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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from
 to

Commission file number 0-16947

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BANKNORTH GROUP, INC.(Exact name of registrant as specified in its charter)

|Maine(State or other jurisdiction of incorporation or organization)                       |  | 01-0437984(I.R.S. Employer Identification Number)
|----------------------------------------------------------------------------------------- |  | -------------------------------------------------
|P.O. Box 9540
Two Portland Square
Portland, Maine(Address of principal executive offices) |  | 04112-9540(Zip Code)                             

Registrant's
telephone number, including area code:(207) 761-8500

Securities registered pursuant to Section 12(b) of the Act:Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par valueTitle of Class

Preferred Stock Purchase RightsTitle of Class


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Indicate
by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ý

As
of March 11, 2002, the aggregate market value of the 147,368,998 shares of Common Stock of the Registrant issued and outstanding on such date, excluding the 891,640 shares held
by all directors and executive officers of the Registrant as a group (which does not include unexercised stock options), was $3.8 billion. This figure is based on the last sale price of $25.90
per share of the Registrant's Common Stock on March 11, 2002, as reported in The Wall Street Journal on March 12, 2002. Although directors of the Registrant and executive officers of the
Registrant and its subsidiaries were assumed to be "affiliates" of the Registrant for purposes of this calculation, the classification is not to be interpreted as an admission of such status.

Number
of shares of Common Stock outstanding as of March 11, 2002: 147,368,998

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated:

Portions
of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on April 23, 2002 are incorporated by reference into Part III, Items
10-13 of this Form 10-K.

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BANKNORTH GROUP, INC.  2001 FORM 10-K ANNUAL REPORT    TABLE OF CONTENTS

|         |  |                                                                                       |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I  
|Item 1.  |  | BUSINESS                                                                              |  | 1   
|         |  | General                                                                               |  | 1   
|         |  | Business                                                                              |  | 1   
|         |  | Acquisitions                                                                          |  | 2   
|         |  | Subsidiaries and Other Equity Investments                                             |  | 2   
|         |  | Competition                                                                           |  | 3   
|         |  | Employees                                                                             |  | 3   
|         |  | Supervision and Regulation                                                            |  | 3   
|         |  | Taxation                                                                              |  | 7   
|         |  | Statistical Disclosure by Bank Holding Companies                                      |  | 7   
|Item 2.  |  | PROPERTIES                                                                            |  | 8   
|Item 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 9   
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 9   
|PART II 
|Item 5.  |  | MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS             |  | 9   
|Item 6.  |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                  |  | 10  
|Item 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 11  
|Item 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 37  
|Item 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 38  
|Item 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |  | 83  
|PART III
|Item 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 83  
|Item 11. |  | EXECUTIVE COMPENSATION                                                                |  | 83  
|Item 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 83  
|Item 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 83  
|PART IV 
|Item 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                      |  | 84  
|         |  | SIGNATURES                                                                            |  | 87  

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FORWARD-LOOKING STATEMENTS

IN THE NORMAL COURSE OF BUSINESS, WE, IN AN EFFORT TO HELP KEEP OUR SHAREHOLDERS AND THE PUBLIC INFORMED ABOUT OUR OPERATIONS, MAY FROM TIME TO TIME ISSUE OR MAKE
CERTAIN STATEMENTS, EITHER IN WRITING OR ORALLY, THAT ARE OR CONTAIN FORWARD-LOOKING STATEMENTS, AS THAT TERM IS DEFINED IN THE U.S. FEDERAL SECURITIES LAWS. GENERALLY, THESE STATEMENTS RELATE TO
BUSINESS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED BENEFITS FROM ACQUISITIONS MADE BY OR TO BE MADE BY US, PROJECTIONS INVOLVING ANTICIPATED REVENUES, EARNINGS, PROFITABILITY OR OTHER ASPECTS OF
OPERATING RESULTS OR OTHER FUTURE DEVELOPMENTS IN OUR AFFAIRS OR THE INDUSTRY IN WHICH WE CONDUCT BUSINESS. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY REFERENCE TO A FUTURE PERIOD OR PERIODS OR
BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "ANTICIPATE," "BELIEVE," "EXPECT," "INTEND," "PLAN," "ESTIMATE" OR SIMILAR EXPRESSIONS.

ALTHOUGH
WE BELIEVE THAT THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS REFLECTED IN OUR FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, WE CAN GIVE NO ASSURANCE THAT
THOSE RESULTS OR EXPECTATIONS WILL BE ATTAINED. FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS (SOME OF WHICH ARE BEYOND OUR CONTROL), AND AS A RESULT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE EXPRESSED IN FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING,
AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN:



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YOU
SHOULD NOT PUT UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE, AND WE UNDERTAKE NO OBLIGATION TO UPDATE THEM IN
LIGHT OF NEW INFORMATION OR FUTURE EVENTS EXCEPT TO THE EXTENT REQUIRED BY FEDERAL SECURITIES LAWS.

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PART I.

ITEM 1.  BUSINESS

General

We, Banknorth Group, Inc., are a Maine corporation and a registered bank holding company and financial holding company under the Bank Holding Company Act
of 1956, as amended. We conduct business from our headquarters in Portland, Maine and, as of December 31, 2001, 308 banking offices located in Maine, New Hampshire, Massachusetts, Vermont, New
York and Connecticut. At December 31, 2001, we had consolidated assets of $21.1 billion and consolidated shareholders' equity of $1.8 billion. Based on total assets at that date,
we are one of the 35 largest commercial banking organizations in the United States.

Our
principal asset is all of the capital stock of Banknorth, NA, a national bank which was initially formed as a Maine-chartered savings bank in the mid-19th
century. Effective January 1, 2002, we consolidated all eight of our other banking subsidiaries and our trust company subsidiary into Banknorth, NA, which was known as "Peoples Heritage Bank"
prior to these consolidations. Banknorth, NA operates under the trade name "Peoples Heritage Bank" in Maine, "Bank of New Hampshire" in New Hampshire and "Evergreen Bank" in New York to take advantage
of the goodwill associated with the names of these predecessor banks. Banknorth, NA operates under its name elsewhere in our market areas. Through Banknorth, NA we offer a full range of banking
services and products to individuals, businesses and governments throughout our market areas, including commercial, consumer and trust and investment services.

Unless
the context otherwise requires, the words "Banknorth," "we," "our" and "us" herein refer to Banknorth Group, Inc. and its subsidiaries.

Business

Our principal business consists of attracting deposits from the general public through our offices and using these deposits to originate loans secured by first
mortgage liens on existing single-family (one-to-four units) residential real estate and existing multi-family (over four units) residential and commercial real estate,
construction loans, commercial business loans and leases and consumer loans. We also provide various mortgage banking services and investment management services, as well as, through subsidiaries of
Banknorth, NA, engage in equipment leasing, investment planning, securities brokerage and insurance brokerage activities. We also invest in investment securities and other permitted investments.

We
derive our income principally from interest charged on loans and leases and, to a lesser extent, from interest and dividends earned on investments. We also increasingly derive income
from non-interest sources such as fees received in connection with various lending services, deposit services, trust and investment management services, investment planning services and
merchant and electronic banking services, as well as insurance brokerage commissions and, from time to time, gains on the sale of assets. Our principal expenses are interest expense on deposits and
borrowings, operating expenses, provisions for loan and lease losses and income tax expense. Funds for activities are provided principally by deposits, advances from the Federal Home Loan Bank,
securities sold under repurchase agreements, amortization and prepayments of outstanding loans, maturities and sales of investment securities and other sources.

Through
Banknorth, NA we provide extensive trust and investment management services to our customers. We offer employee benefit trust services in which we act as trustee, custodian,
administrator and/or investment advisor, among other things, for employee benefit plans and for corporate, self-employed, municipal and not-for-profit employers
located throughout our market areas. In addition, we serve as trustee of both living trusts and trusts under wills and in this capacity hold, account for and manage financial assets, real estate and
special assets. Custody, estate settlement and fiduciary tax services, among others, also are offered by us. Assets held in a fiduciary capacity by us are not included in our consolidated balance
sheet for financial reporting purposes.

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We
and our subsidiaries are subject to extensive regulation and supervision under federal and state banking laws. For additional information in this regard, see "Supervision and
Regulation" below.

Acquisitions

Our profitability and market share have been enhanced in recent years through internal growth and acquisitions of both financial and nonfinancial institutions. We
continually evaluate acquisition opportunities and frequently conduct due diligence in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations
frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values, and
therefore, some dilution of our book value and net income per common share may occur in connection with any future transactions. Moreover, acquisitions commonly result in significant
one-time charges against earnings, although cost-savings, especially incident to in-market acquisitions, frequently are anticipated.

Subsidiaries and Other Equity Investments

Taking into account the consolidation of our banking subsidiaries effective January 1, 2002, our only direct subsidiaries at December 31, 2001 were
Banknorth, NA, Northgroup Realty, Inc., an acquired subsidiary which holds certain commercial real estate located in Burlington, Vermont, and the financing vehicles Peoples Heritage Capital
Trust I and Banknorth Capital Trust I. For additional information on these trusts, see Note 15 to the Consolidated Financial Statements included in Item 8 hereof.

Set
forth below is a brief description of certain of our indirect non-banking subsidiaries and certain other equity investments.

Insurance Brokerage Activities.We conduct insurance brokerage activities through Banknorth Insurance Group, Inc.,
which holds all of the outstanding stock of Morse, Payson & Noyes Insurance, one of the largest insurance brokerage firms in Maine. Morse Payson & Noyes Insurance also conducts business
in (i) New Hampshire under the trade name A.D. Davis Insurance, (ii) Massachusetts through Catalano Insurance Agency Inc., a wholly-owned subsidiary of Morse, Payson &
Noyes Insurance, and Palmer Goodell Financial Group, a wholly-owned subsidiary of Catalano, and (iii) Connecticut through Arthur A. Watson & Co., Inc., a wholly-owned subsidiary
of Morse Payson & Noyes Insurance.

Investment Planning and Securities Brokerage Activities.We conduct investment planning and securities brokerage activities
through Bancnorth Investment Planning Group, Inc. We also offer through Bancnorth Investment Planning Group investments in mutual funds and annuities throughout our market areas. Bancnorth
Investment Planning Group offers its services to individuals and small businesses from its office located in Portland, Maine and from certain of our other locations in Maine, Massachusetts, New
Hampshire, Vermont, New York and Connecticut. Sales professionals at Bancnorth Investment Planning Group are registered representatives of Primevest Financial Services, Inc., a registered
broker/dealer, and all securities brokerage activities are conducted through Primevest Financial Services, Inc. The sales professionals receive referrals from our branch offices throughout our market
areas.

In
addition to the foregoing, Bancnorth Investment Planning Group conducts insurance sales activities through its wholly-owned insurance agency, Bancnorth Investment and Insurance
Agency, Inc., and through certain agencies of Banknorth Insurance Group, Inc. in Maine, Massachusetts, New Hampshire, Connecticut, Vermont and New York. Bancnorth Investment Planning
Group, either directly or through other agencies, offers life insurance and long-term care insurance products in conjunction with the sales of investments and annuities.

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Equipment Leasing Activities.We conduct equipment leasing activities through Banknorth Leasing Corp. This company is
headquartered in Portland, Maine and engages in direct equipment leasing activities, primarily involving office equipment, in the States of Maine, New Hampshire, Massachusetts, Vermont, New York and
Connecticut. At December 31, 2001, Banknorth Leasing Corp. had $108.5 million of leases outstanding.

Other Equity Investments.We hold certain other equity investments, primarily through Banknorth, NA. At December 31,
2001, these investments consisted of (i) $39.9 million of interests in limited partnerships formed for the purpose of investing in real estate for lower-income families, elderly housing
projects and/or the preservation or restoration of historically or architecturally significant buildings or structures and (ii) an aggregate of $13.3 million of interests in limited
partnerships which invest in small business investment companies and equity investments in entities which generally are intended to promote community welfare. For additional information about these
investments see Note 17 to the Consolidated Financial Statements included in Item 8 hereof.

Competition

We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions, including savings and loan
associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance
companies. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available
low-cost or guaranteed loans to certain borrowers. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch
systems and a wider array of commercial banking services than us. Competition from both bank and non-bank organizations will continue.

The
banking industry is experiencing rapid changes in technology. In addition to improving customer services, effective use of technology increases efficiency and enables financial
institutions to reduce costs. Technological advances also likely will enhance competition by enabling more companies to provide financial resources. As a result, our future success will depend in part
on our ability to address
our customers' needs by using technology. We cannot assure you that we will be able to effectively develop new technology-driven products and services or be successful in marketing these products to
our customers. Many of our competitors have far greater resources than we have to invest in technology.

Employees

We had approximately 6,000 full-time equivalent employees as of December 31, 2001. None of these employees is represented by a collective
bargaining agent, and we believe that we enjoy good relations with our personnel.

Supervision and Regulation

The following discussion sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and
provides certain specific information relevant to Banknorth. The regulatory framework is intended primarily for the protection of depositors and the insurance funds administered by the FDIC and not
for the protection of security holders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on our business.

General.Banknorth currently is registered as a bank holding company and a financial holding company under the Bank Holding
Company Act of 1956, as amended. As such, we are subject to

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regulation, supervision and examination by the Federal Reserve Board. We also are registered as a Maine financial institution holding company under Maine law and as such are subject to regulation and
examination by the Superintendent of Banking of the State of Maine. Banknorth, NA is a national bank subject to regulation, supervision and examination by the Office of the Comptroller of the Currency
("OCC"), its chartering authority, and by the Federal Deposit Insurance Corporation ("FDIC"), which insures Banknorth, NA's deposits to the maximum extent permitted by law.

Financial Modernization.Effective March 11, 2000, the Gramm-Leach-Bliley Act permits bank holding companies to become
financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and which are not authorized for bank
holding companies. A bank holding company may become a financial holding company if each of its subsidiary banks is "well capitalized" under the prompt corrective action provisions of the Federal
Deposit Insurance Improvement Act of 1991 ("FDICIA") and the applicable regulations thereunder, is "well managed" and has at least a satisfactory rating under the Community Reinvestment Act by filing
a declaration with the Federal Reserve Board that the bank holding
company seeks to become a financial holding company. Banknorth became a financial holding company effective January 25, 2002.

No
regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or
incidental to activities that are financial in nature, as determined by the Federal Reserve Board. The Gramm-Leach-Bliley Act defines "financial in nature" to include securities underwriting, dealing
and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be
closely related to banking. A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company
portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a "satisfactory"
Community Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to
continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In
addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding
company or the bank has a Community Reinvestment Act rating of "satisfactory" or better.

Bank Acquisitions.Pursuant to the Bank Holding Company Act, we are required to obtain the prior approval of the Federal
Reserve Board before acquiring more than 5% of any class of voting stock of any bank that is not already majority owned by us. Pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking and Branching Act"), a bank holding company became able to acquire banks in states other than its home state beginning September 29, 1995,
without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to
exceed five years, and the requirement that the bank holding company, prior to or following the proposed acquisition, controls no more than 10% of the total amount of deposits of insured depository
institutions in the United States and less than 30% of such deposits in that state (or such lesser or greater amount set by state law).

The
Interstate Banking and Branching Act also authorizes banks to merge across state lines, subject to certain restrictions, thereby creating interstate branches. Pursuant to the
Interstate Banking and Branching Act, a bank also may open new branches in a state in which it does not already have banking operations if the state enacts a law permitting such de novo branching.

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Capital and Operational Requirements.The Federal Reserve Board, the OCC and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to U.S. banking organizations such as Banknorth and Banknorth, NA. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels, whether because of its
financial condition or actual or anticipated growth. The Federal Reserve Board risk-based guidelines define a three-tier capital framework. "Tier 1 capital" generally consists
of common and qualifying preferred stockholders' equity, less certain intangibles and other adjustments. "Tier 2 capital" and "Tier 3 capital" generally consist of subordinated and other qualifying
debt, preferred stock that does not qualify as Tier 1 capital and the allowance for credit losses up to 1.25% of risk-weighted assets.

The
sum of Tier 1, Tier 2 and Tier 3 capital, less investments in unconsolidated subsidiaries, represents qualifying "total capital," at least 50% of which must consist of Tier 1
capital. Risk-based capital ratios are calculated by dividing Tier 1 capital and total capital by risk-weighted assets. Assets and off-balance sheet exposures are
assigned to one of four categories of risk weights, based primarily on relative credit risk. The minimum Tier 1 risk-based capital ratio is 4% and the minimum total risk-based
capital ratio is 8%. At December 31, 2001, our Tier 1 risk-based capital and total risk-based capital ratios under these guidelines were 9.59% and 12.23%, respectively.

The
"leverage ratio" requirement is determined by dividing Tier 1 capital by adjusted average total assets. Although the stated minimum ratio is 3%, most banking organizations are
required to maintain ratios of at least 100 to 200 basis points above 3%. At December 31, 2001, our leverage ratio was 7.14%.

Federal
bank regulatory agencies require banking organizations that engage in significant trading activity to calculate a capital charge for market risk. Significant trading activity
means trading activity of at least 10% of total assets or $1 billion, whichever is smaller, calculated on a consolidated basis for bank holding companies. Federal bank regulators may apply the
market risk measure to other banks and bank holding companies as the agency deems necessary or appropriate for safe and sound banking practices. Each agency may exclude organizations that it
supervises that otherwise meet the criteria under certain circumstances. The market risk charge will be included in the calculation of an organization's risk-based capital ratios.

FDICIA
identifies five capital categories for insured depository institutions ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized") and requires the respective U.S. federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet
minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which
an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An "undercapitalized" bank must develop a capital
restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5%
of the bank's assets at the time it became undercapitalized or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee
would take priority over the parent's general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and
soundness related generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards.

The
various federal bank regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total
risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations establish

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various degrees of corrective action to be taken when an institution is considered undercapitalized. Under the regulations, a "well capitalized" institution must have a Tier 1 capital ratio of at
least 6%, a total capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive order. An "adequately capitalized" institution must have a Tier 1 capital
ratio of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at least 4%, or 3% in some cases. Under these guidelines, Banknorth, NA is considered "well capitalized."

The
Federal bank regulatory agencies also have adopted regulations which mandate that regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. That evaluation will be made as part of
the institution's regular safety and soundness examination. Banking agencies also have adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity
of an institution's assets does not match the sensitivity of its liabilities or its off-balance sheet position) in the determination of a bank's capital adequacy. Concurrently, banking
agencies have proposed a methodology for evaluating interest rate risk. The banking agencies do not intend to establish an explicit risk-based capital charge for interest rate risk but
will continue to assess capital adequacy for interest rate risk under a risk assessment approach based on a combination of quantitative and qualitative factors and have provided guidance on prudent
interest rate risk management practices.

Distributions.We derive funds for cash distributions to our stockholders primarily from dividends received from our banking
subsidiary. Banknorth, NA is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. The
appropriate U.S. federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of the bank or bank/financial holding company that the payment
of dividends would be an unsafe or unsound practice and to prohibit payment thereof.

In
addition to the foregoing, the ability of us and Banknorth, NA to pay dividends may be affected by the various minimum capital requirements and the capital and non-capital
standards established under FDICIA, as described above. The right of us and our stockholders and creditors to participate in any distribution of the assets or earnings of our subsidiaries is further
subject to the prior claims of creditors of such subsidiaries.

"Source of Strength" Policy.According to Federal Reserve Board policy, bank/financial holding companies are expected to act
as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank/financial holding company may not
be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the
FDICeither as a result of default of a banking or thrift subsidiary of a bank/financial holding company such as Banknorth or related to FDIC assistance provided to a subsidiary in danger
of defaultthe other banking subsidiaries of such bank/financial holding company may be assessed for the FDIC's loss, subject to certain exceptions.

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Community Investment and Consumer Protection Laws.In connection with its lending activities,
Banknorth, NA is subject to a
variety of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. Included among these are the federal Home Mortgage Disclosure Act, Real
Estate Settlement Procedures Act, Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and Community Reinvestment Act.

The
Community Reinvestment Act requires insured institutions to define the communities that they serve, identify the credit needs of those communities and adopt and implement a
"Community Reinvestment Act Statement" pursuant to which they offer credit products and take other actions that respond to the credit needs of the community. The responsible federal banking regulator
must conduct regular Community Reinvestment Act examinations of insured financial institutions and assign to them a Community Reinvestment Act rating of "outstanding," "satisfactory," "needs
improvement" or "unsatisfactory." In 2000, the Community Reinvestment Act rating of our banking subsidiaries was either "outstanding" or "satisfactory."

Miscellaneous.Banknorth, NA is subject to certain restrictions on loans to Banknorth or its non-bank
subsidiaries, on investments in the stock or securities thereof, on the taking of such stock or securities as collateral for loans to any borrower, and on the issuance of a guarantee or letter of
credit on behalf of Banknorth or its non-bank subsidiaries. Banknorth, NA also is subject to certain restrictions on most types of transactions with Banknorth or its non-bank
subsidiaries, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms.

Regulatory Enforcement Authority.The enforcement powers available to federal banking regulators is substantial and includes,
among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations
and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or
inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

Taxation

We are subject to those rules of federal income taxation generally applicable to corporations under the Internal Revenue Code. Banknorth and its subsidiaries, as
members of an affiliated group of
corporations within the meaning of Section 1504 of the Internal Revenue Code, file a consolidated federal income tax return, which has the effect of eliminating or deferring the tax
consequences of inter-company distributions, including dividends, in the computation of consolidated taxable income.

We
also are subject to various forms of state taxation under the laws of Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut as a result of the business which we
conduct in these states.

Statistical Disclosure by Bank Holding Companies

The following information, included under Items 6, 7 and 8 of this report, is incorporated by reference herein.

Table
1Three-Year Average Balance Sheets, which presents average balance sheet amounts, related taxable equivalent interest earned or paid and related average
yields earned and rates paid and is included in Item 7;

Table
2Changes in Net Interest Income, which presents changes in taxable equivalent interest income and expense for each major category of interest-earning assets and
interest-bearing liabilities and is included in Item 7;

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Table
4Securities Available for Sale and Held to Maturity, which presents information regarding carrying values of investment securities by category of security and is
included in Item 7;

Table
5Maturities of Securities, which presents information regarding the maturities and weighted average yield of investment securities by category of security and is
included in Item 7;

Table
6Composition of Loan Portfolio, which presents the composition of loans and leases by category of loan and lease and is included in Item 7;

Table
7Scheduled Contractual Amortization of Certain Loans and Leases at December 31, 2001, which presents maturities and sensitivities of loans and leases to changes
in interest rates and is included in Item 7;

Table
11Five Year Schedule of Nonperforming Assets, which presents information concerning non-performing assets and accruing loans 90 days or more overdue
and is included in Item 7;

"Asset
Quality" and Note 1 to the Consolidated Financial Statements, which discuss our policies for placing loans on non-accrual status, as well as in the case of the
former potential problem loans, which are included in Items 7 and 8, respectively;

Table
8Five-Year Table of Activity in the Allowance for Loan and Lease Losses, included in Item 7;

Table
9Allocation of the Allowance for Loan and Lease LossesFive Year Schedule, included in Item 7;

Table
10Net Charge-offs as a Percent of Average Loans and Leases Outstanding, included in Item 7;

Table
1Three-Year Average Balance Sheets, which includes average balances of deposits by category of deposit and is included in Item 7;

Table
13Maturity of Certificates of Deposit of $100,000 or more at December 31, 2001, included in Item 7;

"Selected
Financial Data," which presents return on assets, return on equity, dividend payout and equity to assets ratios and is included in Item 6; and

Note 12
to the Consolidated Financial Statements, which includes information regarding short-term borrowings and is included in Item 8.

For
additional information regarding our business and operations, see "Selected Financial Data" in Item 6 hereof, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Item 7 hereof and the Consolidated Financial Statements in Item 8 hereof.

ITEM 2.  PROPERTIES

At December 31, 2001, we conducted business from our executive offices at Two Portland Square, Portland, Maine and 308 offices located in Maine, New
Hampshire, Massachusetts, Vermont, New York and Connecticut.

8

---

The
following table sets forth certain information with respect to our offices as of December 31, 2001.

State

Number of
Banking Offices

Deposits(Dollars in Thousands)Maine

61

$
2,643,161New Hampshire

76


3,672,009Massachusetts

101


4,957,979Vermont

37


1,669,138New York

27


1,009,046Connecticut

6


269,716Total

308

$
14,221,049


For
additional information regarding our premises and equipment and lease obligations, see Notes 7 and 17 respectively, to the Consolidated Financial Statements included in Item 8
hereof.

ITEM 3.  LEGAL PROCEEDINGS

We are involved in routine legal proceedings occurring in the ordinary course of business which in the aggregate are believed by us to be immaterial to our
financial condition and results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of our security holders in the fourth quarter of 2001.

PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market. The following table sets forth the high and low prices of the common stock as reported on the Nasdaq
National Market and the dividends declared per share of common stock for the periods indicated.

Market PriceDividends Declared
Per ShareHigh

Low2001First Quarter

$
21.06

$
18.13

$
0.130Second Quarter


22.93


19.38


0.130Third Quarter


24.39


18.93


0.130Fourth Quarter


22.92


19.78


0.1352000First Quarter


16.13


10.38


0.125Second Quarter


18.00


11.94


0.125Third Quarter


18.50


14.88


0.125Fourth Quarter


21.13


15.56


0.125


As
of December 31, 2001, there were 151,220,600 shares of common stock outstanding which were held by approximately 15,000 holders of record. Such number of record holders does
not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms and other nominees.

We
have historically paid quarterly dividends on our common stock and currently intend to continue to do so in the foreseeable future. Our ability to pay dividends depends on a number of
factors, however, including restrictions on the ability of Banknorth, NA to pay dividends under federal laws and regulations, and as a result there can be no assurance that dividends will be paid in
the future.

