest and Dividend Income
                
                $
                (131,299
                )
                $
                (579,811
                )
                $
                (711,110
                )Rate/Volume
                    amounts were spread proportionately between volume and rate.
                    Borrowings in the table include junior subordinated notes, FHLB
                    borrowings, capital lease obligation and other borrowings. The
                    adjustment
                    to interest income and yield on a fully tax equivalent basis
                    was $51,339
                    and $42,857 for the three months ended March 31, 2007 and 2006,
                    respectively.
 
 14
 Net
          interest and dividend income for the nine months ended March 31, 2007 decreased
          to $11,693,428 as compared to $13,893,628 for the nine months ended March
          31,
          2006. The decrease in net interest and dividend income of $2,200,200, or
          16%,
          was due to a decrease of 47 basis points in net interest margin and a decrease
          in average earning assets of $10,091,371, or 2%, for the nine months ended
          March
          31, 2007 compared to the same period one year ago. The decrease in average
          earning assets was due to a decrease in average loans of $16,355,918, or
          4%,
          partially offset by an increase in average investment securities of $7,488,473,
          or 10%. Average loans as a percentage of total average assets was 82% and
          84%
          for the nine months ended March 31, 2007 and 2006, respectively. Net interest
          margin, on a tax equivalent basis, was 2.97% and 3.44% for the same periods,
          respectively. Net interest spread, on a tax equivalent basis, for the nine
          months ended March 31, 2007 was 2.58%, a decrease of 53 basis points from
          3.11%
          for the same period one year ago. Comparing the nine months ended March
          31, 2007
          and 2006, the yields on earning assets increased 29 basis points compared
          to an
          increase of 82 basis points in the cost of interest-bearing liabilities.
          We were
          not able to increase our net interest spread because the prime rate remained
          steady during the nine months ended March 31, 2007, and due to the volume
          of
          interest-bearing liabilities that repriced to higher rates, and the slightly
          liability sensitive nature of the balance sheet.
 
 The
          changes in net interest and dividend income, on a tax equivalent basis,
          are
          presented in the schedule below, which compares the nine months ended March
          31,
          2007 and 2006.
 
 Difference
                    Due toVolume
                
                Rate
                
                TotalInvestments
                
                $
                188,428
                
                $
                303,641
                
                $
                492,069Loans,
                    net
                
                
                (859,060
                )
                
                1,007,790
                
                
                148,730FHLB
                    & Other Deposits
                
                
                6,731
                
                
                35,703
                
                
                42,434Total
                    Interest-earnings Assets
                
                
                (663,901
                )
                
                1,347,134
                
                
                683,233Deposits
                
                
                (306,986
                )
                
                2,281,763
                
                
                1,974,777Securities
                    sold under repurchase Agreements
                
                
                132,589
                
                
                374,627
                
                
                507,216Borrowings
                
                
                31,284
                
                
                292,925
                
                
                324,209Total
                    Interest-bearing Liabilities
                
                
                (
                    143,113
                )
                
                2,949,315
                
                
                2,806,202Net
                    Interest and Dividend Income
                
                $
                (520,788
                )
                $
                (1,602,181
                )
                $
                (2,122,969
                )Rate/Volume
                    amounts were spread proportionately between volume and rate.
                    Borrowings in
                    the table include junior subordinated notes, FHLB borrowings,
                    capital
                    lease obligation and other borowings. The adjustment to interest
                    income
                    and yield on a fully tax equivalent basis is $151,443 and $74,212
                    for the
                    nine months ended March 31, 2007 and 2006, respectively.
 
 The
          Company's business primarily consists of the commercial banking activities
          of
          the Bank. The success of the Company is largely dependent on its ability
          to
          manage interest rate risk and, as a result, changes in interest rates,
          as well
          as fluctuations in the level of assets and liabilities, affect net interest
          and
          dividend income. This risk arises from our core banking activities: lending
          and
          deposit gathering. In addition to directly impacting net interest and dividend
          income, changes in interest rates can also affect the amount of loans originated
          and sold by the Bank, the ability of borrowers to repay adjustable or variable
          rate loans, the average maturity of loans, the rate of amortization of
          premiums
          and discounts paid on securities, the amount of unrealized gains and losses
          on
          securities available-for-sale and the fair value of our saleable assets
          and the
          resultant ability to realize gains. The interest sensitivity of the Bank's
          balance sheet has shifted to a liability sensitive position, where the
          cost of
          interest-bearing liabilities reprice more quickly than the yield of
          interest-bearing assets, from an asset sensitive position. As a result,
          the Bank
          is generally expected to experience a decrease in its net interest margins
          during a period of increasing interest rates.
 
 As
          of
          March 31, 2007 and 2006, 45% and 49%, respectively, of the Bank's loan
          portfolio
          was composed of adjustable rate loans based on a prime rate index or short-term
          rate indices such as the one-year U.S. Treasury bill. Interest income on
          these
          existing loans would increase if short-term interest rates increase. An
          increase
          in short-term interest rates would also increase deposit and FHLB advance
          rates,
          increasing the Company's interest expense. The impact on future net interest
          and
          dividend income from changes in market interest rates 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.
 
 Provision
          for Loan Losses
 
 The
          provision for loan losses for the three months ended March 31, 2007 was
          $200,043, a decrease of $125,313, or 38%, from $325,356 for the three months
          ended March 31, 2006. For the nine months ended March 31, 2007 and 2006,
          the
          provision for loan losses was $876,375 and $925,964, respectively, a decrease
          of
          $49,589, or 5%. The provision was decreased due to our internal analysis
          of the
          adequacy of the allowance for loan losses. We considered: the decrease
          in net
          charge-offs, $202,043 for the three months ended March 31, 2007 compared
          to
          $251,269 for the same period in 2006 and increase in net charge-offs of
          $616,375
          for the nine months ended March 31, 2007 compared to $378,878 for the nine
          months ended March 31, 2006; a change in loan delinquency of 2.47% at March
          31,
          2007 compared to 2.93% at December 31, 2006 and 2.09% at June 30, 2006
          due to
          the amount of loan balances past due; and a decrease in non-performing
          loans
          (more than 90 days past due) at March 31, 2007 compared to December 31,
          2006 and
          June 30, 2006. Internally classified and criticized loans at March 31,
          2007
          increased compared to December 31, 2006 and June 30, 2006 partially offsetting
          the impact of the above factors. Management deemed the allowance for loan
          losses
          adequate for the risk in the loan portfolio. See Financial Condition for
          a
          discussion of the Allowance for Loan Losses and the factors impacting the
          provision for loan losses. The allowance as a percentage of outstanding
          loans
          increased to 1.35% at March 31, 2007 compared to 1.26% at June 30, 2006
          and
1.25%
          at
          March 31, 2006.
 
