Page 1





FORM 10 Q

X  Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

|For the quarter ended | September 30, 2005
|--------------------- | ------------------

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
___________________________________                             | 01-042506
____________________________________
|--------------------------------------------------------------------- | ----------------------------------------------
|(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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes _  No 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 November 10, 2005, the registrant had outstanding 2,525,832 shares of common stock, $1.00 stated value per share.

Page 2

|Part I.  | Financial Information
|-------- | ---------------------
|         | Item 1.              
|         |                      
|         |                      
|         |                      
|         |                      
|         |                      
|         | Item 2.              
|         | Item 3.              
|         | Item 4.              
|Part II. | Other Information    
|         | Item 1.              
|         | Item 2.              
|         | Item 3.              
|         | Item 4.              
|         | Item 5.              
|         | Item 6.              



|                                                                                   |                                                                                  |                                                                                          |                                       |                       | Page 3        
|---------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------- | --------------------- | --------------
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|PART 1 - FINANCIAL
      INFORMATION                                              
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Item 1.
      Financial Statements                                                 |                                                                                  |                                                                                         
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|NORTHEAST BANCORP
      AND SUBSIDIARIES                                          
|Consolidated Balance
      Sheets                                                 
|(Unaudited)                                                                       
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|                                                                                   |                                                                                  |                                                                                          |                                       | September
      30,   | June
      30,
|                                                                                   |                                                                                  |                                                                                          |                                       | 2005                  | 2005          
|Assets                                                                             |                                                                                  |                                                                                         
|Cash and
      due from banks                                                      | $   
      13,476,586                                                            | $    
      9,254,312                                                                   
|Interest
      bearing deposits                                                    | 1,099,961                                                                        | 1,063,923                                                                               
|Federal
      Home Loan Bank overnight deposits                                    | -                                                                                | 3,555,000                                                                               
|                                                                                   |                                                                                  |                                                                                          | Total cash and cash
      equivalents | 14,576,547            | 13,873,235    
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Available
      for sale securities, at market value                               | 76,117,401                                                                       | 74,345,938                                                                              
|Loans
      held for sale                                                          | 526,000                                                                          | 318,850                                                                                 
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Loans
      receivable                                                             | 460,068,015                                                                      | 461,052,388                                                                             
|                                                                                   | Less
      allowance for loan losses                                             | 5,336,000                                                                                | 5,104,000                            
|                                                                                   | Net
      loans                                                                  | 454,732,015                                                                              | 455,948,388                          
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Premises
      and equipment, net                                                  | 7,466,272                                                                        | 4,507,114                                                                               
|Acquired
      assets - net                                                        | 52,674                                                                           | 88,646                                                                                  
|Accrued
      interest receivable - loans                                          | 1,758,543                                                                        | 2,039,682                                                                               
|Accrued
      interest receivable - investments                                    | 505,739                                                                          | 515,207                                                                                 
|FHLB and
      FRB stock, at cost                                                  | 7,050,000                                                                        | 7,050,000                                                                               
|Goodwill                                                                           | 407,897                                                                          | 407,897                                                                                 
|Intangible
      assets, net of accumulated amortization of $2,166,279 at 09/30/05 |                                                                                  |                                                                                         
|and $2,125,536 at 6/30/05                                                          | 2,119,950                                                                        | 2,160,693                                                                               
|Bank
      owned life insurance (BOLI)                                             | 8,640,918                                                                        | 8,563,475                                                                               
|Other
      assets                                                                 | 6,069,779                                                                        | 6,081,207                                                                               
|                                                                                   | Total
      assets                                                               | $  
      580,023,735                                                                    | $  
      575,900,332                
|                                                                                   |                                                                                  |                                                                                          |                                       | =========             | =========     
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Liabilities
      and Stockholders' Equity                                         |                                                                                  |                                                                                         
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Liabilities:                                                                       |                                                                                  |                                                                                         
|                                                                                   | Deposits                                                                         |                                                                                          |                                      
|                                                                                   |                                                                                  | Demand                                                                                   | $   
      43,001,609                 | $   
      39,854,720
|                                                                                   |                                                                                  | NOW                                                                                      | 60,265,852                            | 64,386,939           
|                                                                                   |                                                                                  | Money
      market                                                                       | 14,360,488                            | 17,142,325           
|                                                                                   |                                                                                  | Regular
      savings                                                                    | 27,491,539                            | 29,807,392           
|                                                                                   |                                                                                  | Brokered
      time deposits                                                             | 61,078,601                            | 70,424,426           
|                                                                                   |                                                                                  | Certificates
      of deposit                                                            | 193,964,062                           | 174,602,920          
|                                                                                   |                                                                                  |                                                                                          | Total deposits                        | 400,162,151           | 396,218,722   
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|                                                                                   | FHLB
      advances                                                              | 79,379,566                                                                               | 86,197,602                           
|                                                                                   | Obligation
      under capital lease agreement                                   | 2,872,887                                                                                | -                                    
|                                                                                   | Other
      borrowings                                                           | 166,378                                                                                  | -                                    
|                                                                                   | Securities
      sold under repurchase agreements                                | 35,142,589                                                                               | 33,379,412                           
|                                                                                   | Junior
      subordinated notes issued to affiliated trusts                      | 16,496,000                                                                               | 16,496,000                           
|                                                                                   | Other
      liabilities                                                          | 5,389,310                                                                                | 3,739,023                            
|                                                                                   |                                                                                  |                                                                                          | Total liabilities                     | 539,608,881           | 536,030,759   
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Commitments
      and contingent liabilities                                       |                                                                                  |                                                                                         
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|Stockholders' equity                                                               |                                                                                  |                                                                                         
|                                                                                   | Preferred stock, cumulative, $1 par value,
      1,000,000 shares authorized     |                                                                                          |                                      
|                                                                                   |                                                                                  | and none
      issued and outstanding                                                    | -                                     | -                    
|                                                                                   | Common stock, at stated value, 15,000,000
      shares authorized; 2,524,832 and |                                                                                          |                                      
|                                                                                   |                                                                                  | 2,519,832
      shares outstanding at September 30, 2005 and June 30, 2005, respectively | 2,524,832                             | 2,519,832            
|                                                                                   | Additional
      paid in capital                                                 | 6,574,070                                                                                | 6,530,836                            
|                                                                                   | Retained
      earnings                                                          | 32,308,679                                                                               | 31,489,092                           
|                                                                                   | Accumulated
      other comprehensive (loss)                                     | (992,727)                                                                                | (670,187)                            
|                                                                                   |                                                                                  | Total
      stockholders' equity                                                         | 40,414,854                            | 39,869,573           
|                                                                                   |                                                                                  |                                                                                          |                                       |                       |               
|                                                                                   |                                                                                  | Total
      liabilities and stockholders' equity                                         | $  
      580,023,735                 | $  
      575,900,332
|                                                                                   |                                                                                  |                                                                                          |                                       | =========             | =========     