9

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

|                                                         |                              | 2001        |       | 2000        |       | 1999        |       | 1998        |       | 1997        |      
|-------------------------------------------------------- | ---------------------------- | ----------- | ----- | ----------- | ----- | ----------- | ----- | ----------- | ----- | ----------- | -----
|
|Results for the Year                                     |                              |             |       |             |       |             |       |             |       |             |      
|Net interest income(1)                                   |                              | $679,964    |       | $603,624    |       | $614,395    |       | $578,300    |       | $555,891    |      
|Provision for loan and lease losses                      |                              | 41,889      |       | 23,819      |       | 23,575      |       | 23,775      |       | 15,763      |      
|Noninterest income (excluding securities transactions)   |                              | 239,176     |       | 226,644     |       | 191,140     |       | 161,124     |       | 134,144     |      
|Securities gains (losses)                                |                              | 1,329       |       | (15,456     | )     | 655         |       | 6,423       |       | 2,837       |      
|Noninterest expenses (excluding special charges)(1)      |                              | 501,782     |       | 459,459     |       | 460,306     |       | 446,110     |       | 429,874     |      
|Special charges(2)                                       |                              | 7,614       |       | 43,007      |       | 28,002      |       | 61,140      |       | 23,559      |      
|Net income(3)                                            |                              | 238,795     |       | 191,734     |       | 196,958     |       | 141,744     |       | 145,488     |      
|Operating income (net income excluding special items)(2) |                              | 247,927     |       | 234,686     |       | 217,774     |       | 186,946     |       | 161,035     |      
|                                                         |                             
|Share Data                                               |                              |             |       |             |       |             |       |             |       |             |      
|Earnings per share:                                      |                              |             |       |             |       |             |       |             |       |             |      
|                                                         | Basic(3)                     |             | $1.70 |             | $1.33 |             | $1.35 |             | $0.97 |             | $1.00
|                                                         | Diluted(3)                   |             | 1.68  |             | 1.32  |             | 1.34  |             | 0.95  |             | 0.98 
|                                                         | Operating diluted(4)         |             | 1.75  |             | 1.62  |             | 1.48  |             | 1.25  |             | 1.08 
|                                                         | Operating diluted cash(4)(5) |             | 1.88  |             | 1.74  |             | 1.59  |             | 1.35  |             | 1.16 
|Dividends per share                                      |                              | 0.53        |       | 0.50        |       | 0.47        |       | 0.44        |       | 0.38        |      
|Book value per share at year end                         |                              | 11.83       |       | 9.42        |       | 8.22        |       | 8.37        |       | 7.97        |      
|Tangible book value per share at year end                |                              | 8.75        |       | 8.11        |       | 6.95        |       | 6.97        |       | 6.88        |      
|Stock price:                                             |                              |             |       |             |       |             |       |             |       |             |      
|                                                         | High                         |             | 24.39 |             | 21.13 |             | 20.25 |             | 26.75 |             | 23.81
|                                                         | Low                          |             | 18.13 |             | 10.38 |             | 14.31 |             | 12.81 |             | 12.94
|                                                         | Close                        |             | 22.52 |             | 19.94 |             | 15.06 |             | 20.00 |             | 23.00
|Weighted average shares outstandingDiluted              |                              | 141,802     |       | 145,194     |       | 147,428     |       | 148,965     |       | 148,600     |      
|                                                         |                             
|Key Performance Ratios                                   |                              |             |       |             |       |             |       |             |       |             |      
|Return on average assets                                 |                              | 1.29        | %     | 1.05        | %     | 1.12        | %     | 0.90        | %     | 1.05        | %    
|Return on average equity                                 |                              | 16.48       |       | 15.69       |       | 16.42       |       | 11.96       |       | 13.01       |      
|Operating return on average assets(4)                    |                              | 1.34        |       | 1.28        |       | 1.24        |       | 1.19        |       | 1.16        |      
|Operating return on average equity(4)                    |                              | 17.11       |       | 19.20       |       | 18.16       |       | 15.78       |       | 14.40       |      
|Operating cash return on average assets(4)(5)            |                              | 1.45        |       | 1.39        |       | 1.35        |       | 1.30        |       | 1.14        |      
|Operating cash return on average equity(4)(5)            |                              | 21.73       |       | 24.22       |       | 23.33       |       | 19.71       |       | 16.60       |      
|Net interest margin(1)(6)                                |                              | 3.99        |       | 3.60        |       | 3.80        |       | 4.02        |       | 4.33        |      
|Average equity to average assets                         |                              | 7.82        |       | 6.66        |       | 6.81        |       | 7.55        |       | 8.07        |      
|Efficiency ratio(1)(7)                                   |                              | 54.59       |       | 55.34       |       | 57.14       |       | 60.33       |       | 62.30       |      
|Noninterest income as a percent of total income(8)       |                              | 26.02       |       | 26.99       |       | 23.44       |       | 21.44       |       | 19.15       |      
|Tier 1 leverage capital ratio                            |                              | 7.14        |       | 7.02        |       | 6.75        |       | 7.22        |       | 7.65        |      
|Dividend payout ratio(9)                                 |                              | 30.27       |       | 36.91       |       | 33.19       |       | 40.38       |       | 39.60       |      
|                                                         |                             
|Average Balances                                         |                              |             |       |             |       |             |       |             |       |             |      
|Assets                                                   |                              | $18,545,709 |       | $18,343,226 |       | $17,607,344 |       | $15,696,234 |       | $13,857,897 |      
|Loans and leases                                         |                              | 11,246,007  |       | 10,485,289  |       | 9,908,177   |       | 10,679,544  |       | 9,328,963   |      
|Earning assets                                           |                              | 17,204,628  |       | 16,954,605  |       | 16,315,233  |       | 14,503,172  |       | 12,906,106  |      
|Deposits                                                 |                              | 12,529,630  |       | 11,891,481  |       | 11,784,103  |       | 11,435,942  |       | 10,341,582  |      
|Shareholders' equity                                     |                              | 1,449,353   |       | 1,222,378   |       | 1,199,496   |       | 1,184,770   |       | 1,117,953   |      
|                                                         |                             
|At Year End                                              |                              |             |       |             |       |             |       |             |       |             |      
|Assets                                                   |                              | $21,076,586 |       | $18,233,810 |       | $18,508,264 |       | $16,453,120 |       | $15,332,821 |      
|Loans and leases, gross                                  |                              | 12,715,330  |       | 10,845,662  |       | 9,854,656   |       | 9,925,137   |       | 10,012,718  |      
|Securities                                               |                              | 6,156,861   |       | 5,880,658   |       | 6,873,182   |       | 4,379,774   |       | 3,617,236   |      
|Deposits                                                 |                              | 14,221,049  |       | 12,107,256  |       | 11,710,501  |       | 12,016,212  |       | 11,088,410  |      
|Borrowings(1)                                            |                              | 4,602,388   |       | 4,659,390   |       | 5,466,253   |       | 3,040,173   |       | 2,904,286   |      
|Shareholders' equity                                     |                              | 1,789,115   |       | 1,330,857   |       | 1,192,274   |       | 1,222,390   |       | 1,164,383   |      
|Common shares outstanding                                |                              | 151,221     |       | 141,245     |       | 144,974     |       | 146,105     |       | 146,133     |      
|Nonperforming assets(10)                                 |                              | 81,227      |       | 67,132      |       | 69,192      |       | 89,021      |       | 98,125      |      
|Nonperforming assets as a percentage of total assets(10) |                              | 0.39        | %     | 0.37        | %     | 0.37        | %     | 0.54        | %     | 0.64        | %    

---

10

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis which follows focuses on the factors affecting the results of operations of Banknorth Group, Inc. during 2001, 2000, and 1999
and financial condition at December 31, 2001 and 2000. The Consolidated Financial Statements and related notes should be read in conjunction with this review. Certain amounts in years prior to
2001 have been reclassified to conform to the 2001 presentation.

GENERAL

Banknorth Group, Inc. is a Maine corporation and a registered bank holding company and financial holding company under the Bank Holding Company Act of
1956, as amended. We conduct business from our headquarters in Portland, Maine and, as of December 31, 2001, 308 banking offices located in Maine, New Hampshire, Massachusetts, Vermont, New
York and Connecticut. At December 31, 2001, we had consolidated assets of $21.1 billion and consolidated shareholders' equity of $1.8 billion. Based on total assets at that date,
we are one of the 35 largest commercial banking organizations in the United States.

Our
principal asset is all of the capital stock of Banknorth, NA, a national bank which was initially formed as a Maine-chartered savings bank in the mid-19th
century. Effective January 1, 2002, we consolidated all eight of our other banking subsidiaries and our trust company into Banknorth, NA, which was known as "Peoples Heritage Bank" prior to
these consolidations. Banknorth, NA operates under the trade name "Peoples Heritage Bank" in Maine, "Bank of New Hampshire" in New Hampshire and "Evergreen Bank" in New York to take advantage of the
goodwill associated with the names of these predecessor banks. Banknorth, NA operates under its name elsewhere in our market areas. Through Banknorth, NA we offer a full range of banking services and
products to individuals, businesses and governments throughout our market areas, including commercial, consumer, trust and investment management and investment planning services.

We
are subject to extensive regulation and supervision under federal and state banking laws. See "Regulation and Supervision" under Item 1.

Business Strategy

Our principal business consists of attracting deposits from the general public and using such deposits and other sources of funds to originate commercial business
loans and leases, commercial real estate loans, residential mortgage loans and a variety of consumer loans. In addition to keeping loans for our own portfolio, we sell residential mortgage loans into
the secondary market. We also invest in mortgage-backed securities and securities issued by the United States Government and agencies thereof, as well as other securities. In addition, we emphasize
the growth of noninterest sources of income from trust and investment management, investment planning, insurance brokerage and other financial services.

Our
goal is to sustain profitable, controlled growth by focusing on increasing our loan and deposit market share in New England and upstate New York; developing new financial products,
services and delivery channels; closely managing yields on earning assets and rates on interest-bearing liabilities; increasing noninterest income through, among other things, expanded trust and
investment management, investment planning and insurance brokerage services and controlling the growth of noninterest expenses. It is also part of our business strategy to supplement internal growth
with targeted acquisitions of other financial institutions and insurance agencies in our current or contiguous market areas. During the period covered by this discussion, we engaged in numerous merger
and acquisition related activities. For further information, see Note 3 to the Consolidated Financial Statements and "Acquisitions" below. We regularly evaluate potential acquisitions and, as a
general rule, announce acquisitions only after a definitive agreement has been reached.

11

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Economic Conditions

We believe that our market area generally has witnessed steady economic growth since 1992; however, economic growth generally declined in our market area in the
second half of 2001. Although these developments have not materially adversely affected us to date, they did contribute to an increase in our provisions for loan and lease losses, net
charge-offs and nonperforming assets during 2001, as discussed herein. The economies and real estate markets in our primary market areas will continue to be significant determinants of the
quality of our assets in future periods and, thus, our results of operations, liquidity and financial condition. We believe future economic activity will significantly depend on consumer confidence,
personal consumption expenditures and business expenditures for new capital equipment, each of which is tied to strong employment.

Acquisitions

On October 31, 2001, we completed the acquisition of Andover Bancorp, Inc. ("Andover"), a multi-bank holding company headquartered in
Andover, Massachusetts, and MetroWest Bank ("MetroWest"), a Massachusetts-chartered savings bank headquartered in Framingham, Massachusetts. Andover had total assets of $1.8 billion and total
shareholders' equity of $162 million at October 31, 2001. A total of 16.5 million shares of our common stock (including 1.0 million shares issuable upon exercise of
Banknorth stock options issued in exchange for Andover stock options) were issued in connection with the acquisition of Andover. MetroWest had total assets of $907 million and total
shareholders' equity of $62 million at October 31, 2001. MetroWest shares, including vested stock options, were purchased for $11.50 per share for a total cost of $164.8 million.
The acquisitions were accounted for as purchases in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." We recorded $286 million of goodwill and other intangibles and $16.8 million of core deposit intangibles (both subject to final purchase accounting adjustments) in
connection with these acquisitions.

During
the third quarter of 2000, we completed the acquisition of Palmer Goodell Insurance Agency, Inc. (based in Springfield, Massachusetts) and Arthur A. Watson &
Co., Inc. (an insurance agency based in Wethersfield, Connecticut). These agencies, which were acquired for a combination of cash and stock, had combined annual revenues of approximately
$18 million in 1999. The acquisitions resulted in the recording of goodwill of $22.7 million, which is being amortized over 20 years. These insurance agency acquisitions are an
important part of our strategy to offer our customers a full range of financial services in all the markets we serve.

On
May 10, 2000, we completed the acquisition of Banknorth Group, Inc. ("former Banknorth"), which was effected by the merger of former Banknorth with and into Peoples
Heritage Financial Group, Inc., which changed our name to "Banknorth Group, Inc." as a result of the merger. Approximately 42.9 million shares of our common stock were issued in
connection with this transaction. As of December 31, 1999, former Banknorth had total assets of $4.6 billion and total shareholders' equity of $341 million. The acquisition was
accounted for using the pooling-of-interests method and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to
present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods.

On
January 1, 1999, we completed the acquisition of SIS Bancorp, Inc. ("SIS"). Approximately 16.3 million shares of our common stock were issued in connection with
this acquisition. SIS had total assets of $2.0 billion and shareholders' equity of $139 million at December 31, 1998. The acquisition of SIS was accounted for as a
pooling-of-interests and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to present the combined financial
condition and results of operations as if the acquisition had been in effect for all such periods.

We
incurred various merger-related and restructuring charges in connection with the foregoing acquisitions and in connection with acquisitions effected by Andover, former Banknorth and
SIS prior

12

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to their acquisition by us (collectively, "special charges"). For additional information, see "Results of OperationsSpecial Charges" and Note 11 to the Consolidated Financial
Statements.

Accounting Policies that Involve Estimates and Judgment

When preparing financial statements we are required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting periods. Material estimates and assumptions that are particularly
susceptible to change relate to the determination of the carrying values of the following:

allowance
for loan and lease losses;

deferred
tax assets and related valuation allowance;

capitalized
costs of software developed for internal use;

mortgage
servicing rights; and

long-lived
assets, including goodwill and intangible assets.

The
estimates and assumptions used in each of these areas are reviewed quarterly for continuing applicability and revised based on current facts and circumstances. However, actual
results (which are based on future events) could differ materially from these estimates and assumptions. Although each of the above areas involves the use of estimates and judgments, as of
December 31, 2001 the allowance for loan and lease losses is the only area that would have a significant impact on financial condition or results of operations if actual results differed
materially from the estimates and assumptions used.

RESULTS OF OPERATIONS

Comparison of 2001 and 2000

Overview

We reported net income of $238.8 million or $1.68 per diluted share in 2001, compared to $191.7 million or $1.32 per diluted share in 2000.
Excluding special items, we earned $247.9 million or $1.75 per diluted share in 2001 compared to $234.7 million or $1.62 per diluted share during 2000, an increase of 8%. The improved
results were attributable to increased net interest income and noninterest income, which were partially offset by increased provisions for loan and lease losses. Cash return on average equity
excluding special items was 21.73% in 2001 compared to 24.22% in 2000. The decline in the operating cash return on average equity was primarily due to improvement in the fair value of securities
available for sale, which resulted in higher levels of equity. Cash return on average assets excluding special items was 1.45% in 2001 compared to 1.39% in 2000.

Net
interest income and noninterest income increased 13% and 14% during 2001, respectively. The increase in net interest income was attributable to an increase in the net interest margin
due to decreased short-term interest rates resulting from the Federal Reserve Board rate cuts during the year. The increase in net interest margin reflected a decline in the average rates
paid on interest-bearing liabilities and declines in the average balance of interest-bearing liabilities, offset by a decline in the yield on earning assets as well as a change in the mix of earning
assets.

The
provision for loan and lease losses increased by $18.1 million in 2001 compared to 2000 due to increased charge-offs and higher levels of classified loans
resulting from the slowing economy. The increase in noninterest income, excluding securities transactions, was 6% during 2001. This increase was primarily a result of increases in income from merchant
and electronic banking and insurance brokerage commissions. Noninterest expenses, excluding special charges, increased 9% in 2001 due primarily to increases in salaries and benefits and occupancy
expenses.

13

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Net Interest Income

Net interest income on a fully taxable-equivalent basis increased by $76.6 million, or 13%, during 2001 due primarily to an 87 basis point decrease in
average rates paid on interest-bearing liabilities, which more than offset a 50 basis point decrease in the average yield earned on interest-earning assets. The net interest margin correspondingly
increased to 3.99% in 2001 from 3.60% during 2000. Average loans
and leases increased by $760.7 million, or 7%, in 2001 compared to 2000. The increase was primarily attributable to growth in commercial and consumer loans. Average securities decreased
$481.4 million, or 8%, in 2001 due primarily to the runoff of mortgage-backed securities in conjunction with a balance sheet deleveraging program achieved through a reduction in borrowings.
Average deposits increased $638.1 million, or 5% during 2001. Average borrowed funds decreased $698.0 million, or 14%, in 2001 compared to 2000, primarily as a result of a deleveraging
program as well as prepayment of $174.6 million of advances from Federal Home Loan Banks. Information on average balances, yields and rates for the past three years can be found in
Table 1. Table 2 shows the changes from 2000 to 2001 in tax equivalent net interest income by category due to changes in rate and volume.
Information on interest rate sensitivity can be found in the Asset-Liability Management section below.

Provision and Allowance for Loan and Lease Losses

We recorded a provision for loan and lease losses in 2001 of $41.9 million, as compared to a $23.8 million provision in 2000, which reflected an
increase in classified loans. Net charge-offs to average loans outstanding was 0.33% in 2001, as compared to 0.24% in 2000. Net charge-offs were $36.9 million in 2001
compared to $25.3 million in 2000. This $11.6 million increase was primarily due to increased levels of gross charge-offs, including those related to a leasing portfolio
acquired in the Andover acquisition in 2001 and shared national credits acquired in the acquisition of former Banknorth in 2000.

The
allowance for loan and lease losses amounted to $189.8 million at December 31, 2001, as compared to $153.6 million at December 31, 2000. The increase was
due to acquisitions and the above-discussed provision. The allowance to total portfolio loans and leases at December 31, 2001 and 2000 was 1.49% and 1.42%, respectively. The ratio of the
allowance for loan and lease losses to nonperforming loans was 252% at December 31, 2001 and 249% at December 31, 2000, reflecting improved coverage of nonperforming loans. Nonperforming
assets were 0.39% of total assets at December 31, 2001 as compared to 0.37% at December 31, 2000. The $14.1 million increase in nonperforming assets from December 31, 2000
to $81.2 million was primarily attributable to nonaccruing commercial loans and leases acquired in acquisitions. Accruing loans 90 days or more past due were $6.2 million at
December 31, 2001, up 4% from the prior year.

The
allowance for loan and leases losses is maintained at a level determined to be adequate by management to absorb future charge-offs of loans and leases deemed
uncollectable. This allowance is increased by provisions charged to income and by recoveries on loans previously charged off. Arriving at an appropriate level of allowance for loan and lease losses
necessarily involves a high degree of judgment and is determined based on management's ongoing evaluation. The ongoing evaluation process includes a formal analysis of the allowance each quarter,
which considers, among other factors, the character and size of the loan portfolio, current economic and market conditions, loan growth, delinquency trends, nonperforming loan trends,
charge-off experience, portfolio migration data and other asset quality factors. We evaluate specific loan status reports on certain commercial business and commercial real estate loans
rated "substandard" or worse in excess of a specified dollar amount. Estimated reserves for each of these credits is determined by reviewing current collateral value, financial information, cash flow,
payment history and trends and other relevant facts surrounding the particular credit. Provisions for loan losses on the remaining commercial business and commercial real estate loans are based on
pools of similar loans using a combination of historical loss experience and

14

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migration analysis, which considers the probability of a loan moving from one risk rating category to another over the passage of time. For the residential real estate and consumer loan portfolios,
the range of reserves is calculated by applying historical charge-off and recovery experience to the current outstanding balance in each type of loan category, with consideration given to
loan growth over the preceding twelve months. Although we use a rational approach and careful analysis in determining the provision for loan and lease losses, we must also make estimates and use
assumptions that involve a good deal of judgement. For this reason and for the reasons discussed under "Asset QualityNonperforming Assets," there can be no assurance that we will not have
to change the amount of our provision for loan and lease losses in future periods.

Noninterest Income

Noninterest income was $240.5 million in 2001 compared to $211.2 million in 2000. Excluding securities transactions, noninterest income increased
$12.5 million or 6% in 2001. This increase was primarily due to increases of $5.6 million in deposit services income and $13.6 million in insurance brokerage commissions, which
more than offset a $10.8 million decrease in mortgage banking services income.

Deposit
services income of $72.6 million increased 8% from 2000 and was attributable to volume driven increases in checking account income, ATM fee income and overdraft fees.

Mortgage
banking services income of $11.1 million decreased $10.8 million or 49% during 2001. The decrease in 2001 was primarily due to servicing income which declined by
$7.1 million as a result of the sale of virtually all mortgage servicing rights in the fourth quarter of 2000 and the first quarter of 2001. Results for 2000 also included a $2.9 million
reduction in the impairment reserve for mortgage servicing rights. See the discussion below on capitalized mortgage servicing rights. The decrease was offset by a $6.3 million increase in
residential mortgage sales income. Strong originations and refinancings in 2001, prompted by lower interest rates, led to profitable pricing, delivery and sale of conforming fixed rate loans. Our
portfolio of residential mortgages serviced for investors was $964.0 million at December 31, 2001 compared to $1.6 billion and $4.5 billion at December 31, 2000 and
1999, respectively. Mortgage loans serviced for others decreased primarily as a result of the sale of mortgage servicing rights, as discussed below.

Capitalized
mortgage servicing rights decreased from $23.2 million at December 31, 2000 to $8.5 million at December 31, 2001. The decrease was due to the sale
of mortgage servicing rights with a carrying value of $22.6 million in the first quarter of 2001. In the fourth quarter of 2000, after a comprehensive review of our mortgage banking operations,
we decided to sell virtually all of our existing mortgage servicing rights and to sell mortgage servicing rights on new loan originations on a flow basis shortly after the loans are sold. We sold this
asset after we determined that we could no longer meet our internal investment targets because of the relatively small size of our loans serviced for others portfolio and the volatility due to changes
in interest rates inherent in the mortgage servicing rights asset. In the fourth quarter of 2000, we recorded a $5.2 million gain on sale of $1.8 billion of loans serviced for
others, which was reduced by a $1.5 million loss on the sale of certain principal only securities and interest rate floor contracts which were used to hedge the prepayment risk related to the
mortgage servicing rights asset. The remaining portfolio at December 31, 2001 resulted from the acquisitions of Andover and MetroWest and likely will be sold in 2002.

Trust
and investment management income of $34.1 million decreased 4% during 2001 primarily due to broad-based declines in the stock market, which adversely impacted fees which are
dependent upon the market value of assets. Assets under management were $8.5 billion and $8.8 billion at December 31, 2001 and 2000, respectively, a decrease of 4%. This decrease
was primarily due to adverse market conditions which resulted in declines in the valuation of assets under management.

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Investment planning services income of $8.3 million increased 18% during 2001 primarily due to strong sales of fixed annuities. Investment planning services income is primarily
comprised of commissions earned from the sale of third party mutual funds, annuities, stocks and bonds.

Insurance
brokerage commissions income was $39.4 million and $25.7 million in 2001 and 2000, respectively, an increase of 53%. Our acquisitions of insurance agencies in
Massachusetts and Connecticut at the end of the third quarter of 2000 contributed to this increase.

Income
from bank owned life insurance ("BOLI") was $18.4 million and $17.7 million in 2001 and 2000, respectively. BOLI represents life insurance on the lives of certain
employees. There were two policy benefits recorded in 2001 for a total of $1.0 million, compared to a $1.2 million policy benefit recorded in 2000. The 4% increase in income reflects
investment appreciation which resulted in higher cash surrender value. The cash surrender value of BOLI was $321.1 million at December 31, 2001 compared to $306.4 million at
December 31, 2000. Most of our BOLI is invested in the "general account" of quality insurance companies. All such companies were rated AA- or better by Standard and Poors at
December 31, 2001. BOLI represented 20.41% of capital and reserves at December 31, 2001.

Merchant
and electronic banking income of $32.4 million in 2001 increased 11% from 2000 due to increases in transaction volume. This income represents fees and interchange income
generated by the use of debit cards issued by us and charges to merchants for credit card transactions processed, net of third-party costs directly attributable to handling these transactions.

Loan
fee income amounted to $14.5 million and $8.3 million during 2001 and 2000, respectively. Loan fee income includes prepayment fees, letter of credit fees, late charges
and other loan related fees. The $6.2 million increase in fee income in 2001 was primarily due to increased loan activity and prepayment penalties resulting from declining interest rates.

Net
securities gains amounted to $1.3 million and $439 thousand during 2001 and 2000, respectively. The results in 2001 are net of a $2 million writedown reflecting
an other than temporary decline in the value of a trust preferred security. Gains from the sale of securities are subject to market and economic conditions and, as a result, there can be no assurance
that gains reported in prior periods will be achieved in the future.

In
2000, we incurred a $15.9 million ($10.4 million after-tax) loss on restructuring parts of our securities portfolio by selling $104 million of
securities available for sale coincident with the acquisition of former Banknorth. The securities, which had a weighted average yield of 5.73%, were primarily perpetual preferred stocks acquired in
prior acquisitions, treasury bonds (with a remaining maturity greater than 10 years) and below investment grade debt securities. As a result of the restructuring, we no longer hold any of these
types of securities.

Other
noninterest income amounted to $8.4 million and $14.1 million during 2001 and 2000, respectively, and consisted primarily of gains on sales of certain assets, premium
income on covered call options and commissions on official checks. In 2001, other noninterest income included $3.3 million of premium income recognized on covered call options related to
mortgage-backed securities and a $929 thousand gain on the sale of an equity interest in an ATM network. In 2000, other noninterest income included a $4.7 million gain on the sale of
$29 million of credit card loans in the second quarter of 2000, a $1.2 million gain on sale of eight branches during the fourth quarter of 2000 and realized gains on limited partnership
investments.

Noninterest Expense

Noninterest expense was $509.4 million in 2001 compared to $502.5 million in 2000. Excluding special charges, noninterest expense in 2001 was
$501.8 million compared to $459.5 million in 2000, an increase of $42.3 million or 9%. The increase in 2001 was primarily in salaries and benefits and occupancy expenses. The
efficiency ratio, which excludes special items and securities transactions,

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improved to 54.59% during 2001 from 55.34% in 2000 primarily as a result of the efficiencies created by the assimilation of recent acquisitions, as well as operating improvements.

Salaries
and benefits expense of $261.3 million increased by $31.1 million or 14% during 2001. The increase was due to higher levels of incentive compensation and
additional employees from two insurance agency purchase acquisitions late in the third quarter of 2000 and from two banking acquisitions on October 31, 2001.

Data
processing expense increased 3% to $38.7 million in 2001 from $37.6 million during 2000. The increase was primarily attributable to recent upgrades for information
technology.

Occupancy
expense in 2001 increased 17% to $45.9 million in 2001. The $6.7 million increase was primarily due to the cost of new facilities and higher utility and snow
removal expenses. Equipment expense increased $2.8 million or 9% in 2001 compared to 2000 due to increased depreciation on new equipment and software and expenses from the recent acquisitions.

Amortization
of goodwill and other intangible assets increased $1.1 million or 5% in 2001 compared to 2000. This increase resulted from the amortization of goodwill recorded on
two insurance agencies acquired in the third quarter of 2000 and the amortization of core deposit intangibles recorded upon the acquisition of Andover and MetroWest in October 2001. Under recently
announced accounting rules, goodwill recorded in connection with acquisitions completed after June 30, 2001 is not to be amortized, and effective January 1, 2002 all goodwill
amortization is to be discontinued. Rather, goodwill will be subject to annual reviews for impairment. Accordingly, no amortization expense was recorded on the Andover and MetroWest goodwill recorded
in October 2001. The approximate effect of not amortizing goodwill on the Andover and MetroWest acquisitions for the months of November and December 2001 was to reduce noninterest
expense by $3.2 million, pre-tax. For additional information regarding the effects of recent accounting pronouncements on goodwill and the amortization of intangible assets, see
"Impact of New Accounting Standards" below.

Other
noninterest expense, which is comprised primarily of general and administrative expenses, decreased $496 thousand in 2001.

Special Charges

Special charges amounted to $7.6 million, $43.0 million and $28.0 million during 2001, 2000 and 1999, respectively. For additional
information, including a tabular analysis of our special charges and for an analysis of the transaction activity in 2001 and 2000, see Note 11 to the Consolidated Financial Statements.

Taxes

Our effective tax rate was 34% in 2001 and 2000.

Extraordinary Item

During the fourth quarter of 2001, we prepaid $174.6 million of FHLB borrowings and incurred a prepayment penalty of $6.0 million
($3.9 million net of tax), which was recorded as an extraordinary item. The FHLB borrowings, which had relatively high rates, were prepaid to improve our interest rate position and net interest
margin in future periods. These FHLB borrowings had a weighted average cost of 5.62% and a weighted average maturity of two years.

Cumulative Effect of Accounting Change

In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which sets accounting and reporting
standards for derivative instruments and hedging activities. The Statement, as amended by SFAS No. 138, required us to recognize all derivatives on the balance sheet at fair value. We adopted
the Statement effective January 1, 2001 and recognized an

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after-tax loss from the cumulative effect of adoption of $290 thousand for previously unrealized losses on forward sale commitments at December 31, 2000 which hedged
residential mortgage loans held for sale.

Comprehensive Income

Our comprehensive income amounted to $313.9 million and $282.6 million during 2001 and 2000, respectively. Comprehensive income differed from our
net income in 2001 because of a $74.8 million net unrealized gain on securities and a $274 thousand net hedging gain on cash flow hedges. Our comprehensive income differed from our net
income in 2000 because of a $90.7 million net unrealized gain on securities and a $250 thousand adjustment to the minimum pension liability. For additional information, see the
Consolidated Statements of Changes in Shareholders' Equity in the Consolidated Financial Statements.

