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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|  |                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------
|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended December 31,
2002



|  |                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period
from                               to                               .

Commission File Number: 001-31251

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:

|                                                                 |  |                                                                
|---------------------------------------------------------------- |  | ---------------------------------------------------------------
|Title of Class                                                   |  | Name of Each Exchange on Which Registered                      
|                                                                 |  |                                                                
|Common Stock, $.01 par value
    Preferred Stock Purchase Rights |  | New York Stock Exchange, Inc.
    New York Stock Exchange, Inc.

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

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 þ 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. o

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o

As of June 28, 2002, the aggregate market
value of the 147,095,337 shares of Common Stock of the
Registrant issued and outstanding on such date, excluding the
approximately 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 $25.70 per share of the
Registrants Common Stock on June 28, 2002, as
reported in The Wall Street Journal on July 1, 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 February 28, 2003: 164,186,259

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 22,
2003 are incorporated by reference into Part III,
Items 10-13 of this Form 10-K.



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TABLE OF CONTENTS



|                                                   |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                   | Item 1. Business                                                                                       
|                                                   | General                                                                                                
|                                                   | Business                                                                                               
|                                                   | Acquisitions                                                                                           
|                                                   | Subsidiaries and Other Equity Investments                                                              
|                                                   | Competition                                                                                            
|                                                   | Employees                                                                                              
|                                                   | Supervision and Regulation                                                                             
|                                                   | Taxation                                                                                               
|                                                   | Statistical Disclosure by Bank Holding Companies                                                       
|                                                   | Availability of Information                                                                            
|                                                   | Item 2. Properties                                                                                     
|                                                   | Item 3. Legal Proceedings                                                                              
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                            
|                                                   | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                           
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|                                                   | PART III.                                                                                              
|                                                   | Item 11. Executive Compensation                                                                        
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                   | Item 13. Certain Relationships and Related Transactions                                                
|                                                   | Item 14. Controls and Procedures                                                                       
|                                                   | PART IV.                                                                                               
|                                                   | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                                        
|Ex-10(a) Form of Severance Agreement - Ryan       
|Ex-10(b) Form of Severance Agreement - Exec Off...
|Ex-10(c) Amended Supplemental Retirement - Ryan   
|Ex-10(e)(2) Amended Supplemental Retirement Agmnt 
|Ex-10(f) Supplemental Retirement Plan             
|Ex-10(g) Amended Deferred Compensation Plan       
|Ex-10(l)(2) Form of 1st Amend to 401(k) Plan      
|Ex-10(l)(3) Form of 2nd Amend to 401(k) Plan      
|Ex-10(m) 1996 Equity Incentive Plan, as Amended   
|Ex-10(n) Executive Incentive Plan                 
|Ex-21 Subsidiaries                                
|Ex-23 Consent of KPMG LLP                         
|Ex-99(a) Certification of CEO                     
|Ex-99(b) Certification of CFO                     



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##### Table of Contents



BANKNORTH GROUP, INC.

2002 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                                                                                           |  |      | 8  | 
|         |  | Statistical Disclosure by Bank Holding Companies                                                   |  |      | 8  | 
|         |  | Availability of Information                                                                        |  |      | 9  | 
|Item 2.  |  | PROPERTIES                                                                                         |  |      | 9  | 
|Item 3.  |  | LEGAL PROCEEDINGS                                                                                  |  |      | 9  | 
|Item 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS                                            |  |      | 10 | 
|PART II 
|        
|Item 5.  |  | MARKET FOR THE REGISTRANTS COMMON EQUITY
    AND RELATED STOCKHOLDER MATTERS                      |  |      | 10 | 
|Item 6.  |  | SELECTED CONSOLIDATED FINANCIAL DATA                                                               |  |      | 11 | 
|Item 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  |      | 13 | 
|Item 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK                                     |  |      | 44 | 
|Item 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                        |  |      | 45 | 
|Item 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE           |  |      | 91 | 
|PART III
|        
|Item 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                 |  |      | 91 | 
|Item 11. |  | EXECUTIVE COMPENSATION                                                                             |  |      | 91 | 
|Item 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
    AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  |      | 91 | 
|Item 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                     |  |      | 91 | 
|Item 14. |  | CONTROLS AND PROCEDURES                                                                            |  |      | 91 | 
|PART IV 
|        
|Item 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
    REPORTS ON FORM 8-K                               |  |      | 92 | 
|         |  | SIGNATURES                                                                                         |  |      | 95 | 

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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:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our investments in our businesses and in related
    technology could require additional incremental spending, and
    might not produce expected deposit and loan growth and
    anticipated contributions to our earnings;                                                                                                                                                                                                                                                        
|
| |  | general economic or industry conditions could be
    less favorable than expected, resulting in a deterioration in
    credit quality, a change in the allowance for loan and lease
    losses or a reduced demand for credit or fee-based products and
    services;                                                                                                                                                                                                               
|
| |  | changes in the domestic interest rate environment
    could reduce net interest income and could increase credit
    losses;                                                                                                                                                                                                                                                                                                                                                        
|
| |  | the conditions of the securities markets could
    change, which could adversely affect, among other things, the
    value or credit quality of our assets, the availability and
    terms of funding necessary to meet our liquidity needs and our
    ability to originate loans and leases;                                                                                                                                                                                      
|
| |  | changes in the extensive laws, regulations and
    policies governing financial holding companies and their
    subsidiaries could alter our business environment or affect our
    operations;                                                                                                                                                                                                                                                                                     
|
| |  | the potential need to adapt to industry changes
    in information technology systems, on which we are highly
    dependent, could present operational issues or require
    significant capital spending;                                                                                                                                                                                                                                                                          
|
| |  | competitive pressures could intensify and affect
    our profitability, including as a result of continued industry
    consolidation, the increased availability of financial services
    from non-banks, technological developments such as the internet
    or bank regulatory reform;                                                                                                                                                                                          
|
| |  | acquisitions may result in large one-time charges
    to income, may not produce revenue enhancements or cost savings
    at levels or within time frames originally anticipated and may
    result in unforeseen integration difficulties; and                                                                                                                                                                                                                                     
|
| |  | acts or threats of terrorism and actions taken by
    the United States or other governments as a result of such acts
    or threats, including possible military action, could further
    adversely affect business and economic conditions in the United
    States generally and in our principal markets, which could have
    an adverse effect on our financial performance and that of our
    borrowers and on the financial markets and the price of our
    common stock.