|                                         |                                                               |                                                            |                         | Page 4              
|---------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------- | --------------------
|                                         |                                                               |                                                            |                         |                     
|NORTHEAST BANCORP AND
      SUBSIDIARIES
|Consolidated Statements of Income       
|(Unaudited)                             
|                                         |                                                               |                                                            |                         |                     
|                                         |                                                               |                                                            | Three Months Ended     
|                                         |                                                               |                                                            | September 30,          
|                                         |                                                               |                                                            | 2005                    | 2004                
|Interest and
      dividend income:      |                                                               |                                                           
|                                         | Interest on loans                                             | $   
      7,827,133                                       | $   
      6,830,932   
|                                         | Interest on FHLB
      overnight deposits                     | 17,896                                                     | 6,464                  
|                                         | Interest on fed
      funds sold                              | 5,646                                                      | -                      
|                                         | Interest and
      dividends on available for sale securities | 745,169                                                    | 677,282                
|                                         | Dividends on FHLB
      and FRB stock                         | 77,261                                                     | 52,133                 
|                                         | Other interest
      income                                   | 6,378                                                      | 1,090                  
|                                         |                                                               | Total interest and dividend
      income                   | 8,679,483               | 7,567,901           
|                                         |                                                               |                                                            |                         |                     
|Interest expense:                        |                                                               |                                                           
|                                         | Deposits                                                      | 2,513,254                                                  | 1,973,528              
|                                         | Repurchase
      agreements                                   | 160,437                                                    | 79,399                 
|                                         | FHLB advances                                                 | 983,566                                                    | 957,474                
|                                         | Obligation under
      lease agreements                       | 24,228                                                     | -                      
|                                         | Other borrowings                                              | 861                                                        | -                      
|                                         | Junior subordinated
      debentures                          | 262,056                                                    | 281,151                
|                                         |                                                               | Total interest expense                                     | 3,944,402               | 3,291,552           
|                                         |                                                               |                                                            |                         |                     
|                                         |                                                               | Net interest income before
      provision for loan losses | 4,735,081               | 4,276,349           
|                                         |                                                               |                                                            |                         |                     
|Provision for loan
      losses          | 300,505                                                       | 300,137                                                   
|                                         |                                                               | Net interest income after
      provision for loan losses  | 4,434,576               | 3,976,212           
|                                         |                                                               |                                                            |                         |                     
|Noninterest income:                      |                                                               |                                                           
|                                         | Fees and service
      charges on loans                       | 204,821                                                    | 60,550                 
|                                         | Fees for other
      services to customers                    | 294,959                                                    | 241,930                
|                                         | Net securities gains                                          | 6,736                                                      | 1,564                  
|                                         | Gain (loss) on
      trading activities                       | -                                                          | (160)                  
|                                         | Gain on sales of
      loans                                  | 99,980                                                     | 51,904                 
|                                         | Investment
      commissions                                  | 357,346                                                    | 454,837                
|                                         | Insurance
      commissions                                   | 403,489                                                    | 97,332                 
|                                         | BOLI income                                                   | 91,851                                                     | 92,997                 
|                                         | Other income                                                  | 128,835                                                    | 162,985                
|                                         |                                                               | Total noninterest income                                   | 1,588,017               | 1,163,939           
|                                         |                                                               |                                                            |                         |                     
|Noninterest expense:                     |                                                               |                                                           
|                                         | Salaries and
      employee benefits                          | 2,599,232                                                  | 2,278,852              
|                                         | Occupancy expense                                             | 392,683                                                    | 309,776                
|                                         | Equipment expense                                             | 391,446                                                    | 255,710                
|                                         | Intangible assets
      amortization                          | 40,743                                                     | 23,397                 
|                                         | Other                                                         | 1,034,990                                                  | 886,079                
|                                         |                                                               | Total noninterest expense                                  | 4,459,094               | 3,753,814           
|                                         |                                                               |                                                            |                         |                     
|Income before income
      taxes         | 1,563,499                                                     | 1,386,337                                                 
|Income tax expense                       | 521,402                                                       | 430,221                                                   
|                                         |                                                               |                                                            |                         |                     
|                                         |                                                               | Net income                                                 | $   
      1,042,097    | $     
      956,116
|                                         |                                                               |                                                            | =======                 | =======             
|                                         |                                                               |                                                            |                         |                     
|Earnings per common
      share:         |                                                               |                                                           
|                                         | Basic                                                         | $            
      0.41                                   | $           
      0.38
|                                         | Diluted                                                       | $            
      0.41                                   | $           
      0.37
|                                         |                                                               |                                                            |                         |                     
|                                         |                                                               | Net interest margin                                        | 3.43%                   | 3.28%               
|                                         |                                                               | Net interest spread                                        | 3.15%                   | 3.05%               
|                                         |                                                               | Return on average assets
      (annualized)                | 0.72%                   | 0.74%               
|                                         |                                                               | Return on average equity
      (annualized)                | 10.18%                  | 10.74%              
|                                         |                                                               | Efficiency ratio                                           | 71%                     | 69%                 



|                                                                 |                                                    |                                                   |                    |                     |                    |                     | Page 5   
|---------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------- | ------------------ | ------------------- | ------------------ | ------------------- | ---------
|NORTHEAST BANCORP
      ANDSUBSIDIARIES                         
|Consolidated
      Statements of Changes in Stockholders' Equity
|Three Months Ended
      September 30, 2005 and 2004            
|(Unaudited)                                                     
|                                                                 |                                                    |                                                   |                    |                     |                    |                     |          
|                                                                 |                                                    |                                                   |                    |                     |                    | Accumulated         |          
|                                                                 |                                                    |                                                   |                    | Additional          |                    | Other               |          
|                                                                 |                                                    |                                                   | Common             | Paid-in             | Retained           | Comprehensive       |          
|                                                                 |                                                    |                                                   | Stock              | Capital             | Earnings           | Income
      (Loss) | Total    
|Balance
      at June 30, 2004                                   | $  2,525,416                                       | $ 6,943,894                                       | $
      28,380,678 | $ (1,396,968)       | $ 36,453,020      
|                                                                 | Net
      income for three months ended 9/30/05    | -                                                 | -                  | 956,116             | -                  | 956,116            
|                                                                 | Other
      comprehensive income net of tax:       |                                                   |                    |                     |                    |                    
|                                                                 |                                                    | Net unrealized gains
      on investments         |                    |                     |                    |                     |          
|                                                                 |                                                    | available for sale,
      net of reclassification |                    |                     |                    |                     |          
|                                                                 |                                                    | adjustment                                        | -                  | -                   | -                  | 1,048,627           | 1,048,627
|                                                                 |                                                    | Total comprehensive
      income                  | -                  | -                   | -                  | -                   | 2,004,743
|                                                                 |                                                    |                                                   |                    |                     |                    |                     |          
|                                                                 | Dividends
      on common stock at $0.09 per share | -                                                 | -                  | (227,332)           | -                  | (227,332)          
|                                                                 | Purchase
      of 10,000 shares of Company stock   | (10,000)                                          | (180,000)          | -                   | -                  | (190,000)          
|                                                                 | Common
      stock issued in connection with       |                                                   |                    |                     |                    |                    
|                                                                 |                                                    | employee benefit and
      stock option plan      | 9,686              | 38,413              | -                  | -                   | 48,099   
|                                                                 |                                                    |                                                   |                    |                     |                    |                     |          
|Balance
      at September 30, 2004                              | $
      2,525,102                                  | $
      6,802,307                                 | $
      29,109,462 | $ 
      (348,341)  | $ 38,088,530      
|                                                                 | =======                                            | =======                                           | =======            | =======             | =======           
|                                                                 |                                                    |                                                   |                    |                     |                    |                     |          
|Balance
      at June 30, 2005                                   | $ 2,519,832                                        | $ 6,530,836                                       | $
      31,489,092 | $  
      (670,187) | $
      39,869,573
|                                                                 | Net
      income for three months ended 9/30/05    |                                                   |                    | 1,042,097           |                    | 1,042,097          
|                                                                 | Other
      comprehensive income net of tax:       |                                                   |                    |                     |                    |                    
|                                                                 |                                                    | Net unrealized
      losses on investments        |                    |                     |                    |                     |          
|                                                                 |                                                    | available for sale,
      net of reclassification |                    |                     |                    |                     |          
|                                                                 |                                                    | adjustment                                        |                    |                     |                    | (322,540)           | (322,540)
|                                                                 |                                                    | Total comprehensive
      income                  |                    |                     |                    |                     | 719,557  
|                                                                 |                                                    |                                                   |                    |                     |                    |                     |          
|                                                                 | Dividends
      on common stock at $0.09 per share |                                                   |                    | (222,510)           |                    | (222,510)          
|                                                                 | Common
      stock issued in connection with       |                                                   |                    |                     |                    |                    
|                                                                 |                                                    | employee benefit and
      stock option plan      | 5,000              | 43,234              |                    |                     | 48,234   
|                                                                 |                                                    |                                                   |                    |                     |                    |                     |          
|Balance
      at September 30, 2005                              | $ 2,524,832                                        | $
      6,574,070                                 | $
      32,308,679 | $ 
      (992,727)  | $ 40,414,854      
|                                                                 | =======                                            | =======                                           | =======            | =======             | =======           