Our
available for sale investment portfolio had unrealized gains (losses), net of applicable income tax effects, of $40.3 million, ($34.5) million and ($125.1) million at
December 31, 2001, 2000 and 1999, respectively. The improvement related to lower prevailing interest rates. At December 31, 2001, the net unrealized gains of $62.0 million, before
related tax effect, represented 1% of securities available for sale. We attempt to balance the interest rate risk of our assets with our liabilities (see "Interest Rate Risk and Asset Liability
Management"). However, the change in value of our liabilities, which tend to fall in rising interest rate environments and rise in falling interest rate environments, is not included in "other
comprehensive income."

Segment Reporting

Our primary business segments (not as defined under SFAS No. 133) are Community Banking, Insurance Brokerage, Investment Planning and Trust and Investment
Management. The Community Banking segment represents over 90% of the combined revenues and income of the consolidated group. Insurance Brokerage primarily reflects commissions on insurance brokerage
activities, Investment Planning primarily reflects commissions from the sale of third party mutual funds, annuities, stocks and bonds, and Trust and Investment Management reflects fees from trust and
investment management operations. Selected operating data for these segments is provided in Table 14.

COMPARISON OF 2000 AND 1999

We reported net income of $191.7 million for 2000, or $1.32 per diluted share, compared with net income of $197.0 million, or $1.34 per diluted
share, reported for 1999. Excluding the impact of special items, net income and diluted earnings per share were $234.7 million and $1.62, respectively, for 2000 and $217.8 million and
$1.48, respectively, for 1999 (a per share increase of 9%). Excluding special items, return on average assets and return on average equity were 1.28% and 19.20%, respectively, for 2000 and 1.24% and
18.16%, respectively, for 1999.

Net
interest income on a fully taxable-equivalent basis totaled $609.7 million during 2000, as compared with $619.5 million in 1999. The $9.8 million, or 2%,
decrease in 2000 was primarily attributable to increases in the rate and, to a lesser extent, the volume of interest-bearing liabilities, which more than offset increases in the rate and volume of
interest-earning assets.

The
provision for loan and lease losses was $23.8 million in 2000 compared to a $23.6 million provision in 1999. The ratio of the allowance to nonperforming loans at
December 31, 2000 was 249% compared to 267% at December 31, 1999. The allowance for loan and lease losses represented 1.42% of total loans at December 31, 2000 compared to 1.57%
at December 31, 1999. Nonperforming assets were down $2 million from December 31, 1999 to $67.1 million, or 0.37% of total assets. Classified assets also declined during
the year. Accruing loans 90 days past due were $6.0 million at December 31, 2000, down 51% from the prior year.

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Noninterest
income was $211.2 million and $191.8 million for the years ended December 31, 2000 and 1999, respectively. Increases of $10.9 million in deposit
services income, $7.9 million in other noninterest income, $3.1 million in aggregate trust and investment management and investment planning services income and $5.5 million in
insurance brokerage commissions contributed to the $35.3 million, or 18%, increase excluding losses on securities restructuring in 2000. Deposit services income of $67.1 million
reflected 19% growth from 1999. The 8% increase in aggregate trust and investment management and investment planning services income was primarily due to sales of investment products. The
$7.9 million increase in other noninterest income in 2000 consisted primarily of a $4.7 million gain on the sale of $29 million of credit card loans, a $1.2 million gain on
sale of eight branches and realized gains on limited partnership investments. The 27% increase in insurance brokerage commissions reflected our acquisitions of insurance agencies in Massachusetts and
Connecticut late in the third quarter of 2000, which were accounted for as purchases.

Noninterest
expense was $502.5 million for 2000 compared with $488.3 million for 1999, a 3% increase. The 2000 increase was primarily attributable to an increase in special
charges of $15.0 million. Excluding special charges noninterest expenses in 2000 were essentially unchanged from 1999. The efficiency ratio,
which excludes special items and securities transactions, improved from 57.14% in 1999 to 55.34% in 2000.

Average
earning assets increased $639.4 million, or 4%, in 2000 primarily due to growth in loans, particularly commercial and consumer loans. Average interest-bearing liabilities
increased $564.9 million, or 4%, in 2000 primarily due to increased borrowings in order to fund the growth in assets.

Our
comprehensive income amounted to $282.6 million and $69.7 million during 2000 and 1999, respectively. Comprehensive income differed from our net income in 2000 because
of a $90.7 million net unrealized gain on securities and a $250 thousand adjustment to the minimum pension liability. Comprehensive income differed from our net income in 1999 because of
a $127.3 million net unrealized loss on securities. For additional information, see the Consolidated Statements of Shareholders' Equity in the Consolidated Financial Statements.

FINANCIAL CONDITION

Our consolidated total assets increased by $2.8 billion, or 16%, from $18.2 billion at December 31, 2000 to $21.1 billion at
December 31, 2001. This increase was primarily attributable to the purchase of Andover and MetroWest in the fourth quarter of 2001. Shareholders' equity totaled $1.8 billion and
$1.3 billion at December 31, 2001 and 2000, respectively. The increase of $458.3 million in shareholders' equity was attributable to earnings for 2001 of $238.8 million,
the issuance of $340 million of our common stock in connection with the acquisition of Andover and an increase in the net unrealized gains on available for sale securities of
$74.8 million. These increases were partially offset by the effects of cash dividends of $72.3 million and share repurchases of $151.5 million.

Investment Securities and Other Earning Assets

The average balance of the securities portfolio, which consists of securities available for sale and securities held to maturity, was $5.9 billion in 2001
and $6.4 billion in 2000, a decrease of $481 million. The portfolio is comprised primarily of U.S. Government and agency securities and mortgage-backed securities, most of which are
seasoned 15-year federal agency securities. Other bonds and notes consist of asset-backed securities, corporate bonds and trust preferred securities. Other equity securities in 1999
consisted primarily of preferred securities which were sold in 2000 as part of the securities restructuring. See Table 4 for a detail of securities available for sale and held to maturity.

Securities
available for sale are carried at fair value and had a net unrealized gain of $62.0 million and a net unrealized loss of $53.1 million at December 31,
2001 and 2000, respectively. See Note 4 to the Consolidated Financial Statements. These unrealized gains and losses do not impact net income or

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regulatory capital but are recorded as adjustments to shareholders' equity, net of related deferred income taxes. Unrealized gains and losses, net of related deferred income taxes, are a component of
our "Comprehensive Income" contained in the Consolidated Statement of Changes in Shareholders' Equity.

Loans

Residential real estate loans (including loans held for sale) averaged $2.3 billion in 2001 and 2000. Excluding the Andover and MetroWest acquisitions,
average residential loans decreased by $177 million. Residential loans were impacted by increased refinancing activity and prepayments in a lower interest rate environment as well as our policy
to sell most of the residential real estate loans we originate into the secondary market. Mortgage loans held for sale amounted to $117.7 million and $51.1 million at December 31,
2001 and 2000, respectively. The increase in loans held for sale compared to last year was due primarily to higher origination volumes resulting from declining interest rates.

Commercial
real estate loans averaged $3.2 billion in 2001 and $2.9 billion in 2000, a 12% increase, including the effects of the acquisitions in the fourth quarter of
2001. We continue to focus primarily on lending to small and medium size businesses within our market areas. These loans consist of loans secured primarily by income-producing commercial real estate,
service industry real estate, multi-family residential real estate and retail trade real estate, as well as loans for the acquisition, development and construction of such commercial real estate.

Commercial
loans and leases averaged $2.3 billion in 2001 and $2.1 billion in 2000, an increase of 10% including the effects of the acquisitions in the fourth quarter of
2001. The increase in 2001 was largely attributable to additional opportunities in certain market areas due to broadening our franchise. Included in these amounts are commercial business leases
originated through an indirect subsidiary. These leases are direct equipment leases, primarily office equipment, and amounted to $108.5 million at December 31, 2001.

Consumer
loans and leases averaged $3.4 billion in 2001 and $3.2 billion in 2000, an increase of 7%, including the effects of the acquisitions in the fourth quarter of
2001. The growth in consumer loans was primarily in indirect automobile loans and home equity loans. Mobile home loans, which amounted to $161.5 million at December 31, 2001, continue to
decline, reflecting our strategy to emphasize other types of consumer loans. Automobile lease receivables totaled $36.5 million at December 31, 2001 compared to $81.6 million at
December 31, 2000. All of our auto leases were obtained as a result of acquiring other banks and will continue to run-off. See Tables 6 and 7 for
additional information on the composition of the loan portfolio.

Deposits

Average demand deposit accounts increased 12% in 2001 to $2.2 billion from $1.9 billion in 2000. Excluding the fourth quarter acquisitions of
Andover and MetroWest, average demand deposits increased $177 million, which is consistent with our marketing focus on these accounts.

Average
interest-bearing deposits increased by $411.9 million during 2001 to $10.4 billion, including $284.1 million from Andover and MetroWest. Average retail
certificates of deposit decreased $8.9 million during 2001 to $4.5 billion. The average rate paid on certificates of deposit decreased from 5.42% in 2000 to 5.02% in 2001. See
Table 13 for the scheduled maturities of certificates of deposits of $100,000 or more. As part of our overall funding strategy, we may use deposits obtained through
investment banking firms which obtain funds from their customers for deposit with us ("brokered deposits"). These brokered deposits (which include short-term certificates of deposit and
money market accounts) averaged $152.0 million and $119.0 million in 2001 and 2000, respectively. The average rate paid on brokered deposits was 5.67% in 2001 compared to 6.40% in 2000.

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Other
interest-bearing deposits (savings, NOW and money market accounts) increased 7% in 2001 to $5.7 billion from $5.3 billion in 2000, including deposits of
$152.5 million from Andover and MetroWest. The average rate paid on these deposits decreased from 2.99% in 2000 to 2.26% in 2001.

Included
within the deposit categories above are government banking deposits which averaged $1.2 billion in 2001 and $934 million in 2000. Government banking deposits
includes deposits received from state and local governments, school districts, public colleges/universities, utility districts, public housing authorities and court systems in our market area. Many of
these deposits exceed the FDIC insurance coverage amounts and require us to pledge specific collateral or maintain private insurance.

Other Funding Sources

Our primary sources of funding, other than deposits, are FHLB advances and securities sold under repurchase agreements. From time to time we also borrow funds
under the U.S. Treasury's Note Option Treasury, Tax and Loan program and by overnight borrowing from other banks as needed. Average borrowed funds for 2001 were $4.4 billion, compared with
$5.1 billion in 2000. The decrease in borrowed funds was a result of the early extinguishment of $174.6 million of FHLB borrowings in addition to increased average deposit levels and a
reduction in the securities portfolio. We prepaid selected FHLB borrowings which had relatively high rates in order to improve our interest rate position and net interest margin in future periods.

Average
FHLB borrowings were $2.7 billion in 2001 compared to $3.9 billion in 2000, a decrease of $1.2 billion. Collateral for FHLB borrowings consists primarily of
first mortgage loans secured by single-family properties, certain unencumbered securities and other qualified assets. These borrowings had an average cost of 5.30% during 2001 as compared to 6.36%
during 2000. The 106 basis point decrease was due to the Federal Reserve Board rate cuts during 2001. At December 31, 2001 and 2000, FHLB borrowings amounted to $2.6 billion and
$3.3 billion, respectively. Our additional borrowing capacity with the FHLB at December 31, 2001 was approximately $1.6 billion. See Note 13 to the Consolidated Financial
Statements.

At
December 31, 2001 and 2000, securities sold under repurchase agreements amounted to $1.6 billion and $986.6 million, respectively, and were collaterallized by
mortgage-backed securities and U.S. Government obligations. See Note 12 to the Consolidated Financial Statements.

On
June 22, 2001, one of our banking subsidiaries, First Massachusetts Bank, NA, issued $200 million of 7.625% subordinated notes due 2011. The proceeds were used to reduce
other short-term indebtedness. The notes qualify as Tier 2 capital.

During
2001, we also had a $40 million unsecured line of credit. The line is renewable every 364 days and, if used, carries interest at LIBOR plus 0.75%. The average
balance outstanding under this line of credit during 2001 was $3.1 million. In January 2002, we renewed the line of credit and increased the amount covered thereby to $80 million
at the rate of LIBOR plus 0.625%.

ASSET QUALITY

General

We monitor our asset quality with lending and credit policies which require the regular review of our loan portfolio. We maintain an internal rating system which
provides a mechanism to regularly monitor the credit quality of our loan portfolio.

Our
total loan portfolio increased in 2001 due primarily to the acquisitions of Andover and MetroWest in the fourth quarter of 2001.

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Our residential loan portfolio accounted for 21% of the total loan portfolio at December 31, 2001 and 2000. Our residential loans are generally secured by single-family homes
(one-to-four units) and have a maximum loan to value ratio of 80% at origination, unless they are protected by mortgage insurance. At December 31, 2001, 0.32% of our
residential loans were nonperforming, as compared to 0.44% at December 31, 2000, as nonperforming residential real estate loans decreased by $1.6 million while the total residential loan
portfolio increased by $378.4 million, mostly due to the acquisitions of Andover and MetroWest.

Our
commercial real estate loan portfolio accounted for 32% of the total loan portfolio at December 31, 2001 and 27% at December 31, 2000. The portfolio increased
$1.1 billion in 2001 compared to 2000. This portfolio consists primarily of loans secured by income-producing commercial real estate (including office and industrial buildings), service
industry real estate (including hotels and health care facilities), multi-family (over four units) residential properties and retail trade real estate (food stores). These loans generally are secured
by properties located in the New England states and New York, particularly Maine, Massachusetts, New Hampshire and Vermont. At December 31, 2001, 0.42% of our commercial real estate loans were
nonperforming, as compared to 0.43% at December 31, 2000.

Our
commercial business loan and lease portfolio accounted for 19% of the total loan portfolio at December 31, 2001 compared to 21% at December 31, 2000. Commercial
business loans and leases are generally made to small to medium size businesses located within our market areas. These loans are not concentrated in any particular industry, but reflect the
broad-based economy of New England and upstate New York. Commercial loans consist primarily of loans secured by various equipment, machinery and other corporate assets, as well as loans to provide
working capital to businesses in the form of lines of credit. We do not emphasize the purchase of participations in syndicated commercial loans. At December 31, 2001, we had $180 million
of participations in syndicated commercial loans and commitments to purchase an additional $172 million of such participations. At December 31, 2001, 1.64% of our commercial business
loans were nonperforming, as compared to 1.41% at December 31, 2000.

Consumer
loans and leases accounted for 28% of our total loan portfolio at December 31, 2001 compared to 31% at December 31, 2000. At December 31, 2001, our
diversified consumer loan portfolio included $1.3 billion of automobile and other vehicle loans and leases, $1.3 billion of home equity loans, $162 million of mobile home loans,
$149 million of education loans and $153 million of loans to finance certain medical/dental procedures (vision, dental and orthodontia fee plan loans). The increase in consumer loans
over the prior year was due primarily to growth in fee plan and home equity loans. At December 31, 2001, 0.27% of our consumer loans were nonperforming, as compared to 0.19% at
December 31, 2000.

Nonperforming Assets

Nonperforming assets consist of nonperforming loans (which do not include accruing loans 90 days or more overdue), other real estate owned, repossessed
assets and certain securities available for sale. Total nonperforming assets as a percentage of total assets were 0.39% at December 31, 2001 and 0.37% at December 31, 2000. Total
nonperforming assets as a percentage of total loans and other nonperforming assets was 0.64% and 0.62% at December 31, 2001 and 2000, respectively. See Table 11 for
a summary of nonperforming assets for the last five years.

We
continue to focus on asset quality issues and to allocate significant resources to the key asset quality control functions of credit policy and administration and loan review. The
collection, workout and asset management functions focus on the reduction of nonperforming assets. Despite the ongoing focus on asset quality and reductions of nonperforming asset levels, there can be
no assurance that adverse changes in the real estate markets and economic conditions in our primary market areas will not result in higher nonperforming asset levels in the future and negatively
impact our operations

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through higher provisions for loan losses, net loan charge-offs, decreased accrual of interest income and increased noninterest expenses as a result of the allocation of resources to the
collection and workout of nonperforming assets.

Residential
real estate loans are generally placed on nonaccrual when reaching 120 days past due or in process of foreclosure. All closed-end consumer loans
90 days or more past due and any equity line in the process of foreclosure are placed on nonaccrual status. Secured consumer loans are written down to realizable value and unsecured consumer
loans are charged-off upon reaching 120 or 180 days past due depending on the type of loan. We generally place all commercial real estate loans and commercial business loans and
leases which are 90 days or more past due, unless secured by sufficient cash or other assets immediately convertible to cash, on nonaccrual status. At December 31, 2001, we had
$6.2 million of accruing loans which were 90 days or more delinquent, as compared to $6.0 million and $12.1 million of such loans at December 31, 2000 and 1999,
respectively.

We
also may place on nonaccrual and therefore nonperforming status loans currently less than 90 days past due or performing in accordance with their terms but which in our
judgment are likely to present future principal and/or interest repayment problems and which thus ultimately would be classified as nonperforming.

Net Charge-offs

Net charge-offs were $36.9 million during 2001, as compared to $25.3 million in 2000. Net charge-offs represented 0.33% and
0.24% of average loans and leases outstanding in 2001 and 2000, respectively. Net charge-offs in 2001 increased over 2000 primarily due to higher gross charge-offs on
commercial business loans and leases primarily resulting from the impact of a slowing economy on the shared national credits portfolio and the Andover lease portfolio. See Table
8 for more information concerning charge-offs and recoveries during each of the past five years.

Potential Problem Loans

Commercial real estate mortgages and commercial business loans and leases are evaluated by us under a ten point risk rating system. The loan ratings are meant to
serve as guidelines in assessing the risk level of a particular loan. At December 31, 2001, we had classified a total of $216.9 million of commercial real estate mortgages and commercial
business loans and leases as substandard or lower on our risk-rating system. Included in this amount at December 31, 2001 are $57.5 million of nonperforming commercial
business and commercial real estate loans. In our opinion, the remaining $159.4 million of commercial real estate mortgages and commercial business loans and leases classified as substandard at
December 31, 2001 evidence one or more weaknesses or potential weakness and, depending on the regional economy and other factors, may become nonperforming assets in future periods. These loans
are net of previously established specific reserves which have resulted in charge-offs, but not general reserves which have been established based on our internal rating of such loans and
evaluation of the adequacy of our allowance for loan and lease losses.

RISK MANAGEMENT

The primary goal of our risk management program is to determine how certain existing or emerging issues facing us or the financial services industry affect the
nature and extent of the risks faced by us. Based on a periodic self-evaluation, we determine key issues and develop plans and/or objectives to address risk. Our Board of Directors (the
"Board") and management believe that there are seven applicable "risk categories," consisting of credit risk, interest rate risk, liquidity risk, transaction risk, compliance risk, strategic risk and
reputation risk. Each risk category is viewed from a quantity of risk perspective (high, medium or low) coupled with a quality of risk perspective. In addition, an aggregate level of risk is assigned
as a whole as well as the direction of risk (stable, increasing or decreasing). Each risk category and the overall risk level is compared to regulatory views

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on a regular basis and then reported to the Board with an accompanying explanation as to the existence of any differences. The risk program includes risk identification, measurement, control and
monitoring.

The
Board has established the overall strategic direction. It approves our overall risk policies and oversees our overall risk management process. The Board has delegated authority to
two Board Committees, consisting of Audit and Board Risk Management, and has charged each Committee with overseeing key risks. In addition, there is a management Operational Risk Committee, which is
comprised of senior officers in key business lines, which identifies and monitors key operational risks. The Operational Risk Committee reports to the Board Risk Committee on a regular basis.

ASSET-LIABILITY MANAGEMENT

The goal of asset-liability management is the prudent control of market risk, liquidity and capital. Asset-liability management is governed by policies reviewed
and approved annually by the Board and monitored periodically by a committee of the Board. The Board delegates responsibility for asset-liability management to the Asset Liability Management Committee
("ALCO"), which is comprised of members of senior management who set strategic directives that guide the day-to-day asset-liability management of our activities. The ALCO also
reviews and approves all major risk, liquidity and capital management programs, except for product pricing. Product pricing is reviewed and approved by the Pricing Committee, which is comprised of a
subset of ALCO members.

Market Risk

Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices. We have
no trading operations and thus are only exposed to non-trading market risk.

Interest-rate
risk, including mortgage prepayment risk, is the most significant non-credit risk to which we are exposed. Interest-rate risk is the
sensitivity of income to changes in interest rates. Changes in interest rates, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, our primary
source of revenue. This risk arises directly from our core banking activitieslending, deposit gathering and loan servicing. In addition to directly impacting net interest income, changes
in the level of interest rates can also affect (i) the amount of loans originated and sold by the institution, (ii) the ability of borrowers to repay adjustable or variable rate loans,
(iii) the average maturity of loans, (iv) the rate of amortization of capitalized mortgage servicing rights and premiums paid on securities, (v) the amount of unrealized gains and
losses on securities available for sale and (vi) the fair value of our saleable assets and derivatives and the resultant ability to realize gains.

The
primary objective of interest-rate risk management is to control our exposure to interest-rate risk both within limits approved by the Board and guidelines
established by the ALCO. These limits and guidelines reflect our tolerance for interest-rate risk over both short-term and long-term horizons. We attempt to control
interest-rate risk by identifying, quantifying and, where appropriate, hedging its exposure.

We
quantify and measure interest-rate exposure using a model to dynamically simulate net interest income under various interest rate scenarios over a 12-month
period. Simulated scenarios include deliberately extreme interest rate "shocks" and more gradual interest rate "ramps." Key assumptions in these simulation analyses relate to behavior of interest
rates and spreads, increases or decreases of product balances and the behavior of our deposit and loan customers. The most material assumption relates to the prepayment of mortgage assets (including
mortgage loans, mortgage-backed securities and mortgage servicing rights). The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is
uncertain, the resultant interest rate sensitivity of loan

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assets cannot be determined exactly. Complicating our efforts to measure interest rate risk is the uncertainty of the maturity, repricing and/or runoff of some of our assets and liabilities.

To
mitigate these uncertainties, we give careful attention to our assumptions. For example, many of our interest-bearing deposit products (e.g. interest checking, savings and money
market deposits) have no contractual maturity and based on historical experience have only a limited sensitivity to movements in market rates. Because we believe we have some control with respect to
the extent and timing of rates paid on non-maturity deposits, certain assumptions regarding rate changes are built into the model. In the case of prepayment of mortgage assets, assumptions
are derived from published dealer median prepayment estimates for comparable mortgage loans or from a vendor supported loan prepayment model that is periodically tested using observed loan prepayment
behavior.

We
manage the interest-rate risk inherent in our core banking operations primarily using on-balance sheet instruments, which sometimes contain embedded options,
mainly fixed-rate portfolio securities and borrowed funds. When appropriate, we will utilize interest rate instruments such as interest-rate swaps, interest rate floors and
interest rate corridor agreements, among other instruments. As of December 31, 2001, there were no such agreements in effect.

We
manage the interest-rate risk inherent in our mortgage banking operations by entering into forward sales contracts and, to a lesser extent, by using purchased
mortgage-backed security options. An increase in market interest rates between the time we commit to terms on a loan and the time we ultimately sell the loan in the secondary market will have the
effect of reducing the gain (or increasing the loss) we record on the sale. We attempt to mitigate this risk by entering into forward sales commitments in amounts sufficient to cover all closed loans
and a certain percentage of loan commitments on rate-locked loans. Purchased mortgage-backed security options are used to hedge a percentage of rate-locked loans.

The
average balances during 2001 of residential mortgage loans held for sale and related average hedge positions are summarized below (in millions):

|                                                    |  | Average Balance
2001
|--------------------------------------------------- |  | --------------------
|Residential mortgage loans held for sale            |  | $                   
|Rate-locked loan commitments                        |  |                     
|Forward sales contracts                             |  |                     
|Purchased mortgage-backed security/treasury options |  |                     

Our
policy on interest-rate risk simulation specifies that if interest rates were to shift gradually up or down 2%, estimated net interest income for the subsequent
12 months should decline by less than 5%. Our gradual 2% rising rate scenario was within compliance guidelines at December 31, 2001. However, the gradual 2% falling rate scenario was
slightly outside guidelines. Given the slight exception to the guidelines, historically low rates and the steep yield curve, which is thought to imply that further significant rate reductions are
unlikely, we have not taken immediate corrective action to bring the falling rate exposure within guidelines. Rather, we continue to focus on strategies that prove beneficial to income should rates
rise or the yield curve flatten without worsening exposure to falling rates.

The
following table sets forth the estimated effects on our net interest income over a 12-month period following the indicated dates in the event of the indicated increases
or decreases in market interest rates.

|                  |  | 200 Basis Point
Rate Increase |   | 100 Basis Point
Rate Increase |   | 100 Basis Point
Rate Decrease |   | 200 Basis Point
Rate Decrease |  
|----------------- |  | ----------------------------- | - | ----------------------------- | - | ----------------------------- | - | ----------------------------- | -
|December 31, 2001 |  | 2.73%                         |   | 1.71%                         |   | (2.45%                        | ) | (5.37%                        | )
|December 31, 2000 |  | (3.18%                        | ) | (1.46%                        | ) | 0.51%                         |   | 0.70%                         |  

25

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The
results implied in the above table indicate estimated changes in simulated net interest income for the subsequent 12 months assuming a gradual shift up or down in market rates
of 100 and 200 basis points across the entire yield curve. Assuming a downward shift in rates, savings, money market and NOW accounts have implied interest rate floors and it is assumed that the
related interest expense on these accounts will not decrease in proportion to the downward shift in rates. Assuming an upward shift in rates of 200 basis points, the simulated increase in interest
income would be more than the simulated increase in interest expense because our fixed-cost liabilities exceed our fixed-rate earning assets. It should be emphasized, however,
that the results are dependent on material assumptions such as those discussed above. For instance, asymmetrical rate behavior can have a material impact on the simulation results.

In
connection with the Andover and MetroWest acquisitions, we recorded $8.8 million of mortgage servicing rights at market value at the date of acquisition. These mortgage
servicing rights are expected to be sold in 2002. New mortgage servicing rights from originations are sold on a flow basis shortly after the mortgages are sold. As a result, future earnings exposure
to changes in the value of mortgage servicing rights is not expected to be material.

The
most significant factors affecting market risk exposure of our net interest income during 2001 were (i) the change in levels of rates resulting from eleven rate cuts by the
Federal Reserve Board, (ii) the shape of the U.S. Government securities and interest rate swap yield curve, (iii) changes in the
composition and prepayment speeds of mortgage assets, (iv) changes in the wholesale borrowings portfolio structure, (v) reduction of deposit interest expense and (vi) extension of
the assumed lives of core non-maturity deposits.

Our
earnings are not directly and materially impacted by movements in foreign currency rate or commodity prices. Virtually all transactions are denominated in the U.S. dollar. Movements
in equity prices may have an indirect but modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related businesses.

LIQUIDITY

On a parent-only basis, our commitments and debt service requirements at December 31, 2001 consisted primarily of junior subordinated
debentures (including accrued interest) issued to two subsidiaries, $103 million to Peoples Heritage Capital Trust I and $31 million to Banknorth Capital Trust I, in connection with the
issuance of 9.06% Capital Securities due 2027 and 10.52% Capital Securities due 2027, respectively. See Notes 15 and 21 to the Consolidated Financial Statements. The principal sources of funds for us
to meet parent-only obligations are dividends from our banking subsidiary, which are subject to regulatory limitations, and borrowings from public and private sources. See "Financial
ConditionOther Funding Sources" above. For information on restrictions on the payment of dividends by our banking subsidiary, see Note 16 to the Consolidated Financial Statements.

Banking Subsidiaries

For banking subsidiaries, liquidity represents the ability to fund asset growth, accommodate deposit withdrawals and meet other contractual obligations and
commercial commitments. See "Contractual Obligations and Commitments" below. Liquidity risk is the danger that a bank cannot meet anticipated or unexpected funding requirements or can meet them only
at excessive cost. Liquidity is measured by the ability to raise cash when needed at a reasonable cost. Many factors affect a bank's ability to meet liquidity needs, including variations in the
markets served, its asset-liability mix, its reputation and credit standing in the market and general economic conditions.