 15
 Noninterest
          Income
 
 Total
          noninterest income was $2,471,972 for the three months ended March 31,
          2007, an
          increase of $627,496, or 34%, from $1,844,476 for the three months ended
          March
          31, 2006. This increase was the combined impact of a $371,376 increase
          in gains
          on the sales of loans due to an increase in the volume of residential real
          estate and commercial loans sold including one large commercial real estate
          loan
          which sold for a gain of $283,000, a $171,960 increase in investment commissions
          resulting from an increase in sales, a $37,350 increase in insurance commission
          revenue, and $44,516 increase in other noninterest income primarily from
          a
          $14,107 increase in trust fees and a $20,464 increase in gains from the
          sales of
          covered calls. These increases were partially offset by a $25,083 decrease
          in
          deposit related fees.
 
 For
          the
          nine months ended March 31, 2007 and 2006, total noninterest income was
          $5,955,469 and $4,952,014, respectively, an increase of $1,003,455, or
          20%. This
          increase was due to a $444,560 increase in gains on sales of loans, a $462,197
          increase in investment brokerage commissions, a $78,097 increase in insurance
          commissions, an increase of $15,607 in BOLI income, and a $244,089 increase
          in
          other noninterest income, which included an $82,135 increase in trust fees,
          a
          $106,327 increase on the gain on the sale of fixed assets (the Lisbon Falls
          branch sale resulted in a gain of $98,963) and a $36,991 increase in gains
          from
          the sales of covered call options. These increases were partially offset
          by a
          $187,577 decrease in fees and service charges on loans and $72,775 decrease
          on
          deposit related fees.
 
 Noninterest
          Expense
 
 Total
          noninterest expense for the three months ended March 31, 2007 was $5,265,250,
          an
          increase of $573,041, or 12%, from $4,692,209 for the three months ended
          March
          31, 2006. This increase was primarily due to a $397,477, or 14%, increase
          in
          salaries and employee benefits from an increase in full-time staff for
          commercial lending, residential mortgage secondary market sales, investment
          brokerage, and our insurance agency, and the related increases in employee
          benefit expenses. This increase also includes the higher commission payments
          to
          investment brokers for increased commission revenue, and $208,200 of incentive
          payments related to the acquisition of the insurance agency and the sale
          of the
          large commercial real estate loan. Occupancy expense decreased $27,353,
          or 6%,
          primarily due to a decrease in rent expense. Equipment expense increased
          $21,008, or 7%, due to depreciation and licensing expense for Internet
          banking
          software and higher personal property taxes. Intangible assets amortization
          increased from the intangible assets added from the two insurance agency
          acquisitions. Other expense increased $167,478, or 16%, primarily from
          increased
          professional fees for outsourcing public relations and information security,
          increased item processing fees for increased investment brokerage and insurance
          sales volume, increased provisions for off-balance sheet credit risk, increased
          debit card processing expenses and increased supplies expense.
  Total
          noninterest expense for the nine months ended March 31, 2007 was $14,899,082,
          an
          increase of $1,363,953, or 10%, as compared to the nine months ended March
          31,
          2006. Salaries and employee benefits account for $997,504 of this increase
          reflecting the expansion of staff for commercial lending, residential mortgage
          originations, investment brokerage and insurance agency. Also included
          in
          salaries and employee benefits expense were incentive bonuses of $349,050
          for
          the insurance agency acquisitions and commercial loan sale. Occupancy expense
          increased $17,332 from the mold remediation cost for our Bethel branch,
          an
          increase in the amortization of the capital lease for our new Lewiston
          Gateway
          building, and landscaping expenses for three of our branches. Equipment
          expense
          increased $36,437 for licensing expense of Internet banking software. Other
          noninterest expense increased $252,652, or 8%, primarily from an
          other-than-temporary impairment on non-marketable and equity securities
          of
          $210,903 and an increase in item processing expenses.
 
 For
          the
          three and nine months ended March 31, 2007, the decrease in income tax
          expense
          was primarily due to the decrease in income before income taxes as compared
          to
          the same periods in 2006.
 
 Our
          efficiency ratio, total noninterest expense as a percentage of the sum
          of net
          interest and dividend income and noninterest income, was 85% and 75% for
          the
          three months ended March 31, 2007 and 2006, respectively, and 84% and 72%
          for
          the nine months ended March 31, 2007 and 2006, respectively. The increase
          in the
          efficiency ratio was due, in part, to the decrease in net interest and
          dividend
          income compared to the three and nine months ended March 31, 2006, and,
          in part,
          to the increase in noninterest expenses compared to the same
          periods.
 
 **Financial
          Condition**
 
 Our
          consolidated assets were $562,112,999 and $562,917,802 as of March 31,
          2007 and
          June 30, 2006, respectively, a decrease of $804,803, or less than 1%. This
          decrease was primarily due to a decrease of $5,685,177, or 7%, in
          available-for-sale investment securities and a decrease of $9,980,177 in
          loans,
          primarily commercial loans, partially offset by an increase in FHLB overnight
          deposits of $10,045,000 and an increase in loans held-for-sale of $4,368,108.
          For the three months ended March 31, 2007, average total assets were
          $553,883,104, a decrease of $10,072,969, or 2%, from $563,956,073 for the
          same
          period in 2006. This average asset decrease was primarily attributable
          to a
          decrease in net loans.
 
 Total
          stockholders' equity was $41,621,817 and $39,096,125 at March 31, 2007
          and June
          30, 2006, respectively, an increase of $2,525,692, or 6%, due to net income
          for
          the nine months ended March 31, 2007, a decrease in accumulated other
          comprehensive loss, partially offset by dividends paid. Book value per
          outstanding share was $16.97 at March 31, 2007 and $15.98 at June 30, 2006.
 
 Investment
          Activities
 
 The
          available-for-sale investment portfolio was $80,452,530 as of March 31,
          2007, a
          decrease of $5,685,177, or 7%, from $86,137,707 as of June 30, 2006. The
          investment portfolio as of March 31, 2007 consisted of debt securities
          issued by
          U.S. government-sponsored enterprises and corporations, mortgage-backed
          securities, municipal securities and equity securities. Generally, funds
          retained by the Bank as a result of increases in deposits or decreases
          in loans,
          which are not immediately used by the Bank, are invested in securities
          held in
          its investment portfolio. The investment portfolio is used as a source
          of
          liquidity for the Bank. The investment portfolio is structured so that
          it
          provides for an ongoing source of funds for meeting loan and deposit demands
          and
          for reinvestment opportunities to take advantage of changes in the interest
          rate
          environment. The investment portfolio averaged $81,419,848 for the three
          months ended March 31, 2007 as compared to $82,837,455 for the three months
          ended March 31, 2006, a decrease of $1,417,607, or 2%. This decrease was
          due
          primarily to principal reductions of mortgage-backed securities.
 
