and Results of Operations

The First Bancorp, Inc. and Subsidiary

Forward-Looking Statements

This report contains statements that are "forward-looking statements." We may also make written or oral forward-looking statements in other documents we file with the Secutities and Exchange Commission ("SEC"), in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following:
changes in general national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, government intervention in the U.S. financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectibility, default and charge-off rates, changes in the size and nature of the Company's competition, changes in legislation or regulation and accounting principles, policies and guidelines, and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC, may result in these differences. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this quarterly report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Although The First Bancorp, Inc. believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company, which attempt to advise interested parties of the facts that affect the Company's business.

Critical Accounting Policies

Management's discussion and analysis of the Company's financial condition is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, Management evaluates its estimates, including those related to the allowance for loan losses, goodwill, the valuation of mortgage servicing rights, and other-than-temporary impairment on securities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amount derived from Management's estimates and assumptions under different assumptions or conditions.

Allowance for Loan Losses. Management believes the allowance for loan losses requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is based on Management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio. Management believes the allowance for loan losses is a significant estimate and therefore regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan portfolio, business and economic conditions and Management's estimation of potential losses. The use of different estimates or assumptions could produce different provisions for loan losses.

Goodwill. Management utilizes numerous techniques to estimate the value of various assets held by the Company, including methods to determine the appropriate carrying value of goodwill as required under SFAS No. 142. In addition, goodwill from a purchase acquisition is subject to ongoing periodic impairment tests, which include an evaluation of the ongoing assets, liabilities and revenues from the acquisition and an estimation of the impact of business conditions.

Mortgage Servicing Rights. The valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions. The Bank often sells mortgage loans it originates and retains the ongoing servicing of such loans, receiving a fee for these services, generally 0.25% of the outstanding balance of the loan per annum. Mortgage servicing rights are recognized when they are acquired through the sale of loans, and are reported in other assets. They are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value which is recorded on the balance sheet. The most important assumption is the anticipated loan prepayment rate, and increases in prepayment speed results in lower valuations of mortgage servicing rights. The valuation also includes an evaluation for impairment based upon the fair value of the rights, which can vary depending upon current interest rates and prepayment expectations, as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. The use of different assumptions could produce a different valuation. All of the assumptions are based on standards the Company believes would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and/or benchmarked against independent public sources.

Other-Than-Temporary Impairment on Securities. One of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments. The evaluation of securities for other-than- temporary impairments is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings. The risks and uncertainties include changes in general economic conditions, the issuer's financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses. Securities that are in an unrealized loss position are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures. The primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include: (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and (f) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred, including the expectation of receipt of all principal and interest due.

Use of Non-GAAP Financial Measures

Certain information in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Management uses these "non-GAAP" measures in its analysis of the Company's performance and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period. The Company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. Management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

In several places net interest income is presented on a fully taxable equivalent basis. Specifically included in interest income was tax-exempt interest income from certain investment securities and loans. An amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income total, which adjustments increased net interest income accordingly. Management believes the disclosure of tax equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations. Other financial institutions commonly present net interest income on a tax equivalent basis. This adjustment is considered helpful in the comparison of one financial institution's net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from its earning assets. Moreover, net interest income is a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, other financial institutions generally use tax equivalent net interest income to provide a better basis of comparison from institution to institution. The Company follows these practices.

The following table provides a reconciliation of tax equivalent financial information to the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. A 35.0% tax rate was used in both 2009 and 2008.

                                      For the six months    For the quarters ended
                                         ended June 30              June 30
In thousands of dollars                 2009       2008       2009         2008
Net interest income as presented       $ 22,510   $ 17,759   $ 11,437        $ 8,942
Effect of tax-exempt income               1,170      1,107        596            538
Net interest income, tax equivalent    $ 23,680   $ 18,866   $ 12,033        $ 9,480

The Company presents its efficiency ratio using non-GAAP information. The GAAP-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the Consolidated Statements of Income. The non-GAAP efficiency ratio excludes securities losses and other-than-temporary impairment charges from noninterest expenses, excludes securities gains from noninterest income, and adds the tax-equivalent adjustment to net interest income. The following table provides a reconciliation of between the GAAP and non-GAAP efficiency ratio:

                                 For the six months ended     For the quarters ended
In thousands of dollars         June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
Non-interest expense, as
presented                             $13,021       $10,874       $ 6,234       $ 5,425
Net securities losses                   (148)             -           (6)             -
Other than temporary impairment
charge                                  (916)             -             -             -
Adjusted non-interest expense          11,957        10,874         6,228         5,425
Net interest income, as
presented                              22,510        17,759        11,437         8,942
Effect of tax-exempt income             1,262         1,199           642           591
Non-interest income, as
presented                               5,549         4,694         2,963         2,518
Net securities gains                        -             -             -             -
Adjusted net interest income
plus
non-interest income                   $29,321       $23,652       $15,042       $12,051
Non-GAAP efficiency ratio              40.78%        45.97%        41.40%        45.02%
GAAP efficiency ratio                  46.41%        48.43%        43.29%        47.34%