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, 2002, 326 banking offices
located in Maine, New Hampshire, Massachusetts, Vermont, New
York and Connecticut. At December 31, 2002, we had
consolidated assets of $23.4 billion and consolidated
shareholders equity of $2.1 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 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
strong brand identity 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 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 proforma 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, as are
revenue enhancements.




Subsidiaries and Other Equity
Investments

Our only direct subsidiaries at December 31,
2002 were Banknorth, NA, Northgroup Realty, Inc., an acquired
subsidiary which holds certain commercial real estate located in
Burlington, Vermont, Northgroup Captive Insurance, Inc. and the
financing vehicles Peoples Heritage Capital Trust I,
Banknorth Capital Trust I, Banknorth Capital Trust II
and Ipswich Statutory Trust I. For additional information
on these trusts, see Note 15 to the Consolidated Financial
Statements included in Item 8 hereof. Northgroup Captive
Insurance, Inc. is a subsidiary formed in 2002 to self-insure
against certain risks of Banknorth. Northgroup Captive, Inc.
has, in turn, formed a subsidiary  Northgroup
Sponsored Captive Insurance Co.  to provide a vehicle
for other entities to self-insure against certain risks.

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, the largest insurance brokerage firm 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 under the trade names
Waters Insurance Agency and Palmer Goodell Insurance Agency,
(iii) Connecticut through Arthur A. Watson & Co.,
Inc., a wholly-owned subsidiary of Morse Payson & Noyes
Insurance and (iv) upstate New York under the trade name
Community Insurance Agencies.

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
directly in Maine, New Hampshire, Connecticut, Vermont and New
York and indirectly, through its wholly-owned insurance agency,
Bancnorth Investment and Insurance Agency, Inc., in
Massachusetts. 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.

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

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activities, primarily involving office equipment,
in the States of Maine, New Hampshire, Massachusetts, Vermont,
New York, Connecticut, Rhode Island and California. At
December 31, 2002, Banknorth Leasing Corp. had
$102.9 million of leases outstanding.


Other Equity Investments.We hold certain other equity
investments, primarily through Banknorth, NA and Four Eighty-One
Corp., a wholly-owned subsidiary of Banknorth, NA. At
December 31, 2002, these investments consisted of
(i) $51.8 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 $14.9 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 19 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 6,600 full-time equivalent
employees as of December 31, 2002. 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 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

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(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 Corporation 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.

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

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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, 2002, our
Tier 1 risk-based capital and total risk-based capital
ratios under these guidelines were 9.66% and 12.15%,
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,
2002, our leverage ratio was 7.13%.

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 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

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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. Our right and the right of 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.

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 2002, the
Community Reinvestment Act rating of Banknorth, NA was
outstanding.

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

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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.


Sarbanes-Oxley Act of 2002.On July 30, 2002, President
George W. Bush signed into law the Sarbanes-Oxley Act of 2002,
which generally establishes a comprehensive framework to
modernize and reform the oversight of public company auditing,
improve the quality and transparency of financial reporting by
those companies and strengthen the independence of auditors.
Certain of the new legislations more significant reforms
are noted below.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The new legislation creates a public company
    accounting oversight board which is empowered to set auditing,
    quality control and ethics standards, to inspect registered
    public accounting firms, to conduct investigations and to take
    disciplinary actions, subject to SEC oversight and review. The
    new board will be funded by mandatory fees paid by all public
    companies. The new legislation also improves the Financial
    Accounting Standards Board, giving it full financial
    independence from the accounting industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The new legislation strengthens auditor
    independence from corporate management by, among other things,
    limiting the scope of consulting services that auditors can
    offer their public company audit clients.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The new legislation heightens the responsibility
    of public company directors and senior managers for the quality
    of the financial reporting and disclosure made by their
    companies. Among other things, the new legislation provides for
    a strong public company audit committee that will be directly
    responsible for the appointment, compensation and oversight of
    the work of the public company auditors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The new legislation contains a number of
    provisions to deter wrongdoing. CEOs and CFOs will have to
    certify that company financial statements fairly present the
    companys financial condition. If a misleading financial
    statement later resulted in a restatement, the CEO and CFO must
    forfeit and return to the company any bonus, stock or stock
    option compensation received in the twelve months following the
    misleading financial report. The new legislation also prohibits
    any company officer or director from attempting to mislead or
    coerce an auditor. Among other reforms, the new legislation
    empowers the SEC to bar certain persons from serving as officers
    or directors of a public company; prohibits insider trades
    during pension fund blackout periods; directs the
    SEC to adopt rules requiring attorneys to report securities law
    violations; and requires that civil penalties imposed by the SEC
    go into a disgorgement fund to benefit harmed investors.                                                                                                                                                                                                                                                                       
|
| |  | The new legislation imposes a range of new
    corporate disclosure requirements. Among other things, the new
    legislation requires public companies to report all
    off-balance-sheet transactions and conflicts, as well as to
    present any pro forma disclosures in a way that is not
    misleading and in accordance with requirements to be established
    by the SEC. The new legislation also accelerated the required
    reporting of insider transactions, which now generally must be
    reported by the end of the second business day following a
    covered transaction; requires that annual reports filed with the
    SEC include a statement by management asserting that it is
    responsible for creating and maintaining adequate internal
    controls and assessing the effectiveness of those controls; and
    requires companies to disclose whether or not they have adopted
    an ethics code for senior financial officers, and, if not, why
    not, and whether the audit committee includes at least one
    financial expert, a term which is to be defined by
    the SEC in accordance with specified requirements. The new
    legislation also requires the SEC, based on certain enumerated
    factors, to regularly and systematically review corporate
    filings.
|
| |  | The new legislation contains provisions which
    generally seek to limit and expose to public view possible
    conflicts of interest affecting securities analysts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Finally, the new legislation imposes a range of
    new criminal penalties for fraud and other wrongful acts, as
    well as extends the period during which certain types of
    lawsuits can be brought against a company or its insiders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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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;