|                                                                       |                    | Page 6            
|---------------------------------------------------------------------- | ------------------ | ------------------
|                                                                       |                    |                   
|NORTHEAST BANCORP AND
      SUBSIDIARIES                              
|Consolidated Statements of Cash
      Flows                           
|(Unaudited)                                                           
|                                                                       |                    |                   
|                                                                       | Three Months Ended
|                                                                       | September 30,     
|                                                                       | 2005               | 2004              
|Cash provided by operating
      activities:                           | $
      3,080,298  | $
      1,465,299 
|                                                                       |                    |                   
|Cash flows from investing
      activities:                            |                    |                   
|Federal Reserve stock purchased                                        | -                  | (405,500)         
|Available for sale securities
      purchased                          | (4,768,113)        | (659,555)         
|Available for sale securities
      matured                            | 2,689,517          | 2,128,164         
|Available for sale securities
      sold                               | 291,277            | 75,477            
|Net change in loans                                                    | 873,885            | (15,994,145)      
|Net capital expenditures                                               | (334,519)          | (64,975)          
|Proceeds from sale of premises
      and equipment                     | -                  | 481,794           
|Proceeds from sale of acquired
      assets                            | 156,672            | 44,260            
|Purchase of retirement annuity                                         | -                  | (900,000)         
|Acquisition of business                                                | -                  | (979,502)         
|Net cash used in investing
      activities                            | (1,091,281)        | (16,273,982)      
|                                                                       |                    |                   
|Cash flows from financing
      activities:                            |                    |                   
|Net change in deposits                                                 | 3,943,429          | 15,897,467        
|Net change in repurchase
      agreements                              | 1,763,177          | 9,319,311         
|Dividends paid                                                         | (222,510)          | (227,332)         
|Proceeds from stock issuance                                           | 48,234             | 48,099            
|Company stock repurchased                                              | -                  | (190,000)         
|Advances from the Federal Home
      Loan Bank                         | 30,000,000         | 6,000,000         
|Repayment of advances from the
      Federal Home Loan Bank            | (37,200,035)       | (12,448,656)      
|Net repayments on Federal Home
      Loan Bank overnight advances      | 382,000            | (4,895,000)       
|Net cash (used) provided by
      financing activities                 | (1,285,705)        | 13,503,889        
|                                                                       |                    |                   
|Net Increase (decrease) in cash
      and cash equivalents             | 703,312            | (1,304,794)       
|                                                                       |                    |                   
|Cash and cash equivalents,
      beginning of period                   | 13,873,235         | 14,647,785        
|Cash and cash equivalents, end
      of period                         | $
      14,576,547 | $
      13,342,991
|                                                                       | ========           | ========          
|                                                                       |                    |                   
|Cash 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 tax, |                    |                   
|on available for sale securities                                       | (322,540)          | 1,048,627         
|Net transfer from loans to
      acquired assets                       | 120,700            | 78,835            
|Assumption of debt from
      Solon-Anson Insurance Agency acquisition | -                  | 683,104           
|Deferred tax liability related
      to Solon-Anson acquisition        | -                  | 443,737           
|Capital lease asset and related
      obligation                       | 2,892,702          | -                 
|Security settlement due to
      broker                                | 509,761            |                   
|                                                                       |                    |                   
|Supplemental disclosure of cash
      paid during the period for:      |                    |                   
|Income taxes paid, net of
      refunds                                | 27,850             | 2,222             
|Interest paid                                                          | 3,806,818          | 3,170,965         

Page 7

NORTHEAST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2005

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 September 30, 2005, the
results of operations for the three month periods ended September 30, 2005 and
2004, the statement of changes in sin stockholders' equity for the three months
ended September 30, 2005 and 2004, and the cash flows for the three months ended
September 30, 2005 and 2004. Operating results for the three-month period ended
September 30, 2005 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 2006. For further information,
refer to the audited consolidated financial statements and footnotes thereto for
the fiscal year ended June 30, 2005 included in the Company's Annual Report on
Form 10-K. Certain June 30, 2005 amounts have been reclassified to be consistent
with the September 30, 2005 financial statements.

2.  Junior Subordinated Debentures

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 debentures 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 debentures acquired by the affiliated trusts from us with the
capital contributed by us 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
debentures, in whole or impart, 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 an accrued by unpaid interest
to the redemption date.

|Affiliated Trusts     | Trust     
       Preferred  Securities | Common   Securities | Junior       
      Subordinated  Debentures | Interest Rate | Maturity Date    
|--------------------- | --------------------------------------- | ------------------- | -------------------------------------------- | ------------- | -----------------
|NBN Capital Trust II  | $   3,000,000                           | $     93,000        | $   3,093,000                                | 6.82%         | March 30, 2009   
|NBN Capital Trust III | 3,000,000                               | 93,000              | 3,093,000                                    | 6.50%         | March 30, 2009   
|NBN Capital Trust IV  | 10,000,000                              | 310,000             | 10,310,000                                   | 5.88%         | February 23, 2010
|Total                 | $ 16,000,000                            | $   496,000         | $ 16,496,000                                 | 6.18%         |                  

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
6.82% 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 state 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 $1,018,216.

