SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549

                                   FORM 10 - Q

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

For the quarter ended      September 30, 1996
                 
                                      or

_____  Transition report persuant to Section 13 or 15 (d) of the Securities 
       Exchange Act of 1934

For the transition period from _______________  to  _______________

Commission File Number         0 - 16123
                        ______________________ 

                                 Northeast Bancorp
_______________________________________________________________________________
                 (Exact name of registrant as specified in its charter)
  
                Maine                                   01 - 0425066
________________________________________   ____________________________________
                                                
    (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)          
                                                                            
    158 Court Street, Auburn, Maine                        04210
________________________________________   ____________________________________
(Address of principal executive offices)                (Zip Code)

                                (207) 777 - 5950
_______________________________________________________________________________
               Registrant's telephone number, including area code

                                 Bethel Bancorp
_______________________________________________________________________________
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 periods that the 
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.     Yes  __X__          No_____     

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE 
PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and 
reports required to be filed by Section 12, 13 or 15 (d) of the Securities 
Exchange Act of 1934 subsequent to the distribution of securities under a plan 
confirmed by a court.

                                 Not Applicable

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date.  

Shares outstanding as of November 8, 1996: 1,231,547 of common stock, $1.00 par
value per share.


                       NORTHEAST BANCORP AND SUBSIDIARY
                              Table of Contents
                                   
Part I.  Financial Information

         Item 1. Financial Statements (unaudited)

                 Consolidated Balance Sheets
                  September 30, 1996 and June 30, 1996      

                 Consolidated Statements of Income
                  Three Months ended September 30, 1996 and 1995               
                            
                 Consolidated Statements of Changes in Shareholders' Equity
                  Three Months ended September 30, 1996 and 1995             

                 Consolidated Statements of Cash Flows
                  Three Months ended September 30, 1996 and 1995             
                     
                 Notes to Financial Statements                               

         Item 2. Management's Discussion and Analysis of Financial Condition
                  and Results of Operation                                   
                                
Part II. Other Information
                      
         Items 1 - 6.                                                          

         Signature Page                                                     

         Index to Exhibits                                                   

NORTHEAST BANCORP AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)

