Net interest income for the six months ended December 31, 2005 increased $669,272 as compared to the six months ended December 31, 2004. The increase in net interest income was due to a 13 basis point increase in net interest margin combined with an increase in average earning assets of $19,595,597 for the six months ended December 31, 2005 compared to the same period one year ago. The increase in average earning assets was due to a $7,964,322, or 12%, increase in investment securities and a $10,429,319, or 2%, increase in loans. Average loans as a percentage of average assets was 84% and 85% for the six months ended December 31, 2005 and 2004, respectively. For the same fiscal periods, net interest margin was 3.45% and 3.32%, respectively. Net interest spread for the six months ended December 31, 2005 was 3.17%, an increase of 6 basis points from 3.11% for the same period one year ago. The yields on earning assets increased 49 basis points compared to an increase of 43 basis points in the cost of interest-bearing liabilities between the six months ended December 31, 2005 and 2004. The variable rate loans based on prime rate accounts for the yield increase on earning assets and closely followed the actions by the Open Market Committee of the Federal Reserve changing the federal funds rate.

The changes in net interest income are presented in the schedule below, which compares the six months ended December 31, 2005 and 2004.

Page 15

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, which is the yield on interest-bearing assets reprice more quickly than the cost of interest-bearing liabilities. 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 was experienced for the three and six month periods ended December 31, 2005.

As of December 31, 2005 and 2004, 50% and 51%, 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.

The provision for loan losses for the three months ended December 31, 2005 was $300,104, an increase of less than 1%, from $299,984 for the three months ended December 31, 2004. For the six months ended December 31, 2005 and 2004, the provision for loan losses was $600,609 and $600,121, respectively, an increase of less than 1%. The flat provision was primarily due to lower net charge-offs, $59,104 for the three months ended December 31, 2005 compared to $133,983 for the same period in 2004, and $127,609 for the six months ended December 31, 2005 compared to $259,121 for the six months ended December 31, 2004. Loan delinquency increased compared to prior periods both in the loan balances past due and as a percentage of total loans. This increase was due to approximately $1.4 million of commercial loans that have matured and are pending re-underwriting. Each of these loans has adequate collateral and no significant losses are anticipated. Management believes that the increase in delinquency does not indicate that an additional provision should be recognized. The impact of these delinquencies is mitigated in part by a net decrease in total loans as compared to June 30, 2005 and December 31, 2004. 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 1.25% at December 31, 2005 compared to 1.11% at June 30, 2005, and 1.06% at December 31, 2004.

Total non-interest income was $1,522,021 for the three months ended December 31, 2005, an increase of $94,170, or 7%, from $1,427,851 for the three months ended December 31, 2004. This increase was the combined impact of a $12,349 increase in fees and service charges on loans from commercial loan prepayment penalties and a decrease in the amortization of mortgage servicing rights, $30,826 increase in other service fees primarily from overdraft fees, $8,692 increase in gains on the sale of loans from higher volume, $33,386 increase in insurance commissions, $24,240 increase in BOLI income from higher interest rates, and $35,189 increase in other income primarily from an increase in trust fees. These increases were partially offset by a $16,016 decrease in lower investment brokerage commission revenue from lower sales volume and a $34,496 decrease in net securities gains.

For the six months ended December 31, 2005 and 2004, total non-interest income was $3,110,038 and $2,591,789, respectively, an increase of $518,249, or 20%. Insurance commission revenue increased $339,542 due to the full quarter impact of the Solon-Anson acquisition, $156,621 increase in fees and service charges on loans from late fees and commercial loan prepayment penalties and a decrease in the amortization of mortgage servicing rights, $83,855 increase from fees and service charges from deposit customers, $56,768 increase in gains on the sales of loans from higher sales volume, and a $23,094 increase in BOLI income. These increases were partially offset by an $113,505 decrease in investment commission revenue on lower sales volume and $29,324 decrease in net securities gains from lower trading volume.