Table 5  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 6  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 7  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 8  Scheduled Contractual
Amortization of Certain Loans and Leases at December 31,
2002, which presents maturities and sensitivities of loans and
leases to changes in interest rates and is included in
Item 7;

Table 15  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;

Credit Risk Management 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 12  Five-Year Table of Activity
in the Allowance for Loan and Lease Losses, included in
Item 7;

Table 13  Allocation of the Allowance
for Loan and Lease Losses  Five Year Schedule,
included in Item 7;

Table 14  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 11  Maturity of Certificates of
Deposit of $100,000 or more at December 31, 2001, included
in Item 7;

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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.




Availability of Information

We make available on our web site, which is
located at http://www.banknorth.com, our annual report on
Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K on the date which we electronically
file these reports with the Securities and Exchange Commission.
Investors are encouraged to access these reports and the other
information about our business and operations on our web site.




Item
2.     Properties

At December 31, 2002, we conducted business
from our executive offices at Two Portland Square, Portland,
Maine and 326 offices located in Maine, New Hampshire,
Massachusetts, Vermont, New York and Connecticut.

The following table sets forth certain
information with respect to our offices as of December 31,
2002.

|              |       |                 |     |                        |  |   |           |            | 
|------------- | ----- | --------------- | --- | ---------------------- |  | - | --------- | ---------- | 
|              |       | Number of       |     |                       
|State         |       | Banking Offices |     | Deposits              
|              |       |                 |     |                       
|              |       |                 |     | (Dollars in Thousands)
|Maine         |       |                 | 61  |                        |  | $ | 2,634,355 |           
|New Hampshire |       |                 | 76  |                        |  |   | 3,795,324 |           
|Massachusetts |       |                 | 114 |                        |  |   | 5,684,484 |           
|Vermont       |       |                 | 36  |                        |  |   | 1,676,863 |           
|New York      |       |                 | 27  |                        |  |   | 1,123,447 |           
|Connecticut   |       |                 | 12  |                        |  |   | 750,128   |           
|              |       |                 |     |                        |  |   |           |           
|              | Total |                 |     | 326                    |  |   | $         | 15,664,601 | 
|              |       |                 |     |                        |  |   |           |           

For additional information regarding our premises
and equipment and lease obligations, see Notes 7 and 19
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.

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|        |                                                        
|------- | -------------------------------------------------------
|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 2002.

PART II.






|        |                                                                         
|------- | ------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock
    and Related Stockholder Matters

Our common stock is traded on the New York Stock
Exchange, Inc. The following table sets forth the high and low
prices of the common stock as reported on the New York Stock
Exchange, Inc. and the dividends declared per share of common
stock for the periods indicated.

|               |  |              |       |                    |  |           |       |  |  |   |       | 
|-------------- |  | ------------ | ----- | ------------------ |  | --------- | ----- |  |  | - | ----- | 
|               |  |              |       |                   
|               |  | Market Price |       |                   
|               |  |              |       | Dividends Declared
|2002           |  | High         |       | Low                |  | Per Share
|               |  |              |       |                    |  |          
|First Quarter  |  | $            | 26.80 |                    |  |           | 22.25 |  |  | $ | 0.135 | 
|Second Quarter |  |              | 27.45 |                    |  |           | 24.96 |  |  |   | 0.145 | 
|Third Quarter  |  |              | 27.40 |                    |  |           | 20.70 |  |  |   | 0.150 | 
|Fourth Quarter |  |              | 24.58 |                    |  |           | 20.68 |  |  |   | 0.150 | 

|               |  |   |       |  |  |   |       |  |  |   |       | 
|-------------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|2001           |  |   |       |  |  |  
|               |  |   |       |  |  |  
|First Quarter  |  | $ | 21.06 |  |  | $ | 18.13 |  |  | $ | 0.130 | 
|Second Quarter |  |   | 22.93 |  |  |   | 19.38 |  |  |   | 0.130 | 
|Third Quarter  |  |   | 24.39 |  |  |   | 18.93 |  |  |   | 0.130 | 
|Fourth Quarter |  |   | 22.92 |  |  |   | 19.78 |  |  |   | 0.135 | 

As of December 31, 2002, there were
150,578,767 shares of common stock outstanding which were
held by approximately 15,800 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.