Page 8

3.  Loans

The following is a summary of the composition of loans at:

|                        | September 30, 2005    | June 30, 2005          
|----------------------- | --------------------- | -----------------------
|Residential real estate | $ 148,491,550         | $  148,840,093         
|Commercial real estate  | 122,657,280           | 125,898,821            
|Construction            | 13,351,298            | 12,201,353             
|Commercial              | 65,648,122            | 68,715,530             
|Consumer & Other        | 107,377,864           | 102,864,902            
|Total                   | 457,526,114           | 458,520,699            
|Net Deferred Costs      | 2,541,901             | 2,531,689              
|Net Loans               | $ 460,068,015======== | $  461,052,388  =======

4.  Allowance for Loan Losses

The following is an analysis of transactions in the allowance for loan
losses:

|                                           | Three months Ended
            September 30,
|------------------------------------------ | --------------------------------------------
|                                           | 2005                                        
|Balance at beginning of period             | $  5,104,000                                
|Add provision charged to operations        | 300,505                                     
|Recoveries on loans previously charged off | 44,297                                      
|                                           | 5,448,802                                   
|Less loans charged off                     | 112,802                                     
|Balance at end of period                   | $ 5,336,000=======                          

5.  Securities

Securities available for sale at cost and approximate market values and
maturities are summarized below:

|                                                                  | September 30, 2005  | June 30, 2005       
|----------------------------------------------------------------- | ------------------- | --------------------
|                                                                  | Cost                | Market  Value       
|                                                                  |                     |                     
|Debt securities issued by U. S. Government- sponsored enterprises | $ 26,269,865        | $ 25,660,544        
|Corporate bonds                                                   | 500,000             | 491,155             
|Municipal Bonds                                                   | 4,982,987           | 4,983,386           
|Mortgage-backed securities                                        | 43,933,827          | 43,064,965          
|Equity securities                                                 | 1,934,854           | 1,917,351           
|                                                                  | $ 77,621,533======= | $ 76,117,401 =======

|                                                                                                                                                         | September 30, 2005   | June 30, 2005      
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | -------------------
|                                                                                                                                                         | Cost                 | MarketValue        
|Due after one year through five years                                                                                                                    | $ 22,389,973         | $ 21,864,507       
|Due after five years through ten years                                                                                                                   | 2,989,067            | 2,957,400          
|Due after ten years                                                                                                                                      | 6,373,812            | 6,313,178          
|Mortgage-backed securities (including securities with interest
        rates ranging from 4.0% to 8.5% maturing November 2007 to
        September 2032) | 43,933,827           | 43,064,965         
|Equity securities                                                                                                                                        | 1,934,854            | 1,917,351          
|                                                                                                                                                         | $ 77,621,533 ======= | $ 76,117,401=======

Page 9

6.  Advances from the Federal Home Loan Bank

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

|September 30, 2005  
|--------------------
|Principal    Amounts
|$ 32,696,703        
|21,837,682          
|17,845,181          
|7,000,000           
|$ 79,379,566======= 



|June 30, 2005           
|------------------------
|Principal    Amounts    
|$   49,309,004          
|13,831,915              
|16,056,683              
|7,000,000               
|$   86,197,602   =======

Page 10

7.  Stock Option Plans

Northeast Bancorp grants "incentive stock options" only to
employees of the Company, and grants "nonqualified stock options" to
employees and non-employee directors. All options granted under these plans are
required to have an exercise price per share equal to at least the fair market
value per share of common stock on the date the option is granted. Under
Accounting Principle Board Opinion No. 25, no compensation expense is recognized
if the exercise price of the option is greater than or equal to the fair market
value of the underlying stock on the date of grant. Generally, options issued
under the plan vest immediately upon being granted.

The Company has elected to present in the notes of the consolidated financial
statements the impact to net income and earnings per share of estimating the
fair value of each option on the date of grant using the Black-Scholes
option-pricing model. No options were granted during the three months ended
September 30, 2005 and 2004. The Company has elected to continue to disclose in
the notes to the consolidated financial statements under SFAS 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS
123. If the Company had determined the cost for its stock options based on
the fair value method at the grant date under SFAS 123, Accounting for
Stock-Based Compensation, the Company's pro forma net income and earnings
per share for the three ended September 30, 2005 and 2004 would have been the
amounts shown below. The Financial Accounting Standards Board has issued a
revision of SFAS 123, effective after July 1, 2005, that requires the fair value
method be used to account for stock based compensation and the recognition of
the fair value of stock options as compensation expense in the financial
statements.

|                                                                                                                                           | For the Three MonthsEnded September 30,
|------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------
|                                                                                                                                           | 2005                                   
|Net Income as reported                                                                                                                     | $ 1,042,097                            
|Deduct: Total stock-based compensation expense determined under
        fair value based method for all awards, net of related tax effects | --                                     
|Pro forma net income                                                                                                                       | $ 1,042,097=======                     
|                                                                                                                                           |                                        
|Earnings per share                                                                                                                         |                                        
|Basic - as reported                                                                                                                        | $           
      0.41                
|Basic - pro forma                                                                                                                          | $           
      0.41                
|                                                                                                                                           |                                        
|Diluted - as reported                                                                                                                      | $           
      0.41                
|Diluted - pro forma                                                                                                                        | $           
      0.41                

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 15 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 in August 2005 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.  For the first ten years of the lease the annual expense is $264,000.  Since the present value of the lease payments exceeded 90% of the fair value of the property, we recorded a capital lease of approximately $2,892,702 in Premises and Equipment and an Obligation under Capital Lease Agreement with the Company's other long-term debt.   The capital lease asset is being amortized
over the lease term.

Page 11

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
months ended September 30, 2005 and 2004 and the financial condition at
September 30, 2005 and June 30, 2005. 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 Form 10-K dated as of June 30, 2005 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 reserve
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.

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 can not 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, the availability of and the costs associated with
sources of liquidity and properly managing and operating our insurance agency.
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, 2005. 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.

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
on a continual basis. 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 September
30, 2005, we had 13 banking offices and eight insurance offices all located in
western and south-central Maine. At September 30, 2005, we had consolidated
assets of $580.0 million and consolidated stockholders' equity of $40.4 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 13 offices are located in Auburn, Augusta,
Bethel, Brunswick, Buckfield, Falmouth, Harrison, Lewiston (2), Lisbon Falls,
Mechanic Falls, Portland, and South Paris, Maine. The Bank's investment
brokerage division operates from the office in Falmouth, Maine from which
investment, insurance and financial planning products and services are offered.

The Bank's wholly owned subsidiary, Northeast Bank Insurance Group Inc.
(formerly known as Northeast Financial Services Corporation), acquired 100% of
the outstanding stock of Solon-Anson Insurance Agency, Inc.
("Solon-Anson"), headquartered in Rangeley, Maine on September 29,
2004. This transaction added six insurance agency offices located in Anson,
Auburn, Augusta, Mexico, Rangeley, and South Paris, Maine to our existing
insurance agency office in Bethel, Maine, and 21,000 customers. Effective April
1, 2005, Solon-Anson Insurance Agency was merged with Northeast Bank Insurance
Group Inc. A new office was opened in Jackman, Maine in August, 2005. All of our
insurance offices offer personal and commercial property and casualty insurance
products. See Note 6 in our June 30, 2005 consolidated financial statements for
more information on this transaction.

Page 12

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 trust management,
financial planning, and investment and insurance brokerage 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. Also, in
an effort to more efficiently manage the Bank's operations, the Bank
consolidated its operations into a new headquarters building in Lewiston, Maine
in August 2005.