September 30, June 30, 1996 1996 _______________ _______________ Assets Cash and due from banks $ 5,298,792 $ 3,386,263 Interest bearing deposits in other banks 560,365 650,430 Federal Home Loan Bank overnight deposits 6,881,000 7,529,435 Trading account securities at market 196,298 197,621 Available for sale securities 32,395,480 29,650,319 Federal Home Loan Bank stock 2,980,100 2,656,200 Loans held for sale 390,384 448,475 Loans 173,238,611 170,140,264 Less deferred loan origination fees 248,479 289,340 Less allowance for loan losses 2,487,000 2,549,000 _______________ _______________ Net loans 170,503,132 167,301,924 Bank premises and equipment, net 3,521,672 3,576,386 Real estate held for investment 458,748 459,820 Other real estate owned 772,739 513,831 Goodwill (net of accumulated amortization of $1,014,153 at 9/30/96 and $940,059 at 6/30/96) 2,483,820 2,557,913 Other assets 3,455,774 3,360,998 _______________ _______________ Total Assets 229,898,304 222,289,615 =============== =============== Liabilities and Shareholders' Equity Liabilities Deposits $ 145,544,632 $ 145,195,369 Repurchase Agreements 3,874,811 3,762,966 Advances from Federal Home Loan Bank 59,278,835 52,123,000 Notes payable 1,376,081 1,502,192 Other Liabilities 1,622,447 1,554,846 _______________ _______________ Total Liabilities 211,696,806 204,138,373 Shareholders' Equity Preferred stock, Series A, 45,454 shares issued and outstanding 999,988 999,988 Preferred stock, Series B, 71,428 shares issued and outstanding 999,992 999,992 Common stock, par value $1,1,234,010 shares issued at 9/30/96 and 6/30/96. 1,231,294 and 1,229,910 shares outstanding at 9/30/96 and 6/30/96, respectively 1,234,010 1,234,010 Additional paid in capital 5,455,506 5,455,852 Retained earnings 10,401,790 10,351,031 _______________ _______________ 19,091,286 19,040,873 Net unrealized loss on available for sale securities (855,156) (837,354) Treasury Stock at cost 2,716 shares at 9/30/96 and 4,100 shares at 6/30/96 (34,632) (52,277) _______________ _______________ Total Shareholders' Equity 18,201,498 18,151,242 _______________ _______________ Total Liabilities and Shareholders' Equity $ 229,898,304 $ 222,289,615 =============== ===============
NORTHEAST BANCORP AND SUBSIDIARY Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 1996 1995 ______________ ______________ Interest and Dividend Income Interest on FHLB overnight deposits $ 88,064 $ 181,565 Interest on loans & loans held for sale 3,987,260 4,098,163 Interest on investment securities & available for sale securities 590,010 160,580 Dividends on Federal Home Loan Bank stock 46,409 36,850 Other Interest Income 4,891 5,498 ______________ ______________ Total Interest Income 4,716,634 4,482,656 Interest Expense Deposits 1,539,567 1,635,482 Repurchase agreements 38,269 33,913 Other borrowings 854,846 599,959 ______________ ______________ Total Interest Expense 2,432,682 2,269,354 ______________ ______________ Net Interest Income 2,283,952 2,213,302 Provision for loan losses 144,814 147,855 ______________ ______________ Net Interest Income after Provision for Loan Losses 2,139,138 2,065,447 Other Income Service charges 267,949 281,609 Available for sale securities gains (losses) 28,300 120,593 Gain (Loss) on trading account 61,366 -- Other 148,069 212,091 ______________ ______________ Total Other Income 505,684 614,293 Other Expenses Salaries and employee benefits 1,024,525 1,043,248 Net occupancy expense 126,970 121,896 Equipment expense 177,028 168,288 Goodwill amortization 74,094 74,335 FDIC Insurance Assessment 380,000 -- Other 561,212 608,156 ______________ ______________ Total Other Expenses 2,343,829 2,015,923 ______________ ______________ Income Before Income Taxes 300,993 663,817 Income tax expense 116,732 242,180 ______________ ______________ Net Income $ 184,261 $ 421,637 ============== ============== Earnings Per Share Primary $ 0.11 $ 0.32 Fully Diluted $ 0.11 $ 0.29
NORTHEAST BANCORP AND SUBSIDIARY Consolidated Statements of Changes in Shareholders' Equity Three Months Ended September 30, 1996 and 1995 (Unaudited)
Net Unrealized Gains(Losses) Additional on Available Common Preferred Paid-In Retained for Sale Treasury Stock Stock Capital Earnings Securities Stock Total ____________ ___________ ___________ _____________ ____________ _____________ ____________ Balance at June 30, 1995 $ 547,502 $1,999,980 $4,643,059 $ 10,180,244 $ (95,507) $ 0 $17,275,278 Net income for three months ended September 30, 1995 -- -- -- 421,637 -- -- 421,637 Dividends paid on common stock -- -- -- (43,810) -- -- (43,810) Dividends paid on preferred stock -- -- -- (35,000) -- -- (35,000) Issuance of common stock 123 -- 2,521 -- -- -- 2,644 Common stock warrants exercised 50,000 -- 650,000 -- -- -- 700,000 Net change in unrealized losses on securities available for sale -- -- -- -- (27,717) -- (27,717) ____________ ___________ ___________ _____________ ____________ _____________ ____________ Balance September 30, 1995 $ 597,625 $1,999,980 $5,295,580 $ 10,523,071 $ (123,224) $ 0 $18,293,032 ============ =========== =========== ============= ============ ============= ============ Balance at June 30, 1996 1,234,010 1,999,980 5,455,852 10,351,031 (837,354) (52,277) 18,151,242 Net income for three months ended September 30, 1996 -- -- -- 184,261 -- -- 184,261 Dividends paid on common stock -- -- -- (98,503) -- -- (98,503) Dividends paid on preferred stock -- -- -- (34,999) -- -- (34,999) Issuance of common stock -- -- (346) -- -- 17,645 17,299 Net change in unrealized losses on securities available for sale -- -- -- -- (17,802) -- (17,802) ____________ ___________ ___________ _____________ ____________ _____________ ____________ Balance September 30, 1996 $ 1,234,010 $1,999,980 $5,455,506 $ 10,401,790 $ (855,156) $ (34,632) $18,201,498 ============ =========== =========== ============= ============ ============= ============
NORTHEAST BANCORP AND SUBSIDIARY Consolidated Statements of Cash Flow (Unaudited)
Three Months Ended September 30, 1996 1995 ______________ ______________ Cash provided by operating activities $ 542,157 $ 6,862 Cash flows from investing activities: FHLB stock purchased (323,900) -- Available for sale securities purchased (8,763,065) (8,572,245) Available for sale securities principal reductions 572,283 154,533 Available for sale securities sold 5,447,793 8,467,522 New loans, net of repayments & charge offs (3,741,933) 2,146,169 Net capital expenditures (60,543) (107,654) Real estate owned sold 126,608 8,157 Real estate held for investment purchased -- (56,096) Real estate held for investment sold -- 30,000 ______________ ______________ Net cash provided by (used in) investing activities (6,742,757) 2,070,386 Cash flows from financing activities: Net change in deposits 349,263 651,422 Net change in repurchase agreements 111,845 1,204,649 Dividends paid (133,502) (78,810) Proceeds from stock issuance 17,299 702,645 Net (decrease) increase in advances from Federal Home Loan Bank of Boston 7,155,835 (2,000,000) Net change in notes payable (126,111) (127,683) ______________ ______________ Net cash provided by financing activities 7,374,629 352,223 ______________ ______________ Net (decrease) increase in cash and cash equivalents 1,174,029 2,429,471 Cash and cash equivalents, beginning of period 11,566,128 14,740,070 ______________ ______________ Cash and cash equivalents, end of period $ 12,740,157 $ 17,169,541 ============== ============== Cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits and federal funds sold Supplemental schedule of noncash investing activities: Net increase (decrease) in valuation for unrealized market value adjustments on available for sale securities (17,802) (27,717) Net transfer (to) from Loans to Other Real Estate Owned 447,039 (251,771) Supplemental disclosure of cash paid during the period for: Income taxes paid, net of refunds -- 1,500 Interest paid 2,391,111 2,278,724
NORTHEAST BANCORP AND SUBSIDIARY Notes to Consolidated Financial Statements September 30, 1996 1. Basis of Presentation _____________________ The accompanying unaudited condensed and consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending June 30, 1997. For further information, refer to the audited consolidated financial statements and footnotes thereto for the fiscal year ended June 30, 1996 included in the Company's annual report on Form 10-K. 2. Securities __________ Securities available for sale at cost and approximate market values are summarized below.
September 30, 1996 June 30, 1996 _________________________ _________________________ Market Market Cost Value Cost Value ____________ ____________ ____________ ____________ Debt securities issued by the U.S. Treasury and other U.S. Government corporations and agencies $ 1,250,000 $ 1,222,338 $ 1,497,111 $ 1,424,690 Corporate bonds 149,658 139,828 149,646 139,005 Mortgage-backed securities 31,666,203 30,475,543 28,810,113 27,646,294 Equity securities 625,310 557,771 462,167 440,330 ____________ ____________ ____________ ____________ $33,691,171 $32,395,480 $30,919,037 $29,650,319 ============ ============ ============ ============ September 30, 1996 June 30, 1996 _________________________ _________________________ Market Market Cost Value Cost Value ____________ ____________ ____________ ____________ Due in one year or less -- -- $ 247,111 $ 246,790 Due after one year through five years 250,000 239,525 250,000 237,900 Due after five years through ten years 149,658 139,828 149,646 139,005 Due after ten years 1,000,000 982,813 1,000,000 940,000 Mortgage-backed securities (including securities with interest rates ranging from 5.15% to 8.5% maturing September 2003 to August 2026) 31,666,203 30,475,543 28,810,113 27,646,294 Equity securities 625,310 557,771 462,167 440,330 ____________ ____________ ____________ ____________ $33,691,171 $32,395,480 $30,919,037 $29,650,319 ============ ============ ============ ============
3. Allowance for Loan Losses The following is an analysis of transactions in the allowance for loan losses:
Three Months Ended September 30, 1996 1995 ____________ ____________ Balance at beginning of year $ 2,549,000 $ 2,396,000 Add provision charged to operations 144,814 147,855 Recoveries on loans previously charged off 21,431 6,842 ____________ ____________ 2,715,245 2,550,697 Less loans charged off 228,245 56,697 ____________ ____________ Balance at end of period $ 2,487,000 $ 2,494,000 ============ ============
4. Advances from Federal Home Loan Bank A summary of borrowings from the Federal Home Loan Bank is as follows:
September 30, 1996 _______________________________________________ Principal Interest Maturity Amounts Rates Dates ______________ _______________ ____________ $ 30,100,000 5.17% - 6.87% 1997 10,243,800 4.97% - 6.39% 1998 14,500,000 5.64% - 5.96% 1999 1,965,953 6.21% - 6.49% 2001 2,469,082 6.36% - 6.67% 2003 ______________ $ 59,278,835 ============== June 30, 1996 ________________________________________________ Principal Interest Maturity Amounts Rates Dates _______________ _______________ ____________ $ 31,400,000 5.17% - 8.30% 1997 5,573,000 4.97% - 6.86% 1998 14,500,000 5.64% - 6.35% 1999 325,000 6.40% 2001 325,000 6.61% 2003 ________________ _______________ ____________ $ 52,123,000 ================ 5. New Accounting Pronouncements On March 31, 1995, FASB issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("Statement 121"). Statement 121 provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used and assets to be disposed of. Statement 121 requires entities to perform separate calculations for assets to be held and used to determine whether recognition of an impairment loss is required and, if so, to measure the impairment. Statement 121 requires long-lived assets and certain identifiable intangibles to be disposed of to be reported at the lower of carrying amount or fair value less cost to sell, except for assets covered by the provisions of APB Opinion No. 31. Statement 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995. The Company adopted Statement 121 on July 1, 1996; the effect of adopting the new rules did not have a significant effect on the financial condition, liquidity, or results of operations of the Company. In May 1995, FASB issued Statement No. 122, Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65, ("Statement 122"). Statement 122 is effective for fiscal years beginning after December 15, 1995. The Company adopted Statement 122 in its first quarter of fiscal year 1997. Statement 122 requires that a mortgage banking enterprise recognize as separate assets the rights to service mortgage loans for others. Statement 122 also requires the assessment of capitalized mortgage servicing rights for impairment to be based on the current fair value of those rights. This assessment includes servicing rights capitalized prior to adoption of Statement 122. The Adoption of Statement 122 was not material to the Company's financial position, liquidity, or results of operations. In October 1995, FASB issued Statement No. 123, Accounting for Stock-Based Compensation ("Statement 123"), which became effective on July 1, 1996 for the Company. Statement 123 established a fair value based method of accounting for stock-based compensation plans under which compensation cost is measured at the grant date based on the value of the award