In
addition to traditional retail deposits, Banknorth, NA has various other liquidity sources, including proceeds from maturing securities and loans, the sale of securities, asset
securitizations and borrowed funds such as FHLB advances, reverse repurchase agreements and brokered deposits.

26

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We
continually monitor and forecast our liquidity position. There are several interdependent methods used by us for this purpose, including daily review of fed funds positions, monthly
review of balance sheet changes, monthly review of liquidity ratios, periodic liquidity forecasts and periodic review of contingent funding plans.

As
of December 31, 2001, our banking subsidiaries (which were consolidated into one entity subsequent to year-end) had in the aggregate $2.7 billion of
"immediately accessible liquidity," defined as cash that could be raised within 1-3 days through collateralized borrowings or security sales. This represented 19% of deposits, as
compared to a policy minimum of 10% of deposits.

Also
as of December 31, 2001, our banking subsidiaries had in the aggregate "potentially volatile funds" of $1.5 billion. These are funds that might flow out of the banks
over a 90-day period in an adverse environment. Management estimates this figure by applying adverse probabilities to its various credit-sensitive and economically-sensitive funding
sources.

As
of December 31, 2001, the ratio of "immediately accessible liquidity" to "potentially volatile funds" was 178%, compared to a policy minimum of 100%.

In
addition to the liquidity sources discussed above, we believe that our residential and consumer loan portfolios provide a significant amount of contingent liquidity that could be
accessed in a reasonable time period through sales or securitizations. We believe we also have significant untapped access to the national brokered deposit market. These sources are contemplated as
secondary liquidity in our contingent funding plan. We believe that the level of liquidity is sufficient to meet current and future funding requirements. For additional information regarding
off-balance sheet risks and commitments, see Note 17 to the Consolidated Financial Statements.

On
February 11, 2002, we filed a shelf registration statement with the SEC which allows us to sell up to $1.0 billion of debt securities, preferred stock, depository
shares, common stock and warrants and which allows subsidiary trusts to sell capital securities.

On
February 22, 2002, our subsidiary, Banknorth Capital Trust II, issued $200 million of 8% trust preferred securities ("Securities") to the public under the shelf
registration. The proceeds from the offering will be used for general corporate purposes, including working capital, capital expenditures, investments in or advances to subisidiaries, repayment of
maturing obligations, replacement of outstanding indebtedness and repurchase of outstanding stock. The Securities will pay interest quarterly, are mandatorily redeemable on April 1, 2032 and
may be redeemed by the Trust at par any time on or after April 1, 2007.

CAPITAL

At December 31, 2001 and 2000, our shareholders' equity totaled $1.8 billion and $1.3 billion, respectively, or 8.49% and 7.30% of total
assets, respectively. In addition, through subsidiary trusts, we had outstanding at such dates $93.8 million and $98.8 million of capital securities which mature in 2027 and qualify as
Tier 1 Capital and are included in total liabilities on the balance sheet. See Note 15 to the Consolidated Financial Statements. The changes in shareholders' equity included net income for the
year ended December 31, 2001 of $238.8 million and a $74.8 million net unrealized gain on securities available for sale, which were partially offset by $151.5 million of
stock repurchases (7,335,800 shares) and $72.3 million in dividends to shareholders. In addition, we issued shares of our common stock (and options thereon) with a market value of
$340 million to acquire Andover in the fourth quarter of 2001.

On
January 23, 2001, our board of directors authorized the repurchase of up to 8 million shares, or approximately 6%, of our issued and outstanding common stock. In
October 2001, our board of directors approved an increase in the share repurchase program of 5 million shares, bringing the total repurchase program to 13 million shares. A total
of 5.7 million shares remained under this

27

---

authorization at December 31, 2001. In February 2002, our board of directors increased this amount by authorizing the repurchase of another 8 million shares.

Capital
guidelines issued by the Federal Reserve Board require us to maintain certain ratios. Our Tier 1 Capital, as defined by the Federal Reserve Board, was $1.4 billion or
7.14% of average assets at December 31, 2001, compared to $1.3 billion or 7.02% of average assets at December 31, 2000. We also are required to maintain capital ratios based on
the level of our assets, as adjusted to reflect their perceived level of risk. Our regulatory capital ratios currently exceed all applicable requirements. See Note 16 to the Consolidated
Financial Statements.

Banking
subsidiaries also are subject to federal regulatory capital requirements. At December 31, 2001, each of our depository institution subsidiaries was deemed to be "well
capitalized" under OCC regulations and all of our banking subsidiaries were in compliance with applicable regulatory capital requirements.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

We have entered into numerous contractual obligations and commitments. The following tables summarize our contractual cash obligations and other commitments at
December 31, 2001.

|Contractual Cash Obligations       |  |   |           | Payments DueBy Period
|---------------------------------- |  | - | --------- | ----------------------
|
|
|Long-term debt                     |  | $ | 2,940,120 |                       
|Operating lease obligations        |  |   | 133,004   |                       
|Other long-term obligations        |  |   | 580,970   |                       
|                                   |  |   |           |                       
|Total contractual cash obligations |  | $ | 3,654,094 |                       
|                                   |  |   |           |                       

|Other Commitments                 |  |   |           | Amount of Commitment ExpirationPer Period
|--------------------------------- |  | - | --------- | ------------------------------------------
|
|
|Lines of credit                   |  | $ | 3,058,570 |                                           
|Standby letter of credit          |  |   | 215,192   |                                           
|Other commitments                 |  |   | 1,179,288 |                                           
|Forward commitments to sell loans |  |   | 172,504   |                                           
|                                  |  |   |           |                                           
|Total commitments                 |  | $ | 4,625,554 |                                           
|                                  |  |   |           |                                           

We
also have entered into a commitment to occupy 140,000 square feet of office space in the Portland, Maine area. We expect to occupy this space in the first quarter of 2003 when the
building is completed and retrofitted. The lease has a fifteen-year term and the base rent is $2.1 million per year.

IMPACT OF NEW ACCOUNTING STANDARDS

In August, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS No. 144 provides
additional implementation guidance and supersedes SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of." It is
effective for financial statements issued for fiscal years beginning after December 15, 2001. We adopted SFAS No. 144 on January 1, 2002 with no material impact on our financial
condition or results of operations.

28

---

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS 143 applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset. It is effective for financial statements
issued for fiscal years beginning after June 15, 2002. We expect that the provisions of SFAS No. 143 will not have a material impact on our financial condition or results of operations.

In
June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of
purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating the use of the pooling-of-interests method. It also
provides new criteria that determine whether an acquired intangible asset should be recognized separately from goodwill. Under SFAS No. 142, goodwill is no longer amortized, but instead is
tested for impairment on a regular basis and upon the occurrence of certain triggering events.

We
adopted SFAS No. 141 as of July 1, 2001. Also as of July 1, 2001, we adopted the required transition provisions of SFAS No. 142 related to amortization of
goodwill and other acquired intangible assets for which the acquisition date was after June 30, 2001. The remaining provisions of SFAS No. 142 were adopted on January 1, 2002.
Accordingly, goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001 were not amortized. Goodwill
and intangible assets acquired in business combinations completed before July 1, 2001 continued to be amortized until December 31, 2001. We have not completed our calculations under the
impairment testing provisions of SFAS 142; however, based on evaluation results to date, impairment losses, if any, are not expected to be material.

The
approximate effect of not amortizing goodwill recorded in connection with the Andover and MetroWest acquisitions for the months of November and December 2001 was to reduce
noninterest expense by $3.2 million, pre-tax. The estimated amortization expense for goodwill and intangible assets for 2002 is expected to decline to $13.6 million from
$22.1 million in 2001 as a direct result of discontinuing all goodwill amortization, subject to the results of the required testing for goodwill impairment. The FASB has also agreed to
reconsider the amortization provisions of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," which specifies that
unidentified intangibles from acquisitions in which the fair value of the liabilities assumed exceeds the fair value of the tangible and intangible assets acquired are to be amortized over a period
not to exceed the remaining life of the long term interest-bearing assets acquired or in the absence of significant assets, the estimated life of the existing customer deposit base acquired. This
unidentified intangible asset is often referred to as "SFAS 72 Goodwill". As of December 31, 2001, we had $34.7 million of "SFAS 72 Goodwill" remaining with scheduled amortization of
$7.0 million in 2002, $3.2 million in 2003 and approximately $2.5 million annually from 2004 through 2013. For additional information, see Note 8 to the Consolidated
Financial Statements.

FORWARD LOOKING STATEMENTS

Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of federal securities laws. See
"Forward Looking Statements" at the beginning of this report.

29

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Financial Tables

Table 1Three-Year Average Balance Sheets

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income on interest-earning assets
and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income;
(iv) interest rate spread; and (v) net interest margin. For purposes of the table and the following discussion, (i) income from interest-earning assets and net interest income is
presented on a fully-taxable equivalent basis primarily by adjusting income and yields earned on tax-exempt interest received on loans to qualifying borrowers and on certain of our
securities to make them equivalent to income and yields earned on fully-taxable investments, assuming a federal income tax rate of 35%, and (ii) unpaid interest on nonaccrual loans has not been
included for purposes of determining interest income. Information is based on average daily balances during the indicated periods.

|                                                    |  | Year Ended December 31, |           
|--------------------------------------------------- |  | ----------------------- | ----------
|
|
|
|Loans and leases(1)                                 |  | $                       | 11,246,007
|Investment securities                               |  |                         | 5,924,001 
|Federal funds sold and other short-term investments |  |                         | 34,620    
|                                                    |  |                         |           
|Total earning assets                                |  |                         | 17,204,628
|                                                    |  |                         |           
|Noninterest earning assets                          |  |                         | 1,341,081 
|                                                    |  |                         |           
|Total assets                                        |  | $                       | 18,545,709
|                                                    |  |                         |           
|Interest-bearing deposits:                          |  |                         |           
|Certificates of deposit                             |  | $                       | 4,512,284 
|Brokered deposits                                   |  |                         | 151,980   
|Other interest-bearing deposits                     |  |                         | 5,696,979 
|                                                    |  |                         |           
|Total interest-bearing deposits                     |  |                         | 10,361,243
|Borrowed funds                                      |  |                         | 4,406,017 
|                                                    |  |                         |           
|Total interest-bearing liabilities                  |  |                         | 14,767,260
|                                                    |  |                         |           
|Non-interest bearing deposits                       |  |                         | 2,168,387 
|Other liabilities                                   |  |                         | 160,709   
|Shareholders' equity                                |  |                         | 1,449,353 
|                                                    |  |                         |           
|Total liabilities and shareholders' equity          |  | $                       | 18,545,709
|                                                    |  |                         |           
|Net earning assets                                  |  | $                       | 2,437,368 
|                                                    |  |                         |           
|Net interest income (fully-taxable equivalent)      |  |                         |           
|Less: fully-taxable equivalent adjustments          |  |                         |           
|                                                    |  |                         |           
|Net interest income                                 |  |                         |           
|                                                    |  |                         |           
|Net interest rate spread (fully-taxable equivalent) |  |                         |           
|Net interest margin (fully-taxable equivalent)      |  |                         |           

---

30

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Table 2Changes in Net Interest Income

The following table presents certain information on a fully-taxable equivalent basis regarding changes in our interest income and interest expense for the periods
indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate
multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate) and (3) changes in rate/volume (change in rate multiplied by change in volume).

|                                               |                                                     | Year Ended December 31, 2001 vs 2000
Increase (Decrease) Due to |          | Year Ended December 31, 2000 vs 1999
Increase (Decrease) Due to |  
|---------------------------------------------- | --------------------------------------------------- | --------------------------------------------------------------- | -------- | --------------------------------------------------------------- | -
|
|
|Interest-earning assets:                       |                                                     |                                                                 |          |                                                                 |  
|                                               | Loans and leases(1)                                 |                                                                 | $        | (62,912                                                         | )
|                                               | Investment securities                               |                                                                 |          | (31,387                                                         | )
|                                               | Federal funds sold and other short-term investments |                                                                 |          | (1,521                                                          | )
|                                               |                                                     |                                                                 |          |                                                                 |  
|Total earning assets                           |                                                     |                                                                 | (95,820  | )                                                               |  
|                                               |                                                     |                                                                 |          |                                                                 |  
|Interest-bearing liabilities:                  |                                                     |                                                                 |          |                                                                 |  
|                                               | Deposits:                                           |                                                                 |          |                                                                 |  
|                                               | Certificates of deposit                             |                                                                 |          | (18,085                                                         | )
|                                               | Brokered deposits                                   |                                                                 |          | (867                                                            | )
|                                               | Other interest-bearing deposits                     |                                                                 |          | (38,758                                                         | )
|                                               |                                                     |                                                                 |          |                                                                 |  
|                                               | Total interest-bearing deposits                     |                                                                 |          | (57,710                                                         | )
|                                               | Borrowed funds                                      |                                                                 |          | (60,738                                                         | )
|                                               |                                                     |                                                                 |          |                                                                 |  
|Total interest-bearing liabilities             |                                                     |                                                                 | (118,448 | )                                                               |  
|                                               |                                                     |                                                                 |          |                                                                 |  
|Net interest income (fully taxable equivalent) |                                                     | $                                                               | 22,628   |                                                                 | $
|                                               |                                                     |                                                                 |          |                                                                 |  

---

Table 3Mortgage Banking Services Income

The following table sets forth certain information relating to our mortgage banking activities at the dates and for the periods indicated.

|                                                           |  | At or For the Year Ended December 31, |        
|---------------------------------------------------------- |  | ------------------------------------- | -------
|
|
|Residential mortgages serviced for investors               |  | $                                     | 964,027
|                                                           |  |                                       |        
|Residential mortgage sales income                          |  | $                                     | 9,122  
|Residential mortgage servicing income, net                 |  |                                       | 1,364  
|Change in impairment reserve for mortgage servicing rights |  |                                       |       
|Valuation adjustmentinterest rate floor                   |  |                                       | (62    
|Gain on sale of mortgage servicing rights                  |  |                                       | 706    
|                                                           |  |                                       |        
|Mortgage banking services income                           |  | $                                     | 11,130 
|                                                           |  |                                       |        

31

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Table 4Securities Available for Sale and Held to Maturity

The following table sets forth our investment securities at the dates indicated.

|                                              |                                      | December 31,          |          
|--------------------------------------------- | ------------------------------------ | --------------------- | ---------
|
|
|Securities available for sale:                |                                      |                       |          
|                                              | U.S. Government and federal agencies |                       | $        
|                                              | Tax-exempt bonds and notes           |                       |          
|                                              | Other bonds and notes                |                       |          
|                                              | Mortgage-backed securities           |                       |          
|                                              | Collateralized mortgage obligations  |                       |          
|                                              |                                      |                       |          
|                                              |                                      | Total debt securities |          
|                                              |                                      |                       |          
|Federal Home Loan Bank stock                  |                                      |                       | 264,943  
|Federal Reserve Bank stock                    |                                      |                       | 23,159   
|Other equity securities                       |                                      |                       | 4,183    
|                                              |                                      |                       |          
|Total equity securities                       |                                      |                       | 292,285  
|                                              |                                      |                       |          
|Net unrealized gain (loss)                    |                                      |                       | 61,991   
|                                              |                                      |                       |          
|Fair value of securities available for sale   |                                      | $                     | 5,817,238
|                                              |                                      |                       |          
|Securities held to maturity:                  |                                      |                       |          
|                                              | U.S. Government and federal agencies |                       | $        
|                                              | Tax-exempt bonds and notes           |                       |          
|                                              | Other bonds and notes                |                       |          
|                                              | Mortgage-backed securities           |                       |          
|                                              | Collateralized mortgage obligations  |                       |          
|                                              |                                      |                       |          
|Amortized cost of securities held to maturity |                                      | $                     | 339,623  
|                                              |                                      |                       |          
|Fair value of securities held to maturity     |                                      | $                     | 340,737  
|                                              |                                      |                       |          
|Excess of fair value over recorded value      |                                      | $                     | 1,114    
|                                              |                                      |                       |          
|Fair value as a % of amortized cost           |                                      |                       | 100.3    

Table 5Maturities of Securities

The following table sets forth the contractual maturities and fully-taxable equivalent weighted average yields of our debt securities at December 31, 2001.

|                    |                                      | Amortized Cost Maturing in |        
|------------------- | ------------------------------------ | -------------------------- | -------
|
|
|
|Available for Sale: |                                      |                            |        
|                    | U.S. Government and federal agencies |                            | $      
|                    | Tax-exempt bonds and notes           |                            |        
|                    | Other bonds and notes                |                            |        
|                    | Mortgage-backed securities           |                            |        
|                    | Collateralized mortgage obligations  |                            |        
|                    |                                      |                            |        
|Total               |                                      | $                          | 163,609
|                    |                                      |                            |        
|Held to Maturity:   |                                      |                            |        
|                    | Collateralized mortgage obligations  |                            |        
|                    |                                      |                            |        

32

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Table 6Composition of Loan and Lease Portfolio

The following table sets forth the composition of our loan and lease portfolio at the dates indicated.

|                                     |                                    | December 31, |           
|------------------------------------ | ---------------------------------- | ------------ | ----------
|
|
|
|Residential real estate loans        |                                    | $            | 2,627,125 
|Commercial real estate loans:        |                                    |              |           
|                                     | Permanent first mortgage loans     |              |           
|                                     | Construction and development loans |              |           
|                                     |                                    |              |           
|Total                                |                                    |              | 4,094,039 
|                                     |                                    |              |           
|Commercial business loans and leases |                                    |              | 2,462,653 
|Consumer loans and leases            |                                    |              | 3,531,513 
|                                     |                                    |              |           
|Total loans and leases               |                                    | $            | 12,715,330
|                                     |                                    |              |           

Table 7Scheduled Contractual Amortization of Certain Loans and Leases at December 31, 2001

The following table sets forth the scheduled contractual amortization of our construction and development loans and commercial business loans and leases at
December 31, 2001, as well as the amount of loans which are scheduled to mature after one year which have fixed or adjustable interest rates.

|                                                   |                                   | Real Estate
Construction
and Development
Loans |         | Commercial
Business Loans
and Leases |   | Total    
|-------------------------------------------------- | --------------------------------- | ---------------------------------------------- | ------- | ------------------------------------ | - | ---------
|
|Amounts due:                                       |                                   |                                                |         |                                      |   |          
|                                                   | Within one year                   |                                                | $       | 222,761                              |   | $        
|                                                   | After one year through five years |                                                |         | 205,692                              |   |          
|                                                   | Beyond five years                 |                                                |         | 156,275                              |   |          
|                                                   |                                   |                                                |         |                                      |   |          
|Total                                              |                                   | $                                              | 584,728 |                                      | $ | 2,462,653
|                                                   |                                   |                                                |         |                                      |   |          
|Interest rate terms on amounts due after one year: |                                   |                                                |         |                                      |   |          
|                                                   | Fixed                             |                                                | $       | 108,741                              |   | $        
|                                                   | Adjustable                        |                                                |         | 253,226                              |   |          

33

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Table 8Five Year Table of Activity in the Allowance for Loan and Lease Losses

The following sets forth information concerning the activity in our allowance for loan and lease losses during the periods indicated.

|                                                                        |                                      | Year Ended December 31,            |           
|----------------------------------------------------------------------- | ------------------------------------ | ---------------------------------- | ----------
|
|
|Average loans and leases outstanding (excluding loans held for sale)    |                                      | $                                  | 11,173,723
|                                                                        |                                      |                                    |           
|Allowance at the beginning of period                                    |                                      | $                                  | 153,550   
|Additions due to acquisitions                                           |                                      |                                    | 31,277    
|Charge-offs:                                                            |                                      |                                    |           
|                                                                        | Real estate loans                    |                                    |           
|                                                                        | Commercial business loans and leases |                                    |           
|                                                                        | Consumer loans and leases            |                                    |           
|                                                                        |                                      |                                    |           
|                                                                        |                                      | Total loans and leases charged off |           
|                                                                        |                                      |                                    |           
|Recoveries:                                                             |                                      |                                    |           
|                                                                        | Real estate loans                    |                                    |           
|                                                                        | Commercial business loans and leases |                                    |           
|                                                                        | Consumer loans and leases            |                                    |           
|                                                                        |                                      |                                    |           
|                                                                        |                                      | Total loans and leases recovered   |           
|                                                                        |                                      |                                    |           
|                                                                        |                                      | Net charge-offs                    |           
|Provision for loan and lease losses                                     |                                      |                                    | 41,889    
|                                                                        |                                      |                                    |           
|Allowance at the end of the period                                      |                                      | $                                  | 189,837   
|                                                                        |                                      |                                    |           
|Ratio of net charge-offs to average loans and leases outstanding        |                                      |                                    | 0.33      
|Ratio of allowance to total portfolio loans and leases at end of period |                                      |                                    | 1.49      
|Ratio of allowance to nonperforming loans and leases at end of period   |                                      |                                    | 252.29    

34

---

Table 9Allocation of the Allowance for Loan and Lease LossesFive Year Schedule

The allowance for loan and lease losses is available for offsetting credit losses in connection with any loan, but is internally allocated to various loan
categories as part of our process for evaluating the adequacy of the allowance for loan and lease losses. The following table sets forth information concerning the allocation of our allowance for loan
and lease losses by loan categories at the dates indicated.

|                                     |  | December 31, |        
|------------------------------------ |  | ------------ | -------
|
|
|
|Real estate loans                    |  | $            | 103,271
|Commercial business loans and leases |  |              | 58,090 
|Consumer loans and leases            |  |              | 28,476 
|Unallocated allowance                |  |              |       
|                                     |  |              |        
|                                     |  | $            | 189,837
|                                     |  |              |        

The unallocated component in the preceding table relate to reserves acquired in connection with the acquisition of CFX. These reserves were
allocated during 1998 in accordance with our analysis of the CFX loan portfolio.

Table 10Net Charge-offs as a Percent of Average Loans and Leases Outstanding

The following table sets forth net charge-offs to average loans and leases outstanding by type of loan during the periods indicated.

|                                     |       | Net Charge-offs to Average Loans and Leases Outstanding |     
|------------------------------------ | ----- | ------------------------------------------------------- | ----
|
|Real estate loans                    |       | 0.04                                                    | %   
|Commercial business loans and leases |       | 0.69                                                    | %   
|Consumer loans and leases            |       | 0.54                                                    | %   
|                                     | Total |                                                         | 0.33

35

---

Table 11Five Year Schedule of Nonperforming Assets

The following table sets forth information regarding our nonperforming assets at the dates indicated.

|                                                                                                    |                                                  | December 31,                         |       
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------ | ------
|
|
|Nonaccrual loans and leases                                                                         |                                                  |                                      |       
|                                                                                                    | Residential real estate loans                    |                                      | $     
|                                                                                                    | Commercial real estate loans                     |                                      |       
|                                                                                                    | Commercial business loans and leases             |                                      |       
|                                                                                                    | Consumer loans and leases                        |                                      |       
|                                                                                                    |                                                  |                                      |       
|                                                                                                    |                                                  | Total nonaccrual loans and leases    |       
|                                                                                                    | Troubled debt restructurings                     |                                      |       
|                                                                                                    |                                                  |                                      |       
|                                                                                                    |                                                  | Total nonperforming loans and leases |       
|                                                                                                    |                                                  |                                      |       
|Other nonperforming assets:                                                                         |                                                  |                                      |       
|                                                                                                    | Other real estate owned, net of related reserves |                                      |       
|                                                                                                    | Repossessions, net of related reserves           |                                      |       
|                                                                                                    | Securities available for sale                    |                                      |       
|                                                                                                    |                                                  |                                      |       
|                                                                                                    |                                                  | Total                                |       
|                                                                                                    |                                                  |                                      |       
|Total nonperforming assets                                                                          |                                                  | $                                    | 81,227
|                                                                                                    |                                                  |                                      |       
|Accruing loans and leases 90 days or more overdue                                                   |                                                  | $                                    | 6,227 
|                                                                                                    |                                                  |                                      |       
|Total nonperforming loans and leases as a percentage of total loans and leases                      |                                                  |                                      | 0.59  
|Total nonperforming assets as a percentage of total assets                                          |                                                  |                                      | 0.39  
|Total nonperforming assets as a percentage of total loans and leases and other nonperforming assets |                                                  |                                      | 0.64  

Table 12Change in Deposit Balances by Category of Deposits

The following table presents the changes in the balances of deposits outstanding at the dates indicated.

|                                 |  | December 31, |            | 2001-2000 Change |  
|-------------------------------- |  | ------------ | ---------- | ---------------- | -
|
|
|Demand deposits                  |  | $            | 2,603,339  |                  | $
|Money market access/NOW accounts |  |              | 5,129,626  |                  |  
|Savings accounts                 |  |              | 1,604,556  |                  |  
|Certificates of deposit          |  |              | 4,811,357  |                  |  
|Brokered deposits                |  |              | 72,171     |                  |  
|                                 |  |              |            |                  |  
|Total deposits                   |  | $            | 14,221,049 |                  | $
|                                 |  |              |            |                  |  

36

---

Table 13Maturity of Certificates of Deposit of $100,000 or more at December 31, 2001

The following table sets forth the scheduled maturity of certificates of deposit of $100,000 or more at December 31, 2001.

Balance

Percent(Dollars in thousands)3 months or less

$
400,280

35
%Over 3 to 6 months


282,588

25
%Over 6 to 12 months


261,598

23
%More than 12 months


189,233

17
%$
1,133,699

100
%


Table 14Business Segment Reporting

The following table presents selected operating data for our business segments for the year ended December 31, 2001.

|                                                                        |  | Community
Banking |         | Insurance
Brokerage |   | Investment
Planning |   | Trust and Investment
Management |       | Total
|----------------------------------------------------------------------- |  | ----------------- | ------- | ------------------- | - | ------------------- | - | ------------------------------- | ----- | -----
|
|Net interest income (expense)                                           |  | $                 | 681,878 |                     | $ | (630                | ) | $                               | 22    |      
|Provision for loan and lease losses                                     |  |                   | 41,889  |                     |   |                    |   |                                 |      |      
|                                                                        |  |                   |         |                     |   |                     |   |                                 |       |      
|Net interest income (expense) after provision for loan and lease losses |  |                   | 639,989 |                     |   | (630                | ) |                                 | 22    |      
|                                                                        |  |                   |         |                     |   |                     |   |                                 |       |      
|Noninterest income                                                      |  |                   | 157,301 |                     |   | 40,004              |   |                                 | 8,286 |      
|                                                                        |  |                   |         |                     |   |                     |   |                                 |       |      
|Salaries and benefits                                                   |  |                   | 218,317 |                     |   | 23,408              |   |                                 | 5,831 |      
|Occupancy and equipment                                                 |  |                   | 74,721  |                     |   | 3,162               |   |                                 | 608   |      
|Data processing/affiliate charges                                       |  |                   | 34,428  |                     |   | 625                 |   |                                 | 692   |      
|Special charges                                                         |  |                   | 7,614   |                     |   |                    |   |                                 |      |      
|Other                                                                   |  |                   | 91,099  |                     |   | 4,450               |   |                                 | 733   |      
|                                                                        |  |                   |         |                     |   |                     |   |                                 |       |      
|Total noninterest expense                                               |  |                   | 426,179 |                     |   | 31,645              |   |                                 | 7,864 |      
|                                                                        |  |                   |         |                     |   |                     |   |                                 |       |      
|Income before taxes and amortization of intangibles                     |  |                   | 371,111 |                     |   | 7,729               |   |                                 | 444   |      
|Amortization of intangibles                                             |  |                   | 16,654  |                     |   | 2,379               |   |                                 |      |      
|                                                                        |  |                   |         |                     |   |                     |   |                                 |       |      
|Pre-tax income                                                          |  | $                 | 354,457 |                     | $ | 5,350               |   | $                               | 444   |      
|                                                                        |  |                   |         |                     |   |                     |   |                                 |       |      

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of OperationsAsset
Liability Management" in Item 7 hereof is incorporated herein by reference.