The Company's profitability is affected by the Bank's interest rate spread,
which is the difference between the average yield earned on its interest-earning
assets and the average rate paid on its interest-bearing liabilities. 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. Non-interest 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. Non-interest expenses consist of
compensation and 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.

Results of Operations

Comparison of the Three Months Ended September 30, 2005 and 2004

General

The Company reported consolidated net income of $1,042,097, or $0.41 per
diluted share for the three months ended September 30, 2005 compared with
$956,116, or $0.37 per diluted share for the three months ended September 30,
2004, an increase of $85,981, or 9%. Net interest income increased $458,732, or
11%, from higher average earning assets and a 15 basis point increase in net
interest margin. Non-interest income increased $424,078, or 36%, primarily from
increased insurance commissions and fees and service charges on loans. The
provision for loan losses was flat compared to the three months ended September
30, 2004. Non-interest expense increased $705,280, or 19%, primarily from higher
salary and benefit expenses and other operating expenses. Full-time equivalent
staff increased by 12 to 193 as of the quarter ended September 30, 2005 compared
to the same period last year, primarily from the Solon-Anson Insurance Agency
acquisition ("Solon Anson").

Annualized return on average equity ("ROE") and return on average
assets ("ROA") were 10.18% and 0.72%, respectively, for the quarter
ended September 30, 2005 as compared to 10.74% and 0.74%, respectively, for the
quarter ended September 30, 2004. The decrease in the returns on average equity
and average equity was due to higher average assets and average stockholders'
equity for the current quarter.

Page 13

Net Interest Income

Net interest income for the three months ended September 30, 2005 increased
to $4,434,576 as compared to $3,976,212 for the same period in 2004. The
increase in net interest income was primarily due to higher average earning
assets, increasing $29,021,297, or 6%, for the quarter ended September 30, 2005
as compared to the quarter ended September 30, 2004. The increase in average
earning assets was primarily due to an increase in loan volume of $21,348,770,
or 5%, and the purchase of U.S. government sponsored enterprises,
mortgage-backed, and municipal securities which increased average investments
$6,378,172, or 9%. Average loans as a percentage of average earning assets was
84% and 85%, respectively, for quarters ended September 30, 2005 and 2004.
Further, our net interest margin was 3.43% and 3.28% for the periods ended
September 30, 2005 and 2004, respectively. Our net interest spread for the three
months ended September 30, 2005 was 3.15%, an increase of 10 basis points from
3.05% for the same period a year ago. Comparing the three months ended September
30, 2005 and 2004, the yields on earning assets increased 50 basis points
compared to a 40 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 general rising interest rate
environment. We were able to generate a stronger increase in the yield on
earning assets as compared to the cost of interest-bearing liabilities as a
result of the repricing of variable, prime rate based loans.

The changes in net interest income are presented in the schedule below, which
compares the three months ended September 30, 2005 and 2004.

Difference Due toVolume
      Rate
      TotalInvestments
      $    67,298
      $     25,717
      $     93,015Loans, net
      341,393
      654,808
      996,201FHLB & Other Deposits
      3,507  
        _________
      18,859  
        _________
      22,366  
        _________Total Interest-earnings Assets
      412,198
      699,384
      1,111,582Deposits
      74,012
      465,714
      539,726Repurchase Agreements
      14,709
      66,329
      81,038Borrowings
      145,018  
        _________
      (112,932) 
        _________
      32,086  
        _________Total Interest-bearing Liabilities
      233,739  
        _________
      419,111  
        _________
      652,850  
        _________Net Interest Income
      $   178,459=======
      $   280,273  =======
      $   458,732  =======Rate/Volume amounts spread proportionately between volume and rate.
        Borrowings in the table include junior subordinated debt and FHLB
        borrowings.


Page 14

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 income. This risk arises from our core banking activities, lending
and deposit gathering. In addition to directly impacting net interest 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 Bank has maintained an asset sensitive
position based on its own internal analysis which categorizes its core deposits
as long term liabilities which are then matched to long term assets. As a
result, the Bank is generally expected to experience an improvement in its net
interest margins during a period of increasing interest rates. In fact, a slight
improvement has been experienced for the three month period ended September 30,
2005.

As of September 30, 2005 and 2004, 50% 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 Treasury bill. Interest income
on these existing loans will increase as short-term interest rates increase. An
increase in short-term interest rates will also increase deposit and FHLB
advance rates, increasing the Company's interest expense. Although the Bank has
experienced some net interest margin increase, the impact on future net interest
income will depend on, among other things, actual rates charged on the Bank's
loan portfolio, deposit and advance rates paid by the Bank and loan volume.

Provision for Loan Losses

The provision for loan losses for the three months ended September 30, 2005
was $300,505, an increase of $368, or less than 1%, from $300,137 for the three
months ended September 30, 2004. The flat provision was primarily due to lower
net charge-offs, $68,505 for the three months ended September 30, 2005 compared
to $125,137 for the same period in 2004, and a net decrease in total loans. The
net charge-offs and decrease in loans is not believed by management to be a
trend. See Financial Condition for discussion of the Allowance for Loan Losses
for the factors impacting the provision for loan losses. The allowance as a
percentage of outstanding loans increased to 1.16% at September 30, 2005
compared to 1.11% at June 30, 2005, and 1.06% at September 30, 2004.

Non-interest Income

Total non-interest income was $1,588,017 for the three months ended September
30, 2005, an increase of $424,078, or 36%, from $1,163,939 for the three months
ended September 30, 2004. This increase was the combined impact of a $306,157
increase in insurance commissions resulting primarily from the Solon-Anson
acquisition, $144,271 increase in fees and service charges on loans from late
fees and a decrease in the amortization of mortgage servicing rights, $53,029
increase in other service fees, $5,172 increase in securities sale gains, and
$48,076 increase in gains on the sale of loans. These increases were partially
offset by a $97,491 decrease in lower investment brokerage commission revenue
from lower sales volume, and a $34,150 decrease in other income primarily from
the gain realized in July 2004 from the sale of our former Richmond, Maine
branch building.

Non-interest Expense

Total non-interest expense for the three months ended September 30, 2005 was
$4,459,094, an increase of $705,280, or 19%, from $3,753,814 for the three
months ended September 30, 2004. This increase was primarily due to increased
salaries and employee benefits of $320,380, or 14%, from deferred compensation
expense accrued for the former owners of Solon-Anson Insurance Agency, bonus
accruals, and lower deferred salaries attributable to lower loan originations
compared to the same period one year ago. Net occupancy expense increased
$82,907, or 27%, from the capital lease amortization for the new Lewiston
Gateway building and the lease expense from four Solon-Anson offices. The
relocation expenses for moving the former operation center, executive and loan
processing, and commercial lending to the Lewiston Gateway, the depreciation
expense on new computer equipment and furniture for the Lewiston Gateway, and
incremental furniture and equipment expenses from Solon-Anson accounted for
the$135,736, or 53%, increase in equipment expense. The Solon-Anson customer
list intangible asset amortization accounted for the higher intangible asset
amortization expense of $17,346. Other expense increased $148,911, or 17%,
primarily from $77,965 higher professional fees for an efficiency study and is
non-recurring, and $65,017 from advertising expenses related to an image
campaign for the Bank. See Note 8 to our consolidated financial statements for
additional information on the capital lease.