 16
 Our
          entire investment portfolio is classified as available-for-sale at March
          31,
          2007 and June 30, 2006, and is 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 March 31, 2007
          were
          $81,879,201 and $80,452,530, respectively. The difference between the carrying
          value and the cost of the securities of $1,426,671 was primarily attributable
          to
          the decline in market value of U.S. government-sponsored enterprises and
          mortgage-backed securities below their cost. The net unrealized loss on
          equity
          securities was $88,561 and the net unrealized losses on U.S.
          government-sponsored enterprises, corporate debt, mortgage-backed, and
          municipal
          securities were $1,338,110 at March 31, 2007. The U.S. government-sponsored
          enterprises, corporate debt, and mortgage-backed securities have increased
          slightly in market value due to the recent decreases in long-term interest
          rates
          as compared to June 30, 2006. Substantially all of the U.S. government-sponsored
          enterprises, corporate debt, mortgage-backed and municipal securities held
          in
          our portfolio are high investment grade securities. Management believes
          that the
          yields currently received on this portfolio are satisfactory. Management
          reviews
          the portfolio of investments on an ongoing basis to determine if there
          have been
          any other than temporary declines in value.
  Some
          of
          the considerations management takes into account in making this determination
          are market valuations of particular securities and an economic analysis
          of the
          securities' sustainable market values based on the underlying company's
          profitability. Management plans to hold the equity, U.S. government-sponsored
          enterprises, corporate debt, mortgage-backed and municipal securities which
          have
          market values below cost until a recovery of market value occurs or until
          maturity.
 
 Loan
          Portfolio
 
 Total
          loans of $425,682,352 as of March 31, 2007 decreased $9,980,177, or 2%,
          from
          $435,662,529 as of June 30, 2006. Compared to June 30, 2006, construction
          and
          consumer loans increased, while residential real estate, commercial real
          estate,
          and commercial loans decreased. Construction loans increased $689,347,
          or 13%,
          due to an increase in originations during the three months ended March
          31, 2007.
          Consumer loans increased $726,118, or 1%, due to continued origination
          of
          indirect recreational vehicle and indirect auto loans. Residential real
          estate
          loans, which are comprised of purchased loans, residential real estate
          loans
          originated for portfolio, and commercial real estate 1 to 4 family loans
          decreased $3,713,080, or 2%. Commercial real estate loans decreased $924,665,
          or
          1% from large loan payoffs. Commercial loans decreased $6,682,173, or 13%,
          due
          to the repayment of several large loans. Net deferred loan origination
          costs decreased $75,724. The total loan portfolio averaged $432,040,266
          for the
          three months ended March 31, 2007, a decrease of $9,901,784, or 2%, compared
          to
          the three months ended March 31, 2006.
 
 The
          Bank
          primarily lends within its local market areas, which management believes
          helps
          them to better evaluate credit risk. The Bank's loan portfolio as of March
          31,
          2007 had a slight mix change with increases in consumer loans that were
          offset
          by decreases in commercial loans when compared to June 30, 2006. The Bank's
          local market, as well as the secondary market, continues to be very competitive
          for loan volume.
 
 Residential
          real estate loans consisting of primarily owner-occupied residential loans
          as a
          percentage of total loans were 34% as of March 31, 2007, June 30, 2006
          and March
          31, 2006, respectively. The variable rate product as a percentage of total
          residential real estate loans was 37%, 43% and 43% for the same periods,
          respectively. Generally, management has pursued a strategy of increasing
          the
          percentage of variable rate loans as a percentage of the total loan portfolio
          to
          help manage interest rate risk. We currently plan to continue to sell all
          newly
          originated 30-year fixed-rate residential real estate loans into the secondary
          market to manage interest rate risk, and hold 15-year fixed rate residential
          real estate loans in the portfolio. Average residential real estate mortgages
          of
          $145,643,251 for the three months ended March 31, 2007 decreased $4,422,328,
          or
          3%, from the three months ended March 31, 2006. This decrease was due to
          the
          origination of more fixed rate loans for sale. The volume of residential
          real
          estate loan originations has increased to $8.9 million for the three months
          ended March 31, 2007, compared to $4.0 million for the same period one
          year ago.
          This origination volume is expected to increase as the Bank adds mortgage
          origination staff. Purchased loans included in our loan portfolio are pools
          of
          residential real estate loans acquired from and serviced by other financial
          institutions. These loan pools are an alternative to mortgage-backed securities,
          and represented 4% of residential real estate loans at March 31, 2007.
          The Bank
          has not pursued a similar strategy recently.
 
 Commercial
          real estate loans as a percentage of total loans were 27% as of March 31,
          2007
          and June 30, 2006 and 28% as of March 31, 2006, respectively. Commercial
          real
          estate loans have minimal interest rate risk because the portfolio consists
          primarily of variable rate products. The variable rate products as a percentage
          of total commercial real estate loans were 93% as of March 31, 2007 and
          96% as
          of June 30, 2006 and March 31, 2006, respectively. The Bank attempts to
          mitigate credit risk by lending in its market area, as well as by maintaining
          a
          well-collateralized position in real estate. Average commercial real estate
          loans of $116,964,062 for the three months ended March 31, 2007 decreased
          $4,848,716, or 4%, from the same period in 2006.
 
 Construction
          loans as a percentage of total loans were 1% as of March 31, 2007, June
          30, 2006
          and March 31, 2006, respectively. Limiting disbursements to the percentage
          of
          construction completed controls risk. An independent consultant or appraiser
          verifies the construction progress. Construction loans have maturity dates
          of
          less than one year. Variable rate products as a percentage of total construction
          loans were 59%, 30%, and 47% for the same periods, respectively. Average
          construction loans were $9,240,134 and $6,672,343 for the three months
          ended
          March 31, 2007 and 2006, respectively, an increase of $2,567,791, or
          38%.
 
 17
 Commercial
          loans as a percentage of total loans were 10%, 12%, and 12% as of March
          31,
          2007, June 30, 2006 and March 31, 2006, respectively. The variable rate
          products
          as a percentage of total commercial loans were 57%, 56%, and 59% for the
          same
          periods, respectively. The repayment ability of commercial loan customers
          is
          highly dependent on the cash flow of the customer's business. The Bank
          mitigates
          losses by strictly adhering to the Company's underwriting and credit policies.
          Average commercial loans of $43,573,343 for the three months ended March
          31,
          2007 decreased $10,656,456, or 20%, from $54,229,799 for the same period
          in
          2006.
 