and is recognized over the service period. However, the statement allows a company to continue to measure compensation cost for such plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Under APB Opinion No. 25, no compensation cost is recorded if, at the grant date, the exercise price of the options is equal to the fair market value of the Company's common stock. The Company has elected to continue to follow the accounting under APB Opinion No. 25. Statement 123 requires companies which elect to continue to follow APB Opinion No. 25 to disclose in the notes to their annual financial statements pro forma net income and earnings per share as if the value based method of accounting had been applied. NORTHEAST BANCORP AND SUBSIDIARY Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results _______________________________________________________________________ of Operation ____________ Financial Condition ___________________ Total consolidated assets at September 30, 1996 were $229,898,304, which was an increase of $7,608,689 from June 30, 1996. Total loans increased by $3,201,208, while securities and cash equivalents increased by $3,067,738 and $1,174,029, respectively during the same period. Total deposits increased by $349,263, total repurchase agreements increased by $111,845, and total borrowings from the Federal Home Loan Bank (FHLB) increased by $7,155,835 from June 30, 1996 to September 30, 1996. Cash and due from banks has increased by $1,912,529, from fiscal year end, due to large cash items cleared through the Federal Reserve Bank and the Maine clearing house on September 30, 1996. FHLB overnight deposits decreased by $648,435 due to the use of cash to support the increase in the loan and investment portfolios. Total loans increased by $3,201,208 for the three months ended September 30, 1996. The loan portfolio growth was in 1-4 family mortgages and commercial loans. The Company's local market as well as the secondary market has become and continues to be very competitive for loan volume. The local competitive environment and customers response to favorable secondary market rates have affected the Company's ability to increase the loan portfolio. In an effort to increase loan volume, the Company's offering rates for its loan products has been reduced to compete in various markets. While the loan portfolio has increased in the first quarter of this fiscal year, the Company will experience some margin compression due to decreased loan rates. The loan portfolio contains elements of credit and interest rate risk. The Company primarily lends within its local market areas, which management believes helps it to better evaluate credit risk. The Company also maintains a well collateralized position in real estate mortgages. Residential real estate mortgages make up 69% of the total loan portfolio, in which 47% of the residential loans are variable rate products. It is management's intent to increase the proportion of variable rate residential loans, by selling fixed rate loans to the secondary market and maintaining portfolio variable rate loans, to reduce the interest rate risk in this area. Fifteen percent of the Company's total loan portfolio balance is commercial real estate mortgages. Similar to the residential mortgages, the Company tries to mitigate credit risk by lending in its local market area as well as maintaining a well collateralized position in the real estate. The commercial real estate loans have minimal interest rate risk as 87% of the portfolio consists of variable rate products. Commercial loans make up 9% of the total loan portfolio, in which 83% of its balance are variable rate instruments. The credit loss exposure on commercial loans is highly dependent on the cash flow of the customer's business. The Company's subsidiary, Northeast Bank, FSB (the "Bank"), attempts to mitigate losses in commercial loans through lending in accordance to the Company's credit policy guidelines established by the Bank's Board of Directors. Consumer and other loans make up 7% of the loan portfolio. Since these loans are primarily fixed rate products, they have interest rate risk when market rates increase. These loans also have credit risk with, at times, minimal collateral security. Management attempts to mitigate these risks by keeping the products offered short-term, receiving a rate of return commensurate with the measured risks, and lending to individuals in the Company's known market areas. Other real estate owned has increased by $258,908 from June 30, 1996 to September 30,1996. This increase was attributable to foreclosures on loan collateral. The Bank continues to attract new deposit relationships. Total deposits were $145,544,632 and securities sold under repurchase agreements were $3,874,811 as of September 30, 1996. These amounts represent increases of $349,263 and $111,845, respectively, when compared to June 30, 1996. Brokered deposits represented $4,859,868 of the total deposits for the quarter ended September 30, 1996 a decrease of $787,270 compared to June 30, 1996. The Company utilizes, as alternative sources of funds, brokered CD's when the national brokered CD interest rates are less than the interest rates on local market deposits. Brokered deposits are similar to local deposits, in that both are interest rate sensitive with the respect to the Company's ability to retain the funds. Total advances from the Federal Home Loan Bank were $59,278,835 as of September 30, 1996, an increase of $7,155,835 from June 30, 1996. The cash received from FHLB advances was utilized for the increase in loans and investments. The Company's current advance availability, subject to the satisfaction of certain conditions, is approximately $41,200,000 over and above the September 30, 1996 advances reported. Mortgages, free of liens, pledges and encumbrances are required to be pledged to secure FHLB advances. The Company utilizes Federal Home Loan Bank advances to fund short-term liquidity demand for loan volume and as an alternative sources of funds when the interest rates of the advances are less than market deposit interest rates. With the borrowing capacity at the Federal Home Loan Bank and the continued growth in bank deposits and repurchase agreements, management believes that the Company's available liquidity resources are sufficient to support future loan growth. Total equity of the Company was at $18,201,498 as of September 30, 1996 versus $18,151,242 at June 30, 1996. Book value per common share was $13.16 as of September 30, 1996 versus $13.13 at June 30, 1996. Total equity to total assets of the Company as of September 30, 1996 was 7.92%. At September 30, 1996, the Bank's regulatory capital was in compliance with regulatory capital requirements as follows:
Northeast Bank, F.S.B. _______________ Capital Requirements: Tangible capital $ 3,417,000 Percent of tangible assets 1.50% Core capital $ 6,835,000 Percent of adjusted tangible assets 3.00% Leverage capital $ 9,113,000 Percent of adjusted leverage assets 4.00% Risk-based capital $ 10,865,000 Percent of risk-weighted assets 8.00% Actual: Tangible capital $ 16,000,000 Percent of adjusted total assets 7.02% Excess of requirement $ 6,535,000 Core capital $ 16,000,000 Percent of adjusted tangible assets 7.02% Excess of requirement $ 9,165,000 Leverage capital $ 16,000,000 Percent of adjusted leverage assets 7.02% Excess of requirement $ 6,887,000 Risk-based capital $ 17,094,000 Percent of risk-weighted assets 12.59% Excess of requirement $ 6,229,000
The carrying value of securities available for sale of the Company was $32,395,480, which is $1,295,691 less than the cost of the underlying securities, at September 30, 1996. The difference from the cost and the carrying value of the securities was primarily due to the decline in market value of mortgage-backed securities, which was due to the change in current market prices from the prices at the time of purchase. The Company has primarily invested in mortgage-backed securities. Substantially all of the mortgage-backed securities are high grade government backed securities. As in any long term earning asset in which the earning rate is fixed, the market value of mortgage-backed securities will decline when market interest rates increase from the time of purchase. Since these mortgage-backed securities are backed by the U.S. government, there is little or no risk in loss of principal. Management believes that it would be advantageous to hold these securities until the market values recover and the that yields currently received on this portfolio are satisfactory. The Company increased its investment in FHLB stock by $323,900, compared to June 30, 1996, due to the increase in FHLB borrowings. The FHLB requires institutions to hold a certain level of FHLB stock based on advances outstanding. The Company's allowance for loan losses was $2,487,000 as of September 30, 1996 versus $2,549,000 as of June 30, 1996, representing 1.44% and 1.50% of total loans, respectively. The Company had non-performing loans totaling $2,345,000 at September 30, 1996 compared to $2,603,000 at June 30, 1996. Non-performing loans represented 1.02% and 1.17% of total assets at September 30 and June 30, 1996, respectively. The Company's allowance for loan losses was equal to 106% and 98% of the total non-performing loans at September 30, 1996 and June 30, 1996, respectively. At September 30, 1996, the Company had approximately $1,500,000 of loans classified substandard, exclusive of the non-performing loans stated above, that could potentially become non-performing due to delinquencies or marginal cash flows. The loans classified substandard, as of September 30, 1996, have decreased from the June 30, 1996 amount of $2,541,000. This decrease was attributed to the reclassification of loans to lower risk classifications as a result of favorable changes in the borrower's financial condition, indicating a decreased potential for these loans becoming non-performing assets. Even though substandard loans decreased, there is a continuation of economic weakness in the Oxford county region served by the Bank. Along with non-performing and delinquent loans, management takes an aggressive posture in reviewing its loan portfolio to classify loans substandard. The following table represents the Company's non-performing loans as of September 30 and June 30, 1996, respectively:
September 30, June 30, Description 1996 1996 _______________________ _______________ _______________ 1-4 Family Mortgages $ 1,224,000 $ 1,092,000 Commercial Mortgages 781,000 1,154,000 Commercial Installment 304,000 283,000 Consumer Installment 36,000 74,000 _______________ _______________ Total non-performing $ 2,345,000 $ 2,603,000 =============== ===============
The majority of the non-performing loans are seasoned loans located in the Oxford county area. This geographic area continues to have a depressed economy resulting in high unemployment and a soft real estate market. As a result, management has allocated substantial resources to collections in an effort to control the growth in non-performing, delinquent and substandard loans. The Company has decreased its total delinquent accounts during the September 30, 1996 quarter. The reduction was largely due to collection efforts of the 30 and 60 day delinquent accounts as well as the transfer of non-performing loans to real estate owned. The following table reflects the quarterly trend of total delinquencies 30 days or more past due, including non-performing loans, for the Company as a percentage of total loans: 12-31-95 3-31-96 6-30-96 9-30-96 3.51% 2.82% 2.77% 1.53%