The Company presents certain information based upon tangible average shareholders' equity instead of total average shareholders' equity. The difference between these two measures is the Company's intangible assets, specifically goodwill from prior acquisitions. Management, banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions. The following table provides a reconciliation of tangible average shareholders' equity to the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles:

                                           For the six months
                                              ended June 30     For the quarters ended June 30
In thousands of dollars                      2009       2008         2009            2008
Average shareholders' equity as presented  $ 144,927  $ 115,282       $ 142,484       $ 114,605
Intangible assets                             27,684     27,684          27,684          27,684
Tangible average shareholders' equity      $ 117,243   $ 87,598       $ 114,800        $ 86,921

Executive Summary

Net income for the first six months of 2009 was $7.5 million, up $296,000 or 4.1% from the $7.2 million posted for the same period in 2008. Earnings per common share on a fully diluted basis were $0.72 for the six-months ended June 30, 2009, down $0.02 or 2.7% from the $0.74 posted for the same period in 2008. For the quarter ended June 30, 2009, net income was $3.8 million, an increase of $159,000 or 4.4% from the second quarter of 2008 and up $34,000 or 0.9% from the previous quarter. Earnings per common share on a fully diluted basis were $0.35 for the quarter ended June 30, 2009, down $0.02 or 5.4% from the second quarter of 2008 and from the previous quarter.

The Company continues to benefit from the current low interest rate environment and the steep yield curve. This is best reflected in net interest income, which was up $4.8 million or 26.8% over the first six months of 2008. While income from earning assets declined by 8.3% compared to the first six months of 2008, funding costs declined 42.7%. As a result, we saw our net interest margin widen from 3.23% for the first six months of 2008 to 3.68% for the first six months of 2009.

At the same time, we have seen continued deterioration in credit quality. With broad-based weakness in the economy, a continued slump in the housing market and unemployment at 9.4%, which is at the highest level it has been since 1983, we are in the longest and possibly the worst recession since the Great Depression of the 1930's. Also not reflected in these unemployment numbers is the number of people who have experienced reduced incomes from wage cutbacks and loss of overtime. In Maine, many people are self-employed and are also experiencing a decline in business revenues impacting their individual incomes as well.

While assets are up $44.2 million or 3.3% year-to-date, assets decreased $28.5 million or 2.0% in the second quarter due to mortgages refinancing and being sold into the secondary market and called securities not being replaced. Year-to-date, the loan portfolio is virtually unchanged, with excellent growth in commercial loans offset by the decline in mortgages. Despite a decline in the second quarter, the investment portfolio is up $35.8 million or 13.6% year-to-date due to the purchase of GNMA securities. Our asset growth in 2009 has been funded with a mix of wholesale deposits and borrowed funds. Low-cost deposits are down $9.6 million or 3.7% year-to-date, and this decline is in line with our normal seasonal pattern.

We also added $25.0 million in preferred stock in the first quarter under the U.S. Treasury Capital Purchase Program. Our participation in the program provides us with greater ability to ride out the current economic storm, especially if conditions worsen, and also provides greater ability to work with individuals and businesses as they also struggle through these adverse economic conditions. We continue to be considered well-capitalized by FDIC standards with total risk-based capital at 14.84%, well above the well-capitalized threshold of 10.00% set by the FDIC.

Net Interest Income

Total interest income of $32.9 million for the six months ended June 30, 2009 is an 8.3% decrease from total interest income of $35.8 million in the comparable period of 2008. Total interest expense of $10.4 million for the first six months of 2009 is a 42.7% decrease from total interest expense of $18.1 million for the first six months of 2008. As a result, net interest income increased 26.8% or $4.8 million to $22.5 million for the six months ended June 30, 2009, from the $17.8 million reported for the same period in 2008.

The Company's net interest margin on a tax-equivalent basis increased from 3.23% in the first six months of 2008 to 3.68% for the six months ended June 30, 2009. This increase was due to a combination of lower interest rates and growth in earning assets. Tax-exempt interest income amounted to $2,174,000 and $2,052,000 for the six months ended June 30, 2009 and 2008, respectively.

Total interest income of $16.3 million for the quarter ended June 30, 2009 is a 7.2% decrease from total interest income of $17.5 million in the comparable period of 2008. Total interest expense of $4.8 million for the quarter ended June 30, 2009 is a 43.8% decrease from total interest expense of $8.6 million for the same period in 2008. As a result, net interest income increased 27.9% or $2.5 million to $11.4 million for the quarter ended June 30, 2009, from the $8.9 million reported for the same period in 2008.

The Company's net interest margin on a tax-equivalent basis increased from 3.21% for the quarter ended June 30, 2008 to 3.76% for the quarter ended June 30, 2009. This increase was due to a combination of lower interest rates and growth in earning assets. Tax-exempt interest income amounted to $1,107,000 and $988,000 for the quarters ended June 30, 2009 and 2008, respectively.

The following tables present the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the six months and the quarters ended June 30, 2009 and 2008. Tax-exempt income is calculated on a tax-equivalent basis, using a 35.0% tax rate in 2009 and 2008.