 Consumer
          and other loans as a percentage of total loans were 28%, 26%, and 25% for
          the
          periods ended March 31, 2007, June 30, 2006, and March 31, 2006, respectively.
          At March 31, 2007, indirect auto, indirect recreational vehicle, and indirect
          mobile home loans represented 34%, 40%, and 22% of total consumer loans,
          respectively, compared to 35%, 36%, and 25%, respectively, of total consumer
          loans at June 30, 2006. Since these loans are primarily fixed rate products,
          they have interest rate risk when market rates increase. The consumer loan
          department underwrites all the indirect automobile, recreational vehicle
          loans
          and mobile home loans to mitigate credit risk. The Bank typically pays
          a
          one-time origination fee to dealers of indirect 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 with
          average
          lives of no longer than five years, receiving a rate of return commensurate
          with
          the risk, and lending to individuals in the Bank's market areas. Average
          consumer and other loans were $114,007,139 and $106,689,695 for the three
          months
          ended March 31, 2007 and 2006, respectively. The $7,317,444, or 7%, increase
          was
          due to increased indirect recreational vehicle lending. The composition
          of
          consumer loans is detailed in the following table.
 
 Consumer
                    Loans as ofMarch
                    31, 2007
                
                
                
                
                June
                    30, 2006Indirect
                    Auto
                $
                38,182,384
                
                
                34
                %
                
                $
                39,075,798
                
                
                35
                %Indirect
                    RV
                
                45,210,967
                
                
                40
                %
                
                
                41,111,060
                
                
                36
                %Indirect
                    Mobile Home
                
                25,657,320
                
                
                22
                %
                
                
                28,212,411
                
                
                25
                %Subtotal Indirect
                
                109,050,671
                
                
                96
                %
                
                
                108,399,269
                
                
                96
                %Other
                
                4,867,844
                
                
                4
                %
                
                
                4,793,128
                
                
                4
                %Total
                $
                113,918,515
                
                
                100
                %
                
                $
                113,192,397
                
                
                100
                %
 
 Classification
          of Assets
 
 Loans
          are
          classified as non-performing when reaching more than 90 days delinquent,
          or when
          less than 90 days past due and based on our judgment the loan is likely
          to
          present future principal and/or interest repayment problems. In both situations,
          we cease accruing interest. The Bank had non-performing loans totaling
          $4,570,000 and $5,195,000 at March 31, 2007 and June 30, 2006, respectively,
          or
          1.07% and 1.19% of total loans, respectively. The Bank's allowance for
          loan
          losses was equal to 126% and 106% of the total non-performing loans at
          March 31,
          2007 and June 30, 2006, respectively. The following table represents the
          Bank's
          non-performing loans as of March 31, 2007 and June 30, 2006:
  Description
                  
                  March
                      31, 2007
                  
                  June
                      30, 2006Residential
                      Real Estate
                  
                  $
                  424,000
                  
                  $
                  521,000Commercial
                      Real Estate
                  
                  
                  1,862,000
                  
                  
                  2,980,000Commercial
                      Loans
                  
                  
                  1,725,000
                  
                  
                  1,553,000Consumer
                      and Other
                  
                  
                  559,000
                  
                  
                  141,000Total
                      non-performing
                  
                  $
                  4,570,000
                  
                  $
                  5,195,000
 Non-performing
          loans decreased in the nine months ended March 31, 2007 compared to June
          30,
          2006. Of total non-performing loans at March 31, 2007, $1,684,200 of these
          loans
          were current and paying as agreed compared to $1,882,000 at June 30, 2006.
          Non-performing loans, compared to June 30, 2006, decreased $625,000. The
          increase in consumer and other non-performing loans of $418,000 was primarily
          due to indirect auto loans pending sale at auction. The difference between
          the
          carrying amount of the indirect auto loan and its estimated auction sale
          value,
          if lower, had been charged off. The commercial real estate and commercial
          non-performing loans are subject to a loan-by-loan review determining the
          risk
          of loss based on the estimated distressed sale value of collateral. This
          risk of
          loss is incorporated in determining the adequacy of the allowance for loan
          losses.
 
 At
          March
          31, 2007, the Bank had $833,000 in loans classified special mention or
          substandard that management believes could potentially become non-performing
          due
          to delinquencies or marginal cash flows. These special mention and substandard
          loans decreased by $2,516,000 when compared to the level of $3,349,000
          at June
          30, 2006. This decrease was primarily due to two commercial real estate
          loans
          which had a weakness at June 30, 2006 that was resolved during the nine
          months
          ended March 31, 2007.
 
 The
          following table reflects the quarterly trend of total delinquencies 30
          days or
          more past due and non-performing loans for the Bank as a percentage of
          total
          loans:
 
 3-31-07
                12-31-06
                9-30-06
                6-30-06
                3-31-062.47%
                2.93%
                2.54%
                2.09%
                3.10%
 
 Loans
          classified as non-performing remain on such status until the borrower has
          demonstrated a sustainable period of performance. Excluding non-performing
          loans
          which are current and paying as agreed, the Bank's total delinquencies
          30 days
          or more past due, as a percentage of total loans, would be 2.08% as of
          March 31,
          2007.
 
 18
 Allowance
          for Loan Losses
 
 The
          Bank's allowance for loan losses was $5,756,000 as of March 31, 2007 as
          compared
          to $5,496,000 as of June 30, 2006, representing 1.35% and 1.26%, respectively,
          of total loans for each of the periods. The allowance for loan losses represents
          management's estimate of probable losses inherent in the loan portfolio.
          This
          evaluation process is subject to numerous estimates and judgments. The
          frequency
          of default, risk ratings, and the loss recovery rates, among other things,
          are
          considered in making this evaluation, as are the size and diversity of
          individual large credits. Changes in these estimates could have a direct
          impact
          on the provision and could result in a change in the allowance. The larger
          the
          provision for loan losses, the greater the negative impact on our net income.
          Larger balance, commercial and commercial real estate loans representing
          significant individual credit exposures are evaluated based upon the borrower's
          overall financial condition, resources, and payment record; the prospects
          for
          support from any financially responsible guarantors; and, if appropriate,
          the
          realizable value of any collateral. The allowance for loan losses attributed
          to
          these loans is established through a process that includes estimates of
          historical and projected default rates and loss severities; internal risk
          ratings; and geographic, industry, and other environmental factors. Management
          also considers overall portfolio indicators, including trends in internally
          risk-rated loans, classified loans, non accrual loans, and historical and
          forecasted write-offs and a review of industry, geographic, and portfolio
          concentrations, including current developments. In addition, management
          considers the current business strategy and credit process, including credit
          limit setting and compliance, credit approvals, loan underwriting criteria,
          and
          loan workout procedures. Within the allowance for loan losses, amounts
          are
          specified for larger-balance, commercial and commercial real estate loans
          that
          have been individually determined to be impaired. These specific reserves
          consider all available evidence, including, as appropriate, the present
          value of
          the expected future cash flows discounted at the loan's contractual effective
          rate and the fair value of collateral. Each portfolio of smaller balance,
          residential real estate and consumer loans is collectively evaluated for
          impairment. The allowance for loan losses is established pursuant to a
          process
          that includes historical delinquency and credit loss experience, together
          with
          analyses that reflect current trends and conditions. Management also considers
          overall portfolio indicators including historical credit losses; delinquent,
          non-performing and classified loans; trends in volumes; terms of loans;
          an
          evaluation of overall credit quality and the credit process, including
          lending
          policies and procedures; and economic factors. For the three months ended
          March
          31, 2007, we have not changed our approach in the determination of the
          allowance
          for loan losses. There have been no material changes in the assumptions
          or
          estimation techniques as compared to prior periods in determining the adequacy
          of the allowance for loan losses.
 