Page 16

Non-interest Expense

Total non-interest expense for the three months ended December 31, 2005 was $4,386,326, a decrease of $148,029, or 3%, from $4,534,355 for the three months ended December 31, 2004. This decrease compared to the three months ended December 31, 2005 was primarily due the write-off of the $392,249 unamortized deferred cost related to the 1999 trust preferred securities redeemed December 31, 2004. This decrease was partially offset by increased salaries and employee benefits, net occupancy expense, and equipment expense. Salaries and employee benefits increased $129,237, or 5%, due to increased deferred compensation expense and lower deferred costs due to lower loan originations compared to the same period one year ago. Net occupancy expense increased $44,920, or 13%, due to the capital lease amortization for the new Lewiston Gateway building and higher utilities expense. The depreciation expense on new computer equipment and furniture for the Lewiston Gateway and personal property taxes increased equipment expense $91,776, or 32%. See Note 8 to our consolidated financial statements for additional information on the capital lease.

Total non-interest expense for the six months ended December 31, 2005 was $8,845,420, an increase of $557,251, or 7%, as compared to $8,288,169 for the six months ended December 31, 2004. Salaries and employee benefits accounted for $449,616 of this increase which was due to from deferred compensation expense accrued for the former owners of Solon-Anson Insurance Agency, bonus expenses, and lower deferred costs attributable to lower loan originations compared to the same period one year ago. Relocation of the former operation center, executive offices, loan processing, and commercial lending to the Lewiston Gateway occurred in August, 2005. Net occupancy expense increased $127,827, or 19%, due the amortization of the capital lease and utilities expense. Equipment expense increased $227,512, or 42%, from the depreciation expense on new computer equipment and furniture for the Lewiston Gateway and relocation expenses. Other expense decreased $234,075, or 10%. This decrease was due to the write-off, at the time of redemption of the 1999 trust preferred securities, of $392,249 unamortized deferred costs on December 31, 2004, and was partially offset by an increase in professional fees for an efficiency study, and an increase in advertising expenses related to an image campaign for the Bank

For the three and six months ended December 31, 2005, the increase in income tax expense was primarily due to the increase in income before income taxes as compared to the same periods in 2004.

Our efficiency ratio, total non-interest expense as a percentage of the sum of net interest income and non-interest income, was 70% and 76% for the three months ended December 31, 2005 and 2004, respectively and 70% and 73% for the six months ended December 31, 2005 and 2004, respectively.

Our consolidated assets were $567,726,201 and $575,900,332 as of December 31, 2005 and June 30, 2005, respectively, a decrease of $8,174,131, or 1%. This was due to a $13,156,454 decrease in loans, primarily commercial, commercial real estate, and construction loans, partially offset by an increase in investment securities and the capital lease for our headquarters building. For the three months ended December 31, 2005, total average assets were $573,545,619, an increase of $11,313,468, or 2%, from $562,232,151 for the same period in 2004. This average asset increase was primarily attributable to an increase in investment securities from net excess funding.

Total stockholders' equity was $40,720,490 and $39,869,573 at December 31, 2005 and June 30, 2005, respectively, an increase of $850,917, or 2%, due to net income for the six months ended December 31, 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 $16.11 at December 31, 2005 and $15.82 at June 30, 2005.

Our entire investment portfolio is classified as available for sale at December 31, 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 December 31, 2005 were $81,291,574 and $78,918,086, respectively. The difference between the carrying value and the cost of the securities of $2,373,488 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 $41,783 and the net unrealized losses on U.S. government-sponsored enterprises, corporate debt, mortgage-backed, and municipal securities were $2,331,705 at December 31, 2005. The U.S. government-sponsored enterprises, corporate debt, and mortgage-backed securities have decreased in market value due to the 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 17