37

---



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BANKNORTH GROUP, INC.  CONSOLIDATED BALANCE SHEETS

|                                                                                                                               |                                                                                                                                         | December 31,   |           
|------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ----------
|
|
|Assets                                                                                                                         |                                                                                                                                         |                |           
|Cash and due from banks                                                                                                        |                                                                                                                                         | $              | 650,588   
|Federal funds sold and other short-term investments                                                                            |                                                                                                                                         |                | 270,623   
|Securities available for sale, at market value                                                                                 |                                                                                                                                         |                | 5,817,238 
|Securities held to maturity, market value $340,737 in 2001 and $457,110 in 2000                                                |                                                                                                                                         |                | 339,623   
|Loans held for sale, market value $117,674 in 2001 and $51,823 in 2000                                                         |                                                                                                                                         |                | 117,674   
|Loans and leases                                                                                                               |                                                                                                                                         |                | 12,715,330
|                                                                                                                               | Less: Allowance for loan and lease losses                                                                                               |                |           
|                                                                                                                               |                                                                                                                                         |                |           
|                                                                                                                               | Net loans and leases                                                                                                                    |                |           
|                                                                                                                               |                                                                                                                                         |                |           
|Premises and equipment                                                                                                         |                                                                                                                                         |                | 237,440   
|Goodwill and other intangibles                                                                                                 |                                                                                                                                         |                | 466,633   
|Mortgage servicing rights                                                                                                      |                                                                                                                                         |                | 8,484     
|Bank owned life insurance                                                                                                      |                                                                                                                                         |                | 321,113   
|Other assets                                                                                                                   |                                                                                                                                         |                | 321,677   
|                                                                                                                               |                                                                                                                                         |                |           
|                                                                                                                               | Total assets                                                                                                                            |                | $         
|                                                                                                                               |                                                                                                                                         |                |           
|Liabilities and Shareholders' Equity                                                                                           |                                                                                                                                         |                |           
|Deposits:                                                                                                                      |                                                                                                                                         |                |           
|                                                                                                                               | Savings accounts                                                                                                                        |                | $         
|                                                                                                                               | Money market access and NOW accounts                                                                                                    |                |           
|                                                                                                                               | Certificates of deposit (including certificates of $100 or more of $1,133,699 in 2001 and $1,169,717 in 2000)                           |                |           
|                                                                                                                               | Brokered deposits                                                                                                                       |                |           
|                                                                                                                               | Demand deposits                                                                                                                         |                |           
|                                                                                                                               |                                                                                                                                         |                |           
|                                                                                                                               |                                                                                                                                         | Total deposits |           
|                                                                                                                               |                                                                                                                                         |                |           
|Federal funds purchased and securities sold under repurchase agreements                                                        |                                                                                                                                         |                | 1,620,555 
|Borrowings from the Federal Home Loan Bank                                                                                     |                                                                                                                                         |                | 2,644,105 
|Other borrowings                                                                                                               |                                                                                                                                         |                | 43,972    
|Subordinated long-term debt                                                                                                    |                                                                                                                                         |                | 200,000   
|Company obligated, mandatorily redeemable securities of subsidiary trusts holding solely parent junior subordinated debentures |                                                                                                                                         |                | 93,756    
|Other liabilities                                                                                                              |                                                                                                                                         |                | 464,034   
|                                                                                                                               |                                                                                                                                         |                |           
|                                                                                                                               | Total liabilities                                                                                                                       |                |           
|                                                                                                                               |                                                                                                                                         |                |           
|Shareholders' equity:                                                                                                          |                                                                                                                                         |                |           
|                                                                                                                               | Preferred stock, par value $0.01; 5,000,000 shares authorized, none issued                                                              |                |           
|                                                                                                                               | Common stock, par value $0.01; 400,000,000 and 200,000,000 shares authorized, 165,123,674 issued in 2001 and 149,584,159 issued in 2000 |                |           
|                                                                                                                               | Paid-in capital                                                                                                                         |                |           
|                                                                                                                               | Retained earnings                                                                                                                       |                |           
|                                                                                                                               | Unearned compensation                                                                                                                   |                |           
|                                                                                                                               | Treasury stock at cost (13,903,074 shares in 2001 and 8,339,556 shares in 2000)                                                         |                |           
|                                                                                                                               | Accumulated other comprehensive income                                                                                                  |                |           
|                                                                                                                               |                                                                                                                                         |                |           
|                                                                                                                               | Total shareholders' equity                                                                                                              |                |           
|                                                                                                                               |                                                                                                                                         |                |           
|Total liabilites and shareholders' equity                                                                                      |                                                                                                                                         | $              | 21,076,586
|                                                                                                                               |                                                                                                                                         |                |           

See accompanying notes to Consolidated Financial Statements.

38

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BANKNORTH GROUP, INC.  CONSOLIDATED STATEMENTS OF INCOME

|                                                                                             |                                                                                 | Year ended December 31,           
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------
|
|
|Interest and dividend income:                                                                |                                                                                 |                                   
|                                                                                             | Interest and fees on loans and leases                                           |                                   
|                                                                                             | Interest and dividends on securities                                            |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             |                                                                                 | Total interest and dividend income
|                                                                                             |                                                                                 |                                   
|Interest expense:                                                                            |                                                                                 |                                   
|                                                                                             | Interest on deposits                                                            |                                   
|                                                                                             | Interest on borrowed funds                                                      |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             |                                                                                 | Total interest expense            
|                                                                                             |                                                                                 |                                   
|Net interest income                                                                          |                                                                                 |                                   
|Provision for loan and lease losses                                                          |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|Net interest income after provision for loan and lease losses                                |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|Noninterest income:                                                                          |                                                                                 |                                   
|                                                                                             | Deposit services                                                                |                                   
|                                                                                             | Mortgage banking services                                                       |                                   
|                                                                                             | Trust and investment management services                                        |                                   
|                                                                                             | Investment planning services                                                    |                                   
|                                                                                             | Insurance brokerage commissions                                                 |                                   
|                                                                                             | Bank owned life insurance                                                       |                                   
|                                                                                             | Merchant and electronic banking income, net                                     |                                   
|                                                                                             | Loan fee income                                                                 |                                   
|                                                                                             | Net securities gains (losses)                                                   |                                   
|                                                                                             | Losses on securities restructuring                                              |                                   
|                                                                                             | Other noninterest income                                                        |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|Noninterest expenses:                                                                        |                                                                                 |                                   
|                                                                                             | Salaries and employee benefits                                                  |                                   
|                                                                                             | Data processing                                                                 |                                   
|                                                                                             | Occupancy                                                                       |                                   
|                                                                                             | Equipment                                                                       |                                   
|                                                                                             | Amortization of goodwill and other intangibles                                  |                                   
|                                                                                             | Special charges                                                                 |                                   
|                                                                                             | Other noninterest expenses                                                      |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|Income before income tax expense                                                             |                                                                                 |                                   
|Applicable income tax expense                                                                |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|Net income before extraordinary item and cumulative effect of change in accounting principle |                                                                                 |                                   
|Extraordinary itemearly extinguishment of debt, net of tax                                  |                                                                                 |                                   
|Cumlative effect of change in accounting priciple, net of tax                                |                                                                                 |                                   
|                                                                                             |                                                                                 |                                   
|Net income                                                                                   |                                                                                 | $                                 
|                                                                                             |                                                                                 |                                   
|Basic earnings per share:                                                                    |                                                                                 |                                   
|                                                                                             | Net income before extraordinary item and cumulative effect of accounting change |                                   
|                                                                                             | Extraordinary itemearly extinguishment of debt, net of tax                     |                                   
|                                                                                             | Cumulative effect of change in accounting principle, net of tax                 |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             | Net income                                                                      |                                   
|                                                                                             |                                                                                 |                                   
|Diluted earnings per share:                                                                  |                                                                                 |                                   
|                                                                                             | Net income before extraordinary item and cumulative effect of accounting change |                                   
|                                                                                             | Extraordinary itemearly extinguishment of debt, net of tax                     |                                   
|                                                                                             | Cumulative effect of change in accounting principle, net of tax                 |                                   
|                                                                                             |                                                                                 |                                   
|                                                                                             | Net income                                                                      |                                   
|                                                                                             |                                                                                 |                                   
|Weighted average shares outstanding:                                                         |                                                                                 |                                   
|                                                                                             | Basic                                                                           |                                   
|                                                                                             | Diluted                                                                         |                                   

See accompanying notes to Consolidated Financial Statements.

39

---



BANKNORTH GROUP, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                                            |                      | Par Value |       | Paid-in Capital |   | Retained Earnings |   | Unearned Compensation |           | Treasury Stock |    | Accumulated Other Comprehensive Income (Loss) |   | Total |         
|--------------------------------------------------------------------------- | -------------------- | --------- | ----- | --------------- | - | ----------------- | - | --------------------- | --------- | -------------- | -- | --------------------------------------------- | - | ----- | --------
|
|Balances at December 31, 1998                                               |                      | $         | 1,496 |                 | $ | 618,624           |   | $                     | 669,357   |                | $  | (3,756                                        | ) | $     | (65,189 
|Net income                                                                  |                      |           |      |                 |   |                  |   |                       | 196,958   |                |    |                                              |   |       |        
|Unrealized losses on securities, net of reclassification adjustment(1)      |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       |        
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|                                                                            | Comprehensive income |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|Premium on repurchase of trust preferred securities                         |                      |           |      |                 |   | (1,801            | ) |                       |          |                |    |                                              |   |       |        
|Treasury stock issued for employee benefit plans                            |                      |           |      |                 |   | (4                | ) |                       | (13,396   | )              |    |                                              |   |       | 31,752  
|Treasury stock purchased                                                    |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       | (53,745 
|Issuance of restricted stock                                                |                      |           |      |                 |   | 176               |   |                       | (313      | )              |    | (655                                          | ) |       | 1,344   
|Amortization of employee restricted stock                                   |                      |           |      |                 |   | (813              | ) |                       |          |                |    | 929                                           |   |       |        
|Decrease in unearned compensationESOP                                      |                      |           |      |                 |   | 1,341             |   |                       |          |                |    | 731                                           |   |       |        
|Cash dividends paid                                                         |                      |           |      |                 |   |                  |   |                       | (65,368   | )              |    |                                              |   |       |        
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|Balances at December 31, 1999                                               |                      |           | 1,496 |                 |   | 617,523           |   |                       | 787,238   |                |    | (2,751                                        | ) |       | (85,838 
|Net income                                                                  |                      |           |      |                 |   |                  |   |                       | 191,734   |                |    |                                              |   |       |        
|Unrealized gains on securities, net of reclassification adjustment(1)       |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       |        
|Minimum pension liability                                                   |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       |        
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|                                                                            | Comprehensive income |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|Cancellation of treasury shares at acquisition                              |                      |           | (1    | )               |   | (2,206            | ) |                       |          |                |    |                                              |   |       | 2,207   
|Treasury stock issued for employee benefit plans                            |                      |           |      |                 |   |                  |   |                       | (10,790   | )              |    |                                              |   |       | 30,486  
|Treasury stock purchased                                                    |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       | (96,585 
|Issuance and distribution of restricted stock                               |                      |           |      |                 |   | (119              | ) |                       | (195      | )              |    |                                              |   |       | 484     
|Amortization of employee restricted stock                                   |                      |           |      |                 |   | (390              | ) |                       |          |                |    | 992                                           |   |       |        
|Common stock issued for acquisitions                                        |                      |           | 1     |                 |   | 1,324             |   |                       |          |                |    |                                              |   |       |        
|Decrease in unearned compensationESOP                                      |                      |           |      |                 |   | 1,122             |   |                       |          |                |    | 405                                           |   |       |        
|Payment of fractional shares                                                |                      |           |      |                 |   | (20               | ) |                       |          |                |    |                                              |   |       |        
|Cash dividends paid                                                         |                      |           |      |                 |   |                  |   |                       | (70,773   | )              |    |                                              |   |       |        
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|Balances at December 31, 2000                                               |                      |           | 1,496 |                 |   | 617,234           |   |                       | 897,214   |                |    | (1,354                                        | ) |       | (149,246
|Net income                                                                  |                      |           |      |                 |   |                  |   |                       | 238,795   |                |    |                                              |   |       |        
|Unrealized gains on securities, net of reclassification adjustment(1)       |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       |        
|Unrealized gains on cash flow hedges, net of reclassification adjustment(1) |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       |        
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|                                                                            | Comprehensive income |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|Premium on repurchase of trust preferred securities                         |                      |           |      |                 |   | (71               | ) |                       |          |                |    |                                              |   |       |        
|Treasury stock issued for employee benefit plans                            |                      |           |      |                 |   | 297               |   |                       | (6,811    | )              |    |                                              |   |       | 32,662  
|Treasury stock purchased                                                    |                      |           |      |                 |   |                  |   |                       |          |                |    |                                              |   |       | (151,546
|Issuance and distribution of restricted stock                               |                      |           |      |                 |   | (161              | ) |                       | (243      | )              |    |                                              |   |       | 601     
|Common stock issued for acquisitions                                        |                      |           | 155   |                 |   | 339,804           |   |                       |          |                |    |                                              |   |       |        
|Decrease in unearned compensationESOP                                      |                      |           |      |                 |   | 1,668             |   |                       |          |                |    | 337                                           |   |       |        
|Payment of fractional shares                                                |                      |           |      |                 |   | (7                | ) |                       |          |                |    |                                              |   |       |        
|Cash dividends paid                                                         |                      |           |      |                 |   |                  |   |                       | (72,277   | )              |    |                                              |   |       |        
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         
|Balances at December 31, 2001                                               |                      | $         | 1,651 |                 | $ | 958,764           |   | $                     | 1,056,678 |                | ($ | 1,017                                         | ) | ($    | 267,529 
|                                                                            |                      |           |       |                 |   |                   |   |                       |           |                |    |                                               |   |       |         

|                                                                                                         |  | December 31, |       
|-------------------------------------------------------------------------------------------------------- |  | ------------ | ------
|
|Unrealized holding gains (losses) arising during the period on available for sale securities, net of tax |  | $            | 75,645
|Less: reclassification adjustment for net gains (losses) included in net income                          |  |              | 864   
|                                                                                                         |  |              |       
|                                                                                                         |  |              | 74,781
|                                                                                                         |  |              |       
|Unrealized holding losses arising during the period on cash flow hedges, net of tax                      |  |              | (887  
|Less: reclassification adjustment for losses included in net income                                      |  |              | (1,161
|                                                                                                         |  |              |       
|                                                                                                         |  |              | 274   
|                                                                                                         |  |              |       
|Net unrealized gains (losses)                                                                            |  | $            | 75,055
|                                                                                                         |  |              |       

See accompanying notes to Consolidated Financial Statements

40

---



BANKNORTH GROUP, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                  |                                                                                    | Year Ended December 31, |         
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------------------- | --------
|
|
|Cash flows from operating activities:                                             |                                                                                    |                         |         
|Net income                                                                        |                                                                                    | $                       | 238,795 
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                    |                         |         
|                                                                                  | Provision for loan and lease losses                                                |                         |         
|                                                                                  | Provision for depreciation                                                         |                         |         
|                                                                                  | Amortization of goodwill and other intangibles                                     |                         |         
|                                                                                  | Net decrease (increase) in deferred tax assets                                     |                         |         
|                                                                                  | ESOP and restricted stock expense                                                  |                         |         
|                                                                                  | Amortization of employee restricted stock                                          |                         |         
|                                                                                  | Issuance of restricted stock units                                                 |                         |         
|                                                                                  | Net (gains) losses realized from sales of securities and consumer loans            |                         |         
|                                                                                  | Net (gains) losses realized from sales of loans held for sale                      |                         |         
|                                                                                  | Earnings from bank owned life insurance                                            |                         |         
|                                                                                  | Net decrease (increase) in mortgage servicing rights                               |                         |         
|                                                                                  | Proceeds from sales of loans held for sale                                         |                         |         
|                                                                                  | Residential loans originated and purchased for sale                                |                         |         
|                                                                                  | Net decrease (increase) in interest and dividends receivable and other assets      |                         |         
|                                                                                  | Net (decrease) increase in other liabilities                                       |                         |         
|                                                                                  |                                                                                    |                         |         
|Net cash provided by operating activities                                         |                                                                                    |                         | 278,995 
|                                                                                  |                                                                                    |                         |         
|Cash flows from investing activities:                                             |                                                                                    |                         |         
|                                                                                  | Proceeds from maturities and principal repayments of securities held to maturity   |                         |         
|                                                                                  | Purchase of securities held to maturity                                            |                         |         
|                                                                                  | Proceeds from sales of securities available for sale                               |                         |         
|                                                                                  | Proceeds from maturities and principal repayments of securities available for sale |                         |         
|                                                                                  | Purchases of securities available for sale                                         |                         |         
|                                                                                  | Net (increase) decrease in loans and leases                                        |                         |         
|                                                                                  | Proceeds from sales of loans                                                       |                         |         
|                                                                                  | Net additions to premises and equipment                                            |                         |         
|                                                                                  | Purchase of bank owned life insurance                                              |                         |         
|                                                                                  | Proceeds from policy coverage on bank owned life insurance                         |                         |         
|                                                                                  | Payment for acquisitions, net of cash acquired                                     |                         |         
|                                                                                  |                                                                                    |                         |         
|Net cash provided (used) by investing activities                                  |                                                                                    |                         | 720,809 
|                                                                                  |                                                                                    |                         |         
|Cash flows from financing activities:                                             |                                                                                    |                         |         
|                                                                                  | Net increase (decrease) in deposits                                                |                         |         
|                                                                                  | Net increase (decrease) in securities sold under repurchase agreements             |                         |         
|                                                                                  | Proceeds from Federal Home Loan Bank borrowings                                    |                         |         
|                                                                                  | Payments on Federal Home Loan Bank borrowings                                      |                         |         
|                                                                                  | Proceeds from repurchase of securities of subsidiary trusts                        |                         |         
|                                                                                  | Net (decrease) increase in other borrowings                                        |                         |         
|                                                                                  | Issuance of subordinated debt                                                      |                         |         
|                                                                                  | Issuance of common stock                                                           |                         |         
|                                                                                  | Purchase of treasury stock                                                         |                         |         
|                                                                                  | Cash dividends paid to shareholders                                                |                         |         
|                                                                                  |                                                                                    |                         |         
|Net cash (used) provided by financing activities                                  |                                                                                    |                         | (521,582
|                                                                                  |                                                                                    |                         |         
|Increase(decrease) in cash and cash equivalents                                   |                                                                                    |                         | 478,222 
|Cash and cash equivalents at beginning of period                                  |                                                                                    |                         | 392,989 
|                                                                                  |                                                                                    |                         |         
|Cash and cash equivalents at end of period                                        |                                                                                    | $                       | 871,211 
|                                                                                  |                                                                                    |                         |         

In conjunction with the purchase acquisitions detailed in Note 3 to the Consolidated Financial Statements,
assets were acquired and liabilities were assumed as follows:

| |                               |  |   |           |  |  
| | ----------------------------- |  | - | --------- |  | -
| | Fair value of assets acquired |  | $ | 3,025,847 |  | $
| | Less liabilities assumed      |  |   | 2,521,054 |  |  

---

For
the years ended December 31, 2001, 2000 and 1999, interest of $596,315, $712,843 and $599,981 and income taxes of $121,592, $92,970 and $77,436 were paid, respectively. During 2000 and 1999,
$3,094 and $245,233 of investment securities were transferred to securities available for sale.

See accompanying notes to Consolidated Financial Statements.

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BANKNORTH GROUP INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(All dollar amounts expressed in thousands, except per share data)

1. Summary of Significant Accounting Policies

The accounting and reporting policies of Banknorth Group, Inc. (the "Company") and its subsidiaries conform to accounting principles generally accepted in
the United States of America and to general practice within the banking industry. The Company's principal business activities are retail and commercial banking as well as trust and investment
management, investment planning and insurance brokerage services, and are conducted through the Company's direct and indirect subsidiaries located in Maine, New Hampshire, Massachusetts, Connecticut,
Vermont and New York. The Company and its subsidiaries are subject to regulation of, and periodic examination by, the Office of the Comptroller of Currency and the Federal Reserve Board, among other
agencies. The following is a description of the more significant accounting policies.

Financial Statement Presentation.

The Consolidated Financial Statements include the accounts of Banknorth Group, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform to the current presentation.

Assets
held in a fiduciary capacity are not assets of the Company and, accordingly, are not included in the Consolidated Balance Sheets.

In
preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan and lease losses,
deferred tax assets, capitalized costs of software developed for internal use, valuation of mortgage servicing rights and long-lived assets, including goodwill and intangible assets.

Cash and Cash Equivalents.

The Company is required to comply with various laws and regulations of the Federal Reserve Board which require that the Company maintain certain amounts of cash
on deposit and is restricted from investing those amounts.

For
purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and other short-term investments with maturities less than
90 days minus federal funds purchased. Generally, federal funds are sold or purchased for one-day periods.

Securities.

Investments in debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and reflected at
amortized cost.

Investments
not classified as "held to maturity" are classified as "available for sale." Securities available for sale consist of debt and equity securities that are available for sale
in order to respond to changes in market interest rates, liquidity needs, changes in funding sources and other similar factors.

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These assets are specifically identified and are carried at market value. Changes in market value of available for sale securities, net of applicable income taxes, are reported as a separate
component of shareholders' equity and comprehensive income. When a decline in market value of a security is considered other than temporary, generally six months or longer, the cost basis of the
individual security is written down to market value as the new cost basis and the loss is charged to net securities gains (losses) in the consolidated statements of income as a writedown.

Premiums
and discounts are amortized and accreted over the term of the securities on a level yield method adjusted for prepayments. Gains and losses on the sale of securities are
recognized at the time of the sale using the specific identification method.

Loans and Leases.

Loans are carried at the principal amounts outstanding adjusted by partial charge-offs and net deferred loan costs or fees. Residential real estate
loans are generally placed on nonaccrual when reaching 120 days past due or in process of foreclosure. All closed-end consumer loans 90 days or more past due and any equity
line in the process of foreclosure are placed on nonaccrual status. Secured consumer loans are written down to realizable value and unsecured consumer loans are charged-off upon reaching
120 or 180 days past due depending on the type of loan. Commercial real estate loans and commercial business loans and leases which are 90 days or more past due are generally placed on
nonaccrual status, unless secured by sufficient cash or other assets immediately convertible to cash. When a loan has been placed on nonaccrual status, previously accrued and uncollected interest is
reversed against interest on loans. A loan can be returned to accrual status when collectibility of principal is reasonably assured and the loan has performed for a period of time, generally six
months. Commercial real estate loans and commercial business loans are classified as impaired when it is probable that the Company will not be able to collect all amounts due according to the
contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status and collateral value.

Loan
origination and commitment fees and certain direct origination costs are deferred, and the net amount is amortized as an adjustment of the related loan's yield using methods that
approximate the level yield method over the estimated lives of the related loans.

Consumer
lease financing loans are carried at the amount of minimum lease payments plus residual values, less unearned income which is amortized into interest income using the interest
method.

Allowance for Loan and Lease Losses.

The allowance for loan and lease losses is maintained at a level determined to be adequate by management to absorb future charge-offs of loans and
leases deemed uncollectable. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged off, and reduced by charge-offs on loans
and leases.

Arriving
at an appropriate level of allowance for loan and lease losses necessarily involves a high degree of judgment. The ongoing evaluation process includes a formal analysis of the
allowance each quarter, which considers, among other factors, the character and size of the loan portfolio, business and

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economic conditions, loan growth, delinquency trends, nonperforming loans trends, charge-off experience, portfolio migration data and other asset quality factors. The Company evaluates
specific loan status reports on certain commercial and commercial real estate loans rated "substandard" or worse in excess of a specified dollar amount. Estimated reserves for each of these credits is
determined by reviewing current collateral value, financial information, cash flow, payment history and trends and other relevant facts surrounding the particular credit. Provisions for losses on the
remaining commercial and commercial real estate loans are based on pools of similar loans using a combination of historical loss experience and migration analysis, which considers the probability of a
loan moving from one risk rating category to another over the passage of time, transition matrix and qualitative adjustments. For the residential real estate and consumer loan portfolios, the range of
reserves is calculated by applying historical charge-off and recovery experience to the current outstanding balance in each loan category, with consideration given to loan growth over the
preceding twelve months. Although management uses available information to establish the appropriate level of the allowance for loan and lease losses, future additions to the allowance may be
necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan and lease losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments
about information available to them at the time of their examination.

Bank Owned Life Insurance.

Bank owned life insurance ("BOLI") represents life insurance on the lives of certain employees. The Company is the beneficiary of the insurance policies.
Increases in the cash value of the policies, as well as insurance proceeds received, are recorded in other income, and are not subject to income taxes. The cash value is included in assets. The
Company reviews the financial strength of the insurance carrier prior to the purchase of BOLI and annually thereafter and BOLI with any individual carrier is limited to 10% of capital plus reserves.

Premises and Equipment.

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the
straight-line method over the estimated useful lives of related assets.

Internally
developed software costs, such as those related to software licenses, programming, testing, configuration and integration, are capitalized and included in furniture, fixtures
and equipment. Included in the capitalized costs are those costs related to both Company personnel and third party consultants involved in the development and installation. Once placed in service, the
capitalized asset is amortized on a straight-line basis over its estimated useful life, not to exceed seven years.

Goodwill and Other Intangibles.

Historically, goodwill has been amortized on a straight-line basis over various periods not exceeding twenty years; core deposit intangibles are
amortized on a level-yield basis over the estimated life of the associated deposits but not longer that 10 years. Goodwill and other intangible assets are reviewed for possible impairment when
it is determined that events or changed circumstances may

44

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affect the underlying basis of the asset. New accounting rules were recently issued for goodwill and intangibles resulting from business combinations consummated after June 30, 2001. See
Note 2New Accounting Pronouncements.

Impairment of Long-Lived Assets.

The Company reviews long-lived assets, including premises and equipment, goodwill and other intangible assets, for impairment whenever events or
changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. The Company
performs undiscounted cash flow analyses to determine if impairment exists. If impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on
assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Mortgage Banking and Loans Held for Sale.

Residential mortgage loans originated for sale are classified as held for sale. These loans are specifically identified and carried at the lower of aggregate cost
or estimated market value. Market value is estimated based on outstanding investor commitments or, in the absence of such commitments, current investor yield requirements. Forward commitments to sell
residential real estate mortgages are contracts that the Company enters into for the purpose of reducing the market risk associated with originating loans for sale should interest rates change.
Forward commitments are recorded at fair value and are included with loans held for sale.

Gains
and losses on sales of mortgage loans are determined using the specific identification method and recorded as mortgage sales income, a component of mortgage banking services
income. The gains and losses resulting from the sales of loans with servicing retained are adjusted to recognize the present value of future servicing fee income over the estimated lives of the
related loans. Since the fourth quarter of 2000, the Company has generally sold residential loans and the related servicing rights on a flow basis.

Mortgage
servicing rights are amortized on an accelerated method over the estimated weighted average life of the loans. Amortization is recorded as a charge against mortgage service fee
income, a component of mortgage banking services income. The Company's assumptions with respect to prepayments, which affect the estimated average life of the loans, are adjusted periodically to
reflect current circumstances. In evaluating the realizability of the carrying values of mortgage servicing rights, the Company assesses the estimated life of its servicing portfolio based on data
which is disaggregated to reflect note rate, type and term on the underlying loans.

Mortgage
servicing fees received from investors for servicing their loan portfolios are recorded as mortgage servicing fee income when received. Loan servicing costs are charged to
noninterest expenses when incurred.

Derivative Financial Instruments.

Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 sets

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accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recognized on the balance sheet at fair value. The Company recognized an
after-tax loss of $290 thousand from the cumulative effect of adoption of this accounting standard.

Starting
January 1, 2001, the Company recognizes all derivatives on the balance sheet at fair value. On the date the derivative is entered into, the Company designates whether the
derivative is part of a hedging relationship (cash flow or fair value hedge). The Company formally documents relationships between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking hedge transactions. The Company also assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives used in hedging transactions are
highly effective in offsetting changes in cash flows or fair values of hedged items.