 Management
          believes that the allowance for loan losses as of March 31, 2007 was adequate
          considering the level of risk in the loan portfolio. While management believes
          that it uses the best information available to make its determinations
          with
          respect to the allowance, there can be no assurance that the Company will
          not
          have to increase its provision for loan losses in the future as a result
          of
          changing economic conditions, adverse markets for real estate or other
          factors.
          In addition, various regulatory agencies, as an integral part of their
          examination process, periodically review the Bank's allowance for loan
          losses.
          These 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 joint examination by
          the
          Federal Reserve Bank of Boston and the Maine Bureau of Financial Institutions
          was completed in January 2007. At the time of the examination the regulators
          proposed no adjustments to the allowance for loan losses.
 
 Other
          Assets
 
 Bank
          owned life insurance (BOLI) is invested in the general account of two insurance
          companies and in separate accounts of a third insurance company. The investment
          quality of the BOLI general account policies is dependent on the
          creditworthiness of the insurance company. For the BOLI separate account
          policy,
          the investment quality is dependent on the securities held in trust by the
          insurance company for the bank. Standard and Poor's rated these companies
          AA- or better at March 31, 2007.  Interest earnings, net of mortality
          costs, increase cash surrender value. These interest earnings are based
          on
          interest rates reset at least annually, subject to minimum interest rates.
          These
          increases were recognized in other income and are not subject to income
          taxes.
          Borrowing on or surrendering the policy may subject the Bank to income
          tax
          expense on the increase in cash surrender value. For this reason, management
          considers BOLI an illiquid asset. BOLI represented 19.3% of Company's capital
          plus the allowance for loan losses at March 31, 2007, which is below the
          25%
          regulatory limit.
 
 Goodwill
          of $2,506,538 as of March 31, 2007 increased $2,098,641 as compared to
          $407,897
          as of June 30, 2006. The increase resulted from consideration paid in excess
          of
          identified tangible and intangible assets from the three insurance agency
          acquisitions in the nine months ended March 31, 2007.
 
 Intangible
          assets of $3,970,371 as of March 31, 2007 increased $2,050,706, from $1,919,665
          as of June 30, 2006. This asset consists of customer list and non-compete
          agreement intangibles from insurance agency acquisitions. This increase
          in
          intangibles includes additions of $2,285,000 in customer list intangibles
          from
          the three insurance agency acquisitions in the nine months ended March
          31, 2007
          net of intangible amortization of $234,294 for the nine month ended March
          31,
          2007. See Note 1 of the consolidated financial statements as of June 30,
          2006
          for additional information on intangible assets.
  **Capital
          Resources and Liquidity**
 
 The
          Bank
          continues to attract new local core and certificate of deposit relationships.
          As
          alternative sources of funds, the Bank utilizes FHLB advances and brokered
          time deposits ("brokered deposits") when their respective interest rates
          are
          less than the interest rates on local market deposits. FHLB advances are
          used to
          fund short-term liquidity demands and supplement the growth in earning
          assets.
 
 Total
          deposits of $382,446,242 as of March 31, 2007 decreased $12,847,135, or
          3%, from
          $395,293,377 as of June 30, 2006. Excluding the decrease in brokered deposits,
          customer deposits increased $2,500,844, or 1%. Certificates of deposits
          increased $7,424,991, or 3%, reflecting the competitive pressure for higher
          rate
          certificates. Brokered deposits decreased $15,347,979, or 30%, from the
          repayment of maturing balances reducing this source of wholesale funding.
          NOW
          accounts increased $687,542, or 1%. Demand deposit accounts decreased
          $2,572,991, or 7%, Money market accounts decreased $275,716, or 3%, and
          savings
          accounts decreased $2,762,982, or 11%, during the nine months ended March
          31,
          2007. Management's continuing strategy is to offer certificate of deposit
          rates
          for maturities one year and less, with interest rates near the top of the
          market
          to attract new relationships and cross sell additional deposit accounts
          and
          other bank services.
 
 19
 Total
          average deposits of $372,874,376 for the three months ended March 31, 2007
          decreased $19,170,686, or 5%, compared to the average for the three months
          ended
          March 31, 2006 of $392,045,062. This decrease in total average deposits
          compared
          to March 31, 2006 was attributable to a decrease in average demand deposits
          of
          $2,757,121, or 7%, a decrease in average NOW accounts of $5,763,486, or
          10%, a
          decrease in average money markets of $3,232,386, or 26%, a decrease in
          average
          savings of $5,711,146, or 21%, and a $18,757,534, or 36%, decrease in average
          brokered time deposits. These decreases were partially offset by a $17,050,987,
          or 8%, increase in average certificate of deposits. These decreases in
          core
          account balances reflect customers moving funds to higher yielding certificates
          of deposit, and, in the case of demand deposits, the loss of commercial
          customers. Excluding average brokered deposits, average customer deposits
          decreased $413,152, or less than 1%, for the three months ended March 31,
          2007
          compared to the same period one year ago. At March 31, 2007, brokered time
          deposits as a percentage of total assets was 6.5% compared to 9.2% at June
          30,
          2006 and 7.6% at March 31, 2006. The weighted average maturity for the
          brokered
          deposits was approximately 0.9 years. Even though deposit interest rates
          have
          remained competitive, the rates of return are potentially higher with other
          financial instruments such as mutual funds and annuities. All interest-bearing
          non-maturing deposit accounts have market interest rates. Like other companies
          in the banking industry, the Bank will be challenged to maintain or increase
          its
          core deposits, and improve its net interest margin as the mix of deposits
          shifts
          to certificates of deposit.
 
 Brokered
          deposits are used by us as part of our overall funding strategy and as
          an
          alternative to customer certificates of deposits, FHLB advances, and junior
          subordinated debentures to fund the growth of our earning assets. Policy
          limits
          the use of brokered deposits to 25% of total assets. We use five national
          brokerage firms to source brokered deposits. Each brokerage company utilizes
          a
          system of agents who solicit customers throughout the United States. The
          terms
          of these deposits allow for withdrawal prior to maturity only in the case
          of the
          depositor's death, have maturities generally beyond one year, have maturities
          no
          greater than $5 million in any one month, and bear interest rates equal
          to or
          slightly above comparable FHLB advance rates. Brokered deposits carry the
          same
          risk as local certificates of deposit, in that both are interest rate sensitive
          with respect to the Bank's ability to retain the funds. The Bank expects
          an
          increase in the level of brokered deposits to fund its balance sheet growth
          for
          the next twelve months.
 