While the level of the allowance for loan losses as a percentage of total loans at September 30, 1996 decreased from June 30, 1996, the level of the allowance for loan losses as a percentage of non-performing loans and total delinquencies as a percentage of total loans improved during the quarter ended September 30, 1996. Loans classified substandard decreased from June 30, 1996 to September 30, 1996. Based on reviewing the credit risk and collateral of delinquent, non-performing and classified loans, management considers the allowance for loan losses to be adequate. On a regular and ongoing basis, Company management evaluates the adequacy of the allowance for loan losses. The process to evaluate the allowance involves a high degree of management judgement. The methods employed to evaluate the allowance for loan losses are quantitative in nature and consider such factors as the loan mix, the level of non-performing loans, delinquency trends, past charge-off history, loan reviews and classifications, collateral, and the current economic climate. The state of Maine's economy, in which the Bank operates, including the south central region of Cumberland, Androscoggin and Sagadahoc counties has stabilized with moderate growth, although the economy in the western region of Oxford county remains weak. Based on the different economic conditions in the Bank's market areas, management of the Company continues to carefully monitor the exposure to credit risk at the Bank. While management uses its best judgement in recognizing loan losses in light of available information, there can be no assurance that the Company will not have to increase its provision for loan losses in the future as a result of changing economic conditions, adverse markets for real estate or other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgements about information available to them at the time of their examination. The Company's most recent examination by the OTS was on August 19, 1996. At the time of the exam the regulators proposed no additions to the allowance for loan losses. Results of Operations _____________________ Net income for the quarter ended September 30, 1996 was $184,261. The primary and fully diluted earnings per share were $.11 for the quarter ended September 30, 1996. This compares to earnings of $421,637, or primary earnings per share of $.32 and fully diluted earnings per share of $.29, for the quarter ended September 30, 1995. The 1995 earnings per share have been restated as a result of the Company's 100% stock dividend in December, 1995. The reduction in net income for the quarter ended September 30, 1996, compared to the quarter ended September 30, 1995 was due to the FDIC special insurance assessment on thrift SAIF deposits. In September of 1996, Congress enacted comprehensive legislation amending the FDIC BIF-SAIF deposit insurance assessment on savings and loan institution deposits. The legislation imposed a one-time assessment on institutions holding SAIF deposits on March 31,1995, in an amount necessary for the SAIF to reach its 1.25% Designated Reserve Ration. Institutions with SAIF deposits will be required to pay an up-front assessment rate of 65.7 cents per $100 of domestic deposits held as of March 31, 1995. The Bank held approximately $57,900,000 of SAIF deposits as of March 31, 1995, which resulted in a first quarter expense of $380,000 to the Company. This one time assessment decreased the Company's primary earnings per share by $.19 and the fully diluted earnings per share by $.16 for the quarter ended September 30, 1996. Commencing in 1997 and continuing through 1999, the Bank is required to pay an annual assessment of 1.29 cents for every $100 of domestic BIF insured deposits and 6.44 cents for every $100 of domestic SAIF insured deposits. At the Bank's current deposit level of former SAIF deposits, the 1997 annual assessment would be approximately $47,000. Commencing in 2000 and continuing through 2017, banks will be required to pay a flat annual assessment of 2.43 cents for every $100 of domestic deposits. If there are no additional deposit insurance assessments in the future, it is anticipated that the Company will save approximately $95,000 annually commencing in fiscal 1998. The Company's net interest income was $2,283,952 for the quarter ended September 30, 1996, versus $2,213,302 for the quarter ended September 30, 1995, an increase of $70,650. Total interest income increased $233,978 during the three months ended September 30, 1996 compared to the three months ended September 30, 1995, resulting from the following items: (I) Interest income on loans and loans held for sale decreased by $110,903 for the three months ended September 30, 1996 resulting from a $19,374 increase due to an increase in the volume of loans, which was more than offset by a decrease of $130,277 due to decreased rates on loans. (II) Interest income on investment securities increased by $438,989 resulting from a $402,776 increase due to an increase in volume as well as an increase of $36,213 due to increased rates on investments. (III) Interest income on short term liquid funds decreased by $94,108 resulting from a $78,738 decrease due to a decrease in volume as well as a decrease of $15,370 due to decreased rates on FHLB overnight deposits. The increase in total interest expense of $163,328 for the three months ended September 30, 1996 resulted from the following items: (I) Interest expense on deposits decreased by $95,915 for the three months ended September 30, 1996 resulting from a $25,225 decrease due to a decrease in the volume of deposits as well as a decrease of $70,690 due to decreasing deposit rates. (II) Interest expense on repurchase agreements increased $4,356 due to an increase in the volume of repurchase agreements offset by a decrease of $5,103 due to a decrease in rates. (III) Interest expense on borrowings increased $254,887 for the three months ended September 30, 1996 resulting from an increase of $344,042 due to an increase in the volume of borrowings offset by a decrease of $89,155 due to a change in the mix of interest rates on borrowings. The changes in net interest income, as explained above, are also presented in the schedule below. Northeast Bancorp Rate/Volume Analysis for the three months ended September 30, 1996 versus September 30, 1995
Difference Due to Volume Rate Total __________ __________ __________ Investments $ 402,776 $ 36,213 $ 438,989 Loans 19,374 (130,277) (110,903) FHLB & Other Deposits (78,738) (15,370) (94,108) __________________________________ Total 343,412 (109,434) 233,978 Deposits (25,225) (70,690) (95,915) Repurchase Agreements 9,459 (5,103) 4,356 Borrowings 344,042 (89,155) 254,887 __________________________________ Total 328,276 (164,948) 163,328 __________________________________ Net Interest Income $ 15,136 $ 55,514 $ 70,650 ==================================
Rate/Volume amounts spread proportionately between volume and rate. The majority of the Company's income is generated from the Bank. Management believes that the Bank is slightly asset sensitive based on its own internal analysis which considers its core deposits long term liabilities that are matched to long term assets; therefore, it will generally experience a contraction in its net interest margins during a period of falling rates. Management believes that the maintenance of a slight asset sensitive position is appropriate since historically interest rates tend to rise faster than they decline. Approximately 20% of the Company's loan portfolio is comprised of floating rate loans based on a prime rate index. Interest income on these existing loans will increase as the prime rate increases, as well as on approximately 32% of other loans in the Company's portfolio that are based on short-term rate indices such as the one-year treasury bill. An increase in short-term interest rates will also increase deposit and Federal Home Loan Bank advance rates, increasing the Company's interest expense. The Company is experiencing and anticipates additional net interest margin compression due to fluctuating rates. The impact on net interest income will depend on, among other things, actual rates charged on the Company's loan portfolio, deposit and advance rates paid by the Company and loan volume. Total non-interest income was $505,684 for the three months ended September 30, 1996 versus $614,293 for the three months ended September 30, 1995. Service fee income was $267,949 for the quarter ended September 30, 1996 versus $281,609 for the quarter ended September 30, 1995. The $13,660 service fee decrease was primarily due to the reduction in loan fee income. Income from available for sale securities gains was $28,300 for the three months ended September 30, 1996 versus $120,593 for the three months ended September 30, 1995. Gains from the sale of securities decreased in the September 30, 1996 quarter by $92,293 compared to the quarter ended September 30, 1995. The Company sold some of its available for sale securities in the September 30, 1995 quarter, taking advantage of the fluctuation in market prices in the mortgage-backed security portfolio. Income from trading account securities was $61,366 and $0 for the three months ended September 30, 1996 and 1995, respectively. The gain on trading account, in the September 30, 1996 quarter, was due to the sale and appreciation in market value of the securities classified as trading. Other income was $148,069 for the three months ended September 30, 1996, which was a $64,022 decrease from the September 30, 1995 $212,091 balance. The reduction in other income was primarily due to the decrease in gains on the sale of loans held for sale, which amounted to $19,879 for the three months ended September 30, 1996 versus $82,815 for the three months ended September 30, 1995. The reduction in gains from the sale of loans was due to decreased secondary market activity. Total operating expense, or non-interest expense, for the Company was $2,343,829 for the three months ended September 30, 1996 versus $2,015,923 for the three months ended September 30, 1995. As previously discussed above, the Company's operating expenses increased primarily due to the FDIC-SAIF deposit insurance assessment of $380,000. Excluding the FDIC-SAIF deposit assessment, the Company's total operating expense was $1,963,829 for the three months ended September 30,1996, which was a decrease of $52,094 when compared to the three months ended September 30, 1995. Cash provided by operating activities increased by $535,295 for the three months ended September 30, 1996. During the quarter ended September 30, 1995 there was a reduction in cash from operating activities due to the increase in assets held for sale of $616,000. On July 1, 1996 the Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 122 , Accounting for Mortgage Servicing Rights, ("Statement 122"). Statement 122 requires that a mortgage banking enterprise recognize as separate assets the rights to service mortgage loans for others. Statement 122 also requires the assessment of capitalized mortgage servicing rights for impairment to be based on the current fair value of those rights. This assessment includes servicing rights capitalized prior to adoption of Statement 122. The adoption of Statement 122 was not material to the Company's financial position, liquidity, or results of operations. Impact of Inflation ___________________ The consolidated financial statements and related notes herein have been presented in terms of historic dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike many industrial companies, substantially all of the assets and virtually all of the liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company's performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as inflation. NORTHEAST BANCORP AND SUBSIDIARY Part II - Other Information Item 1. Legal Proceedings _________________ Not Applicable. Item 2. Changes in Securities _____________________ Not Applicable. Item 3. Defaults Upon Senior Securities _______________________________ Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders ___________________________________________________ SUMMARY OF VOTING AT 10/23/96 ANNUAL SHAREHOLDERS' MEETING __________________________________________________________ At the Annual Meeting of Shareholders held in Auburn, Maine on October 23, 1996, the following proposals were approved, each proposal receiving the vote of the Company's outstanding common and preferred shares, voting as one class, as follows: Proposal 1 - Election of Directors:
Votes For Votes Against Votes Abstaining ___________ _____________ ________________ Joseph A. Aldred, Jr. 1,125,975 9,300 0 A. William Cannan 1,125,975 9,300 0 James D. Delamater 1,134,975 300 0 Normand R. Houde 1,120,413 14,862 0 Philip C. Jackson 1,135,075 200 0 Ronald C. Kendall 1,135,075 200 0 Robert Morrell 1,125,975 9,300 0
Mr. Aldred was elected to serve until the 1997 Annual Meeting. Mr. Cannan was elected to serve until the 1998 Annual Meeting and Messrs. Delamater, Houde, Jackson, Kendal and Morrell were elected to serve until the 1999 Annual Meeting. The terms of the following Directors continued after the meeting: Ms. Hayes and Messrs. Bouchard, Brown, Goguen, Trinward, Vachon, Wight, and Wilson. There was no solicitation in opposition to management's nominees, and all nominees were elected without contest. Proposal 2 - Amendment to the Company's Articles of Incorporation to change its name to Northeast Bancorp.
Votes For Votes Against Votes Abstaining Broker Non-Votes ___________ _______________ __________________ __________________ 1,130,351 1,860 3,064 0
Proposal 3 - Appointment of Baker Newman & Noyes, Limited Liability Company as auditors for fiscal year 1997.
Votes For Votes Against Votes Abstaining ___________ _______________ __________________ 1,133,935 100 1,240
Item 5. Other Information _________________ Not Applicable. Item 6. Exhibits and Reports on Form 8 - K __________________________________ (a) Exhibits ________ 3.1 Conformed Articles of Incorporation of Northeast Bancorp as amended October 23, 1996 are filed herewith as Exhibit 3.1. 11 Statement regarding computation of per share earnings is filed herewith as Exhibit 11. 27 Financial data schedule is filed herewith as exhibit 27. (b) Reports on Form 8 - K Not Applicable. NORTHEAST BANCORP AND SUBSIDIARY 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. NORTHEAST BANCORP ________________________ (Registrant) /s/ James D. Delamater ________________________ James D. Delamater President and CEO /s/ Richard Wyman ________________________ Richard Wyman Chief Financial Officer Date: November 13, 1996 NORTHEAST BANCORP AND SUBSIDIARY Index to Exhibits EXHIBIT NUMBER DESCRIPTION 3.1 Conformed Articles of Incoporation of Northeast Bancorp as amended October 23, 1996 11 Statement regarding computation of per share earnings 27 Financial Data Schedule
                             	NORTHEAST BANCORP
                     CONFORMED ARTICLES OF INCORPORATION