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|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

|                                                           |       |                                       |            |       |  |      |            |       |  |      |            |       |  |   |            |       |  |   |            |       | 
|---------------------------------------------------------- | ----- | ------------------------------------- | ---------- | ----- |  | ---- | ---------- | ----- |  | ---- | ---------- | ----- |  | - | ---------- | ----- |  | - | ---------- | ----- | 
|                                                           |       | 2002                                  |            | 2001  |  | 2000 |            | 1999  |  | 1998
|                                                           |       |                                       |            |       |  |      |            |       |  |     
|                                                           |       |                                      
|                                                           |       | (In thousands, except per share data)
|Condensed Income Statement(1)                              |       |                                       |            |       |  |      |            |       |  |      |            |       |  |   |            |       |  |   |            |      
|Net interest income                                        |       | $                                     | 796,517    |       |  | $    | 679,890    |       |  | $    | 603,550    |       |  | $ | 614,395    |       |  | $ | 578,300    |      
|Provision for loan and lease losses                        |       |                                       | 44,314     |       |  |      | 41,889     |       |  |      | 23,819     |       |  |   | 23,575     |       |  |   | 23,775     |      
|Noninterest income (excluding securities
    transactions) |       |                                       | 267,226    |       |  |      | 239,176    |       |  |      | 226,644    |       |  |   | 191,140    |       |  |   | 161,124    |      
|Securities gains (losses)                                  |       |                                       | 7,282      |       |  |      | 1,329      |       |  |      | (15,456    | )     |  |   | 655        |       |  |   | 6,423      |      
|Noninterest expenses (excluding special charges)           |       |                                       | 564,701    |       |  |      | 501,708    |       |  |      | 459,385    |       |  |   | 460,306    |       |  |   | 446,110    |      
|Special charges(2)                                         |       |                                       | 14,691     |       |  |      | 7,614      |       |  |      | 43,007     |       |  |   | 28,002     |       |  |   | 61,140     |      
|Net income                                                 |       |                                       | 298,638    |       |  |      | 238,795    |       |  |      | 191,734    |       |  |   | 196,958    |       |  |   | 141,744    |      
|                                                           |       |                                      
|Per Common Share                                           |       |                                       |            |       |  |      |            |       |  |      |            |       |  |   |            |       |  |   |            |      
|Basic earnings per share                                   |       | $                                     | 2.01       |       |  | $    | 1.70       |       |  | $    | 1.33       |       |  | $ | 1.35       |       |  | $ | 0.97       |      
|Diluted earnings per share                                 |       |                                       | 1.99       |       |  |      | 1.68       |       |  |      | 1.32       |       |  |   | 1.34       |       |  |   | 0.95       |      
|Dividends per share                                        |       |                                       | 0.58       |       |  |      | 0.53       |       |  |      | 0.50       |       |  |   | 0.47       |       |  |   | 0.44       |      
|Book value per share at year end                           |       |                                       | 13.70      |       |  |      | 11.83      |       |  |      | 9.42       |       |  |   | 8.22       |       |  |   | 8.37       |      
|Tangible book value per share at year end                  |       |                                       | 9.09       |       |  |      | 8.75       |       |  |      | 8.11       |       |  |   | 6.95       |       |  |   | 6.97       |      
|Stock price:                                               |       |                                       |            |       |  |      |            |       |  |      |            |       |  |   |            |       |  |   |            |      
|                                                           | High  |                                       |            | 27.22 |  |      |            | 24.39 |  |      |            | 21.13 |  |   |            | 20.25 |  |   |            | 26.75 | 
|                                                           | Low   |                                       |            | 20.44 |  |      |            | 18.13 |  |      |            | 10.38 |  |   |            | 14.31 |  |   |            | 12.81 | 
|                                                           | Close |                                       |            | 22.60 |  |      |            | 22.52 |  |      |            | 19.94 |  |   |            | 15.06 |  |   |            | 20.00 | 
|Period end common shares outstanding                       |       |                                       | 150,579    |       |  |      | 151,221    |       |  |      | 141,245    |       |  |   | 144,974    |       |  |   | 146,105    |      
|Weighted average shares outstanding 
    Diluted          |       |                                       | 149,829    |       |  |      | 141,802    |       |  |      | 145,194    |       |  |   | 147,428    |       |  |   | 148,965    |      
|                                                           |       |                                      
|Financial Ratios                                           |       |                                       |            |       |  |      |            |       |  |      |            |       |  |   |            |       |  |   |            |      
|Return on average assets                                   |       |                                       | 1.39       | %     |  |      | 1.29       | %     |  |      | 1.05       | %     |  |   | 1.12       | %     |  |   | 0.90       | %    
|Return on average equity                                   |       |                                       | 16.25      |       |  |      | 16.48      |       |  |      | 15.69      |       |  |   | 16.42      |       |  |   | 11.96      |      
|Net interest margin(3)                                     |       |                                       | 4.07       |       |  |      | 3.99       |       |  |      | 3.60       |       |  |   | 3.80       |       |  |   | 4.02       |      
|Average equity to average assets                           |       |                                       | 8.56       |       |  |      | 7.82       |       |  |      | 6.66       |       |  |   | 6.81       |       |  |   | 7.55       |      
|Efficiency ratio                                           |       |                                       | 54.10      |       |  |      | 55.34      |       |  |      | 61.67      |       |  |   | 60.57      |       |  |   | 68.01      |      
|Noninterest income as a percent of total income            |       |                                       | 25.63      |       |  |      | 26.13      |       |  |      | 25.92      |       |  |   | 23.79      |       |  |   | 22.46      |      
|Tier 1 leverage capital ratio                              |       |                                       | 7.14       |       |  |      | 7.14       |       |  |      | 7.02       |       |  |   | 6.75       |       |  |   | 7.22       |      
|Dividend payout ratio(4)                                   |       |                                       | 28.76      |       |  |      | 30.27      |       |  |      | 36.91      |       |  |   | 33.19      |       |  |   | 40.38      |      
|                                                           |       |                                      
|Average Balance Sheet                                      |       |                                       |            |       |  |      |            |       |  |      |            |       |  |   |            |       |  |   |            |      
|Assets                                                     |       | $                                     | 21,460,719 |       |  | $    | 18,545,709 |       |  | $    | 18,343,226 |       |  | $ | 17,607,344 |       |  | $ | 15,696,234 |      
|Loans and leases, gross                                    |       |                                       | 13,236,803 |       |  |      | 11,246,007 |       |  |      | 10,485,289 |       |  |   | 9,908,177  |       |  |   | 10,679,544 |      
|Deposits                                                   |       |                                       | 14,566,644 |       |  |      | 12,529,630 |       |  |      | 11,891,481 |       |  |   | 11,784,103 |       |  |   | 11,435,942 |      
|Shareholders equity                                       |       |                                       | 1,838,064  |       |  |      | 1,449,353  |       |  |      | 1,222,378  |       |  |   | 1,199,496  |       |  |   | 1,184,770  |      
|                                                           |       |                                      
|Year End Balance Sheet                                     |       |                                       |            |       |  |      |            |       |  |      |            |       |  |   |            |       |  |   |            |      
|Assets                                                     |       | $                                     | 23,418,941 |       |  | $    | 21,076,586 |       |  | $    | 18,233,810 |       |  | $ | 18,508,264 |       |  | $ | 16,453,120 |      
|Loans and leases, gross                                    |       |                                       | 14,056,008 |       |  |      | 12,715,330 |       |  |      | 10,845,662 |       |  |   | 9,854,656  |       |  |   | 9,925,137  |      
|Securities                                                 |       |                                       | 6,947,876  |       |  |      | 6,156,861  |       |  |      | 5,880,658  |       |  |   | 6,873,182  |       |  |   | 4,379,774  |      
|Goodwill and identifiable intangible assets                |       |                                       | 695,158    |       |  |      | 466,633    |       |  |      | 185,520    |       |  |   | 184,381    |       |  |   | 204,587    |      
|Deposits                                                   |       |                                       | 15,664,601 |       |  |      | 14,221,049 |       |  |      | 12,107,256 |       |  |   | 11,710,501 |       |  |   | 12,016,212 |      
|Borrowings                                                 |       |                                       | 5,432,581  |       |  |      | 4,602,388  |       |  |      | 4,659,390  |       |  |   | 5,466,253  |       |  |   | 3,040,173  |      
|Shareholders equity                                       |       |                                       | 2,063,485  |       |  |      | 1,789,115  |       |  |      | 1,330,857  |       |  |   | 1,192,274  |       |  |   | 1,222,390  |      
|Nonperforming assets(5)                                    |       |                                       | 68,891     |       |  |      | 81,227     |       |  |      | 67,132     |       |  |   | 69,192     |       |  |   | 89,021     |      
|                                                           |       |                                      