 Advances
          from the Federal Home Loan Bank (FHLB) were $79,266,820 as of March 31,
          2007, an
          increase of $3,378,222, or 4%, from $75,888,598 as of June 30, 2006. At
          March
          31, 2007, we had pledged U.S. government-sponsored enterprise and
          mortgage-backed securities of $21,215,756 as collateral for FHLB advances.
          We
          plan to continue to purchase additional U.S. government-sponsored
          enterprise and mortgage-backed securities to pledge as collateral for
          advances. These purchases will be funded from the cash flow from mortgage-backed
          securities and residential real estate loan principal and interest payments,
          and
          promotion of certificate of deposit accounts and brokered deposits. Newly
          originated adjustable residential real estate loans will be held in portfolio
          and will qualify as collateral. In addition to U.S. government agency and
          mortgage-backed securities, residential real estate loans, certain commercial
          real estate loans, and certain FHLB deposits free of liens, pledges and
          encumbrances are required to be pledged to secure FHLB advances. Municipal
          securities cannot be pledged. Average advances from the FHLB were $77,764,098
          for the three months ended March 31, 2007, an increase of $543,242, or
          1%,
          compared to $77,220,856 average for the same period last year.
 
 Securities
          sold under repurchase agreements were $34,205,331 as of March 31, 2007,
          an
          increase of $4,567,905, or 15%, from $29,637,426 as of June 30, 2006. Market
          interest rates are offered on this product. At March 31, 2007, we had pledged
          U.S. government-sponsored enterprise and mortgage-backed securities of
          $41,251,380 as collateral for repurchase agreements. Average securities
          sold
          under repurchase agreements were $37,705,463 for the three months ended
          March
          31, 2007, an increase of $6,831,475, or 22%, compared to the average for
          the
          three months ended March 31, 2006.
 
 The
          Bank
          has a line of credit under the Borrower-in-Custody program offered through
          the
          Federal Reserve Bank Discount Window. Under the terms of this credit line,
          the
          Bank has pledged its indirect auto loans and the line bears a variable
          interest
          rate equal to the then current federal funds rate plus 1.00%. At March
          31, 2007,
          there were no borrowings outstanding under this credit line.
 
 The
          following table is a summary of the liquidity the Bank has the ability
          to access
          as of March 31, 2007 in addition to the traditional retail deposit
          products:
 
 Brokered
                    time deposit
                $ 104,017,000
                
                Subject
                    to policy limitation of 25% of total assetsFederal
                    Home Loan Bank of Boston
                $ 
                     18,177,000
                
                Unused
                    advance capacity subject to eligible and qualified
                    collateralFederal
                    Reserve Bank Discount Window Borrower-in-Custody
                $ 
                     30,257,000
                
                Unused
                    credit line subject to the pledge of indirect auto
                    loansTotal
                    Unused Borrowing Capacity
                $ 152,451,000
 
 Brokered
          time deposits, retail deposits and FHLB advances are used by the Bank to
          manage
          its overall liquidity position. While we closely monitor and forecast our
          liquidity position, it is affected by asset growth, deposit withdrawals
          and
          meeting other contractual obligations and commitments. The accuracy of
          our
          forecast assumptions may increase or decrease the level of brokered time
          deposits.
 
 Management
          believes that there are adequate funding sources to meet its liquidity
          needs for
          the foreseeable future. Primary among these funding sources are the repayment
          of
          principal and interest on loans, the renewal of time deposits, the potential
          growth in the deposit base, and the credit availability from the Federal
          Home
          Loan Bank of Boston and the Fed Discount Window Borrower-in-Custody program.
          Management does not believe that the terms and conditions that will be
          present
          at the renewal of these funding sources will significantly impact the Company's
          operations, due to its management of the maturities of its assets and
          liabilities.
 
 The
          following table summarizes the outstanding junior subordinated notes as
          of March
          31, 2007:
 
 Affiliated
                    Trusts
                
                Outstanding
                    Balance
                
                Rate
                
                First
                    Call DateNBN
                    Capital Trust II
                
                $   3,093,000
                
                8.15%
                
                March
                    30, 2009NBN
                    Capital Trust III
                
                3,093,000
                
                6.50%
                
                March
                    30, 2009NBN
                    Capital Trust IV
                
                10,310,000
                
                5.88%
                
                February
                    23, 2010Total
                
                $  16,496,000
                
                6.42%
 
 The
          excess funds raised from the issuance of trust preferred securities are
          available for capital contributions to the Bank. The annual interest expense
          is
          approximately $1,059,000 based on the current interest rates.
 
 See
          Note
          2 for more information on NBN Capital Trusts II, III and IV and the related
          junior subordinated debt.
 
 20
 The
          2004
          Stock Repurchase Plan, approved by the Board of Directors on January 16,
          2004,
          was terminated by the Board of Directors on December 15, 2006. It was replaced
          with the 2006 Stock Repurchase Plan on the same date. Under the 2006 Stock
          Repurchase Plan, the Company may purchase up to 200,000 shares of its common
          stock from time to time in the open market at prevailing prices. Common
          stock
          repurchased pursuant to the plan will be classified as authorized but un-issued
          shares of common stock available for future issuance as determined by the
          Board
          of Directors, from time to time. The repurchase program may be discontinued
          by
          the Northeast Bancorp at any time. For the three months ended March 31,
          2007,
          the Company repurchased no shares of stock. Total stock repurchases under
          the
          2004 Plan were 145,500 shares for $3,204,092 through December 31, 2006.
          Management believes that these and future purchases have not and will not
          have a
          significant effect on the Company's liquidity.
 
 Total
          stockholders' equity of the Company was $41,621,817 as of March 31, 2007,
          as
          compared to $39,096,125 at June 30, 2006. The increase of $2,525,692, or
          6%, was
          due to the net income for the nine months ended March 31, 2007 of $1,396,991,
          stock issued in connection with the acquisition of the South Paris branch
          real
          estate of $103,000, exercise of employee stock options of $6,550, and a
          decrease
          in other comprehensive loss of $1,680,866 partially offset by dividends
          paid of
          $661,715. Book value per common share was $16.97 as of March 31, 2007,
          as
          compared to $15.98 at June 30, 2006. The ratio of total average equity
          to total
          average assets of the Company was 7.49% as of March 31, 2007 and 7.01%
          at June
          30, 2006
 
 The
          Company's net cash used by operating activities was $2,086,027 during the
          nine
          months ended March 31, 2007, which was a $5,473,387 decrease compared to
          the
          same period in 2006, and is primarily attributable to an increase in loans
          held-for-sale for the nine months ended March 31, 2007. Investing activities
          were a net source of cash provided primarily due to maturing investment
          securities and a decrease in loans partially offset by the insurance agency
          acquisitions during the nine months ended March 31, 2007 as compared to
          the same
          period in 2006. Financing activities resulted in a net use of cash from
          a
          decrease in deposits partially offset by an increase in securities sold
          under
          repurchase agreements and an increase in FHLB advances compared to the
          same
          period in 2006. Overall, the Company's cash and cash equivalents increased
          by $8,334,377 during the nine months ended March 31, 2007.
 