Changes
in fair value of a derivative that is highly effective and that qualifies as a cash flow hedge are recorded in other comprehensive income and are reclassified into earnings when
the forecasted transaction affects earnings, generally within 60 to 90 days. The Company discontinues hedge accounting when it is determined that the derivative is no longer effective in
offsetting changes in the cash flows of the hedge item, because it is unlikely that the forecasted transaction will occur, or management determines that the designation of the derivative as a hedging
instrument is no longer appropriate. When a cash flow hedge is discontinued, the remaining gain is deferred and amortized into earnings based upon the life of the forecasted transaction and losses are
recognized immediately.

From
time to time the Company may use certain hedging strategies which include the use of derivative financial instruments. The primary objective of the Company's hedging strategies is
to reduce net interest rate exposure arising from the Company's asset and liability structure and mortgage banking activities. The Company uses forward delivery contracts to reduce interest rate risk
on closed residential mortgage loans held for sale and rate-locked loans expected to be closed and held for sale. The Company also purchases Treasury and mortgage-backed security options
to modify its forward mortgage commitments. Changes in fair value of the options are included in the calculation of the carrying value of loans held for sale.

The
Company has previously used interest rate contracts (swaps, floors and corridors) to modify the repricing or maturity characteristics of specified interest bearing assets or
liabilities. There were no interest rate contracts outstanding as of December 31, 2001. The Company has previously used interest rate floors tied to the CMT index to mitigate the prepayment
risk associated with mortgage servicing rights. There were no such interest rate floors outstanding as of December 31, 2001.

Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 140"), which replaced SFAS No. 125. SFAS No. 140, which has subsequently been amended by FASB Technical Bulletin
No. 01-1, "Effective Date for Certain Financial Institutions of Certain Provisions of Statement 140 related to Isolation of Transferred Financial Assets", provides accounting and
reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This Statement provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. This Statement, as amended, is effective for transfers

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and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and is effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company does not expect that the provisions of SFAS No. 140 will have a
material impact on its financial condition or results of operations.

Pension, 401(k), and Other Employee Benefit Plans.

The Company and its subsidiaries have non-contributory defined benefit pension plans which cover most employees. The benefits are based on years of
service and the employee's career average earnings. The Company has historically made cash contributions to the defined benefit pension plan for the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

The
Company maintains Section 401(k) savings plans for substantially all employees of the Company and its subsidiaries. Under the plans, the Company makes a matching contribution
of a portion of the amount contributed by each participating employee, up to a percentage of the employee's annual salary. The plans allow for supplementary profit sharing contributions by the
Company, at its discretion, for the benefit of participating employees.

The
Company previously sponsored a Profit Sharing Employee Stock Ownership Plan (the "ESOP") which was designed to invest primarily in Company common stock. The ESOP was merged into the
401(k) Plan effective January 1, 2001. Employees are eligible to participate in the 401(k) Plan on the first day of the month following their date of hire. The Company previously sponsored a
leveraged employee stock ownership plan which was merged with and into the ESOP. The Company is required to make annual contributions to the ESOP equal to the ESOP's debt service and the unallocated
shares are pledged as collateral for the debt. As the debt is repaid, shares are released from collateral and allocated to eligible employees. The Company accounts for this ESOP in accordance with
AICPA SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans." Accordingly, the debt of the ESOP is recorded as long-term debt and the shares pledged as collateral
are reported as unearned compensation on the balance sheet. As shares are released from collateral, the Company records compensation expense equal to the current market price of the shares, and the
shares are treated as outstanding for purposes of calculating earnings per share.

Stock Compensation Plans.

SFAS No. 123, "Accounting for Stock-Based Compensation" encourages all entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it
also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees," whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to
acquire the stock. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, must make pro forma disclosures

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of net income and earnings per share as if the fair value based method of accounting had been applied. The pro forma disclosures include the effects of all awards granted on or after
January 1, 1995. See Note 18Stock Based Compensation Plans.

Investments in Limited Partnerships.

The Company has investments in both tax advantaged and small business investment limited partnerships. The tax advantaged limited partnerships are primarily
involved in approved low income housing investment tax credit projects in the Company's market area while the small business
investment limited partnerships are primarily providing seed money to small businesses also in the Company's market area. These investments are included in other assets. Investments in the tax
advantaged limited partnerships are amortized over the same period the tax benefits are expected to be received. The investments in small business investment limited partnerships, for which the
Company has the ability to exercise significant influence (generally, a 3% or greater ownership interest), are reviewed and adjusted quarterly based on the equity method. If the Company does not
exercise significant influence, the Company's investment is accounted for under the cost method and the carrying value is periodically evaluated. Other than fixed capital or loan commitments agreed to
in advance, the partnerships have no recourse to the Company.

Income Taxes.

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information
raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Income taxes are allocated to each entity in the consolidated group based on its share of taxable income.

Tax
credits generated from limited partnerships are reflected in earnings when realized for federal income tax purposes.

Earnings Per Share.

Earnings per share have been computed in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share have been calculated by dividing net
income by weighted average shares outstanding before any dilution and adjusted to exclude the weighted average number of unallocated shares held by the ESOP. Diluted earnings per share have been
calculated by dividing net income by weighted average shares outstanding after giving effect to the potential dilution that could occur if the potential common shares (i.e. stock options) were
converted into common stock using the treasury stock method.

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Segment Reporting.

An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and evaluate performance. The Company's primary business is community banking, which provides over 90% of its revenues and profits.
Accordingly, disaggregated segment information is not presented in the notes to the financial statements.

2. New Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations and specifies recognition criteria that acquired identifiable
intangible assets must meet to be recognized and reported separately from goodwill. SFAS No. 142 requires goodwill and intangible assets with indefinite useful lives no longer be amortized, but
instead are to be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144
(discussed below) after its adoption.

The
Company adopted SFAS No. 141 as of July 1, 2001. Also as of July 1, 2001, the Company adopted the required transition provisions of SFAS No. 142 related
to amortization of goodwill and other acquired intangible assets for which the acquisition date was after June 30, 2001. The remaining provisions of SFAS No. 142 were adopted on
January 1, 2002. Accordingly, goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001 are
not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 continued to be amortized until December 31, 2001.

Upon
full adoption of SFAS No. 142, the Company must evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and make any
necessary reclassifications in order to conform with the criteria in SFAS No. 141 for recognition of identifiable intangible assets separate from goodwill. The Company must also reassess the
useful lives and residual values of all identifiable intangible assets acquired and make any necessary amortization period adjustments by March 31, 2002. Goodwill impairment must be measured
for each reporting unit in a two-step process. First, the carrying amount of the net assets (including goodwill) must be compared to the fair value of a reporting unit (as defined) by
June 30, 2002. Second, if the carrying value of a reporting unit is greater than its fair value, the Company must determine by December 31, 2002 the amount of impairment based on the
fair value of a reporting unit compared to the fair values assigned to all of the recognized and unrecognized assets and liabilities of that unit. Impairment loss must be measured as of the date of
adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

On
December 31, 2001, the Company had goodwill in the amount of $409.3 million, core deposit intangibles of $21.3 million and other intangibles of
$36.0 million, all of which will be subject to the transition provisions of SFAS No. 142. The Company has not completed its calculations under the

49

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impairment testing provisions of SFAS 142; however, based on evaluation results to date, impairment losses, if any, are not expected to be material.

SFAS
No. 142 does not materially change the provisions of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," which specifies that
intangibles from acquisitions in which the fair value of the liabilities assumed exceeds the fair value of the tangible and intangible assets acquired are to be amortized over a period not to exceed
the remaining life of the long term interest bearing assets acquired. This unidentified intangible asset is often referred to as "SFAS 72 Goodwill". As of December 31, 2001 the Company had
$34.7 million of "SFAS 72 Goodwill" remaining, which is classified as "Other Intangibles" and has scheduled amortization of $7.0 million in 2002, $3.2 million in 2003 and
approximately $2.5 million annually from 2004 through 2013. (See also Note 8Goodwill and Other Intangibles).

The
approximate effect of not amortizing goodwill recorded in connection with the Andover and MetroWest acquisitions for the months of November and December 2001 was to reduce
noninterest expense by $3.2 million, pre-tax. The estimated amortization expense for goodwill and intangible assets for 2002 is expected to decline to $13.6 million from
$22.1 million in 2001 as a direct result of discontinuing all goodwill amortization, subject to the results of the required testing for goodwill impairment. The FASB has also agreed to
reconsider the amortization provisions for "SFAS 72 Goodwill".

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No.143 requires companies to record the fair value of
an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the
acquisition, construction, development and/or normal use of the assets. A corresponding asset is also recorded which is depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The
Company is required to adopt SFAS No. 143 on January 1, 2003. The Company does not expect that the provisions of SFAS No. 143 will have a material impact on its financial
condition or results of operations.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" (SFAS No. 144). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized
by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extend that
reporting to a component of an entity that either has been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less cost to sell. The Company adopted SFAS No. 144 on January 1, 2002 with no material impact on its financial condition or results of
operations.

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3. Acquisitions

On October 31, 2001, the Company completed the acquisitions of Andover Bancorp, Inc. ("Andover"), a multi-bank holding company
headquartered in Andover, Massachusetts, and MetroWest Bank ("MetroWest"), a Massachusetts-chartered savings bank headquartered in Framingham, Massachusetts. The acquisitions were accounted for as
purchases in accordance with SFAS No. 141, "Business Combinations." The results of Andover and MetroWest operations have been included in the consolidated financial statements since
October 31, 2001.

A
total of 16.5 million shares of Company common stock (including 1.0 million shares issuable upon exercise of Banknorth stock options issued in exchange for Andover stock
options) were issued in connection with the acquisition of Andover. The total purchase price of Andover Bancorp, including the value of options, was $340.0 million. The value of the common
stock issued was determined based on the average market price of the Company common stock over the five-day period before and the five-day period after the terms of the
acquisition were announced.

MetroWest
shares and vested stock options were purchased for $11.50 per share for a total cost of $164.8 million.

The
following table summarizes the estimated fair value of the assets acquired and liabilities assumed for Andover and MetroWest at the date of acquisition. The Company expects that some
adjustments of the estimated fair values assigned to the assets acquired and liabilities assumed at October 31, 2001 will be recorded in 2002, although such adjustments are not expected to be
material.

October 31, 2001Assets:Investments

$
574,257Loans held for sale


12,195Loans and leases, net


1,879,910Premises and equipment


24,738Mortgage servicing rights


8,804Goodwill and other intangibles


303,020Other assets


222,923Total assets acquired


3,025,847Deposits


2,000,522Borrowings


480,083Other Liabilities


40,449Total liabilities assumed


2,521,054Net assets acquired

$
504,793


The
goodwill and other intangibles included goodwill of $286.2 million and core deposit intangibles of $16.8 million with an average useful life of 10 years. It is
estimated that none of the goodwill will be deductible for income tax purposes.

The
following table summarizes on a proforma basis the results of operations of the Company assuming that the acquisitions of Andover and MetroWest had been completed as of the beginning
of

51

---

the periods presented. The proforma data gives effect to actual operating results prior to the acquisitions and the amortization of the purchase accounting adjustments which affected net interest
income and noninterest expense. Special charges related to the Andover/Metro West merger recorded by Andover and Metro West totaling $19.0 million ($12.8 million after-tax) and by
Banknorth totaling $3.8 million ($2.5 million after-tax) have been excluded from the 2001 proforma results. The special charges recorded by Andover and Metro West served to increase the
goodwill recorded in connection
with the transaction. In addition, an assumed interest charge related to the funding of the cash purchase of Metro West was deducted from the operating results in both 2001 and 2000. No effect has
been given to cost reductions or operating synergies in this presentation. These proforma amounts do not purport to be indicative of the results that would have actually been obtained if the
acquisitions had occurred as of the beginning of the periods presented or that may be obtained in the future.

|                                                                                             |         | Year Ended December 31,
|-------------------------------------------------------------------------------------------- | ------- | -----------------------
|
|Net interest income                                                                          |         | $                      
|Provision for loan and lease losses                                                          |         |                        
|                                                                                             |         |                        
|Net interest income after provision for loan and lease losses                                |         |                        
|Noninterest income                                                                           |         |                        
|Noninterest expense                                                                          |         |                        
|                                                                                             |         |                        
|Income before income taxes                                                                   |         |                        
|Income tax expense                                                                           |         |                        
|                                                                                             |         |                        
|Net income before extraordinary item and cumulative effect of change in accounting principle |         |                        
|Extraordinary item, net of tax                                                               |         |                        
|Cumulative effect of change in accounting principle, net of tax                              |         |                        
|                                                                                             |         |                        
|Net income                                                                                   |         | $                      
|                                                                                             |         |                        
|Earnings per share:                                                                          |         |                        
|                                                                                             | Basic   |                        
|                                                                                             | Diluted |                        
|Weighted average shares outstanding:                                                         |         |                        
|                                                                                             | Basic   |                        
|                                                                                             | Diluted |                        

During
the third quarter of 2000, the Company completed the acquisition of two insurance agencies based in Massachusetts and Connecticut for a combination of cash and stock. These
acquisitions were accounted for under the purchase method and, as a result, the acquired assets and liabilities assumed were added to those of the Company at their respective fair values and the
excess of the purchase price paid over the fair value of net assets acquired, which aggregated $22.7 million, was recorded as goodwill and is being amortized to expense over 20 years. In
addition, under this method

52

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of accounting the results of operations of the acquired agencies are included in the Company's results of operations only from their respective dates of acquisition.

On
May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc. ("Banknorth"). Banknorth was headquartered in Burlington, Vermont and had 100 offices
located throughout Vermont, Massachusetts, New Hampshire and upstate New York. Approximately 42.9 million shares of Company common stock were issued in connection with this acquisition, which
was accounted for as a pooling-of-interests. As of December 31, 1999, Banknorth had total assets of $4.6 billion and total shareholders' equity of
$341 million.

On
January 1, 1999, the Company completed the acquisition of SIS Bancorp, Inc. ("SIS"). Approximately 16.3 million shares of Company common stock were issued in
connection with this acquisition, which was accounted for as a pooling-of-interests. SIS had total assets of $2.0 billion and shareholders' equity of $139 million
at December 31, 1998.

The
Company incurred various merger related and restructuring charges in connection with the foregoing acquisitions and certain other matters (collectively, "special charges"). On a
pre-tax basis special charges amounted to $7.6 million, $43.0 million and $28.0 million in 2001, 2000 and 1999, respectively. For additional information, see
Note 11 "Special Charges."

53

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4. Securities Available for Sale and Held to Maturity

A summary of the amortized cost and market values of securities available for sale and held to maturity follows:

|                   |                                                                                          | Amortized
Cost                      |   | Gross
Unrealized
Gains |           | Gross
Unrealized
Losses |        | Market
Value
|------------------ | ---------------------------------------------------------------------------------------- | ----------------------------------- | - | ---------------------- | --------- | ----------------------- | ------ | ------------
|Available for Sale |                                                                                          |                                     |   |                        |           |                         |        |             
|                   | December 31, 2001:                                                                       |                                     |   |                        |           |                         |        |             
|                   | U.S. Government obligations and obligations of U.S. Government agencies and corporations |                                     | $ | 531,256                |           | $                       | 6,592  |             
|                   | Tax-exempt bonds and notes                                                               |                                     |   | 112,845                |           |                         | 1,443  |             
|                   | Other bonds and notes                                                                    |                                     |   | 560,090                |           |                         | 8,461  |             
|                   | Mortgage-backed securities                                                               |                                     |   | 3,577,405              |           |                         | 50,935 |             
|                   | Collateralized mortgage obligations                                                      |                                     |   | 681,366                |           |                         | 7,788  |             
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total debt securities               |   |                        | 5,462,962 |                         |        | 75,219      
|                   | Federal Home Loan Bank stock                                                             |                                     |   | 264,943                |           |                         |       |             
|                   | Federal Reserve Bank stock                                                               |                                     |   | 23,159                 |           |                         |       |             
|                   | Other equity securities                                                                  |                                     |   | 4,183                  |           |                         | 569    |             
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total equity securities             |   |                        | 292,285   |                         |        | 569         
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total securities available for sale |   | $                      | 5,755,247 |                         | $      | 75,788      
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   | December 31, 2000:                                                                       |                                     |   |                        |           |                         |        |             
|                   | U.S. Government obligations and obligations of U.S. Government agencies and corporations |                                     | $ | 544,392                |           | $                       | 2,872  |             
|                   | Tax-exempt bonds and notes                                                               |                                     |   | 83,133                 |           |                         | 760    |             
|                   | Other bonds and notes                                                                    |                                     |   | 426,199                |           |                         | 2,260  |             
|                   | Mortgage-backed securities                                                               |                                     |   | 3,591,923              |           |                         | 10,940 |             
|                   | Collateralized mortgage obligations                                                      |                                     |   | 575,091                |           |                         | 207    |             
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total debt securities               |   |                        | 5,220,738 |                         |        | 17,039      
|                   | Federal Home Loan Bank stock                                                             |                                     |   | 242,632                |           |                         |       |             
|                   | Federal Reserve Bank stock                                                               |                                     |   | 13,312                 |           |                         |       |             
|                   | Other equity securities                                                                  |                                     |   | 1,488                  |           |                         |       |             
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total equity securities             |   |                        | 257,432   |                         |        |            
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total securities available for sale |   | $                      | 5,478,170 |                         | $      | 17,039      
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|Held to Maturity:  |                                                                                          |                                     |   |                        |           |                         |        |             
|                   | December 31, 2001:                                                                       |                                     |   |                        |           |                         |        |             
|                   | Collateralized mortgage obligations                                                      |                                     | $ | 339,623                |           | $                       | 1,114  |             
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total securities held to maturity   |   | $                      | 339,623   |                         | $      | 1,114       
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   | December 31, 2000:                                                                       |                                     |   |                        |           |                         |        |             
|                   | Collateralized mortgage obligations                                                      |                                     | $ | 455,547                |           | $                       | 1,563  |             
|                   |                                                                                          |                                     |   |                        |           |                         |        |             
|                   |                                                                                          | Total securities held to maturity   |   | $                      | 455,547   |                         | $      | 1,563       
|                   |                                                                                          |                                     |   |                        |           |                         |        |             

54

---

The
amortized cost and market values of debt securities at December 31, 2001 by contractual maturities are shown below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2001, the Company had $402.0 million of securities
available for sale with call provisions.

|                   |                                        |                       |   |           |           | Held to Maturity
|------------------ | -------------------------------------- | --------------------- | - | --------- | --------- | ----------------
|
|
|
|December 31, 2001: |                                        |                       |   |           |           |                 
|                   | Due in one year or less                |                       | $ | 163,609   |           | $               
|                   | Due after one year through five years  |                       |   | 584,392   |           |                 
|                   | Due after five years through ten years |                       |   | 718,563   |           |                 
|                   | Due after ten years                    |                       |   | 3,996,398 |           |                 
|                   |                                        |                       |   |           |           |                 
|                   |                                        | Total debt securities |   | $         | 5,462,962 |                 
|                   |                                        |                       |   |           |           |                 

A
summary of realized gains and losses on securities available for sale for 2001, 2000 and 1999 follows:

Gross RealizedGains

Losses2001

$
4,291

$
2,9622000


443


15,8991999


885


361


Included
in realized losses for 2001 was a $2.1 million other than temporary impairment loss on a trust preferred security.

55

---



5. Loans and Leases

The Company's lending activities are conducted principally in New England and upstate New York. The principal categories of loans in the Company's portfolio are
residential real estate loans, which are secured by single-family (one to four units) residences; commercial real estate loans, which are secured by multi-family (five or more units) residential and
commercial real estate; commercial business loans and leases; and consumer loans and leases. A summary of loans and leases follows:

|                                     |                                    | December 31,
|------------------------------------ | ---------------------------------- | ------------
|
|Residential real estate loans        |                                    | $           
|Commercial real estate loans:        |                                    |             
|                                     | Permanent first mortgage loans     |             
|                                     | Construction and development loans |             
|                                     |                                    |             
|                                     |                                    |             
|Commercial business loans and leases |                                    |             
|Consumer loans and leases            |                                    |             
|                                     |                                    |             
|                                     | Total loans and leases             |             
|                                     |                                    |             

Loans
and leases include net deferred charges of $7.5 million at December 31, 2001 and $4.3 million at December 31, 2000. Deferred charges included deferred loan origination
costs, net of deferred loan origination fees, and unearned income on leases.

Non-performing Loans and Leases

The following table sets forth information regarding nonperforming loans and leases and accruing loans and leases 90 days or more overdue at the dates
indicated:

|                                                            |                                      | December 31,
|----------------------------------------------------------- | ------------------------------------ | ------------
|
|Nonaccrual loans and leases                                 |                                      |             
|                                                            | Residential real estate loans        |             
|                                                            | Commercial real estate loans         |             
|                                                            | Commercial business loans and leases |             
|                                                            | Consumer loans and leases            |             
|                                                            |                                      |             
|                                                            | Nonaccrual loans and leases          |             
|Troubled debt restructurings                                |                                      |             
|                                                            |                                      |             
|Total nonperforming loans and leases                        |                                      | $           
|                                                            |                                      |             
|Accruing loans and leases which are 90 days or more overdue |                                      | $           
|                                                            |                                      |             

The
ability and willingness of borrowers to repay loans is generally dependent on current economic conditions and real estate values within the borrowers' geographic areas.

56

---

Interest
income that would have been recognized for 2001 and 2000 if nonperforming loans at December 31, 2001 and 2000 had been performing in accordance with their original terms
approximated $3.1 million in 2001 and $5.6 million in 2000.

Impaired
loans are commercial and commercial real estate loans which the Company believes probably will not result in the collection of all amounts due according to the contractual terms
of the loan agreement. The definition of "impaired loans" is not the same as the definition of "nonaccrual loans," although the two categories overlap. All commercial and commercial real estate
nonaccrual loans are impaired, but not all such impaired loans are on nonaccrual. Accrual of interest on commercial and commercial real estate loans is generally discontinued when collectibility of
principal or interest is uncertain or on which payments of principal or interest have become contractually past due 90 days. The Company may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectibility. The amount of reserves for impaired loans is determined by the difference between the present value of the expected cash flows related to the loan,
using the original contractual interest rate, and its recorded value, or, as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the
recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.

At
December 31, 2001 and 2000, total impaired loans were $57.5 million and $46.5 million, of which $53.6 million and $29.7 million had related
allowances of $14.7 million and $7.8 million, respectively. During the years ended December 31, 2001 and 2000, the income recognized related to impaired loans was
$2.6 million and $373 thousand, respectively, and the average balance of outstanding impaired loans was $54.2 million and $39.4 million, respectively. The Company generally
applies cash received on impaired loans to the principal balance of the loan.

6. Allowance for Loan and Lease Losses

A summary of changes in the allowance for loan and lease losses follows:

|                                 |  | Year Ended December 31, |        
|-------------------------------- |  | ----------------------- | -------
|
|Balance at beginning of period   |  | $                       | 153,550
|Allowance on acquired loans      |  |                         | 31,277 
|Provisions charged to operations |  |                         | 41,889 
|Loans and leases charged off     |  |                         | (45,652
|Recoveries                       |  |                         | 8,773  
|                                 |  |                         |        
|Balance at end of period         |  | $                       | 189,837
|                                 |  |                         |        

57

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7. Premises and Equipment

A summary of premises and equipment follows:

|                                          |  | December 31, |         
|----------------------------------------- |  | ------------ | --------
|
|Land                                      |  | $            | 22,075  
|Buildings and leasehold improvements      |  |              | 230,273 
|Furniture, fixtures and equipment         |  |              | 343,030 
|                                          |  |              |         
|                                          |  |              | 595,378 
|Accumulated depreciation and amortization |  |              | (357,938
|                                          |  |              |         
|Net book value                            |  | $            | 237,440 
|                                          |  |              |         

Included
in furniture, fixtures and equipment above are internally developed software systems (comprised of software and dedicated hardware) consisting of $16.7 million of
software systems in use and $8.1 million of software systems in development. Internally developed software systems had a remaining net book value of $21.3 million at December 31,
2001.

8. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill and other intangibles for the years ended December 31, 2000 and 2001 are as follows:

|                                  |      | Goodwill |         | Core Deposit
Intangibles |   | Other
Intangibles |       | Total |       
|--------------------------------- | ---- | -------- | ------- | ------------------------ | - | ----------------- | ----- | ----- | ------
|Balance, December 31, 1999        |      | $        | 122,590 |                          | $ | 13,058            |       | $     | 48,733
|Recorded during the year          |      |          | 22,653  |                          |   |                  |       |       |      
|Amortization expense              |      |          | (10,368 | )                        |   | (3,616            | )     |       | (7,032
|Reduction due to sale of branches |      |          |        |                          |   | (498              | )     |       |      
|                                  |      |          |         |                          |   |                   |       |       |       
|Balance, December 31, 2000        |      |          | 134,875 |                          |   | 8,944             |       |       | 41,701
|Recorded during the year          |      |          | 285,526 |                          |   | 16,846            |       |       | 1,350 
|Amortization expense              |      |          | (11,061 | )                        |   | (3,944            | )     |       | (7,079
|Reduction due to sale of branch   |      |          |        |                          |   | (525              | )     |       |      
|                                  |      |          |         |                          |   |                   |       |       |       
|Balance, December 31, 2001        |      | $        | 409,340 |                          | $ | 21,321            |       | $     | 35,972
|                                  |      |          |         |                          |   |                   |       |       |       
|Estimated Amortization Expense:   |      |          |         |                          |   |                   |       |       |       
|                                  | 2002 |          |         |                         |   | $                 | 6,033 |       | $     
|                                  | 2003 |          |         |                         |   |                   | 2,691 |       |       
|                                  | 2004 |          |         |                         |   |                   | 2,063 |       |       
|                                  | 2005 |          |         |                         |   |                   | 1,548 |       |       
|                                  | 2006 |          |         |                         |   |                   | 1,548 |       |       

In
accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill acquired in business combinations after June 30, 2001 has not been
amortized. Of the $285.5 million of goodwill recorded during 2001, $284.8 million arose from business combinations completed after June 30, 2001. All goodwill recognized prior to
June 30, 2001 continued to be

58

---

amortized through December 31, 2001. As of January 1, 2002, amortization of goodwill will be discontinued, and all goodwill will be tested for impairment at least annually.

SFAS
No. 142 did not materially change the provisions of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," which specifies that
intangibles from acquisitions in which the fair value of the liabilities assumed exceeds the fair value of the tangible and intangible assets acquired are to be amortized over a period not to exceed
the remaining life of the long term interest bearing assets acquired. As of December 31, 2001 the Company had $34.7 million of "SFAS 72 Goodwill" remaining; this is included in the table
above under the heading "Other Intangibles".