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|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain amounts of prior periods have been
    restated to conform with current presentation.                                                                   
|   
|(2) | Special charges consist of merger charges,
    charter consolidation costs, asset write-downs and branch
    closing costs where applicable.                    
|   
|(3) | Net interest income calculated on a fully-taxable
    equivalent basis divided by average interest-earning assets.                                              
|   
|(4) | Cash dividends paid divided by net income.                                                                                                                      
|   
|(5) | Nonperforming assets consist of nonperforming
    loans, other real estate owned, repossessed assets and
    investment securities placed on non-accrual status.

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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 results of operations of Banknorth Group, Inc. during
2002, 2001, and 2000 and its financial condition at
December 31, 2002 and 2001. The Consolidated Financial
Statements and related notes should be read in conjunction with
this review. Certain amounts in years prior to 2002 have been
reclassified to conform to the 2002 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, 2002, from our 326 banking offices
located in Maine, New Hampshire, Massachusetts, Vermont, New
York and Connecticut. At December 31, 2002, we had
consolidated assets of $23.4 billion and consolidated
shareholders equity of $2.1 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 (the Bank), which 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
strong brand identity associated with the names of these
predecessor banks. The Bank operates under its own name
elsewhere in our market areas. Through the Bank, we offer a full
range of banking services and products to individuals,
businesses and governments throughout our market areas,
including commercial banking, consumer banking and investment
management and investment planning services. In addition,
Banknorth Insurance Group, Inc., a subsidiary of the Bank,
offers insurance brokerage 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 primary business segments are Community
Banking, Insurance Brokerage, Investment Planning and Investment
Management. Our community banking business, which represents
over 90% of our consolidated income, 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 and leases. 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. Our Insurance Brokerage business earns commissions
on insurance brokerage activities, our Investment Planning
business earns commissions from the sale of third party mutual
funds, annuities, stocks and bonds and our Investment Management
business reflects fees from trust and investment management
operations.

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 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. See Acquisitions
below and under Item 1.

We strive to maintain a diversified loan and
deposit mix and strong asset quality. We are focused on
improving efficiencies as we integrate all of our acquisitions.
We will continue to evaluate our operations and organizational
structures to ensure they are closely aligned with our goal of
maximizing earnings per share growth.

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| |        
| | -------
| | Outlook

Reflecting trends in the national economy, our
market area generally witnessed a decline in economic growth in
2002, and interest rate decreases in 2002 and 2001 began to
compress our net interest margin in the second quarter of 2002.
Although these developments have not had a materially adverse
affect on us to date, we continue to monitor them closely 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 depend on
consumer confidence, personal consumption expenditures and
business expenditures for new capital equipment. For a
description of other factors which could affect our financial
performance and that of our common stock, see
Forward-Looking Statements at the beginning of this
report.