FIRST:   The name of the corporation is NORTHEAST BANCORP.

SECOND:	 The name of its Clerk, who must be a Maine resident, and the address 
         of its registered office shall be:  
         Ariel Rose Gill
         158 Court Street, Auburn, Maine  04212

THIRD:   The number of directors constituting the initial board of directors of
         the corporation is nine, as follows:
         Gordon M. Gillies, 3 Broad St, Bethel, Maine 04217
         E. Louise Lincoln, PO Box 527, Bethel, Maine 04217
         John W. Trinward, 8 Vernon St, Bethel, Maine 04217
         Stephen W. Wight, RFD 2, Box 1688, Bethel, Maine 04217
         Edmond J. Vachon, Paradise St, Bethel, Maine 04217
         Ronald C. Kendall, PO Box 1, Bethel, Maine 04217
         Norris T. Brown, Clark St, Bethel, Maine 04217
         Philip C. Jackson, 12 Smith St, Bethel, Maine 04217
         James D. Delamater, Route 121, Oxford, Maine 04270
                
FOURTH:	 The board of directors is authorized to increase or decrease the 
         number of directors.  The minimum number shall be nine directors and 
         the maximum number shall be fifteen directors.

FIFTH:   SHARES - There shall be 3,000,000 authorized shares of $1.00 par value
         Common Stock, which may be issued by the Corporation from time to time
         by vote of the Board without the approval of the holders of the Common
         Stock.  Upon payment of lawful consideration, such shares shall be 
         deemed to be fully paid and nonassessable.  Except as the Board shall 
         have otherwise specified or except as otherwise provided by law, 
         voting power shall be vested exclusively in the Common Stock.  The 
         holders of the Common Stock shall be entitled to one vote for each 
         share of Common Stock owned.  Dividends, as declared by the Board out 
         of lawfully available funds, shall be payable on the Common Stock 
         subject to any rights or preferences of the Preferred Stock.
                 
         There shall be 1,000,000 authorized shares of $1.00 par value 
         Preferred Stock which may be issued from time to time in one or more 
         series as may be determined by the Board of Directors of the 
         Corporation.  Each series of Preferred is to be distinctly designated 
         to distinguish the shares in the series from the shares of all other 
         series and classes.  The relative rights and preferences of the 
         Preferred Stock and the variations of rights and preferences between 
         different series of Preferred Stock may be fixed and determined by the
         Board of Directors by resolution or resolutions adopted prior to the 
         issuance of any shares of a particular series of Preferred Stock.  All
         shares of Preferred shall be identical except as to the following 
         relative rights and preferences, as to which there may be variations
         between different series:

         a. The rate of dividend;

         b. Whether shares may be redeemed and, if so, the redemption price and
            the terms and conditions of redemption;
          
         c. The amount payable upon shares in event of voluntary and 
            involuntary liquidation;

         d. Sinking fund provisions, if any, for the redemption or purchase of 
            shares;

         e. The terms and conditions, if any, on which shares may be converted;
            or
          
         f. Voting rights, if any.
           
         Upon any liquidation, dissolution or winding up of the affairs of the 
         Corporation, whether voluntary or involuntary, holders of Common Stock
         are entitled to receive pro rata the remaining assets of the 
         Corporation after the holders of Preferred Stock have been paid in 
         full any sums to which they may be entitled.

         There shall be no cumulative voting for Directors or otherwise.
                            
         
                    II.  INTERNAL AFFAIRS OF THE CORPORATION                 
                    ________________________________________
               
         Section 1. (a) Number, Qualifications and Term of Office.  
         _________________________________________________________
         Subject to the	provisions hereof relating to the initial Board, the 
         number of directors of the corporation shall be no less than 9 and no 
         more than 15.  The exact number of Directors within the minimum and 
         maximum limitations specified in the preceding sentence shall be fixed
         from time to time by the Board pursuant to a resolution adopted by the
         majority of the entire Board.  No decrease in the number of directors 
         constituting the Board shall shorten the term of any incumbent 
         director.  At the 1988 annual meeting of Shareholders, the Directors 
         shall be divided into three classes as nearly equal in number as 
         possible with the term of office of the first class to expire at the 
         1989 annual meeting of Shareholders, the term of office of the second 
         class to expire at the 1990 annual meeting of Shareholders and the 
         term of office of the third class to expire at the 1991 annual meeting
         of the Shareholders.  At each annual meeting of Shareholders following
         such initial classification and election, Directors elected to succeed
         those Directors whose terms expire shall be elected for a three year 
         term of office to expire at the third succeeding annual meeting of 
         Shareholders after their election.  Directors need not be Shareholders
         or residents of the State of Maine.
         
         (b) Vacancies.  
         ______________
         Any vacancy in the Board caused by death, resignation, retirement, 	
         disqualification, removal or other cause, shall be filled by a 
         majority vote of the remaining Directors, though less than a quorum.  
         A Director so chosen shall hold office for the unexpired term of their
         predecessors in office.  Any Directorship to be filled by reason of an
         increase in the authorized number of directors may be filled by the 
         Board for a term of office continuing only until the next election of 
         Directors by Shareholders.
           
         (c) Removal of Directors. 
         _________________________
         At any meeting of Shareholders called expressly for the purpose, any 
         Director may be removed from office by the affirmative vote of the 
         holders of seventy-five percent (75%) of the shares entitled to vote 
         or if removal is for cause, then by a majority of the shares then 
         entitled to vote.  For "cause" shall mean a final adjudication by a 
         court of competent jurisdiction that the Director (i) is liable for 
         negligence or misconduct in the performance of his duty, (ii) guilty 
         of a felony conviction, or (iii) has failed to act or has acted in a 
         manner which is in derogation of the Director's duties.
            
         (d) Nomination of Directors.  
         ____________________________
         In addition to the right of the Board to make nominations for the 
         election of Directors, nominations for the election of Directors may 
         be made by any Shareholder entitled to vote for the election of 
         Directors if that Shareholder complies with all of the following 
         provisions:
          
         a. Advance notice of such proposed nomination shall be received by
            the Secretary of the Corporation not less than thirty (30) days nor
            more than sixty (60) days prior to any meeting of the Shareholders 
            called for the election of the Directors; provided, however, that 
            if fewer than fourteen (14) days' notice of the meeting is given to
            Shareholders, such written notice of a proposed nomination shall be
            received not later than the close of the tenth day following the 
            day on which the notice of the meeting was mailed to Shareholders.
                    
         b. Each notice shall set forth (i) the name, age, business address 
            and, if known, residence address of each nominee proposed in such 
            notice, (ii) the principal occupation or employment of each such 
            nominee; and (iii) the number of shares of stock of the Corporation
            which are beneficially owned by each such nominee.  In addition, 
            the Shareholder making such nomination shall promptly provide any 
            other information reasonably requested by the Corporation.
                     
         c. The nomination made by a Shareholder may only be made in a meeting 
            of the Shareholders of the Corporation called for the election of 
            Directors at which such Shareholder is present in person or by 
            proxy, and can only be made by a Shareholder who has complied with 
            the notice provisions of (a) and (b) above.
                                   
         d. The Chairman of the meeting may in his discretion determine and
            declare to the meeting that a nomination was not made in accordance
            with the foregoing procedures, and if he should so determine, he 
            shall so declare to the meeting and the defective nomination shall 
            be disregarded.
                