For the three months ended September 30, 2005 and 2004, the increase in
income tax expense was primarily due to the increase in income before income
taxes as compared to 2004.

Our efficiency ratio was 71% and 69% for the three months ended September 30,
2005 and 2004, respectively.

Page 15

Financial Condition

Our consolidated assets were $580,023,735 and $575,900,332 as of September
30, 2005 and June 30, 2005, respectively, an increase of $4,123,403, or 1%. For
the three months ended September 30, 2005, total average assets were
$576,770,924, an increase of $30,145,289, or 6%, from $546,625,635 for the same
period last year. This average asset increase was primarily attributable to an
increase in loans resulting from opportunities in our market areas to meet the
needs of borrowers for residential real estate and indirect auto and
recreational vehicle loans, and increases in investment securities from net
excess funding. The increase in average assets was funded with increases in deposits,
securities sold under repurchase agreements, FHLB advances, and
junior subordinated debentures.

Total stockholders' equity was $40,414,854 and $39,869,573 at September 30,
2005 and June 30, 2005, respectively, an increase of $545,281, or 1%, due to net
income for the three months ended September 30, 2005 and stock issued in
connection with employee stock options partially offset by a decrease in
accumulated other comprehensive income and dividends paid. The book value per
outstanding share was $16.01 at September 30, 2005 and $15.82 at June 30, 2005.

Investment Activities

The investment portfolio was $76,117,401 as of September 30,
2005, an increase of $1,771,463 from $74,345,938 as of June 30, 2005. The
investment portfolio as of September 30, 2005 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 $73,900,973 for the three months ended September 30, 2005 as
compared to $67,522,801 for the three months ended September 30, 2004, an
increase of $6,378,172 or 9%. This increase was due primarily to purchasing U.S.
government-sponsored enterprise and mortgage-backed securities to increase
eligible collateral pledged to the Federal Home Loan Bank of Boston.

Our entire investment portfolio is classified as available for sale at
September 30, 2005 and June 30, 2005, 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
September 30, 2005 was $77,621,533 and $76,117,401, respectively. The difference
between the carrying value and the cost of the securities of $1,504,132 was
primarily attributable to the market value of U.S. government-sponsored
enterprises and mortgage-backed securities below their cost. The net unrealized
loss on equity securities was $17,503 and the net unrealized losses on U.S.
government-sponsored enterprises, corporate debt, mortgage-backed, and municipal
securities were $1,486,629 at September 30, 2005. The U.S. government-sponsored
enterprises, corporate debt, and mortgage-backed securities have decreased in
market value due to recent increases in the interest rates as compared to
June 30, 2005. 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
makes in the determination are market valuations of particular securities and
economic analysis of the securities' sustainable market values based on the
underlying company's profitability. Management also plans to hold the equity,
U.S. government-sponsored enterprises, corporate debt, mortgage-backed and
municipal securities until a recovery of market value occurs.

Page 16

Loan Portfolio

Total loans of $460,068,015 as of September 30, 2005 decreased $984,373 or
less than 1%, from $461,052,388 as of June 30, 2005. Compared to June 30, 2005,
construction and consumer loans increased, while residential real estate,
commercial real estate and commercial loans decreased. Construction loans
increased $1,149,945, or 9%. Consumer loans increased $4,512,962, or 4%, due to
origination of indirect recreational vehicle and indirect auto loans. The
residential real estate loan portfolio, which is comprised of purchased loans,
residential real estate loans originated for portfolio, and commercial real
estate 1 to 4 family loans, decreased by $348,543, or less than 1%, compared to
June 30, 2005. Commercial real estate and commercial loans decreased $3,241,541,
or 3%, and $3,067,408, or 4%, respectively, for the same period. Commercial real
estate and commercial loans originations decreased during the three months ended
September 30, 2005 due to the loss of three commercial lenders through July.
Each of these positions was filled with new lenders by early September 2005.
Net deferred loan origination fees decreased $10,212. The total loan portfolio
averaged $461,481,511 for the three months ended September 30, 2005, an increase
of $21,130,460, or 5%, from the three months ended September 30, 2004.

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 September 30, 2005 has had slight mix change with increases in construction
and consumer loans more than offset by decreases in residential real estate,
commercial loans, and consumer loans when compared to June 30, 2005. The Bank's
local market, as well as the secondary market, continues to be very competitive
for loan volume. The local competitive environment and customer response to
favorable secondary market rates will have an adverse affect on the Bank's
ability to increase the loan portfolio.

Residential real estate loans consisting of primarily owner-occupied
residential loans as a percentage of total loans were 32% as of September 30,
2005, June 30, 2005, and September 30, 2004. The variable rate
product as a percentage of total residential real estate loans was 42%, 42% and
39% 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 have sold
virtually all of the newly originated fixed-rate residential real estate loans
also to 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, and hold 15-year fixed rate residential real estate loans in
portfolio. Average residential real estate mortgages of $149,359,736 for the
three months ended September 30, 2005 increased $7,472,059, or 5%, from the
three months ended September 30, 2004. This increase was due to originating more
adjustable rate residential real estate loans, which are held in portfolio, than
fixed rate loans. The volume of residential real estate loan originations has
decreased slightly to $11.3 million for the three months ended September 30,
2005 compared to $11.7 million for the same period one year ago. This
origination volume is expected to continue to decrease as general interest rates
increase. Purchased loans included in our loan portfolio are pools of
residential real estate loans acquired from and serviced by other financial
institutions. In the past, the Bank has purchased these loan pools as an
alternative to mortgage-backed securities. The Bank has not recently pursued a
similar strategy.

Commercial real estate loans as a percentage of total loans were 27% as of
September 30, 2005, June 30, 2005 and September 30, 2004. 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 97%, 97% and 95% for the same periods
respectively. The Bank tries to mitigate credit risk by lending in its market
area as well as maintaining a well-collateralized position in real estate.
Average commercial real estate loans of $123,652,978 for the three months ended
September 30, 2005 decreased $2,246,481, or 2%, from the same period in 2004.
The decrease in commercial real estate loans reflects the temporary loss of
commercial lending staff in the Bank's existing business markets.

Construction loans as a percentage of total loans were 3%, 3%, 2% as of
September 30, 2005, June 30, 2005 and September 30, 2004, 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 less than one year. The variable rate
products as a percentage of total construction loans were 71%, 56%, and 52% for
the same periods respectively. Average construction loans were $12,684,418 and
$9,031,687 for the three months ended September 30, 2005 and 2004, respectively,
an increase of $3,652,731 or 40%.

Commercial loans as a percentage of total loans were 14%, 15%, and 16% as of
September 30, 2005, June 30, 2005 and September 30, 2004, respectively. The
variable rate products as a percentage of total commercial loans were 59%, 58%,
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 $66,807,369 for the three months
ended September 30, 2005 increased $78,807, or less than 1%, from $66,728,562
for the same period in 2004.