 The
          Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
          contains various provisions intended to capitalize 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 FRB 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 FRB broader
          regulatory authority to take corrective action against insured institutions
          that
          are otherwise operating in an unsafe and unsound manner.
 
 FDICIA
          defines specific capital categories based on an institution's capital ratios.
          Regulations require a minimum Tier 1 capital equal to 4.0% of adjusted
          total
          average assets, Tier 1 risk-based capital of 4.0% and a total risk-based
          capital
          standard of 8.0%. The prompt corrective action regulations define specific
          capital categories based on an institution's capital ratios. The capital
          categories, in declining order are "well capitalized", "adequately capitalized",
          "under capitalized", "significantly undercapitalized", and "critically
          undercapitalized". As of March 31, 2007, the most recent notification from
          the
          FRB categorized the Bank as well capitalized. There are no conditions or
          events
          since that notification that management believes has changed the institution's
          category.
 
 At
          March
          31, 2007, the Company's and Bank's regulatory capital was in compliance
          with
          regulatory capital requirements as follows:
 
 Northeast
                      Bancorp
                  Actual
                  Required
                      For Capital Adequacy Purposes
                  Required
                      To Be "Well Capitalized" Under Prompt Corrective Action
                      Provisions(Dollars
                      in Thousands)
                  Amount
                  Ratio
                  Amount
                  Ratio
                  Amount
                  RatioAs
                      of March 31, 2007:Total
                      capital to risk weighted assets
                  $  57,586
                  13.95%
                  $  33,014
                  >
                      8.00%
                  $  41,268
                  > 10.00%Tier
                      1 capital to risk weighted assets
                  $  49,841
                  12.08%
                  $  16,507
                  > 4.00%
                  $  24,761
                  >  
                      6.00%Tier
                      1 capital to total average assets
                  $  49,841
                  9.08%
                  $  21,946
                  > 4.00%
                  $  27,433
                  > 
                       5.00%
 
 Northeast
                    Bank
                Actual
                Required
                    For Capital Adequacy Purposes
                Required
                    To Be "Well Capitalized" Under Prompt Corrective Action
                    Provisions(Dollars
                    in Thousands)
                Amount
                Ratio
                Amount
                Ratio
                Amount
                RatioAs
                    of March 31, 2007:Total
                    capital to risk weighted assets
                $  
                    52,266
                12.72%
                $  
                    32,872
                > 8.00%
                $  
                    41,091
                > 10.00%Tier
                    1 capital to risk weighted assets
                $  
                    47,143
                11.47%
                $  
                    16,437
                > 4.00%
                $  
                    24,655
                >  
                    6.00%Tier
                    1 capital to total average assets
                $  
                    47,143
                8.65%
                $  
                    21,812
                > 4.00%
                $  
                    27,265
                >  
                    5.00%
 
 **Off-balance
          Sheet Arrangements and Aggregate Contractual
          Obligations**
 
 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.
          These
          financial instruments include commitments to extend credit, unused lines
          of
          credit and standby letters of credit. These instruments involve, to varying
          degrees, elements of credit and interest-rate risk in excess of the amounts
          recognized in the condensed consolidated balance sheet. The contract or
          notional
          amounts of these instruments reflect the extent of the Company's involvement
          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, unused
          lines
          of credit and standby letters of credit is represented by the contractual
          amount
          of those instruments. To control the credit risk associated with entering
          into
          commitments and issuing letters of credit, the Company uses the same credit
          quality, collateral policies, and monitoring controls in making commitments
          and
          letters of credit as it does with its lending activities. The Company evaluates
          each customer's creditworthiness 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.
 
 21
 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 committed amounts do not necessarily represent future
          cash
          requirements. The Company evaluates each customer's creditworthiness on
          a
          case-by-case basis. The amount of collateral obtained, if it is deemed
          necessary
          by the Company upon extension of credit, is based on management's credit
          evaluation of the counter party.
 
 Standby
          letters of credit are conditional commitments issued by the Company to
          guarantee
          the performance of a customer to a third party. The credit risk involved
          in
          issuing letters of credit is essentially the same as that involved in extending
          loans to customers.
 
 Unused
          lines of credit and commitments to extend credit typically result in loans
          with
          a market interest rate.
 
 A
          summary
          of the amounts of the Company's (a) contractual obligations, and (b) other
          commitments with off-balance sheet risk, both at March 31, 2007,
          follows:
 
 Payments
                    Due by PeriodContractual
                    Obligations
                
                Total
                
                Less
                    Than
                  1
                    Year
                
                1-3
                  Years
                
                4-5
                  Years
                
                After
                    5
                  YearsFHLB
                    advances
                
                $
                79,266,820
                
                $
                34,266,820
                
                $
                30,000,000
                
                $
                5,000,000
                
                $
                10,000,000Junior
                    subordinated notes
                
                
                16,496,000
                
                
                -
                
                
                16,496,000
                
                
                -
                
                
                -Capital
                    lease obligation
                
                
                2,686,094
                
                
                132,423
                
                
                285,603
                
                
                315,700
                
                
                1,952,368Other
                    borrowings
                
                
                1,992,000
                
                
                375,474
                
                
                826,381
                
                
                435,947
                
                
                354,198Total
                    long-term debt
                
                
                100,440,914
                
                
                34,774,717
                
                
                47,607,984
                
                
                5,751,647
                
                
                12,306,566Operating
                    lease obligations (1)
                
                
                3,226,376
                
                
                360,154
                
                
                427,256
                
                
                344,645
                
                
                2,094,321Total
                    contractual obligations
                
                $
                103,667,290
                
                $
                35,134,871
                
                $
                48,035,240
                
                $
                6,096,292
                
                $
                14,400,887Amount
                    of Commitment Expiration - Per PeriodCommitments
                    with off-balance sheet risk
                
                Total
                
                Less
                    Than
                  1
                    Year
                
                1-3
                  Years
                
                4-5
                  Years
                
                After
                    5
                  YearsCommitments
                    to extend credit (2)(4)
                
                $
                8,479,984
                
                $
                8,479,984
                
                $
                -
                
                $
                -
                
                $
                -Commitments
                    related to loans held for sale(3)
                