Acquisitions

We completed four acquisitions in 2002 and at
December 31, 2002 our proposed acquisition of American
Financial Holdings, Inc. was pending. The following table
describes the acquisitions for the years ended 2002, 2001 and
2000. The 2002 acquisitions were accounted for as purchases, and
as such, were included in our results of operations from the
date of acquisition.

Acquisitions 2002  2000

|                                          |  |                                  |             |                  |  |                           |         |              |  |             |       |        |  |          |       |       |  |   |      |  |  |   |       |  |  |  |      |  |  |   |       | 
|----------------------------------------- |  | -------------------------------- | ----------- | ---------------- |  | ------------------------- | ------- | ------------ |  | ----------- | ----- | ------ |  | -------- | ----- | ----- |  | - | ---- |  |  | - | ----- |  |  |  | ---- |  |  | - | ----- | 
|                                          |  |                                  |             |                  |  |                           |         |             
|                                          |  |                                  |             |                  |  | Transaction Related Items
|                                          |  |                                  |             | Balance at       |  |                          
|                                          |  |                                  |             | Acquisition Date |  |                           |         | Other        |  |             |       | Total 
|                                          |  | Acquisition                      |             |                  |  |                           |         | Identifiable |  | Cash        |       | Shares |  | Purchase
|                                          |  | Date                             |             | Assets           |  | Equity                    |         | Goodwill     |  | Intangibles |       | Paid   |  | Issued   |       | Price
|                                          |  |                                  |             |                  |  |                           |         |              |  |             |       |        |  |          |       |      
|                                          |  |                                 
|                                          |  | (Dollars and shares in millions)
|Warren Bancorp, Inc.(1)                   |  |                                  | 12/31/2002  |                  |  | $                         | 466.1   |              |  | $           | 45.3  |        |  | $        | 88.8  |       |  | $ | 4.9  |  |  | $ | 59.8  |  |  |  | 2.7  |  |  | $ | 136.6 | 
|Bancorp Connecticut, Inc.(1)              |  |                                  | 8/31/2002   |                  |  |                           | 661.7   |              |  |             | 61.4  |        |  |          | 98.2  |       |  |   | 8.7  |  |  |   | 161.2 |  |  |  |     |  |  |   | 154.2 | 
|Ipswich Bancshares, Inc.(1)               |  |                                  | 7/26/2002   |                  |  |                           | 318.0   |              |  |             | 13.9  |        |  |          | 23.1  |       |  |   | 4.8  |  |  |   | 19.9  |  |  |  | 0.9  |  |  |   | 40.1  | 
|Andover Bancorp, Inc.(1)                  |  |                                  | 10/31/2001  |                  |  |                           | 1,796.0 |              |  |             | 162.9 |        |  |          | 187.7 |       |  |   | 13.2 |  |  |   |      |  |  |  | 16.5 |  |  |   | 340.0 | 
|Metrowest Bank(1)                         |  |                                  | 10/31/2001  |                  |  |                           | 907.7   |              |  |             | 62.0  |        |  |          | 97.1  |       |  |   | 5.0  |  |  |   | 164.8 |  |  |  |     |  |  |   | 164.8 | 
|Banknorth Group, Inc. (Burlington, VT)(2) |  |                                  | 5/10/2000   |                  |  |                           | 4,633.8 |              |  |             | 343.2 |        |  |          |      |       |  |   |     |  |  |   |      |  |  |  | 42.9 |  |  |   | 579.6 | 
|Insurance agency acquisitions(1)          |  |                                  | 2000  2002 |                  |  |                           | 16.3    |              |  |             | 1.2   |        |  |          | 29.1  |       |  |   | 2.2  |  |  |   | 23.7  |  |  |  | 0.3  |  |  |   | 32.3  | 



---



|    |                             
|--- | ----------------------------
|(1) | Accounted for as a purchase.
|   
|(2) | Accounted for as a pooling. 

For additional information regarding our
acquisitions in 2002, see Note 3 to the Consolidated
Financial Statements.

Results of Operations

Comparison of
2002 and 2001

Overview

We reported net income of $298.6 million or
$1.99 per diluted share in 2002, compared to $238.8 million
or $1.68 per diluted share in 2001. Return on average assets and
return on average equity were 1.39% and 16.25% in 2002 compared
to 1.29% and 16.48% in 2001, respectively. The improved results
were attributable to increases in our net interest margin,
contributions from acquisitions and the discontinuance of
goodwill amortization due to the required adoption of new
financial accounting standards in July 2001 and January 2002.

Net interest income and noninterest income
increased 17% and 14% during 2002, respectively. The increase in
net interest income was attributable to the acquisitions in 2002
and 2001 and an 8 basis point increase in the net interest
margin. The small increase in the net interest margin reflected
pressure on

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interest rates in a falling interest rate
environment as well as a change in the mix of earning assets to
reduce prepayment risk. Noninterest income increased due to
strong increases in deposit services income, loan fee income,
merchant and electronic banking income and insurance brokerage
commissions. These increases were due in part to the
introduction of our products in new market areas resulting from
our acquisitions.


The provision for loan and lease losses of
$44.3 million in 2002 exceeded net charge-offs of
$38.7 million and increased $2.4 million compared to
2001. The coverage ratio (allowance for loan and lease losses to
nonperforming loans) was 319% at December 31, 2002 compared
to 252% at December 31, 2001. Noninterest expenses,
excluding special charges, increased 13% in 2002 due primarily
to increases in salaries and benefits, equipment and occupancy
expenses, primarily resulting from our acquisitions, and the
write-off of the branch automation project. Noninterest expense
was also impacted by the adoption of new accounting standards
that required the discontinuation of amortization of goodwill
effective January 1, 2002. Amortization expense on goodwill
amounted to $11.9 million in 2001.