Total loans of $447,895,934 as of December 31, 2005 decreased $13,156,454, or 3%, from $461,052,388 as of June 30, 2005. Compared to June 30, 2005, residential real estate and consumer loans increased, while construction, commercial real estate and commercial loans decreased. Residential real estate loans, which are comprised of purchased loans, residential real estate loans originated for portfolio, and commercial real estate 1 to 4 family loans increased $3,295,565, or 2%. Consumer loans increased $3,310,759, or 3%, due to increased origination of indirect recreational vehicle and indirect auto loans. Construction, commercial real estate and commercial loans decreased $5,696,005, or 47%, $2,676,912, or 2%, and $11,310,541, or 16%, respectively, compared to June 30, 2005. Commercial real estate and commercial loans originations decreased during the three and six months ended December 31, 2005 due to the tightening of our underwriting standards, which decreased origination volume, and the loss of a few large commercial relationships due to competition. The decrease in construction loan was partially due to the transfer to permanent financing of several construction loans. Net deferred loan origination costs decreased $79,320. The total loan portfolio averaged $452,506,235 for the three months ended December 31, 2005, a decrease of $509,356, or less than 1%, compared to the three months ended December 31, 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 December 31, 2005 has had slight mix change with increases in residential real estate and consumer loans more than offset by decreases in construction, commercial real estate, and commercial 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 for 30 year fixed rate residential real estate loans 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 34%, 32% and 33% as of December 31, 2005, June 30, 2005 and December 31, 2004, respectively. The variable rate product as a percentage of total residential real estate loans was 43%, 42% and 42% 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 30-year 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 $150,487,072 for the three months ended December 31, 2005 increased $3,724,183, or 3%, from the three months ended December 31, 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 $6.9 million for the three months ended December 31, 2005 compared to $8.4 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 pursued a similar strategy recently.

Commercial real estate loans as a percentage of total loans were 27% as of December 31, 2005, June 30, 2005 and December 31, 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 96%, 97% and 96% 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 $122,042,334 for the three months ended December 31, 2005 decreased $3,272,039, or 3%, from the same period in 2004. The decrease in commercial real estate loans reflects our tightening of credit underwriting standards and competition in existing business markets.

Construction loans as a percentage of total loans were 1%, 3%, and 3% as of December 31, 2005, June 30, 2005 and December 31, 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. Variable rate products as a percentage of total construction loans were 62%, 56%, and 61% for the same periods, respectively. Average construction loans were $10,228,682 and $11,626,703 for the three months ended December 31, 2005 and 2004, respectively, a decrease of $1,398,021, or 12%.

Commercial loans as a percentage of total loans were 13%, 15%, and 16% as of December 31, 2005, June 30, 2005 and December 31, 2004, respectively. The variable rate products as a percentage of total commercial loans were 58%, 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 $60,752,759 for the three months ended December 31, 2005 decreased $10,251,699, or 14%, from $71,004,458 for the same period in 2004.

Page 18

Consumer and other loans as a percentage of total loans were 24%, 23%, and 21% for the periods ended December 31, 2005, June 30, 2005, and December 31, 2004, respectively. At December 31, 2005, indirect auto, indirect recreational vehicle, and indirect mobile home loans represented 35%, 32%, and 29% 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 one-time origination fee to dealers of indirect loans. The fees are deferred and amortized over the life of the loans as a yield adjustment. Management attempts to mitigate credit and interest rate risk by keeping the products with average lives of no longer than five years, receiving a rate of return commensurate with the risk, and lending to individuals in the Bank's market areas. Average consumer and other loans were $106,458,867 and $95,776,154 for the three months ended December 31, 2005 and 2004, respectively. The $10,682,713, or 11%, increase was due to increased indirect recreational vehicle and indirect auto lending. The composition of consumer loans is detailed in the following table.