Page 17

Consumer and other loans as a percentage of total loans were 24%, 23%, and
22% for the periods ended September 30, 2005, June 30, 2005, and September 30,
2004, respectively. At September 30, 2005, indirect auto, indirect recreational
vehicle, and indirect mobile home loans represented 34%, 31%, and 30% of total
consumer loans, respectively, compared to 34%, 29%, and 32% of total consumer
loans at June 30, 2005. 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 and recreational vehicle
loans and mobile home loans to mitigate credit risk. The Bank typically pays a
nominal one-time origination fee on 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 $106,389,816 and $94,180,276 for the three months
ended September 30, 2005 and 2004, respectively. The $12,209,540, or 13%,
increase was due to increased indirect recreational vehicle and indirect auto
lending. The composition of consumer loans is detailed in the following table.

|                    
|--------------------
|                    
|                    
|Indirect Auto       
|Indirect RV         
|Indirect Mobile Home
|Subtotal Indirect   
|Other               
|Total               

Classification of Assets

The Bank had non-performing loans totaling $2,546,000 and $1,698,000 at
September 30, 2005 and June 30, 2005, respectively, or 0.55% and 0.37% of total
loans, respectively. The Bank's allowance for loan losses was equal to 210% and
301% of the total non-performing loans at September 30, 2005 and June 30, 2005,
respectively. The following table represents the Bank's non-performing loans as
of September 30, 2005 and June 30, 2005, respectively:

|Description             | September 30, 2005              | June 30,2005                   
|----------------------- | ------------------------------- | -------------------------------
|Residential Real Estate | $    349,000                    | $    515,000                   
|Commercial Real Estate  | 1,397,000                       | 867,000                        
|Commercial Loans        | 630,000                         | 256,000                        
|Consumer and Other      | 170,000                         | 60,000                         
|Total non-performing    | $  2,546,000  
      ========== | $ 1,698,000  
      ===========

Management does not believe that the increase in non-performing commercial real estate, commercial, and consumer and other loans as of September 30, 2005
was indicative of a trend. Loans classified as non-performing included
approximately $1,264,000 of loan balances that are current and paying as agreed.
At September 30, 2005, the Bank had $1,235,000 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 $715,000 when compared to the
$1,950,000 at June 30, 2005.

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:

|09-30-05 | 06-30-05 | 03-31-05 | 12-31-04
|-------- | -------- | -------- | --------
|1.25%    | 0.96%    | 0.68%    | 0.87%   

The Bank maintains the loans as non-performing until the borrower has
demonstrated a sustainable period of performance. Excluding these loans, the
Bank's total delinquencies 30 days or more past due, as a percentage of total
loans, would be 0.98% as of September 30, 2005.

Page 18

Allowance for Loan Losses

The Bank's allowance for loan losses was $5,336,000 as of September 30, 2005
as compared to $5,104,000 as of June 30, 2005, representing 1.16% and 1.11% of
total loans for each of the periods. Management maintains an allowance at a
level that they believe is reasonable for the overall risk inherent in the loan
portfolio. 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
loss, 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 via 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 September 30, 2005, 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 is adequate
considering the level of risk in the loan portfolio. While management believes
that it uses the best information available to make its determinations with
respect to the allowance, there can be no assurance that the Company will not
have to increase its provision for loan losses in the future as a result of
changing economic conditions, adverse markets for real estate or other factors.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
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 November 2004. 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 in a third insurance company.
Standard and Poor's rated these companies AA or better at September 30, 2005.
Interest earnings, net of mortality costs, increase the 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 these reasons, management considers BOLI an illiquid asset.
BOLI represented 18.9% of Company's capital plus the allowance for loan losses
at September 30, 2005.

Intangible assets of $2,119,950 as of September 30, 2005 decreased $40,743
from $2,160,693 as of June 30, 2005. This assets consists of customer list and
non-compete agreement intangibles from insurance agency acquisitions. See Note 1
of our June 30, 2005 consolidated financial statements for additional information on
intangible assets.

Page 19

Capital Resources and Liquidity

The Bank continues to attract new local core and certificates 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 $400,162,151 as of September 30, 2005 increased $3,943,429,
or 1%, from $396,218,722 as of June 30, 2005. Excluding the decrease in brokered
deposits, customer deposits increased $13,289,254, or 4%. Demand deposit
accounts increased $3,146,889 and certificates of deposit increased $19,361,142
for the three months ended September 30, 2005. NOW, money market, savings
accounts and brokered deposits decreased $4,121,087, $2,781,837, $2,315,853, and
$9,345,825, respectively, during the three months ended September 30, 2005. Certificates of deposits increased from successful promotions of nine and twelve
month certificates of deposit. Management's continuing strategy has certificate
of deposit rates for maturities two years and less near the top of the market to
attract new deposit account relationships. Brokered deposits decreased as
maturing balances were repaid during the three months ended September 30, 2005.

Total average deposits of $397,652,144 for the three months ended September
30, 2005 increased $11,158,210, or 3%, compared to the average for the three
months ended September 30, 2004. This increase in total average deposits
compared to September 30, 2004 was due to a $4,851,338, or 13%, increase in
average demand deposits, a $350,249, or 1%, increase in average savings
accounts, and a $44,825,490, or 33%, increase in certificates of deposit. These
increases were partially offset by a $5,287,378, or 8%, decrease in average NOW
accounts, $1,359,249, or 8%, decrease in average money market accounts, and
average brokered deposits decreased $32,222,240 or 33% to $65,668,188 for the
three months ended September 30, 2005. This decrease reflects our shift to local
deposits away from brokered deposits to fund the increase in our earning assets.
At September 30, 2005, brokered deposits as a percentage of total assets was
10.5% compared to 12.2% at June 30, 2005 and 17.1% at September 30, 2004. The
weighted average maturity for the brokered deposits was approximately 1.0 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.

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 four national
brokerage firms to source brokered deposits, which are obtained through agents
of the brokerage company soliciting 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 to reduce the level of brokered deposits, using retail deposits and FHLB
advances to fund its balance sheet growth for the next twelve months.

Advances from the Federal Home Loan Bank (FHLB) were $79,379,566 as of
September 30, 2005, a decrease of $6,818,036, or 8%, from $86,197,602 as of June
30, 2005. At September 30, 2005, we had pledged U.S. government agency and
mortgage-backed securities of $25,374,329 as collateral for FHLB advances. We
plan to continue to purchase additional U.S. government agency 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 loans principal and interest payments, and promotion of
deposit accounts including certificates of deposit 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. Average
advances from the FHLB were $85,861,237 for the three months ended September 30,
2005, an increase of $7,312,419, or 9%, compared to $78,548,818 average for the
same period last year.

Securities sold under repurchase agreements were $35,142,589 as of September
30, 2005, an increase of $1,763,177, or 5%, from $33,379,412 as of June 30,
2005. This increase reflects additional funds deposited by existing customers.
Market interest rates are offered on this product. Average securities sold under
repurchase agreements were $31,072,148 for the three months ended September 30,
2005, an increase of $4,366,604, or 16%, compared to the average for the three
months ended September 30, 2004.