Net Interest
Income

Net interest income is the difference between
interest income on earning assets such as loans, leases and
securities, and interest expense paid on liabilities such as
deposits and borrowings, and continues to be our largest source
of net revenue. Net interest income is affected by changes in
interest rates and by changes in the amount and composition of
interest-earning assets and interest-bearing liabilities.

Net interest income on a fully taxable-equivalent
basis increased by $115.3 million, or 17%, during 2002 due
largely to an increase in interest-earning assets. Average
earning assets increased $2.5 billion, or 15%, for the year
ended 2002 compared to the year ended 2001 as a result of
acquisitions and internal growth on commercial and consumer
loans. Average loans and leases increased by $2.0 billion,
or 18%, in 2002 compared to 2001. Excluding acquisitions,
average loans and leases increased by approximately
$363 million, or 3%, primarily as a result of increases in
commercial business loans and leases and commercial real estate
loans, offset by a reduction in residential real estate loans.
Average securities increased $479.8 million, or 8%, in 2002
due primarily to acquisitions. Average deposits increased
$2.0 billion, or 16% during 2002. Excluding acquisitions,
average deposits increased by approximately $216 million,
or 2%, as strong growth in demand and money market accounts was
offset by declines in higher costing certificates of deposit.
Average borrowings increased $464.8 million, or 11%, in
2002 compared to 2001, primarily due to acquisitions.

The net interest margin increased to 4.07% in
2002 from 3.99% during 2001, an increase of 8 basis points.
Several factors contributed to this increase, including
non-interest-bearing deposits comprising a higher percentage of
our total funding base in 2002 versus 2001 and the momentum from
Federal Reserve Board interest rate cuts during 2001 carrying
over to 2002. Information on average balances, yields and rates
for the past three years can be found in Table 1.
Table 2 shows the changes from 2001 to 2002 in tax
equivalent net interest income by category due to changes in
rate and volume. Information on interest rate sensitivity can be
found under Asset-Liability Management below.

Provision and
Allowance for Loan and Lease Losses

We recorded a provision for loan and lease losses
in 2002 of $44.3 million, as compared to a
$41.9 million provision in 2001, which reflected an
increase in our classified loans resulting from the uncertain
and slowing economy and an increase in net charge-offs. Net
charge-offs were $38.7 million in 2002 compared to
$36.9 million in 2001. Net charge-offs to average loans
outstanding was 0.29% in 2002, as compared to 0.33% in 2001.

The allowance for loan and lease losses amounted
to $208.3 million at December 31, 2002, as compared to
$189.8 million at December 31, 2001. The increase was
due to acquisitions and the provision. The allowance to total
portfolio loans and leases at December 31, 2002 and 2001
was 1.48% and 1.49%, respectively. The ratio of the allowance
for loan and lease losses to nonperforming loans was 319% at
December 31, 2002 and 252% at December 31, 2001.
Nonperforming assets were $68.9 million, or 0.29%

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of total assets, at December 31, 2002 as
compared to $81.2 million, or 0.39% of total assets, at
December 31, 2001. The $12.3 million decrease in
nonperforming assets from December 31, 2001 to
December 31, 2002 was primarily attributable to decreases
in nonperforming commercial business loans and leases and other
nonperforming assets. Accruing loans 90 days or more past
due were $3.4 million at December 31, 2002, as
compared to $6.2 million at December 31, 2001, a
decrease of 45%.


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. As
discussed under Critical Accounting Policies, we
believe that the methods used by us in determining the allowance
for loan and lease losses constitute a critical accounting
policy. Although we utilize judgment in providing for losses,
for the reasons discussed under Critical Accounting
Policies and Credit Risk Management 
Nonperforming Assets, there can be no assurance that we
will not have to increase the amount of our provision for loan
and lease losses in future periods.

For information about the allocation of and
activity in our allowance for loan and lease losses, see
Tables 12 and 13.

Noninterest
Income

Noninterest income was $274.5 million in
2002 compared to $240.5 million in 2001. This increase was
primarily due to increases of $9.5 million in deposit
services income, $7.4 million in loan fee income,
$6.0 million in net securities gains, $5.7 million in
merchant and electronic banking income and $5.1 million in
insurance commissions, which more than offset a
$2.6 million decrease in mortgage banking services income.

Deposit services income of $82.1 million in
2002 increased 13% from 2001 and was attributable to volume and
fee increases in checking account and overdraft fees, which were
in part due to acquisitions.

Insurance brokerage commissions income was
$44.4 million and $39.4 million in 2002 and 2001,
respectively, an increase of 13%. The increase was partly
attributable to the acquisition of Community Insurance Agencies,
Inc. (Community) in the third quarter of 2002, which
generated commission income of $2.4 million in 2002.

Merchant and electronic banking income of
$38.1 million in 2002 increased 17% from 2001 due to
increases in the volume of transactions processed. This income
represents fees and interchange income generated by the use of
our ATMs, ATM and debit cards issued by us along with charges to
merchants for credit card transactions processed, net of
third-party costs directly attributable to handling these
transactions.

Trust and investment management services income
of $32.5 million decreased 5% during 2002 primarily due to
broad-based declines in the stock market, which adversely
impacted fees that are dependent upon the market value of
assets. Assets under management were $8.1 billion and
$8.5 billion at December 31, 2002 and 2001,
respectively, a decrease of 5%.