                
                1,009,915
                
                
                1,009,915
                
                
                -
                
                
                -
                
                
                -Unused
                    lines of credit (4)(5)
                
                
                44,173,913
                
                
                21,650,453
                
                
                4,048,504
                
                
                1,135,510
                
                
                17,339,446Standby
                    letters of credit (6)
                
                
                1,270,533
                
                
                1,270,533
                
                
                -
                
                
                -
                
                
                -$
                54,934,345
                
                $
                32,410,885
                
                $
                4,048,504
                
                $
                1,135,510
                
                $
                17,339,446
 
 (1)
                Represents
                    an off-balance sheet obligation.(2)
                Represents
                    commitments outstanding for residential real estate, commercial
                    real
                    estate, and commercial loans.(3)
                Commitments
                    of residential real estate loans that will be held for sale.(4)
                Loan
                    commitments and unused lines of credit for commercial and construction
                    loans expire or are subject to renewal in twelve months or
                    less.(5)
                Represents
                    unused lines of credit from commercial, construction, and home
                    equity
                    loans.(6)
                Standby
                    letters of credit generally expire in twelve
                    months.
 
 Management
          believes that the Company has adequate resources to fund all of its
          commitments.
 
 The
          Bank
          has written options limited to those residential real estate loans designated
          for sale in the secondary market and subject to a rate lock. These rate-locked
          loan commitments are used for trading activities, not as a hedge. The fair
          value
          of the outstanding written options at March 31, 2007 was a loss of
          $448.
 
 **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.
 
 **Item
          3.** **Quantitative
          and Qualitative Disclosure about Market Risk**
 
 There
          have been no material changes in the Company's market risk from June 30,
          2006.
          For information regarding the Company's market risk, refer to the Company's
          Annual Report on Form 10-K for the fiscal year ended June 30, 2006.
 
 **Item
          4.** **Controls
          and Procedures**
 
 The
          Company maintains controls and procedures designed to ensure that information
          required to be disclosed in the reports the Company files or submits under
          the
          Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed,
          summarized and reported within the time periods specified in the rules
          and forms
          of the Securities and Exchange Commission, and that such information is
          accumulated and communicated to the Company's management, including our
          Chief
          Executive Officer and Chief Financial Officer (the Company's principal
          executive
          officer and principal financial officer, respectively), as appropriate
          to allow
          for timely decisions regarding timely disclosure. In designing and evaluating
          disclosure controls and procedures, management recognizes that any controls
          and
          procedures, no matter how well designed and operated, can provide only
          reasonable assurance of achieving the desired control objectives and management
          is required to apply its judgment in evaluating the cost/benefit relationship
          of
          possible controls and procedures.
 
 Our
          management, with the participation of the Company's Chief Executive Officer
          and
          Chief Financial Officer, have evaluated the effectiveness of our disclosure
          controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15(e)
          under
          the Exchange Act) as of the end of the period covered by this Form 10-Q.
 
 22
 Based
          on
          this evaluation of our disclosure controls and procedures, our Chief Executive
          Officer and Chief Financial Officer have concluded that these disclosure
          controls and procedures were effective as of March 31, 2007.
 
 There
          were no significant changes in our internal controls over financial reporting
          (as defined in Rule 13a - 15(f) of the Exchange Act) that occurred during
          the
          first nine months of our 2007 fiscal year that has materially affected,
          or in
          other factors that could affect, the Company's internal controls over financial
          reporting.
  Part
            II - Other Information
 
 Item
                      1. a.
                  Risk
                      Factors
                    There
                      have been no material changes in the risk factors set forth
                      in the last
                      10-K.Item
                      6.
                  ExhibitsList
                      of Exhibits:Exhibits
                      No.
                  Description3.1
                  Conformed
                      Articles of Incorporation of Northeast Bancorp, incorporated
                      by reference
                      to Exhibit 3.1 to Northeast Bancorp's Registration Statement
                      on Form S-4
                      (No. 333-31797) filed with the Securities and Exchange
                      Commission.3.2
                  Bylaws
                      of Northeast Bancorp, incorporated by reference to Exhibit
                      3.2 to
                      amendment No. 1 to Northeast Bancorp's Registration Statement
                      on Form S-4
                      (No. 333-31797) filed with the Securities and Exhaange
                      Commission.11
                  Statement
                      Regarding Computation of Per Share Earnings.31.1
                  Certification
                      of the Chief Executive Officer pursuant to Section 302 of the
                      Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).31.2
                  Certification
                      of the Chief Financial Officer pursuant to Section 302 of the
                      Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).32.1
                  Certificate
                      of the Chief Executive Officer Pursuant to 18 U.S.C. Section
                      1350,  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                      Act of 2002 (Rule 13a-14(b)).32.2
                  Certificate
                      of the Chief Financial Officer Pursuant to 18 U.S.C. Section
                      1350,  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                      Act of 2002 (Rule 13a-14(b)).
 
  SIGNATURES
 
 Pursuant
            to the requirements of the Securities Act of 1934, the Registrant has
            duly
            caused this report to be signed on its behalf by the undersigned thereunto
            duly
            authorized.
 
 Date:  May
                      12, 2007
                  
                  NORTHEAST
                      BANCORPBy:
                  /s/
                      James D. DelamaterJames D. DelamaterPresident and CEOBy:
                  /s/
                      Robert S. JohnsonRobert S. JohnsonChief Financial Officer
 
  NORTHEAST
            BANCORP
 Index
            to
            Exhibits
 
 EXHIBIT
                        NUMBER
                    DESCRIPTION3.1
                    Conformed
                          Articles of Incorporation of Northeast Bancorp, incorporated
                          by reference
                          to Exhibit 3.1 to Northeast Bancorp's Registration Statement
                          on Form S-4
                          (No. 333-31797) filed with the Securities and Exchange
                          Commission.3.2
                    Bylaws
                          of Northeast Bancorp, incorporated by reference to Exhibit
                          3.2 to
                          amendment No. 1 to Northeast Bancorp's Registration Statement
                          on Form S-4
                          (No. 333-31797) filed with the Securities and Exhaange
                          Commission.11
                    Statement
                        Regarding Computation of Per Share Earnings31.1
                    Certification
                        of the Chief Executive Officer pursuant to Section 302 of
                        the
                        Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).31.2
                    Certification
                        of the Chief Financial Officer pursuant to Section 302 of
                        the
                        Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).32.1
                    Certificate
                        of the Chief Executive Pursuant to 18 U.S.C. Section 1350,  as
                        Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                        of 2002 (Rule
                        13a-14(b)).32.2
                    Certificate
                        of the Chief Financial Officer Pursuant to 18 U.S.C. Section
                        1350,  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                        Act of 2002 (Rule 13a-14(b)).
  23