The Bank has a secured line of credit under the Borrower-in-Custody program
through the Fed 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 September 30, 2005,
there was 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 September 30, 2005 in addition to the traditional retail deposit
products:

|Brokered time deposit                   | $  83,927,000 | Subject to policy limitation of 25% of total assets                 
|--------------------------------------- | ------------- | --------------------------------------------------------------------
|Federal Home Loan Bank of Boston        | $  26,333,000 | Unused advance capacity subject to eligible and qualified collateral
|Fed Discount Window Borrower-in-Custody | $  29,349,000 | Unused credit line subject to the pledge of indirect auto loans     
|Total Unused Borrowing Capacity         | $139,609,000  |                                                                     

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 September 30, 2005:

|Affiliated Trusts     | Outstanding Balance | Rate  | First Call Date  
|--------------------- | ------------------- | ----- | -----------------
|NBN Capital Trust II  | $   3,093,000       | 6.82% | March 30, 2009   
|NBN Capital Trust III | 3,093,000           | 6.50% | March 30, 2009   
|NBN Capital Trust IV  | 10,310,000          | 5.88% | February 23, 2010
|Total                 | $  16,496,000       | 6.17% |                  

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 $1,018,216 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.

Page 20

The 2004 Stock Repurchase Plan was approved by the Board of Directors
on January 16, 2004. It was extended by the Board of Directors on December 17,
2004 and will terminate on December 31, 2005. The repurchase program may be
discontinued by the Northeast Bancorp at any time. Under the 2004 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. From time to time, the Company believes that
the current market price for its common stock is inadequate and does not reflect
the full value of its common stock and at such times purchases its common stock
in the market. For the three months ended September 30, 2005, the Company did
not repurchase any stock. Total stock repurchases under the 2004 Plan were
55,300 shares for $1,061,842 through September 30, 2005. The number of shares
that may yet be purchased under the 2004 Stock Repurchase Plan is 144,700
shares. 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 $40,414,854 as
of September 30, 2005 as compared to $39,869,573 at June 30, 2005. The increase
of $545,281, or 1%, was due to the net income for the three months ended
September 30, 2005 of $1,042,097 and stock issued in connection with employee
stock options of $48,234 partially offset by an decrease in other comprehensive
income of $322,540 and dividends paid of $222,510. Book value per common share
was $16.01 as of September 30, 2005 as compared to $15.82 at June 30, 2005. The
total average equity to total average assets ratio of the Company was 7.04% as
of September 30, 2005 and 6.88% at June 30, 2005.

The Company's net cash provided by operating activities was
$3,080,298 during the three months ended September 30, 2005, which was a
$1,614,999 increase compared to the same period in 2004. This increase was due
primarily to the increase in other liabilities (escrow balances and amounts due
to broker). Investing activities were a net use of cash primarily due to
purchasing investment securities and capital expenditures during the three
months ended September 30, 2005, compared to the same period in 2004. Financing
activities used net cash from the repayment of FHLB advances net of increases in
deposits and repurchase agreements compared to the same period in 2004.Overall, the Company's cash and cash equivalents increased by $703,312
during the three months ended September 30, 2005.

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 September 30, 2005, 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 September 30, 2005, 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                                                                           
|As of September 30, 2005:              |         |                                               |                                                                                  
|Total capital to risk weighted assets  | $60,577 | 13.73%                                        | $35,272                                                                          
|Tier 1 capital to risk weighted assets | $52,197 | 11.84%                                        | $17,636                                                                          
|Tier 1 capital to total average assets | $52,197 | 9.07%                                         | $23,009                                                                          

|                                       |         |                                                |                                                                                  
|-------------------------------------- | ------- | ---------------------------------------------- | ---------------------------------------------------------------------------------
|Northeast Bank                         | Actual  | Required For
        Capital Adequacy Purposes | Required To Be "Well Capitalized" Under Prompt
      Corrective Action Provisions
|(Dollars in Thousands)                 | Amount  | Ratio                                          | Amount                                                                           
|As of September 30, 2005:              |         |                                                |                                                                                  
|Total capital to risk weighted assets  | $53,725 | 12.24%                                         | $35,117                                                                          
|Tier 1 capital to risk weighted assets | $48,389 | 11.02%                                         | $17,558                                                                          
|Tier 1 capital to total average assets | $48,389 | 8.45%                                          | $22,913                                                                          

Page 21

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.

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 credit
worthiness 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 September 30, 2005,
follows:

Payments Due by PeriodContractual Obligations
      Total
      Less Than1 Year
      1-3Years
      4-5Years
      After 5YearsFHLB advances
      $   79,379,566
      $  32,696,703
      $  39,682,863
      $         
                -
      $  7,000,000Junior subordinated debentures
      16,496,000
      -
      -
      16,496,000
      -Capital lease obligation
      4,128,508
      264,262
      528,523
      528,523
      2,807,200Other borrowings
      166,378
      166,378
      -
      -
      -Total long-term debt
      100,170,452
      33,127,343
      40,211,386
      17,024,523
      9,807,200Operating lease obligations (1)
      2,960,468
      533,523
      445,325
      154,800
      1,826,820Total contractual obligations
      $ 103,130,920========
      $  33,660,866========
      $ 40,656,711========
      $ 17,179,323========
      $ 11,634,020========Amount of Commitment Expiration - Per PeriodCommitments with off-balance sheet risk
      Total
      Less Than1 Year
      1-3Years
      4-5Years
      After 5YearsCommitments to extend credit (2)(4)
      $  14,946,000
      $  14,946,000
      $        
                -
      $     
                   -
      $          
              -Commitments related to loans held for sale(3)
      1,567,000
      1,567,000
      -
      -
      -Unused lines of credit (4)(5)
      44,352,000
      20,964,000
      4,847,000
      1,168,000
      17,373,000Standby letters of credit (6)
      2,537,000
      2,537,000
      -
      -
      -$  63,402,000========
      $  40,014,000========
      $  4,847,000========
      $  1,168,000========
      $ 17,373,000========




|(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 September 30, 2005 was a loss
of $7,000.

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.

Page 22

Item 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in the Company's market risk from June
30, 2005. 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, 2005.

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.

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 September 30, 2005.

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 three months of our 2006 fiscal year that have materially
affected, or in other factors that could affect, the Company's internal controls
over financial reporting.

Page 23

Part II - Other Information

|Item 1.    | Legal ProceedingsNone.                                          
|---------- | ----------------------------------------------------------------
|Item 2.(c) | Unregistered Sales of Equity Securities and Use of ProceedsNone.
|Item 3.    | Defaults Upon Senior SecuritiesNone.                            
|Item 4.    | Submission of Matters to a Vote of Security HoldersNone         
|Item 5.    | Other InformationNone.                                          
|Item 6.    | Exhibits                                                        
|           | List of Exhibits:                                               
|           | Exhibits No.                                                    
|           |                                                                 
|           | 11                                                              
|           | 31.1                                                            
|           | 31.2                                                            
|           | 32.1                                                            
|           | 32.2                                                            

Page 24

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:  November 10, 2005 |     | NORTHEAST BANCORP      
|------------------------ | --- | -----------------------
|                         | By: | /s/ James D. Delamater 
|                         |     | James D. Delamater     
|                         |     | President and CEO      
|                         |     |                        
|                         | By: | /s/ Robert S. Johnson  
|                         |     | Robert S. Johnson      
|                         |     | Chief Financial Officer
|                         |     |                        

Page 25

NORTHEAST BANCORP
Index to Exhibits

|EXHIBIT NUMBER | DESCRIPTION
|-------------- | -----------
|               | 11         
|               | 31.1       
|               | 31.2       
|               | 32.1       
|               | 32.2