         Section 2.  Voting for Business Combinations.  
         _____________________________________________
         (a)  Neither the Corporation nor any subsidiary of which the 
         Corporation owns at least a majority of the equity securities 
         ordinarily entitled to vote for the election of Directors 
         ("Subsidiary"), shall be a party to any of the transactions specified 
         herein (a "Business Combination") or enter into any agreement 
         providing for any Business Combination unless the conditions specified
         in (b), (c) and (d) below shall have been satisfied:

         (i)    any merger or consolidation (whether in a single transaction or
                a series of related transaction) other than a merger or 
                consolidation of the Corporation and any of its subsidiaries or
                a merger or consolidation of any subsidiaries of the 
                Corporation; or
                 
         (ii)   any sale, lease, exchange, transfer or distribution of all or
                substantially all or a substantial portion of the property or 
                assets of the Corporation or any of its subsidiaries, including
                its goodwill; or
                                 
         (iii)  the issuance of any securities, or of any rights warrants or 
                options to acquire any securities of the Corporation or any of 
                its subsidiaries, to any Shareholders other than by stock 
                dividend declared and paid to all Shareholders of the 
                Corporation or pursuant to an employee stock ownership plan or 
                an employee stock option plan established by the Corporation; 
                or
                   
         (iv)   any reclassification of the stock of the Corporation or any of 
                its subsidiaries or any recapitalization or other transaction 
                (other than a redemption of stock) which has the effect, 
                directly or indirectly, of increasing the proportionate share 
                of stock of the Corporation or any of its subsidiaries held by 
                any person; or
                                     
         (v)    the dissolution of the Corporation or any subsidiary thereof or
                any partial or complete liquidation of the Corporation or any 
                subsidiary thereof.
                                            
         (b)  The vote of the holders of at least eighty percent (80%) of the 
         outstanding shares entitled to vote for the election of Directors 
         shall be required to approve or authorize any Business Combination to 
         which the Corporation or any Subsidiary is party unless the aggregate 
         of the cash and fair market value of the consideration to be paid to 
         all the holders of the Common Stock of the Corporation in connection 
         with the Business Combination (when adjusted for stock splits, stock 
         dividends, reclassification of shares or otherwise) shall be equal to 
         the highest price per share paid by the other party or parties to the
         Business Combination (the "Acquiring Party") in acquiring any of the 
         Corporation's Common Stock; provided however, that the consideration 
         to be paid to the holders of the Common Stock of the Corporation shall
         be in the same form as that paid by the Acquiring Party in acquiring 
         the shares of the Common Stock held by it except to the extent that 
         any Stockholder of the Corporation shall otherwise agree.
                                 
         (c)  Subject to the provisions in (b) above, the vote of the holders 
         of at least seventy-five percent (75%) of the outstanding shares 
         entitled to vote for the election of Directors shall be required to 
         approve or authorize any Business Combination to which the Corporation
         or any Subsidiary is a party unless the Business Combination shall 
         have been approved by at least two-thirds (2/3) of the Directors of 
         the Corporation who are not affiliated with, or Shareholders of, the 
         Acquiring Party.
                               
         In connection with the exercise of its judgment in determining what is
         in the best interests of the Corporation and of the Shareholders, when
         evaluating a Business Combination or a proposal by another person or 
         persons to make a Business Combination or a tender or exchange offer, 
         the Board may, in addition to considering the adequacy of the amount 
         to be paid in connection with any such transaction, consider all of 
         the following factors and other factors which it deems relevant:  (i)
         the social and economic effects of the transaction on the Corporation 
         and its subsidiaries, employees, depositors, loan and other customers,
         creditors and other elements of the communities in which the	
         Corporation and its subsidiaries operate or are located; (ii)  the 
         business and financial condition and earnings prospects of the 
         acquiring person or persons, including but not limited to debt service
         and other existing financial obligations, financial obligations to be 
         incurred in connection with the acquisition, and other likely 
         financial obligations of the acquiring person or persons, and the 
         possible effect of such conditions upon the Corporation and its 
         subsidiaries and the other elements of the communities in which the 
         Corporation and its subsidiaries operate or are located; and (iii) the
         competence, experience and integrity of the acquiring person or 
         persons and its or their management.
                 
         (d)  In the event that all of the conditions set forth in (b) and (c) 
         above are met, the Corporation or any Subsidiary may enter into any 
         Business Combination under the terms and conditions specified in the 
         Maine Business Corporation Act.
                     
         (e) 	The affirmative vote of the holders of at least eighty percent 
         (80%) of all of the shares of the Corporation entitled to vote for the
         election of Directors shall be required to amend or repeal, or to 
         adopt any provisions in contravention of or inconsistent with this 
         Section 2, notwithstanding the fact that a lesser percentage may be 
         specified by law.
                              
         Section 3.  Special Meetings and Consent Meetings.  
         __________________________________________________
         Special meetings of the Shareholders may be called by the Chairman, 
         President, the Board, or by the Secretary upon written request of the 
         holders of not less than ten percent (10%) of all the shares entitled 
         to vote.

         Section 4.  Acquisition of Stock.  
         _________________________________
         (a)  Restrictions on Offers and Acquisitions. 
         _____________________________________________
         For a period of five (5) years from the effective date of the 
         conversion, no person shall directly or indirectly offer to acquire or
         acquire the beneficial ownership of (i) more than ten percent (10%) of
         the issued and outstanding shares of any class of an equity security 
         of the Corporation; (ii) more than ten percent (10%) of any class of 
         securities convertible into, or exercisable for, any class of an 
         equity security of the Corporation; (iii) any securities convertible 
         into, or exercisable for, any equity securities of the Corporation if 
         assuming conversion or exercise by such person of all securities of 
         which such person is the beneficial owner which are convertible into, 
         or exercisable for, such equity securities (but of no securities 
         convertible into, or exercisable for, such equity securities of which 
         such person is not the beneficial owner), such person would be the 
         beneficial owner of more than ten percent (10%) of any class of an 
         equity security of the Corporation.
         
         For the same five year period, each share beneficially owned in 
         violation of the foregoing percentage limitation, as determined by the
         Board, shall not be voted by any person or counted as voting shares in
         connection with any matter submitted to the shareholders for a vote.

         For the purposes of this Section 4:
            
         (i)    The term "person" shall mean and include any individual, group
                acting in concert, Corporation, partnership, or other 
                organization or entity, together with its affiliates and 
                associates; and
                       
         (ii)   The term "offer" includes every offer to buy or acquire, 
                solicitation of an offer to sell, tender offer for, or request 
                or invitation for tenders of, a security (including, without 
                limitation, shares of any class of capital stock of the 
                Corporation) or interest in a security for value.
                              
         (iii)  The term "conversion" shall mean the completed process whereby
                Bethel Savings, FSB Bank will be converted from a federally 
                chartered mutual savings bank to a federally charted stock 
                savings bank and Bethel Bancorp shall become the holding 
                company for Bethel Savings Bank, FSB.
                         
         (b) Exclusion for Underwriters, Directors, Officers and Employees. 
         __________________________________________________________________
         The restriction contained in this Section 4 shall not apply to any 
         offer	with a view toward public resale made exclusively to the 
         Corporation or	the underwriters or a selling group acting on its 
         behalf.  In addition, the Directors, Officers and employees of the
         Corporation or any subsidiary thereof shall not be deemed to be a 
         group with respect to their individual acquisition of equity stock of 
         the Corporation.
               
         (c) Readoption of Restriction by Shareholders.  
         ______________________________________________
         This Section 4 may be readopted for additional one-year or longer	
         periods by vote of the holders of a majority of the outstanding voting
         shares present or represented at a duly convened annual or special	
         meeting of Shareholders of the Corporation.

         (d) Exception in Cases of Advance Approval.  
         ___________________________________________
         This Section 4 shall not apply to any offer or acquisition referred to
         in (a) above if such offer or acquisition was approved in advance of 
         such offer or acquisition by two-thirds (2/3) of the entire Board 
         utilizing the standard set forth in Section 2(c).
                     
         (e) Enforcement of this Section 4.  
         __________________________________
         The Corporation may by law or by resolution of the Directors adopt 
         such provisions or resolutions as are necessary to provide for the
         enforcement of this Section 4.
                   
         (f) Amendments of this Section 4.  
         _________________________________
         Notwithstanding any other provisions of these Articles of 
         Incorporation or the By-Laws of the Corporation, and notwithstanding 
         the fact that some lesser percentage may be specified by law, this 
         Section 4 shall not be amended, altered, changed or repealed without:
                                         
         a.  the affirmative vote of two-thirds (2/3) of the Board; and
                           
         b.  the affirmative vote by the holders of at least two-thirds (2/3)
             of the outstanding shares entitled to vote.
                               
         This vote shall be in addition to any vote of the Preferred Stock as 
         may be required by the provisions of any series thereof or applicable 
         by law.