Six months ended June 30,                   2009                    2008
                                    Amount of    Average    Amount of    Average
Dollars in thousands                interest   Yield/Rate   interest   Yield/Rate
Interest on earning assets
Investments                            $ 8,132       5.32%     $ 6,927       5.90%
Loans held for sale                         45       5.03%          78       7.11%
Loans                                   25,862       5.28%      29,946       6.44%
Total interest-earning assets           34,039       5.29%      36,951       6.34%
Interest-bearing liabilities
Deposits                                 6,694       1.51%      12,349       3.31%
Other borrowings                         3,665       2.79%       5,736       3.75%
Total interest-bearing liabilities      10,359       1.80%      18,085       3.44%
Net interest income                    $23,680                 $18,866
Interest rate spread                                 3.49%                   2.90%
Net interest margin                                  3.68%                   3.23%




Quarters ended June 30,                     2009                    2008
                                    Amount of    Average    Amount of    Average
Dollars in thousands                interest   Yield/Rate   interest   Yield/Rate
Interest on earning assets
Investments                            $ 4,047       5.45%     $ 3,525       5.85%
Loans held for sale                         22       5.35%          40       7.21%
Loans                                   12,778       5.20%      14,487       6.18%
Total interest-earning assets           16,847       5.26%      18,052       6.11%
Interest-bearing liabilities
Deposits                                 3,049       1.41%       5,910       3.08%
Other borrowings                         1,765       2.50%       2,662       3.57%
Total interest-bearing liabilities       4,814       1.68%       8,572       3.21%
Net interest income                    $12,033                 $ 9,480
Interest rate spread                                 3.58%                   2.89%
Net interest margin                                  3.76%                   3.21%

The following tables present changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and interest-bearing liabilities for the six months and quarters ended June 30, 2009 compared to 2008. Tax-exempt income is calculated on a tax-equivalent basis, using a 35.0% tax rate in 2009 and 2008.

Six months ended June 30, 2009 compared to 2008

Dollars in thousands                     Volume    Rate   Rate/Volume1  Total
Interest on earning assets
Investment securities                     $ 2,109 $ (693)      $ (211) $ 1,205
Loans held for sale                          (15)    (23)            5    (33)
Loans                                       1,694 (5,469)        (309) (4,084)
Total interest income                       3,788 (6,185)        (515) (2,912)
Interest expense
Deposits                                    2,385 (6,739)      (1,301) (5,655)
Other borrowings2                           (807) (1,471)          207 (2,071)
Total interest expense                      1,578 (8,210)      (1,094) (7,726)
Change in net interest income             $ 2,210 $ 2,025        $ 579 $ 4,814

Quarters ended June 30, 2009 compared to 2008

Dollars in thousands                   Volume    Rate   Rate/Volume1  Total
Interest on earning assets
Investment securities                   $ 1,027 $ (391)       $(114)   $ 522
Loans held for sale                        (10)    (11)            3    (18)
Loans                                       884 (2,444)        (149) (1,709)
Total interest income                     1,901 (2,846)        (260) (1,205)
Interest expense
Deposits                                  1,094 (3,337)        (618) (2,861)
Other borrowings2                         (274)   (694)           71   (897)
Total interest expense                      820 (4,031)        (547) (3,758)
Change in net interest income           $ 1,081 $ 1,185        $ 287  $2,553

1 Represents the change attributable to a combination of change in rate and change in volume.

2 Includes federal funds purchased.

Average Daily Balance Sheets



The following table shows the Company's average daily balance sheets for the
six-month periods and quarters ended June 30, 2009 and 2008.



                                                                         For the                     For the
                                                                    six months ended             quarters ended
In thousands of dollars                                        June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
Assets
Cash and due from banks                                             $ 13,585      $ 14,317      $ 13,277      $ 13,857
Securities available for sale                                         16,313        25,092        12,994        26,392
Securities to be held to maturity                                    277,068       187,422       269,931       180,422
Federal Reserve Bank and Federal Home Loan Bank stock, at cost        14,693        14,693        14,693        14,693
Loans held for sale (fair value approximates cost)                     1,805         2,219         1,649         2,200
Loans                                                                987,508       934,636       985,777       929,110
Allowance for loan losses                                            (9,745)       (7,123)       (9,270)       (6,920)
Net loans                                                            977,763       927,513       976,507       922,190
Accrued interest receivable                                            6,554         7,244         6,333         6,394
Premises and equipment                                                17,588        16,280        16,400        16,384
Other real estate owned                                                2,540         1,438         2,468         1,317
Dividends receivable                                                       -             -             -             -
Goodwill                                                              27,684        27,684        27,684        27,684
Other assets                                                          19,774        17,122        19,896        16,562
Total Assets                                                      $1,375,367    $1,241,024    $1,361,832    $1,228,095

Liabilities & Stockholders' Equity
Demand deposits                                                     $ 60,188      $ 57,366      $ 61,502      $ 57,139
NOW deposits                                                         104,124        99,727       103,005        96,820
. . .