PORTLAND (AP) – Banknorth Group Inc. on Thursday posted a 19 percent increase in earnings for the first quarter, saying its strategy of gobbling up smaller banks in the region has fueled profit growth despite a sluggish economy.

The bank holding company said net income for the three months ended March 31 totaled $81.4 million, or 51 cents per diluted share, compared to $68.5 million, or 45 cents per diluted share, in the same period a year ago.

Banknorth recorded its ninth consecutive year of record earnings in 2002 and its results for the most recent quarter also set a record.

“Our profitable acquisition strategy combined with our ability to compete successfully in our traditional markets for loans and deposits continues to drive our earnings upward even in a challenging economy,” said William J. Ryan, chairman, president and chief executive officer.

“This year may well be the most challenging in more than a decade but we are determined to again produce solid earnings.”

While reporting solid double-digit growth in total loans, deposits and noninterest income over the first quarter of 2002, Banknorth noted that net interest margin had slipped from 4.2 percent to 3.6 percent.

On the cost side, the company managed to keep its increase in noninterest expenses to 5 percent.

“In the face of economic uncertainty this year, we have made expense control a point of emphasis,” Ryan said. “First quarter results indicate that our efforts have had a high degree of success.”

During the past quarter, Banknorth’s assets topped the $25 billion mark – it now stands at $26.3 billion – with completion of the takeover of American Financial Holdings Inc., parent of American Savings Bank in Connecticut.

Banknorth, now ranked among the nation’s 35 largest commercial banks, has no acquisitions pending but continues to examine potential deals, with Massachusetts and Connecticut the top target areas, said Brian Arsenault, senior vice president for investor relations.

Banknorth’s banking subsidiaries include Peoples Heritage in Maine, Bank of New Hampshire, Banknorth Massachusetts, Banknorth Vermont, Banknorth Connecticut and Evergreen Bank in upstate New York.

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On the Net:

http://www.banknorth.com

AP-ES-04-17-03 0953EDT