         The readoption of Section 4 for additional one-year or longer periods,
         as provided in (c) above, shall not be an amendment, alteration or 
         change for the	purposes of this paragraph.
                       
         Section 5.  Amendments.  
         _______________________
         (a)   Amendments to Articles of Incorporation.  
         ______________________________________________
         Except as otherwise provided for in the Articles above, the 
         affirmative vote of the holders of at least two-thirds (2/3) of all of
         the shares of the Corporation entitled to vote for the election of 
         Directors, shall be required to amend or repeal, or to adopt any 
         provision in contravention of or inconsistent with these Articles 
         notwithstanding the fact that a lesser percentage may be specified by
         law.
                
         (b) Amendments to By-Laws.  
         __________________________
         The By-Laws of the Corporation may be amended at any time by the 
         affirmative vote of a majority of the entire Board, subject to repeal,
         change or adoption of any contravening or inconsistent provision only 
         by vote of the holders of at least two-thirds (2/3) of all the shares 
         entitled to vote on the matter at a meetings expressly called for that
         purpose.
               
         Section 6.  Right of Shareholders Following Control Transaction.
         ________________________________________________________________
         The provisions of Me. Rev. Stat. Ann. Title 13-A, Section 910 shall 
         not be applicable to the Corporation.

                                    SUMMARY

        The aggregate par value of all authorized shares (of all classes) 
        having a par value is $4,000,000.  The total number of authorized 
        shares (of all classes) without par value is zero shares.

SIXTH:  Meetings of the shareholders may be held outside the State of Maine.
            
SEVENTH:There are no preemptive rights.

                     	RESOLUTION OF THE BOARD OF DIRECTORS
                              OF BETHEL BANCORP
                 ESTABLISHING THE RIGHTS AND PREFERENCES OF THE 
                     CONVERTIBLE PREFERRED STOCK, SERIES A.

     WHEREAS, Bethel Bancorp (the "Corporation") has entered into a Stock 
Purchase Agreement dated as of September 17, 1990 (the "Stock Purchase 
Agreement") by and between the Corporation and Square Lake Holding Corporation 
(the "Purchaser"), pursuant to which the Corporation will sell, and the 
Purchaser will buy, certain shares of the Corporation's Series A Preferred 
Stock, as defined below (the "Stock Purchase"); and 
                 
     WHEREAS, the Corporation intends to effect the Stock Purchase in part 
through the designation and issuance of such preferred stock; and

     WHEREAS, the Articles of Incorporation of the Corporation (the "Articles")
authorize the issuance of up to 1,000,000 shares, $1.00 par value per share, of
preferred stock and the Board of Directors of the Corporation has the authority
to issue preferred stock in one or more series and to fix and determine the 
relative rights and preferences of the shares of any series of preferred stock 
so established, including the rate of dividend, whether shares of such series 
may be converted or redeemed, and, if so, the terms and conditions of 
conversion or redemption, the amount payable upon shares in event of voluntary 
and involuntary liquidation with respect to shares of such series, sinking fund
provisions, if any, for the redemption or purchase of shares of such series, 
voting rights, if any, and the number of shares constituting any series without
any further action by shareholders of the Corporation.
            
     NOW, THEREFORE, BE IT RESOLVED THAT a series of preferred stock shall be
established with the following terms, rights and preferences: 

     1.  Designation.
     ________________
     Forty Five Thousand Four Hundred Fifty Four (45,454) shares of the 
preferred stock of the Corporation are hereby constituted as a series of 
preferred stock, designated as Convertible Preferred Stock, Series A 
(hereinafter called the "Series A Preferred Stock").  The number of shares of 
Series A Preferred Stock may not be increased but may be decreased by a 
resolution duly adopted by the Board of Directors, but not below the number of 
shares of Series A Preferred Stock then outstanding.
              
     2.  Dividends.
     ______________ 
     Holders of shares of the Series A Preferred Stock shall be entitled to 
receive cumulative cash dividends, when, as and if declared by the Board of 
Directors of the Corporation out of funds legally available therefor, payable 
at a rate equal to the prime rate of the First National Bank of Boston,as 
announced by such bank from time to time (or if such rate is no longer 
announced or available, the prime rate of some other national bank 
headquartered in Boston, Massachusetts to be designated by the Board of 
Directors of the Corporation), less two percent (2%), provided however, that in
no event shall such rate be less than seven percent (7%) per annum based on 
$22.00 value per share.  Dividends shall be cumulative and shall be determined 
and payable quarterly on the first day of January, April, July and October in 
each year.  The dividend earned in the period from the issue date to the first
quarterly payment date will be prorated.  If the dividend accrued on the Series
A Preferred Stock for any dividend period shall not have been paid or set apart
in full for the Series A Preferred Stock, the aggregate deficiency shall be 
cumulative and shall be fully paid or set apart for payment before any 
dividends shall be paid upon or set apart for payment on any class of common 
stock of the Corporation.  Accumulations of dividends on the Series A Preferred
Stock shall not bear interest.  No dividends shall be paid upon, or declared or
set apart for, any shares of Series A Preferred Stock if the Board of Directors
shall have failed duly and lawfully to declare and pay in full all accumulated 
dividends required to be paid to the holders of the Series A Preferred Stock 
for all past dividend periods.

     3.  Amount Payable on Liquidation.
     __________________________________
     The amount per share to which the holders of the shares of Series A 
Preferred Stock shall be entitled to receive for purposes of paragraph (c) of 
Part I of Exhibit B to the Articles is $22.00 per share, plus an amount equal 
to all dividends (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution, before any payment and distribution shall be
made to the holders of any class of common stock of the Corporation.
             
     4.  Conversion.
     _______________
    	(a)  At the option of the holder, any share of Series A Preferred Stock 
(a "Share") may, at any time, be converted into shares of the Common Stock of 
the Corporation (the "Common Stock") as hereinafter provided.  In order to 
exercise the conversion privilege, the holder of any Share to be converted 
shall surrender such Share to the Corporation, together with the conversion 
notice in the form provided on the Shares duly executed.  As promptly as 
practicable after the surrender of such Share for conversion as aforesaid, the 
Corporation shall issue and shall deliver to such holder, or on his written 
order, a certificate or certificates for the number of full shares of Common 
Stock issuable upon the conversion of such Share or portion thereof and a check
or cash in respect of any fraction of a share of Common Stock issuable upon 
such conversion.  Such conversion shall be deemed to have been effected on the 
date on which such notice shall have been received and such Share shall have 
been surrendered as aforesaid, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable 
upon such conversion shall be deemed to have become on said date the holder or 
holders of record of the shares represented thereby; provided however, that any
such surrender on any date when the stock transfer books of the Corporation 
shall be closed shall constitute the person or persons in whose name or names 
the certificates are to be issued as the record holder or holders thereof for 
all purposes on the next succeeding day on which such stock transfer books are 
open.  In the event the holder of any Share elects to exercise the conversion
privilege as to any Shares, he shall be required to exercise such privilege as 
to the lesser of 100 Shares or all Shares beneficially owned by such 
shareholder.

     (b)  The Corporation shall not be required to issue fractions of shares of
Common Stock upon conversion of Shares.  If more than one Share shall be 
surrendered for conversion at any time by the same holder, the number of full 
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate number of the Shares so surrendered.  If any fractional 
interest in a share of Common Stock would be deliverable upon the conversion of
any Share or Shares, the Corporation shall make an adjustment therefor in cash 
equal to the same fraction of the current market price of the Common Stock (as 
defined in Section 4(e) (4)).

     (c)  The conversion ratio in the case of conversion pursuant to Section 
4(a) shall be one (1) share of the Corporation's common stock for one (1) share
of the Series A Preferred Stock.

     (d)  The Corporation shall at the time of conversion pursuant to Section 4
(a) pay to the holder of record of any share of Series A Preferred Stock any 
dividend accrued and unpaid on the Series A Preferred Stock.  No dividends 
shall be paid or set apart for payment on any class of Common Stock of the 
Corporation or, in the case of optional conversion, on any remaining shares of 
Series A Preferred Stock unless all accrued and unpaid dividends due to the 
former holders of Series A Preferred Stock have been fully paid or set apart 
for payment.
           
     (e)  The conversion ratio shall be adjusted from time to time as follows:
                  
          (1)  In case the Corporation shall (i) pay a dividend in shares of 
     its Common Stock, (ii) subdivide its outstanding shares of Common Stock, 
     (iii) combine its outstanding shares of Common Stock into a smaller number
     of shares, or (iv) issue by reclassification of its shares of Common Stock
     any shares of stock of the Corporation, the conversion privilege and 
     conversion ratio in effect immediately prior thereto shall be adjusted so 
     that the holder of any Share thereafter surrendered for conversion shall 
     be entitled to receive the number of shares of Common Stock which he would
     have owned or have been entitled to receive after the happening of any of 
     the events described above, had such Share been converted immediately 
     prior to the record date for such dividend or the effective date of such 
     other event, as the case may be.
                                   