9. Mortgage Servicing Rights

An analysis of mortgage servicing rights for the years ended December 31, 2001, 2000 and 1999 follows:

|                                                                          |  | Mortgage
Servicing
Rights |         | Valuation
Allowance |   | Total   |   | Balance of
Loans Serviced
for Others
|------------------------------------------------------------------------- |  | ------------------------- | ------- | ------------------- | - | ------- | - | ------------------------------------
|Balance as of December 31, 1998                                           |  | $                         | 57,025  |                     | $ | (11,586 | ) | $                                   
|                                                                          |  |                           |         |                     |   |         |   |                                     
|Mortgage servicing rights capitalized                                     |  |                           | 16,149  |                     |   |        |   |                                     
|Amortization charged against mortgage servicing fee income                |  |                           | (12,498 | )                   |   |        |   |                                     
|Reduction of impairment reserve (credit to mortgage servicing fee income) |  |                           |        |                     |   | 5,300   |   |                                     
|Mortgage servicing rights sold                                            |  |                           | (1,666  | )                   |   |        |   |                                     
|                                                                          |  |                           |         |                     |   |         |   |                                     
|Balance as of December 31, 1999                                           |  |                           | 59,010  |                     |   | (6,286  | ) |                                     
|                                                                          |  |                           |         |                     |   |         |   |                                     
|Mortgage servicing rights capitalized                                     |  |                           | 3,977   |                     |   |        |   |                                     
|Amortization charged against mortgage servicing fee income                |  |                           | (8,306  | )                   |   |        |   |                                     
|Reduction of impairment reserve (credit to mortgage servicing fee income) |  |                           |        |                     |   | 2,895   |   |                                     
|Mortgage servicing rights sold                                            |  |                           | (28,065 | )                   |   |        |   |                                     
|                                                                          |  |                           |         |                     |   |         |   |                                     
|Balance as of December 31, 2000                                           |  |                           | 26,616  |                     |   | (3,391  | ) |                                     
|                                                                          |  |                           |         |                     |   |         |   |                                     
|Mortgage servicing rights capitalized                                     |  |                           | 559     |                     |   |        |   |                                     
|Mortgage servicing rights acquired through purchase acquisitions          |  |                           | 8,804   |                     |   |        |   |                                     
|Amortization charged against mortgage servicing fee income                |  |                           | (1,140  | )                   |   |        |   |                                     
|Mortgage servicing rights sold                                            |  |                           | (26,355 | )                   |   | 3,391   |   |                                     
|                                                                          |  |                           |         |                     |   |         |   |                                     
|Balance as of December 31, 2001                                           |  | $                         | 8,484   |                     | $ |        |   | $                                   
|                                                                          |  |                           |         |                     |   |         |   |                                     

In
the fourth quarter of 2000, the Company reached an agreement to sell the servicing rights on substantially all residential mortgage loans which it services for others. The sale was
completed by

59

---

March 31, 2001. The Company sold the servicing rights on $1.8 billion of loans serviced for others in the fourth quarter of 2000 and $1.6 billion of loans serviced for others in
the first quarter of 2001. The Company continues to sell mortgage servicing rights on new loan originations on a flow basis. The mortgage servicing rights acquired as a result of the acquisitions of
Andover and MetroWest in October 2001 are expected to be sold in 2002.

10. Income Taxes

The current and deferred components of income tax expense follow:

|         |         | Year Ended December 31, |        
|-------- | ------- | ----------------------- | -------
|
|Current  |         |                         |        
|         | Federal |                         | $      
|         | State   |                         |        
|Deferred |         |                         |        
|         | Federal |                         |        
|         | State   |                         |        
|         |         |                         |        
|         |         | $                       | 126,202
|         |         |                         |        

The
following table reconciles the expected federal income tax expense (computed by applying the federal statutory tax rate to income before taxes) to recorded income tax expense:

|                                                   |  | Year Ended December 31, |        
|-------------------------------------------------- |  | ----------------------- | -------
|
|Computed federal tax expense                       |  | $                       | 129,214
|State income tax, net of federal benefits          |  |                         | 4,714  
|Benefit of tax-exempt income                       |  |                         | (4,319 
|Nondeductible merger expenses                      |  |                         |       
|Amortization of goodwill and other intangibles     |  |                         | 3,271  
|Low income/rehabilitation credits                  |  |                         | (1,530 
|Increase in cash surrender value of life insurance |  |                         | (6,437 
|Other, net                                         |  |                         | 1,289  
|                                                   |  |                         |        
|Recorded income tax expense                        |  | $                       | 126,202
|                                                   |  |                         |        

60

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The
tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities, which are included in other assets and other liabilities, respectively, at
December 31, 2001 and 2000 follow:

|                         |                                                                                 | December 31,                        
|------------------------ | ------------------------------------------------------------------------------- | ------------------------------------
|
|Deferred tax assets      |                                                                                 |                                     
|                         | Allowance for loan and lease losses                                             |                                     
|                         | Reserve for mobile home dealers                                                 |                                     
|                         | Difference of tax and book basis of other real estate owned                     |                                     
|                         | Interest accrued and payments received on non-performing loans for tax purposes |                                     
|                         | Compensation and employee benefits                                              |                                     
|                         | Book reserves not yet realized for tax purposes                                 |                                     
|                         | Unrealized depreciation on securities                                           |                                     
|                         | Intangible asset                                                                |                                     
|                         | Other                                                                           |                                     
|                         |                                                                                 |                                     
|                         |                                                                                 | Total gross deferred tax assets     
|                         |                                                                                 |                                     
|Deferred tax liabilities |                                                                                 |                                     
|                         | Leases                                                                          |                                     
|                         | Premises and equipment                                                          |                                     
|                         | Partnership investments                                                         |                                     
|                         | Loans                                                                           |                                     
|                         | Mortgage servicing rights                                                       |                                     
|                         | Deferred Income                                                                 |                                     
|                         | Tax bad debt reserve                                                            |                                     
|                         | Unrealized appreciation on securities                                           |                                     
|                         | Unrealized appreciation on hedging                                              |                                     
|                         | Other                                                                           |                                     
|                         |                                                                                 |                                     
|                         |                                                                                 | Total gross deferred tax liabilities
|                         |                                                                                 |                                     
|Net deferred tax asset   |                                                                                 | $                                   
|                         |                                                                                 |                                     

61

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11. Special Charges

Special charges include merger-related, restructuring and other special charges which are non-routine in nature and classified on a separate line on the income
statement.

Andover/MetroWest Merger

In 2001, $3.8 million of merger related charges were charged to expense in connection with the Andover and MetroWest mergers (which were accounted for under the
purchase method). In addition, $13.5 million was accrued upon consummation of the transactions (for transaction costs, employee severance costs, contract termination fees and asset impairments) and
served to increase goodwill. Included in the initial accrual was $10.4 million for employee severance costs covering approximately 224 employees. The balance of the accrual for the
Andover/MetroWest mergers as of December 31, 2001 is expected to be largely paid out after systems conversion in early 2002.

Banknorth Merger

In 2000, $35.2 million of merger-related charges was charged to expense for the Banknorth merger (which was accounted for as a pooling-of-interests). A total of
$13.1 million was accrued for employee severance covering severance payments, benefits and outplacement services for approximately 100 employees. In 2001, additional positions within the former
Banknorth company were eliminated and additional severance payments totaling $2.3 million were made. As of December 31, 2001, all severance payments related to the Banknorth merger had been paid. Also
in 2001, the Company closed on the sale of a branch resulting in a gain of $2.9 million; this sale was a regulatory-mandated sale related to the merger approval and the gain is included as a reduction
of the special charges related to the Banknorth merger.

Charter Consolidation

In 2001, the Company incurred $1.0 million of costs related to consolidating the charters of its eight national bank subsidiaries to a single national bank
charter. The Company expects to have additional expenses related to charter consolidation in 2002.

Branch Closings

The Company accrued $2.0 million and $1.4 million related to the closing of branches in 2001 and 2000, respectively. These accruals covered lease termination
fees, asset impairments and branch decommissioning expenses. As of December 31, 2001, $0.3 million remained in the accrual primarily for monthly rental payments on non-cancelable operating leases for
closed branches.

Other Special Charges

In 2001 and 2000, the Company recorded write-downs of $0.9 million and $3.7 million, respectively, on the residual values assigned to auto leases which were
acquired in previous mergers. The Company ceased making auto leases in 1997. In 2000, the Company incurred a $3.1 million charge in connection with the termination of a contract with a sales and
marketing organization that helped sign-up new merchants in merchant card processing.

62

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The
following table summarizes special charges recorded in 2001 and 2000 by type of expense.

|                                                   |  | 2001 |        | 2000 |  
|-------------------------------------------------- |  | ---- | ------ | ---- | -
|Andover/MetroWest Charges                          |  |      |        |      |  
|Severance costs                                    |  | $    | 1,710  |      | $
|Data processing/systems integration                |  |      | 680    |      |  
|Other costs                                        |  |      | 1,383  |      |  
|                                                   |  |      |        |      |  
|                                                   |  |      | 3,773  |      |  
|                                                   |  |      |        |      |  
|Banknorth Merger Charges                           |  |      |        |      |  
|Severance costs                                    |  |      | 2,329  |      |  
|Data processing/systems integration                |  |      |       |      |  
|Asset write-downs/facility costs                   |  |      |       |      |  
|Gain on regulatory-mandated branch sales           |  |      | (2,906 | )    |  
|Other costs                                        |  |      | 595    |      |  
|                                                   |  |      |        |      |  
|                                                   |  |      | 18     |      |  
|                                                   |  |      |        |      |  
|Charter Consolidation Costs                        |  |      |        |      |  
|Branch signage                                     |  |      | 42     |      |  
|Customer notices                                   |  |      | 244    |      |  
|Forms and documents                                |  |      | 385    |      |  
|Other costs                                        |  |      | 303    |      |  
|                                                   |  |      |        |      |  
|                                                   |  |      | 974    |      |  
|                                                   |  |      |        |      |  
|Branch closings                                    |  |      |        |      |  
|Severance costs                                    |  |      | 48     |      |  
|Asset write-downs/lease terminations               |  |      | 1,585  |      |  
|Branch decommissioning costs                       |  |      | 755    |      |  
|Other costs                                        |  |      |       |      |  
|Reversal of prior accruals                         |  |      | (431   | )    |  
|                                                   |  |      |        |      |  
|                                                   |  |      | 1,957  |      |  
|                                                   |  |      |        |      |  
|Other Special Charges                              |  |      |        |      |  
|Write-down of auto lease residuals                 |  |      | 892    |      |  
|Contract termination merchant processing          |  |      |       |      |  
|Reversal of accrual remaining from CFX/SIS mergers |  |      |       |      |  
|                                                   |  |      |        |      |  
|                                                   |  |      | 892    |      |  
|                                                   |  |      |        |      |  
|Total Special Charges                              |  | $    | 7,614  |      | $
|                                                   |  |      |        |      |  

63

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The
following table presents activity in the accrual account for special charges for the years ended December 31, 2001 and 2000, respectively.

|                                           |  | Andover/
MetroWest
Mergers |        | Banknorth
Merger |   | Charter
Consolidation |   | Branch
Closings |      | Other |   | Total  |  
|------------------------------------------ |  | -------------------------- | ------ | ---------------- | - | --------------------- | - | --------------- | ---- | ----- | - | ------ | -
|Balance, December 31, 1999                 |  | $                          |       |                  | $ |                      |   | $               |     |       | $ |       |  
|Special charges                            |  |                            |       |                  |   | 35,229                |   |                 |     |       |   | 1,387  |  
|Cash payments                              |  |                            |       |                  |   | (33,664               | ) |                 |     |       |   | (464   | )
|Gain on curtailment of benefit plans       |  |                            |       |                  |   | 8,500                 |   |                 |     |       |   |       |  
|Non-cash write-downs and other adjustments |  |                            |       |                  |   | (5,697                | ) |                 |     |       |   | (753   | )
|                                           |  |                            |        |                  |   |                       |   |                 |      |       |   |        |  
|Balance, December 31, 2000                 |  |                            |       |                  |   | 4,368                 |   |                 |     |       |   | 170    |  
|Amount accrued at acquisition              |  |                            | 13,465 |                  |   |                      |   |                 |     |       |   |       |  
|Special charges                            |  |                            | 3,773  |                  |   | 18                    |   |                 | 974  |       |   | 1,957  |  
|Cash payments                              |  |                            | (6,031 | )                |   | (2,158                | ) |                 | (974 | )     |   | (753   | )
|Non-cash write-downs and other adjustments |  |                            |       |                  |   | (645                  | ) |                 |     |       |   | (1,078 | )
|                                           |  |                            |        |                  |   |                       |   |                 |      |       |   |        |  
|Balance, December 31, 2001                 |  | $                          | 11,207 |                  | $ | 1,583                 |   | $               |     |       | $ | 296    |  
|                                           |  |                            |        |                  |   |                       |   |                 |      |       |   |        |  

12. Federal Funds Purchased and Securities Sold Under Repurchase Agreements

A summary of federal funds purchased and securities sold under repurchase agreements follows:

|                                            |  | December 31,
|------------------------------------------- |  | ------------
|
|Federal funds purchased                     |  | $           
|Securities sold under repurchase agreements |  |             
|                                            |  |             
|                                            |  | $           
|                                            |  |             

A
summary of securities sold under short term repurchase agreements follows:

|                                                     |  | At or for the Year Ended December 31, |          
|---------------------------------------------------- |  | ------------------------------------- | ---------
|
|Balance outstanding at end of period                 |  | $                                     | 1,570,555
|Market value of collateral at end of period          |  |                                       | 1,675,503
|Amortized cost of collateral at end of period        |  |                                       | 1,650,065
|Average balance outstanding during the year          |  |                                       | 1,239,402
|Maximum outstanding at any month end during the year |  |                                       | 1,570,555
|Average interest rate during the year                |  |                                       | 3.81     
|Average interest rate at end of year                 |  |                                       | 3.18     

Securities
sold under repurchase agreements have a weighted average remaining maturity of 1.4 years and are collateralized by mortgage-backed securities and U.S. Government
obligations.

64

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13. Borrowings from the Federal Home Loan Bank

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

December 31, 2001

December 31, 2000Maturity
Dates

Principal
Amounts

Interest Rates

Maturity
Dates

Principal
Amounts

Interest Rates2002

$
878,859

3.99-7.79
%
2001

$
2,423,001

4.95-6.63
%2003


364,967

3.03-6.52
%
2002


210,118

6.63-7.79
%2004


755,412

1.76-6.45
%
2003


171,246

4.98-6.43
%2005


309,779

3.08-7.15
%
2004


239,163

5.28-7.72
%2006


242,094

4.38-6.39
%
2005


161,466

6.14-7.15
%2007-2021


92,994

3.23-8.14
%
2006-2020


143,248

3.60-8.14
%$
2,644,105





$
3,348,242


At
December 31, 2001 callable borrowings of $1.0 billion are shown in their respective periods assuming that the callable debt is redeemed at the initial call date while all other
borrowings are shown in the periods corresponding to their scheduled maturity date.

Short
and long-term borrowings from the Federal Home Loan Bank, which consist of both fixed and adjustable rate borrowings, are secured by a blanket lien on qualified collateral,
consisting primarily of loans with first mortgages secured by one to four family properties, certain unencumbered investment securities and other qualified assets. During the fourth quarter of 2001,
the Company prepaid $174.6 million of FHLB borrowings and incurred a prepayment penalty of $6.0 million ($3.9 million net of tax) which was recorded as an extraordinary item. The FHLB borrowings which
were prepaid had a weighted average cost of 5.62% and a weighted average maturity of 2 years.

14. Subordinated Long-term Debt

In June 2001, the Company's wholly-owned subsidiary, First Massachussetts Bank, NA, issued $200 million of 7.625% subordinated notes due in 2011. The Company
incurred $2.0 million of debt issuance
costs, which is being amortized over the ten year term. Interest is payable semi-annually in June and December. The notes qualify as Tier 2 capital.

65

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15. Trust Preferred Securities

The Company has two subsidiary business trustsPeoples Heritage Capital Trust I and Banknorth Capital Trust Iof which the Company owns
all of the common securities. These trusts have no independent assets or operations and exist for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an
equivalent amount of junior subordinated debentures issued by the Company. The junior subordinated debentures, which are the sole assets of the trusts, are unsecured obligations of the Company and
generally are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of the Company. The principal amount of
subordinated debentures held by each trust equals the aggregate liquidation amount of its trust preferred securities and its common securities. See Note 21 for the aggregate amount of junior
subordinated debentures currently outstanding. The subordinated debentures bear interest at the same rate, and will mature on the same date, as the corresponding trust preferred securities. The effect
of various contractual obligations of the Company undertaken in connection with the issuance of trust preferred securities is that the Company fully and unconditionally guarantees each trust's
obligations under the trust securities. For information concerning the ability of the Company to obtain funds from banking subsidiaries, see Note 16. The trust preferred securities may be prepaid at
par at the option of the trusts, in whole or in part, on or after their respective prepayment dates.

At
December 31, 2001, excluding trust preferred securities repurchased by the Company, Peoples Heritage Capital Trust I had $63.8 million of 9.06% trust preferred securities outstanding
and Banknorth Capital Trust I had $30.0 million of 10.52% trust preferred securities outstanding. The Company repurchased in the open market $5.0 million in 2001 and $31.2 million in 1999 of trust
preferred securities originally issued by Peoples Heritage Capital Trust I in 1997.

The
trust preferred securities qualify as Tier 1 capital for regulatory purposes.

16. Shareholders' Equity

In late 2001, the Company issued 16.5 million shares in connection with the acquisition of Andover (including 1.0 million shares issuable upon exercise of
Banknorth stock options issued in exchange for Andover stock options). In January 2001, the Company's Board of Directors authorized the repurchase of up to 8 million shares, or approximately 6% of the
outstanding Company common stock. In October 2001, the Board authorized the repurchase of an additional 5 million shares, bringing the total repurchase program to 13 million shares. As of December 31,
2001, the Company had repurchased 7.3 million shares at a total cost of $151.5 million. A total of 5.7 million shares remained under this authorization at December 31, 2001.

Regulatory Capital Requirements.

Bank regulatory agencies have established capital adequacy standards which are used extensively in their monitoring and control of the industry. Certain of these
standards relate capital to level of risk by assigning different weightings to assets and certain off-balance sheet activity. The Company must

66

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maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.

|                                                  |  | Actual |           | Capital Requirements |       | Excess |  
|------------------------------------------------- |  | ------ | --------- | -------------------- | ----- | ------ | -
|
|
|Total capital (to risk weighted assets)           |  | $      | 1,763,236 |                      | 12.23 | %      | $
|Tier 1 capital (to risk weighted assets)          |  |        | 1,382,903 |                      | 9.59  | %      |  
|Tier 1 leverage capital ratio
(to average assets) |  |        | 1,382,903 |                      | 7.14  | %      |  
|As of December 31, 2000                           |  |        |           |                      |       |        |  
|Total capital (to risk weighted assets)           |  | $      | 1,428,814 |                      | 11.81 | %      | $
|Tier 1 capital (to risk weighted assets)          |  |        | 1,277,574 |                      | 10.56 | %      |  
|Tier 1 leverage capital ratio
(to average assets) |  |        | 1,277,574 |                      | 7.02  | %      |  

At
December 31, 2001 and 2000, the Company and each of its depository subsidiaries were "well-capitalized", as defined, and in compliance with all applicable regulatory capital
requirements.

Dividend Limitations.

Dividends paid by subsidiaries are the primary source of funds available to the Company for payment of dividends to its shareholders. The Company's banking
subsidiaries are subject to certain requirements imposed by federal banking laws and regulations. These requirements, among other things, establish minimum levels of capital and restrict the amount of
dividends that may be distributed by the banking subsidiaries to the Company.

Stockholder Rights Plan.

In 1989, the Company's Board of Directors adopted a Stockholder Rights Plan declaring a dividend of one preferred Stock Purchase Right for each outstanding share
of Company common stock. The rights will remain attached to the Common Stock and are not exercisable except under limited circumstances relating to the acquisition of, the right to acquire beneficial
ownership of, or tender offer for 20% or more of the outstanding shares of Company common stock. The rights have no voting or dividend privileges and, until they become exercisable, have no dilutive
effect on the earnings of the Company. On July 27, 1999, the Board of Directors amended and restated the Stockholder Rights Plan to, among other things, extend the expiration date of the rights to
September 25, 2009. On July 25, 2000, the Company again amended and restated the Stockholder Rights Plan to reflect its acquisition of Banknorth.

67

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Earnings per share

The following table presents a computation of earnings per share as of the dates indicated.

|                                    |         | Year Ended December 31,         
|----------------------------------- | ------- | --------------------------------
|
|Net income                          |         | $                               
|                                    |         |                                 
|Weighted average shares outstanding |         |                                 
|                                    | Basic   |                                 
|                                    |         | Dilutive effect of stock options
|                                    |         |                                 
|                                    | Diluted |                                 
|                                    |         |                                 
|Net income per share:               |         |                                 
|                                    | Basic   |                                 
|                                    | Diluted |                                 

Weighted
average shares outstanding exclude 283 thousand, 378 thousand, and 473 thousand shares of unallocated ESOP shares at December 31, 2001, 2000 and 1999, respectively.

17. Commitments, Contingent Liabilities and Other Off-Balance Sheet Risks

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to originate loans, standby letters of credit, recourse arrangements on serviced loans and
forward commitments to sell loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The
contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The
Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby letters of credit and recourse
arrangements is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet
instruments. For forward commitments to sell loans, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its forward commitments to sell
loans through credit approvals, limits and monitoring procedures.

68

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17. Commitments, Contingent Liabilities and Other Off-Balance Sheet Risks (Continued)

Financial
instruments with off-balance sheet risk at December 31, 2001 and 2000 follow:

|                                                                                                |                                                                                                                       | Contract or Notional Amount at December 31,
|----------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------------------------
|
|Financial instruments with notional or contract amounts which represent credit risk:            |                                                                                                                       |                                            
|                                                                                                | Commitments to originate loans, unused lines, standby letters of credit and unadvanced portions of construction loans |                                            
|                                                                                                | Commitments to invest in real estate limited partnerships                                                             |                                            
|                                                                                                | Commitments to invest in small business investments limited partnerships                                              |                                            
|                                                                                                | Loans serviced with recourse                                                                                          |                                            
|                                                                                                | Loans sold with credit enhancements                                                                                   |                                            
|Financial instruments with notional or contract amounts which exceed the amount of credit risk: |                                                                                                                       |                                            
|                                                                                                | Forward commitments to sell loans                                                                                     |                                            
|                                                                                                | Interest rate floors:                                                                                                 |                                            
|                                                                                                |                                                                                                                       |                                            
|                                                                                                |                                                                                                                       |                                            

Commitments
to originate loans, unused lines of credit and unadvanced portions of construction loans are agreements to lend to a customer provided there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower.

Standby
letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to customers.

Forward
commitments to sell residential mortgage loans are contracts which the Company enters into for the purpose of reducing the market risk associated with originating loans for sale.
Risks may arise from the possible inability of the Company to originate loans to fulfill the contracts, in which case the Company would normally purchase loans from correspondent banks or in the open
market to deliver against the contract.

At
December 31, 2001, the Company had $39.9 million of investments in tax advantaged limited partnerships primarily involved in approved low-income housing investment tax credit projects
in the Company's market area and commitments to invest up to an additional $21.5 million in such partnerships. At December 31, 2001, the Company had $13.3 million invested in small business limited
partnerships which primarily provide seed money to businesses in the Company's market area and

69

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commitments to invest up to an additional $16.0 million in such partnerships. Investments in both of the foregoing categories of assets are included under other assets.

Legal Proceedings.

The Company and certain of its subsidiaries have been named as defendants in various legal proceedings arising from their normal business activities. Although the
amount of any ultimate liability
with respect to such proceedings cannot be determined, in the opinion of management, based upon the opinions of counsel, any such liability will not have a material effect on the consolidated
financial position, results of operations or liquidity of the Company and its subsidiaries.

Lease Obligations.

The Company leases certain properties used in operations under terms of operating leases which include renewal options. Rental expense under these leases
approximated $19.9 million, $18.1 million and $16.5 million for the years ended 2001, 2000 and 1999, respectively.

The
following table sets forth the approximate future minimum lease payments over the remaining terms of the leases as of December 31, 2001.

2002

$
18,3102003


15,6492004


14,2062005


12,0292006


10,9482007 and after


61,862$
133,004


The
Company has also committed to occupy 140,000 square feet of office space in the greater Portland area. The Company is expected to occupy this space in the first quarter of 2003 when
the building is completed and retrofitted. The lease has a fifteen year term and the base rent is $2.1 million per year.

18. Stock-Based Compensation Plans

Stock Option Plans.

In 1995, the Company adopted a stock option plan for non-employee directors, which was amended and restated in 2000 to authorize the issuance of up to an
additional 530,000 shares. The maximum number of shares which may be issued under the amended plan is 1,060,000 shares, of which 82,600 shares had been issued upon exercise of the stock options
granted pursuant to this plan through December 31, 2001. Options to purchase 109,750 shares were granted in 2001 at an exercise price of $19.80 per share, options to purchase 100,000 shares were
granted in 2000 at an exercise price of $14.13 per share and options to purchase 114,000 shares were granted in 1999 at an exercise price of $18.06 per share. At December 31, 2001, there were 563,500
shares available for future options under the plan.

70

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The
Company has adopted various stock option plans for key employees. These plans include a stock option plan adopted in 1996 (the "1996 Option Plan"). The 1996 Option Plan, as amended,
authorizes grants of options and other stock awards covering up to 13,000,000 shares of Common Stock. Stock options are granted with an exercise price equal to the stock's fair market value at the
date of the grant and expire 10 years from the date of the grant. At December 31, 2001, there were 5,610,868 additional shares available for grant under the 1996 Option Plan.

The
per share weighted-average fair value of all stock options granted by the Company during 2001, 2000 and 1999 was $6.10, $5.23 and $5.72 on the date of the grants using the Black
Scholes option-pricing model with the following average assumptions:

|                        |  | 2001       |   | 2000       |   | 1999       |  
|----------------------- |  | ---------- | - | ---------- | - | ---------- | -
|Expected dividend yield |  | 2.48       | % | 3.24       | % | 2.74       | %
|Risk-free interest rate |  | 4.50       |   | 6.14       |   | 5.53       |  
|Expected life           |  | 5.00 years |   | 5.00 years |   | 5.00 years |  
|Volatility              |  | 33.91      | % | 38.27      | % | 35.90      | %

The
Company applies APB Opinion No. 25 in accounting for its stock option plans and, due to the exercise price of options granted being equal to the then fair market value of the
underlying stock, no cost has been recognized for its stock options in the financial statements. Had the Company determined cost based on the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated as follows:

|                           |              | Year ended December 31,
|-------------------------- | ------------ | -----------------------
|
|Net Income                 |              |                        
|                           | As reported  |                        
|                           | Pro forma    |                        
|Basic Earnings per share   |              |                        
|                           | As reported  |                        
|                           | Pro forma    |                        
|Diluted Earnings per share |              |                        
|                           | As reported: |                        
|                           | Pro forma    |                        

71

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Activity
for all stock option plans during the three-year period ended December 31, 2001 is summarized as follows:

|                                  |  | Number of
Shares |  | Weighted
Average
Exercise Price
|--------------------------------- |  | ---------------- |  | -------------------------------
|Balance at December 31, 1998      |  | 8,005,383        |  | $                              
|Granted                           |  | 1,680,656        |  |                                
|Exercised                         |  | 1,713,368        |  |                                
|Forfeited                         |  | 281,540          |  |                                
|                                  |  |                  |  |                                
|Balance at December 31, 1999      |  | 7,691,131        |  | $                              
|Granted                           |  | 1,632,212        |  |                                
|Exercised                         |  | 1,530,041        |  |                                
|Forfeited                         |  | 597,363          |  |                                
|                                  |  |                  |  |                                
|Balance at December 31, 2000      |  | 7,195,939        |  | $                              
|Granted                           |  | 3,193,168        |  |                                
|Granted for purchase acquisitions |  | 1,018,863        |  |                                
|Exercised                         |  | 1,589,917        |  |                                
|Forfeited                         |  | 162,822          |  |                                
|                                  |  |                  |  |                                
|Balance at December 31, 2001      |  | 9,655,231        |  | $                              
|                                  |  |                  |  |                                

The
range of per share exercise prices for outstanding and exercisable stock options at December 31, 2001 was as follows:

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|up to $5.00     |  | 157,091             |  | 1.6 years          
|$5.01  $10.00  |  | 781,327             |  | 3.4                
|$10.01  $15.00 |  | 1,186,824           |  | 4.7                
|$15.01  $20.00 |  | 4,301,721           |  | 7.4                
|Over $20.00     |  | 3,228,268           |  | 9.5                
|                |  |                     |  |                    
|                |  | 9,655,231           |  |                    
|                |  |                     |  |                    

401(k) Plan and Employee Stock Ownership Plans (ESOP).

The Company and its subsidiaries have contributory 401(k) Plans covering substantially all permanent employees. The Company matches employee contributions based
on a predetermined formula and may make additional discretionary contributions.

Effective
January 1, 2001, the Company merged the Profit Sharing Employee Stock Ownership Plan (the "ESOP"), which was designed to invest primarily in Company common stock, into the
401(k)

72

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Plan. The Company previously sponsored a leveraged employee stock ownership plan which was merged with and into the ESOP. The Company is required to make annual contributions to the ESOP equal to the
ESOP's debt service and the unallocated shares are pledged as collateral for the debt. As the debt is repaid, shares are released from collateral and allocated to eligible employees. The total
expense for these plans in 2001, 2000 and 1999 was $5.2 million, $5.0 million and $5.0 million, respectively.