Loans are classified as non-performing when reaching more than 90 days delinquent, or when less than 90 days past due and based on our judgment the loan is likely to present future principal and/or interest repayments problems. In both situations, we stop accruing interest. The Bank had non-performing loans totaling $3,714,000 and $1,698,000 at December 31, 2005 and June 30, 2005, respectively, or 0.83% and 0.37% of total loans, respectively. The Bank's allowance for loan losses was equal to 150% and 301% of the total non-performing loans at December 31, 2005 and June 30, 2005, respectively. The following table represents the Bank's non-performing loans as of December 31, 2005 and June 30, 2005, respectively:

Management does believe that the increase in non-performing loans as of December 31, 2005 was indicative of a trend. The total increase in non-performing loans was $2,016,000, which was due to four commercial real estate loans accounting for $1,727,000 of this increase, and matured loans accounting for an additional $289,000. No significant losses are expected. Loans classified as non-performing included approximately $1,387,000 of loan balances that are current and paying as agreed. At December 31, 2005, the Bank had $2,689,000 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 increased by $739,000 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:

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 1.98% as of December 31, 2005.

Page 19

The Bank's allowance for loan losses was $5,577,000 as of December 31, 2005 as compared to $5,104,000 as of June 30, 2005, representing 1.25% and 1.11% of total loans for each of the periods. Management maintains an allowance at a level that it believes 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 December 31, 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 2005. At the time of the examination the regulators proposed no adjustments to the allowance for loan losses.

Bank owned life insurance (BOLI) is invested in the general account of two insurance companies and in separate accounts of a third insurance company. Standard and Poor's rated these companies AA or better at December 31, 2005. Interest earnings, net of mortality costs, increase cash surrender value. These interest earnings are based on interest rates reset at least annually, subject to minimum interest rates. These increases were recognized in other income and are not subject to income taxes. Borrowing on or surrendering the policy may subject the Bank to income tax expense on the increase in cash surrender value. For this reason, management considers BOLI an illiquid asset. BOLI represented 18.9% of Company's capital plus the allowance for loan losses at December 31, 2005 and was below the 25% regulatory limit.

Intangible assets of $2,053,188 as of December 31, 2005 decreased $107,505 from $2,160,693 as of June 30, 2005. This asset consists of customer list and non-compete agreement intangibles from insurance agency acquisitions. See Note 1 of the consolidated financial statements as of June 30, 2005 for additional information on intangible assets.

Page 20

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 $400,824,061 as of December 31, 2005 increased $4,605,339, or 1%, from $396,218,722 as of June 30, 2005. Excluding the decrease in brokered deposits, customer deposits increased $18,295,240, or 6%. Certificates of deposits increased $29,367,118, or 17%, reflecting the successful promotions of nine and twelve month certificates of deposit during the six months ended December 31, 2005. Brokered deposits decreased $13,689,901 from the repayment of maturing balances reducing our reliance on wholesale funding. All other types of the deposits also decreased; demand deposit accounts decreased $520,847, NOW accounts decreased $3,982,827, money market accounts decreased $3,511,368, and savings accounts decreased $3,056,836 during the six months ended December 31, 2005. Management's continuing strategy offers certificate of deposit rates for maturities two years and less near the top of the market to attract new deposit account relationships.

Total average deposits of $404,507,819 for the three months ended December 31, 2005 increased $9,570,309, or 2%, compared to the average for the three months ended December 31, 2004. This increase in total average deposits compared to December 31, 2004 was due to a $3,261,230, or 9%, increase in average demand deposits and a $50,218,861, or 33%, increase in certificates of deposit. These increases were partially offset by a $7,078,981, or 10%, decrease in average NOW accounts, a $3,736,551, or 20%, decrease in average money market accounts, and a $1,307,072, or 5%, decrease in average savings accounts. These decreases reflect customers moving funds to higher yielding accounts such as certificates of deposit. Average brokered deposits decreased $31,787,178, or 35%, to $58,605,798 for the three months ended December 31, 2005. This decrease reflects our shift to local deposits and away from brokered deposits to fund our earning assets. At December 31, 2005, brokered deposits as a percentage of total assets was 10.0% compared to 12.2% at June 30, 2005 and 14.4% at December 31, 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, and improve its net interest margin as the mix of deposits shifts to certificates of deposit.