          (2)  In case the Corporation shall issue rights or warrants to all 
     holders of shares of its Common Stock entitling them (for a period 
     expiring within 45 days of the record date mentioned below) to subscribe 
     for or purchase shares of Common Stock at a price per share less than the 
     current market price per share of Common Stock (as defined in subdivision 
     (4) below) on the record date mentioned below, the conversion ratio shall 
     be adjusted so that the same shall equal the ratio determined by 
     multiplying the conversion ratio in effect immediately prior to the date 
     of issuance of such rights or warrants by a fraction of which the 
     numerator shall be the number of shares of Common Stock outstanding on the
     date of issuance of such rights or warrants plus the number of additional 
     shares of Common Stock offered for subscription or purchase and of which 
     the denominator shall be the number of shares of Common Stock outstanding 
     on the date of issuance of such rights or warrants plus the number of 
     shares of Common Stock which the aggregate exercise price of the shares of
     Common Stock called for by all such rights or warrants, would purchase at 
     such current market price.  Such adjustment shall become effective 
     immediately after the record date for the determination of stockholders 
     entitled to receive such rights or warrants.

          (3)  In case the Corporation shall distribute to all holders of 
     shares of its Common Stock evidences of its indebtedness or securities or 
     assets (excluding cash dividends, or dividends payable in shares of Common
     Stock) or rights to subscribe (excluding those referred to in subdivision 
     (2) above), then in each such case the conversion ratio shall be adjusted 
     so that the same shall equal the ratio determined by multiplying the 
     conversion ratio in effect immediately prior to the date of such 
     distribution by a fraction of which the numerator shall be the current 
     market price per share (determined as provided in subsection (4) below)  
     of the Common Stock on the record date mentioned below plus the then 
     current fair market value (as determined by the Board of Directors of the 
     Corporation, whose determination shall be conclusive)  of the portion of 
     the assets or evidences of indebtedness so distributed or of such 
     subscription rights applicable to one share of Common Stock, and the 
     denominator shall be such current market price per share of the Common 
     Stock.

          (4)  For the purpose of any computation under	subdivisions (2) and 
     (3) above, the current market price per share of Common Stock at any date 
     shall be deemed to be the	average of the closing bid and asked prices as 
     reported by the National Association of Securities Dealers Automated	
     Quotation System on the last business day immediately preceding the day in
     question.
                
          (5)  Except as herein otherwise provided, no adjustment in the 
     conversion ratio shall be made by reason of the issuance, in exchange for 
     cash, property or services, of shares of Common Stock, or any securities 
     convertible into or exchangeable for shares of Common Stock, or carrying 
     the right to purchase any of the foregoing.

     (f)  In case of any reclassification or change of outstanding shares of 
Common Stock (other than a change in par value, or from par value to no par 
value, or from no par value to par value, or as a result of a subdivision or 
combination), or in case of any consolidation of the Corporation with one or 
more other corporations (other than a consolidation in which the Corporation is
the continuing corporation and which does not result in any reclassification or
change of outstanding shares of Common Stock), or in case of the merger of the 
Corporation into another corporation, or in case of any sale or conveyance to 
another corporation of the property of the Corporation as an entirety or 
substantially as an entirety, the Corporation, or such successor or purchasing 
corporation, as the case may be the holder of each Share then outstanding shall
have the right to convert such Share into the kind and amount of shares of 
stock and other securities and property receivable upon such reclassification, 
change, consolidation, merger, sale or conveyance by a holder of the number of 
shares of Common Stock into which such Share might have been converted 
immediately prior to such reclassification, change, consolidation, merge, sale 
or conveyance.

     (g)  The Corporation shall at all times reserve and keep available out of 
its authorized but unissued shares, for the purpose of effecting the conversion
of the Shares, such number of its duly authorized shares of Common Stock as 
shall from time to time be sufficient to effect the conversion of all 
outstanding Shares.


     If any shares of Common Stock reserved or to be reserved for the purpose 
of the conversation of Shares hereunder require registration with or approval 
of any governmental authority under any federal or state law before such shares
may be validly issued upon conversion, then the Corporation covenants that it 
will in good faith and as expeditiously as possible endeavor to secure such 
registration or approval, as the case may be.

     The Corporation covenants that all shares of Common Stock which may be 
issued upon conversion of Shares shall upon issue be fully paid and 
non-assessable by the Corporation and free from all taxes, liens and charges 
with respect to the issue thereof.

     (h)  If, and whenever, any event not specified herein occurs which, in the
opinion of the Board of Directors of the Corporation, requires a change in the 
conversion ratio of the Shares or in the property deliverable upon conversion 
of the Shares, in order to carry out the purposes of these conversion 
provisions, said Board of Directors will direct such change in the manner, or 
as nearly as may be in the manner, provided for other changes therein.

     5.  Shares to be Retired.
     _________________________
     All shares of Series A Preferred Stock converted to Common  Stock of the 
Corporation pursuant to Section A herein shall be retired and shall be restored
to the status of authorized but unissued shares of preferred stock, without 
designation as to series, and may thereafter be issued, but not as shares of 
Series A Preferred Stock.

     6.  Voting Rights.
     __________________
     (a)  Except as hereinafter in this Section 6 expressly provided for and as
otherwise from time to time required by the laws of the State of Maine, the 
holders of the outstanding Series A Preferred Stock shall have the right, 
voting as a single class with the holders of the Corporation's Common Stock, to
vote on all matters presented for a shareholder vote.  Each holder of Series A
Preferred Stock shall be entitled to one vote for each share held.

     So long as any shares of Series A Preferred Stock remain outstanding, the 
consent of the holders of at least a majority of the shares of Series A 
Preferred Stock outstanding at the time (voting separately as a class with all 
other affected series of Preferred Stock ranking on a parity with the Series A 
Preferred Stock either as to dividends or the distribution of assets upon 
liquidation, dissolution or winding up and upon which like voting rights have 
been conferred and are exercisable)  given in person or by proxy either in 
writing or at any special or annual meeting called for the purpose, shall be 
necessary to permit, effect or validate any one or more of the following:

          (i)  the authorization, creation or issuance of a new class or 
     series of stock having rights, preferences or privileges prior to the 
     shares of the Series A Preferred Stock as to dividends or the distribution
     of assets upon liquidation, dissolution or winding up, or any increase in 
     the number of authorized shares of any class or series having rights, 
     preferences or privileges prior to the shares of Series A Preferred Stock 
     as to dividends or the distribution of assets upon liquidation, 
     dissolution or winding up; and 
                             
          (ii)  the amendment, alteration or repeal, whether by	merger, 
     consolidation or otherwise, of any of the provisions of Articles of 
     Incorporation of the Corporation or of this resolution which would 
     materially and adversely affect any right, preference, privilege or voting
     power of the Series A Preferred Stock or of the holders thereof; provided,
     however, that any increase in the amount of authorized common stock or 
     authorized preferred stock or the creation and issuance of other series of
     common stock or preferred stock, in each case ranking on a parity with or 
     junior to the Series A Preferred Stock with respect to the payment of 
     dividends and the distribution of assets upon liquidation, dissolution or 
     winding up, shall not be deemed to materially and adversely affect such 
     rights, preferences, privileges or voting powers.

     (b)  For the purposes of this Section, a new class or series of stock 
shall not be considered to have rights, preferences or privileges prior to the 
shares of the Series A Preferred Stock solely by reason of a difference in the 
dividend rate payable on such new class or series.

                     BETHEL BANCORP AND SUBSIDIARIES
   Exhibit 11.  Statement Regarding Computation of Per Share Earnings
                                    
Three Months Ended Three Months Ended September 30, 1996 September 30, 1995 __________________ __________________ EQUIVALENT SHARES: Average Shares Outstanding 1,231,294 1,120,250 Total Equivalent Shares 1,231,294 1,120,250 Total Primary Shares 1,330,400 1,216,523 Total Fully Diluted Shares 1,565,531 1,451,571 Net Income $ 184,261 $ 421,637 Less Preferred Stock Dividend 34,999 35,000 ___________________ __________________ Net Income after Preferred Dividend $ 149,262 $ 386,637 =================== ================== Primary Earnings Per Share $ 0.11 $ 0.32 Fully Diluted Earnings Per Share $ 0.11 $ 0.29
 

9 0000811831 NORTHEAST BANCORP 1 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 5,298,792 7,441,366 0 196,298 32,395,480 0 0 172,990,132 2,487,000 229,898,304 145,544,632 34,128,669 1,622,448 30,401,057 0 1,999,980 1,199,379 15,002,138 229,898,304 3,987,260 636,419 92,956 4,716,634 1,539,567 2,432,682 2,283,952 144,815 89,666 2,343,829 300,993 184,261 0 0 184,261 .11 .11 4.222 2,345,000 0 338,004 1,500,000 2,549,000 228,245 21,431 2,487,000 431,393 0 2,055,607