Employee Stock Purchase Plan.

The Company has an Employee Stock Purchase Plan that is available to employees with one year of service. The maximum number of shares which may be issued under
the Employee Stock Purchase Plan is 1,352,000 shares. Employees have the right to authorize payroll deductions up to 10% of their salary. As of December 31, 2001, 1,246,049 shares had been purchased
under this plan.

Restricted Stock Plan.

In 1990, the Company adopted a Restricted Stock Plan under which up to $10,000 of the annual fee payable to each non-employee Director of the Company and
participating subsidiaries is payable solely in shares of Company common stock. Shares issued under this plan totaled 6,358, 12,066 and 7,376 in 2001, 2000 and 1999, respectively.

19. Retirement and Other Benefit Plans

Pension Plan.

The Company has a noncontributory defined benefit plan covering most permanent employees who have completed more than 1,000 hours of service per year. Benefits
are based on career average earnings and length of service. The Company has historically made cash contributions to the defined benefit pension plan for the maximum amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

The
Company has adopted supplemental retirement plans for certain key officers. These plans were designed to offset the impact of changes in the pension plans which limit the benefits
for highly-paid employees under qualified pension plans. The Company also has entered into deferred compensation agreements with certain key officers. The cost of these agreements is accrued but not
funded. The Company holds corporate-owned life insurance policies on the lives of certain executives. The death benefits are payable to the Company and will assist in the funding of the deferred
compensation
liability. The Company will recover the costs of premium payments from the cash value of these policies.

Post Retirement Benefits Other Than Pensions.

The Company and its subsidiaries sponsor post-retirement benefit programs which provide medical coverage and life insurance benefits to a closed group of
employees and directors who meet minimum age and service requirements.

73

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19. Retirement and Other Benefit Plans (Continued)

The Company and its subsidiaries recognize costs related to post retirement benefits under the accrual method, which recognizes costs over the employee's period
of active employment. The impact of adopting SFAS No. 106 is being amortized over a twenty year period beginning January 1, 1993.

The
following tables set forth the funded status and amounts recognized in the Company's Consolidated Balance Sheets at December 31, 2001 and 2000 for the pension plans and other post
retirement benefit plans:

|                                               |  | Pension Plans |         | Other Post-
Retirement Benefits |   
|---------------------------------------------- |  | ------------- | ------- | ------------------------------- | --
|
|Change in benefit obligation                   |  |               |         |                                 |   
|Benefit obligation at beginning of year        |  | $             | 119,866 |                                 | $ 
|Service cost                                   |  |               | 5,063   |                                 |   
|Interest cost                                  |  |               | 9,273   |                                 |   
|Assumption changes                             |  |               | 8,651   |                                 |   
|Actuarial (gain) loss                          |  |               | (1,777  | )                               |   
|Acquisitions                                   |  |               | 5,467   |                                 |   
|Benefits paid                                  |  |               | (7,721  | )                               |   
|Curtailment gain                               |  |               |        |                                 |   
|                                               |  |               |         |                                 |   
|Benefit obligation at end of year              |  | $             | 138,822 |                                 | $ 
|                                               |  |               |         |                                 |   
|Change in plan assets                          |  |               |         |                                 |   
|Fair value of plan assets at beginning of year |  | $             | 121,019 |                                 | $ 
|Actual return on plan assets                   |  |               | (6,893  | )                               |   
|Employer contribution                          |  |               | 27,252  |                                 |   
|Benefits paid                                  |  |               | (7,721  | )                               |   
|Acquisitions                                   |  |               | 7,314   |                                 |   
|                                               |  |               |         |                                 |   
|Fair value of plan assets at end of year       |  | $             | 140,971 |                                 | $ 
|                                               |  |               |         |                                 |   
|Funded status                                  |  | $             | 2,149   |                                 | $ 
|Unrecognized net actuarial (gain) loss         |  |               | 12,193  |                                 |   
|Unrecognized prior service cost                |  |               | 1,130   |                                 |   
|Unrecognized net transition obligation         |  |               | (1,062  | )                               |   
|                                               |  |               |         |                                 |   
|Prepaid (accrued) benefit cost                 |  | $             | 14,410  |                                 | ($
|                                               |  |               |         |                                 |   
|Weighted-average assumptions as of December 31 |  |               |         |                                 |   
|Discount rate                                  |  |               | 7.25    | %                               |   
|Expected return on plan assets                 |  |               | 9.00    | %                               |   
|Rate of compensation increase                  |  |               | 4.50    | %                               |   

74

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|                                        |  | Year Ended December 31, |         | Year Ended December 31,
|--------------------------------------- |  | ----------------------- | ------- | -----------------------
|
|Components of net periodic benefit cost |  |                         |         |                        
|Service cost                            |  | $                       | 5,063   |                        
|Interest cost                           |  |                         | 9,273   |                        
|Expected return on plan assets          |  |                         | (10,670 | )                      
|Net amortization and deferral           |  |                         | (644    | )                      
|                                        |  |                         |         |                        
|Net periodic benefit cost               |  | $                       | 3,022   |                        
|                                        |  |                         |         |                        

Curtailment
gains of $7.5 million and $8.0 million in 2000 and 1999, respectively, were recorded as a reduction of special charges relating to acquisitions.

20. Fair Value of Financial Instruments

The Company discloses fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate
fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Where available, quoted market
prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors.
Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in certain cases, could not be
realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the Company's fair values should not be compared to those
of other banks.

Fair
value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are
not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the Company. For certain assets and
liabilities, the information required under SFAS No. 107 is supplemented with additional information relevant to an understanding of the fair value. Also, fair values are presented for certain assets
that are not financial instruments under the definition in SFAS No. 107.

The
following describes the methods and assumptions used by the Company in estimating the fair values of financial instruments and certain non-financial instruments:

Cash and cash equivalents, including cash and due from banks, short-term investments and federal funds sold.For these cash and cash
equivalents, which have maturities of 90 days or less, the carrying amounts reported in the balance sheet approximate fair values.

Securities and loans held for sale.Fair values are based on quoted bid market prices, where available. Where quoted market
prices for an instrument are not available, fair values are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments

75

---

and the instrument being valued. Fair values are calculated based on the value of one unit without regard to premiums or discounts that might result from selling all of the Company's holdings of a
particular security in one transaction.

Loans and leases.The fair values of commercial, commercial real estate, residential real estate, and certain consumer loans
and leases are estimated by discounting the contractual cash flows using interest rates currently being offered for loans with similar terms to borrowers of similar quality.

For
certain adjustable/variable-rate loans, including home equity lines of credit the carrying value approximates fair value.

For
nonperforming loans and certain loans where the credit quality of the borrower has deteriorated significantly, fair values are estimated by discounting cash flows at a rate
commensurate with the risk associated with those cash flows.

Mortgage Servicing Rights.The fair value of the Company's mortgage servicing rights at December 31, 2001 was based on the
expected present value of future mortgage servicing income, net of estimated servicing costs, considering market consensus loan prepayment predictions at that date. The fair value of the Company's
mortgage servicing rights at December 31, 2000 was largely based on the terms of a contract to sell substantially all remaining mortgage servicing rights during the first quarter of 2001.

Deposits.The fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits
is based on the discounted value of contractual cash flows, applying interest rates currently being offered on the deposit products of similar maturities.

The
fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of
funding ("deposit base intangibles")

Borrowings, including federal funds purchased, securities sold under repurchase agreements, borrowings from the Federal Home Loan Bank and other
borrowings.The fair value of the Company's long-term borrowings is estimated by discounting cash flows based on current rates available to the Company for similar types of
borrowing arrangements. For short-term borrowings that mature or reprice in 90 days or less, carrying value approximates fair value.

Off-balance sheet instruments:

Commitments to originate loans and commitments to extend credit and standby letters of credit.In the course of
originating loans and extending credit and standby letters of credit, the Company will charge fees in exchange for its lending commitment. While these commitment fees have value, the Company has not
estimated their value due to the short-term nature of the underlying commitments. Residential
mortgage loan commitments with rate-lock agreements were valued based on investor yield requirements at the respective dates and are included in the recorded value of loans held for sale.

Forward commitments to sell loans.The fair value of the Company's forward commitments to sell loans reflects the value of
origination fees and servicing rights recognizable upon sale of loans net of any cost to the Company if it fails to meet its sale obligation. Of the $172.5 million of forward sales

76

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commitments at December 31, 2001, the Company had $117.7 million in loans available to sell at that date as well as sufficient loan originations subsequent to December 31, 2001 to fulfill the
commitments. Forward commitments to sell loans are valued based on investor yield requirements at the respective dates and are included in the recorded value of loans held for sale.

Loans serviced with recourse.Under certain of the Company's servicing arrangements with investors, the Company has recourse
obligation to those serviced loan portfolios. In the event of foreclosure on a serviced loan, the Company is obligated to repay the investor to the extent of the investor's remaining balance after
application of proceeds from the sale of the underlying collateral. To date, losses related to these recourse arrangements have been insignificant and while the Company cannot project future losses,
the fair value of this recourse obligation is deemed to be likewise insignificant.

A
summary of the carrying values and estimated fair values of the Company's significant financial instruments at December 31, 2001 and 2000 follows:

|             |                                                   | 2001 |   | 2000      
|------------ | ------------------------------------------------- | ---- | - | ----------
|
|Assets:      |                                                   |      |   |           
|             | Cash and cash equivalents                         |      | $ | 921,211   
|             | Securities available for sale                     |      |   | 5,817,238 
|             | Securities held to maturity                       |      |   | 339,623   
|             | Loans held for sale                               |      |   | 117,674   
|             | Loans and leases, net                             |      |   | 12,525,493
|             | Mortgage servicing rights                         |      |   | 8,484     
|             | Interest rate swaps, floor and corridor contracts |      |   |          
|Liabilities: |                                                   |      |   |           
|             | Deposits (with no stated maturity)                |      |   | 9,408,702 
|             | Time deposits                                     |      |   | 4,812,347 
|             | Borrowings                                        |      |   | 4,602,388 

77

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21. Condensed Financial InformationParent Company Only

|                                     |                                                                          | December 31,                              
|------------------------------------ | ------------------------------------------------------------------------ | ------------------------------------------
|
|Balance Sheets                       |                                                                          |                                           
|Assets:                              |                                                                          |                                           
|                                     | Cash and due from banks                                                  |                                           
|                                     | Interest bearing deposits with subsidiaries                              |                                           
|                                     | Securities available for sale                                            |                                           
|                                     | Investment in subsidiaries                                               |                                           
|                                     | Goodwill and other intangibles                                           |                                           
|                                     | Amounts receivable from subsidiaries                                     |                                           
|                                     | Other assets                                                             |                                           
|                                     |                                                                          |                                           
|                                     |                                                                          | Total assets                              
|                                     |                                                                          |                                           
|Liabilities and shareholders' equity |                                                                          |                                           
|                                     | Amounts payable to subsidiaries                                          |                                           
|                                     | Subordinated debentures supporting mandatory redeemable trust securities |                                           
|                                     | Other liabilities                                                        |                                           
|                                     | Shareholders' equity                                                     |                                           
|                                     |                                                                          |                                           
|                                     |                                                                          | Total liabilities and shareholders' equity
|                                     |                                                                          |                                           

|                                                                                  |                                                | Year Ended December 31, |        
|--------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------- | -------
|
|Statements of Income                                                              |                                                |                         |        
|Operating income:                                                                 |                                                |                         |        
|                                                                                  | Dividends from subsidiaries                    |                         | $      
|                                                                                  | Other operating income                         |                         |        
|                                                                                  |                                                |                         |        
|                                                                                  |                                                | Total operating income  |        
|                                                                                  |                                                |                         |        
|Operating expenses:                                                               |                                                |                         |        
|                                                                                  | Interest on borrowings                         |                         |        
|                                                                                  | Amortization of goodwill and other intangibles |                         |        
|                                                                                  | Special charges                                |                         |        
|                                                                                  | Other operating expenses                       |                         |        
|                                                                                  |                                                |                         |        
|                                                                                  | Total operating expenses                       |                         |        
|                                                                                  |                                                |                         |        
|Income before income taxes and equity in undistributed net income of subsidiaries |                                                |                         | 161,534
|Income tax expense (benefit)                                                      |                                                |                         | (4,485 
|                                                                                  |                                                |                         |        
|Income before equity in undistributed net income of subsidiaries                  |                                                |                         | 166,019
|Equity in undistributed net income of subsidiaries                                |                                                |                         | 72,776 
|                                                                                  |                                                |                         |        
|Net income                                                                        |                                                | $                       | 238,795
|                                                                                  |                                                |                         |        

78

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|                                                 |                                                                                          | Year Ended December 31, |         
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ----------------------- | --------
|
|Statements of Cash Flows                         |                                                                                          |                         |         
|Cash flows from operating activities:            |                                                                                          |                         |         
|                                                 | Net income                                                                               |                         | $       
|                                                 | Adjustments to reconcile net income to net cash (used) provided by operating activities: |                         |         
|                                                 | Undistributed net income from subsidiaries                                               |                         |         
|                                                 | Amortization of goodwill and other intangibles                                           |                         |         
|                                                 | Decrease in unearned compensation                                                        |                         |         
|                                                 | (Increase) decrease in amounts receivable from subsidiaries                              |                         |         
|                                                 | (Increase) decrease in other assets                                                      |                         |         
|                                                 | (Decrease) increase in amounts payable to subsidiaries                                   |                         |         
|                                                 | Increase (decrease) in other liabilities                                                 |                         |         
|                                                 | Other, net                                                                               |                         |         
|                                                 |                                                                                          |                         |         
|Net cash provided by operating activities        |                                                                                          |                         | 155,376 
|                                                 |                                                                                          |                         |         
|Cash flows from investing activities:            |                                                                                          |                         |         
|                                                 | Net decrease (increase) in interest bearing deposits with subsidiaries                   |                         |         
|                                                 | Sales of available for sale securities                                                   |                         |         
|                                                 | Purchase of available for sale securities                                                |                         |         
|                                                 | Sales of held to maturity securities                                                     |                         |         
|                                                 | Maturity of securities purchased under agreements to resell                              |                         |         
|                                                 | Capital contribution from (to) subsidiary                                                |                         |         
|                                                 | Cash acquired in acquisition                                                             |                         |         
|                                                 |                                                                                          |                         |         
|Net cash provided (used) by investing activities |                                                                                          |                         | 50,877  
|                                                 |                                                                                          |                         |         
|Cash flows from financing activities:            |                                                                                          |                         |         
|                                                 | Proceeds from line of credit                                                             |                         |         
|                                                 | Payment of line of credit                                                                |                         |         
|                                                 | Payment of notes payable                                                                 |                         |         
|                                                 | Dividends paid to shareholders                                                           |                         |         
|                                                 | Treasury stock acquired                                                                  |                         |         
|                                                 | Common stock issued                                                                      |                         |         
|                                                 |                                                                                          |                         |         
|Net cash (used) provided by financing activities |                                                                                          |                         | (198,031
|                                                 |                                                                                          |                         |         
|Net increase (decrease) in cash due from banks   |                                                                                          |                         | 8,222   
|Cash and due from banks at beginning of year     |                                                                                          |                         | 4,134   
|                                                 |                                                                                          |                         |         
|Cash and due from banks at end of year           |                                                                                          | $                       | 12,356  
|                                                 |                                                                                          |                         |         
|Supplemental disclosure information:             |                                                                                          |                         |         
|                                                 | Interest paid on borrowings                                                              |                         | $       

79

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22. Subsequent Events (unaudited)

Effective January 1, 2002, the company completed the consolidation of eight of its banking subsidiaries and its subsidiary trust company into its Maine-based
banking subsidiary, Peoples Heritage Bank, which was renamed Bankorth, NA in connection with these transactions.

On
February 11, 2002, the Company filed a shelf registration statement with the SEC which allows the Company to sell $1.0 billion of debt securities, preferred stock, depository shares,
common stock and warrants and which also allows subsidiary trusts to sell capital securities.

On
February 22, 2002, a subsidiary of the Company, Banknorth Capital Trust II, issued $200 million of 8% trust preferred securities ("Securities") to the public under the shelf
registration. The proceeds from the offering will be used for general corporate purposes, including working capital, capital expenditures, investments in or advances to existing or future
indebtedness, repayment of maturing obligations, replacement of outstanding indebtedness and repurchase of outstanding stock. The Securities will pay interest quarterly, are mandatorily redeemable on
April 1, 2032 and may be redeemed by the Trust at par any time on or after April 1, 2007.

On
February 26, 2002, the Company announced that it had entered into an agreement to acquire Massachusetts-based Ipswich Bancshares, Inc. ("Ipswich"). Ipswich had $321 million in assets
and $15.1 million in shareholders' equity at December 31, 2001. Under terms of the agreement, each outstanding share of common stock of Ipswich will be converted into the right to receive $20.50 in
cash or a number of whole shares of Company common stock determined by dividing $20.50 by the average closing prices of the Company common stock during a specified period preceding the merger, plus
cash in lieu of any fractional share interest, subject to election and reallocation procedures which are intended to ensure that 51% of the outstanding shares of Ipswich common stock will be converted
into the right to receive Company common stock and 49% of the outstanding Ipswich common stock will be converted into cash. The agreement has been approved by the Company and Ipswich Boards of
Directors. The consummation of the merger is subject to the receipt of the approval of the shareholders of Ipswich and all required regulatory approvals and other customary closing conditions. The
acquisition is expected to be completed in mid-2002.

In
addition, on February 26, 2002, the Company announced that the Board of Directors had authorized the repurchase of up to 8 million shares, or approximately 5% of its outstanding
Company common stock, from time to time in the open market.

80

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23. Selected Quarterly Data (unaudited)

|                                                                                             |                                                                                              | 2001 |         | 2000 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---- | ------- | -----
|
|Interest income                                                                              |                                                                                              | $    | 314,484 |      
|Interest expense                                                                             |                                                                                              |      | 126,008 |      
|                                                                                             |                                                                                              |      |         |      
|Net interest income                                                                          |                                                                                              |      | 188,476 |      
|Provision for loan and lease losses                                                          |                                                                                              |      | 13,378  |      
|                                                                                             |                                                                                              |      |         |      
|Net interest income after provision for loan and lease losses                                |                                                                                              |      | 175,098 |      
|Noninterest income                                                                           |                                                                                              |      | 63,599  |      
|Losses on securities restructuring                                                           |                                                                                              |      |        |      
|Special charges                                                                              |                                                                                              |      | 2,007   |      
|Noninterest expenses                                                                         |                                                                                              |      | 136,034 |      
|                                                                                             |                                                                                              |      |         |      
|Income before income taxes                                                                   |                                                                                              |      | 100,656 |      
|Income tax expense                                                                           |                                                                                              |      | 35,152  |      
|                                                                                             |                                                                                              |      |         |      
|Net income before extraordinary item and cumulative effect of change in accounting principle |                                                                                              |      | 65,504  |      
|Extraordinary item, net of tax                                                               |                                                                                              |      | (3,897  | )    
|                                                                                             |                                                                                              |      |         |      
|Net income before cumulative effect of change in accounting principle                        |                                                                                              |      | 61,607  |      
|Cumulative effect of change in accounting principle, net of tax                              |                                                                                              |      |        |      
|                                                                                             |                                                                                              |      |         |      
|Net income                                                                                   |                                                                                              | $    | 61,607  |      
|                                                                                             |                                                                                              |      |         |      
|Basic earnings per share:                                                                    |                                                                                              |      |         |      
|                                                                                             | Net income before extraordinary item and cumulative effect of change in accounting principle |      | $       | 0.45 
|                                                                                             | Extraordinary item, net of tax                                                               |      |         | (0.03
|                                                                                             | Cumulative effect of change in accounting principle, net of tax                              |      |         |     
|                                                                                             |                                                                                              |      |         |      
|Basic                                                                                        |                                                                                              | $    | 0.42    |      
|                                                                                             |                                                                                              |      |         |      
|Diluted earnings per share:                                                                  |                                                                                              |      |         |      
|                                                                                             | Net income before extraordinary item and cumulative effect of change in accounting principle |      | $       | 0.44 
|                                                                                             | Extraordinary item, net of tax                                                               |      |         | (0.03
|                                                                                             | Cumulative effect of change in accounting principle, net of tax                              |      |         |     
|                                                                                             |                                                                                              |      |         |      
|                                                                                             |                                                                                              | $    | 0.41    |      
|                                                                                             |                                                                                              |      |         |      
|Operating earnings per share(1):                                                             |                                                                                              |      |         |      
|                                                                                             | Basic                                                                                        |      | $       | 0.46 
|                                                                                             | Diluted                                                                                      |      | $       | 0.45 

---

81

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INDEPENDENT AUDITORS' REPORT

The
Board of Directors
Banknorth Group, Inc.:

We
have audited the accompanying consolidated balance sheets of Banknorth Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banknorth Group, Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

|Boston, Massachusetts
January 11, 2002 |  | LOGO
|-------------------------------------- |  | ----

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference to "Election of Directors" on pages 2 through 7 and "Executive Officers who are not Directors" on pages 11 and 12 of the definitive
Proxy Statement of the Company, dated March 22, 2002 (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to "Compensation of Executive Officers and Transactions with Management" on pages 16 through 23 of the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to "Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management" on pages 13 through 15 of the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to "Indebtedness of Management" and "Certain Transactions" on page 24 of the Proxy Statement.

83

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PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)    The following financial statements are incorporated by reference from Item 8 hereof:



(a)(2)    All
other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence
of conditions under which
they are required or because the required information is included in the financial statements and related notes thereto.

(a)(3)    The
following exhibits are included as part of this Form 10-K. Where applicable, references to Banknorth include Peoples Heritage Financial
Group, Inc., its name prior to May 10, 2000.

|Exhibit No. |  | Exhibit                                                                                                                                                                                                           |  | Location
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|3(a)(1)     |  | Amended and Restated Articles of Incorporation of Banknorth                                                                                                                                                       |  | (1)     
|3(a)(2)     |  | Amendments to the Articles of Incorporation of Banknorth                                                                                                                                                          |  | (2)     
|3(b)        |  | Bylaws of Banknorth                                                                                                                                                                                               |  | (4)     
|4(a)        |  | Specimen Common Stock certificate                                                                                                                                                                                 |  | (3)     
|4(b)        |  | Stockholder Rights Agreement, dated as of September 12, 1989 and amended and restated as of July 27, 1999 and as of July 25, 2000, between Banknorth and American Stock Transfer & Trust Company, as Rights Agent |  | (8)     
|4(c)        |  | Instruments defining the rights of security holders, including indentures                                                                                                                                         |  | (6)     
|10(a)       |  | Form of Severance Agreement between Banknorth and each executive officer of Banknorth identified in the Proxy Statement                                                                                           |  | (4)     
|10(b)       |  | Form of First Amendment to Severance Agreement between Banknorth and each executive officer identified in the Proxy Statement                                                                                     |  | (7)     
|10(c)       |  | Amended and Restated Supplemental Retirement Agreement among Banknorth, its subsidiaries and William J. Ryan                                                                                                      |  |         
|10(d)(1)    |  | Supplemental Retirement Agreement among Banknorth, its subsidiaries and Peter J. Verrill                                                                                                                          |  | (9)     
|10(d)(2)    |  | Amendment to the Supplemental Retirement Agreement among Banknorth, its subsidiaries and Peter J. Verrill                                                                                                         |  | (4)     
|            |  |                                                                                                                                                                                                                   |  |         

84

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|10(e)    |  | Supplemental Retirement Agreement among Banknorth, its subsidiaries and John W. Fridlington                                                                                                                      |  | (10)
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|10(f)(1) |  | Form of Supplemental Retirement Agreement among Banknorth, its subsidiaries and each executive officer of Banknorth named in the Proxy Statement (other than Messrs. Ryan, Verrill and Fridlington)              |  | (11)
|10(f)(2) |  | Form of Amendment to Supplemental Retirement Agreement among Banknorth, its subsidiaries and each executive officer of Banknorth named in the Proxy Statement (other than Messrs. Ryan, Verrill and Fridlington) |  | (4) 
|10(g)    |  | Amended and Restated 2000 Deferred Compensation Plan for Non-Employee Directors and Key Employees                                                                                                                |  |     
|10(h)    |  | 1986 Stock Option and Stock Appreciation Rights Plan, as amended                                                                                                                                                 |  | (12)
|10(i)    |  | Amended and Restated Employee Stock Purchase Plan                                                                                                                                                                |  | (5) 
|10(j)    |  | Amended and Restated Restricted Stock Plan for Non- Employee Directors                                                                                                                                           |  | (13)
|10(k)    |  | Amended and Restated 1995 Stock Option Plan for Non- Employee Directors                                                                                                                                          |  |     
|10(l)    |  | Amended and Restated 401(k) Plan                                                                                                                                                                                 |  |     
|10(m)    |  | 1996 Equity Incentive Plan, as amended                                                                                                                                                                           |  | (14)
|10(n)    |  | Executive Incentive Plan                                                                                                                                                                                         |  | (5) 
|10(o)    |  | Bank of New Hampshire Corporation Executive Excess Benefit Plan for Paul R. Shea                                                                                                                                 |  | (15)
|10(p)    |  | Supplemental Executive Retirement Plan of Evergreen Bancorp, Inc. (which covers only Director Dougan)                                                                                                            |  | (16)
|21       |  | Subsidiaries of Banknorth                                                                                                                                                                                        |  |     
|23       |  | Consent of KPMG LLP                                                                                                                                                                                              |  |     

---

85

---

Banknorth's
management contracts or compensatory plans or arrangements consist of Exhibit Nos. 10(a)-(p).



86

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SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Banknorth has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                    |  | BANKNORTH GROUP, INC.
|------------------- |  | ---------------------
|Date: March 5, 2002 |  | By:                  

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

|Name                                                  |  | Title    |  | Date          
|----------------------------------------------------- |  | -------- |  | --------------
|                                                      |  |          |  |               
|Gary G. Bahre                                         |  | Director |  |               
|/s/P. KEVIN CONDRONP. Kevin Condron                   |  | Director |  | March 13, 2002
|/s/GEORGE W. DOUGANGeorge W. Dougan                   |  | Director |  | March 13, 2002
|/s/ALLEN M. GLICKAllen M. Glick                       |  | Director |  | March 11, 2002
|/s/LUTHER F. HACKETTLuther F. Hackett                 |  | Director |  | March 7, 2002 
|/s/DANA S. LEVENSONDana S. Levenson                   |  | Director |  | March 13, 2002
|John M. Naughton                                      |  | Director |  |               
|/s/MALCOLM W. PHILBROOK, JR.Malcolm W. Philbrook, Jr. |  | Director |  | March 13, 2002
|                                                      |  |          |  |               

87

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|/s/ANGELO PIZZAGALIAngelo Pizzagali           |  | Director                                                                                                                      |  | March 8, 2002 
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------------
|/s/PAMELA P. PLUMBPamela P. Plumb             |  | Director                                                                                                                      |  | March 7, 2002 
|/s/IRVING E. ROGERS, IIIIrving E. Rogers, III |  | Director                                                                                                                      |  | March 11, 2002
|/s/WILLIAM J. RYANWilliam J. Ryan             |  | Chairman, President and Chief Executive Officer (principal executive officer)                                                 |  | March 5, 2002 
|/s/CURTIS M. SCRIBNERCurtis M. Scribner       |  | Director                                                                                                                      |  | March 7, 2002 
|Paul R. Shea                                  |  | Director                                                                                                                      |  |               
|/s/JOHN E. VEASEYJohn E. Veasey               |  | Director                                                                                                                      |  | March 11, 2002
|/s/PATRICK E. WELCHPatrick E. Welch           |  | Director                                                                                                                      |  | March 13, 2002
|/s/PETER J. VERRILLPeter J. Verrill           |  | Senior Executive Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer (principal financial officer) |  | March 13, 2002
|/s/STEVEN J. BOYLESteven J. Boyle             |  | Executive Vice President and Controller (principal accounting officer)                                                        |  | March 13, 2002

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