Brokered deposits are used by us as part of our overall funding strategy and as an alternative to customer certificates of deposits, FHLB advances, and junior subordinated debentures to fund the growth of our earning assets. Policy limits the use of brokered deposits to 25% of total assets. We use four national brokerage firms to source brokered deposits. Each brokerage company utilizes a system of agents who solicit customers throughout the United States. The terms of these deposits allow for withdrawal prior to maturity only in the case of the depositor's death, have maturities generally beyond one year, have maturities no greater than $5 million in any one month, and bear interest rates equal to or slightly above comparable FHLB advance rates. Brokered deposits carry the same risk as local certificates of deposit, in that both are interest rate sensitive with respect to the Bank's ability to retain the funds. The Bank expects a slight increase in the level of brokered deposits to fund its balance sheet growth for the next twelve months.

Advances from the Federal Home Loan Bank (FHLB) were $70,509,987 as of December 31, 2005, a decrease of $15,687,615, or 18%, from $86,197,602 as of June 30, 2005. At December 31, 2005, we had pledged U.S. government agency and mortgage-backed securities of $27,244,875 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. Municipal securities can not be pledged. Average advances from the FHLB were $72,513,961 for the three months ended December 31, 2005, a decrease of $4,782,567, or 6%, compared to $77,296,528 average for the same period last year.

Securities sold under repurchase agreements were $32,369,391 as of December 31, 2005, a decrease of $1,010,021, or 3%, from $33,379,412 as of June 30, 2005. Market interest rates are offered on this product. At December 31, 2005, we had pledged U.S. government agency and mortgage-backed securities of $36,077,928 as collateral for repurchase agreements. Average securities sold under repurchase agreements were $32,028,096 for the three months ended December 31, 2005, a decrease of $1,440,090, or 4%, compared to the average for the three months ended December 31, 2004.

The Bank has a line of credit under the Borrower-in-Custody program offered 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 December 31, 2005, there were no borrowings outstanding under this credit line.

The following table is a summary of the liquidity the Bank has the ability to access as of December 31, 2005 in addition to the traditional retail deposit products:

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 December 31, 2005:

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 $1,033,990 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 21

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 16, 2005 and will terminate on December 31, 2006. 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. For the three months ended December 31, 2005, the Company did not repurchase any stock. Total stock repurchases under the 2004 Plan were 55,300 shares for $1,061,842 through December 31, 2005. On February 9, 2006, we repurchased 90,200 shares at the market price of $23.75 per share for a total of $2,142,250. The number of shares that may yet be purchased under the 2004 Stock Repurchase Plan is 54,500 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 $40,720,490 as of December 31, 2005, as compared to $39,869,573 at June 30, 2005. The increase of $850,917, or 2%, was due to the net income for the six months ended December 31, 2005 of $2,113,293 and stock issued in connection with employee stock options of $83,684, partially offset by a decrease in other comprehensive income of $896,316 and dividends paid of $449,744. Book value per common share was $16.11 as of December 31, 2005, as compared to $15.82 at June 30, 2005. The total average equity to total average assets ratio of the Company was 7.07% as of December 31, 2005 and 6.88% at June 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 December 31, 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 December 31, 2005, the Company's and Bank's regulatory capital was in compliance with regulatory capital requirements as follows:

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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 December 31, 2005, follows:

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 December 31, 2005 was a gain of $1,393.

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.

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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 December 31, 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 six months of our 2006 fiscal year that has materially affected, or in other factors that could affect, the Company's internal controls over financial reporting.

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Part II - Other Information

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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.

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NORTHEAST BANCORP
Index to Exhibits

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Exhibit 31.1. Certification of the Chief Executive Officer

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Exhibit 31.2 Certification of the Chief Financial Officer

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Exhibit 32.1. Certificate of the Chief Executive Officer

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Exhibit 32.2. Certificate of the Chief Financial Officer