Loan fee income amounted to $21.9 million
and $14.5 million during 2002 and 2001, respectively, an
increase of 51%. Loan fee income includes letter of credit fees,
late charges, transaction fees on refinancings and other loan
related fees. The $7.4 million increase in fee income in
2002 was primarily due to increased volumes, refinancing
activity and acquisitions.

Income from bank owned life insurance
(BOLI) was $20.0 million and $18.4 million
in 2002 and 2001, respectively. BOLI represents life insurance
on the lives of certain employees who have provided positive
consent allowing the Bank to be the beneficiary of such
policies. The 9% increase in income reflected an increase in
cash surrender value and included additional income resulting
from a $40 million purchase of BOLI in the first quarter of
2002, which resulted in higher cash surrender value. The cash

16



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surrender value of BOLI was $380.4 million
at December 31, 2002 compared to $321.1 million at
December 31, 2001. Most of our BOLI is invested in the
general account of insurance companies. All such
companies were rated AA- or better by Standard and Poors at
December 31, 2002. Our investment in BOLI represented
21.46% of capital and reserves at December 31, 2002.


Investment planning services income of
$11.6 million increased 40% during 2002 primarily due to
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.

Mortgage banking services income of
$8.5 million during 2002 decreased $2.6 million or 23%
from $11.1 million during 2001. This decrease was primarily
due to a $1.4 million decline in residential mortgage
servicing income and a $2.9 million writedown of mortgage
servicing rights, which were partially offset by a
$2.3 million increase in residential mortgage sales income.
Strong originations and refinancings in 2002, prompted by lower
interest rates, led to profitable pricing, delivery and sales of
conforming fixed-rate loans. Our portfolio of residential
mortgages serviced for investors was $701.3 million at
December 31, 2002 compared to $964.0 million and
$1.6 billion at December 31, 2001 and 2000,
respectively. Mortgage loans serviced for others decreased as a
result of principal payments, loan prepayments and a sale of
mortgage servicing rights in the first quarter of 2001. Also,
since January 1, 2001, substantially all residential loans
sold by us into the secondary market have been sold on a
servicing-released basis. As a result, new mortgage servicing
rights assets are not being created as loans are sold.
Capitalized mortgage servicing rights decreased from
$8.5 million at December 31, 2001 to $3.6 million
at December 31, 2002 as we recorded amortization expense of
$3.3 million and valuation write-downs of $2.9 million
in 2002. See Table 3 and Note 9 to the
Consolidated Financial Statements.

Net securities gains amounted to
$7.3 million and $1.3 million during 2002 and 2001,
respectively. Of the $7.3 million of net securities gains
in 2002, $6.0 million was recorded in the fourth quarter of
2002 on sales of $152.0 million of mortgage-backed
securities. Net securities gains in 2001 included a
$2 million write-down 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.

Other noninterest income amounted to
$8.1 million and $8.4 million during 2002 and 2001,
respectively. In 2002, other noninterest income included
$7.3 million of premium income on covered call options
related to mortgage-backed securities and $1.9 million of
commissions on official checks, which were offset in part by
$2.8 million in losses on venture capital investments in
small business investment companies and start-up ventures in our
market area. In 2001, other noninterest income included
$3.3 million of premium income recognized on covered call
options related to mortgage-backed securities, $3.1 million
of commissions on official checks, a gain of $1.3 million
on the sale of a limited partnership interest and a
$929 thousand gain on the sale of an equity interest in an
ATM network.

Noninterest
Expense

Noninterest expense was $579.4 million in
2002 compared to $509.3 million in 2001. Excluding special
charges, write-off of certain costs incurred in connection with
a branch automation project (discussed below) and the effect of
goodwill amortization in 2001, noninterest expense in 2002 was
$558.5 million compared to $489.8 million in 2001, an
increase of $68.7 million or 14%. This increase was
primarily due to our acquisitions in 2002. The increased
noninterest expense in 2002 was primarily due to increases in
salaries and benefits, equipment expense and occupancy expense.
The efficiency ratio improved to 54.10% during 2002 from 55.34%
in 2001 primarily as a result of the efficiencies created by the
integration of recent acquisitions, as well as operating
improvements.

Salaries and benefits expense of
$311.4 million increased by $50.1 million or 19% from
$261.3 million during 2002. The increase was primarily due
to additional employees from purchase acquisitions and higher
levels of incentive compensation. The total number of full-time
equivalent employees was approximately 6,596 at
December 31, 2002 compared to 5,960 at December 31,
2001. Pension expense (which is included in salaries and
benefits expense) was $5.3 million and $3.0 million
for the years ended

17



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##### Table of Contents



December 31, 2002 and 2001, respectively. An
important component in the determination of pension expense next
year will be the fair value of assets in the pension plan at the
end of the year. The fair value of plan assets as of
December 31, 2002 was $154.9 million as compared to
$141.0 million at December 31, 2001. Pension expense
is expected to increase significantly in 2003 primarily due to
the 2003 and 2002 acquisitions and the use of a lower discount
rate and expected rate of return. In addition, pension expense
will increase due to the continued amortization of unrecognized
actuarial losses (which occur when investment returns are less
than expected).


Data processing expense increased 5% to
$40.7 million in 2002 from $38.7 million during 2001.
The increase was primarily attributable to continued investments
in information technology, increased transaction volume and
vendor rate increases related to acquisitions. These increases
were offset by a change in check processing. Beginning in July
2002, check processing was insourced and the primary costs are
now recorded in salaries and benefits. Previously a third-party
vendor handled check processing and its charges were recorded as
data processing costs.

Occupancy expense in 2002 increased 14% to
$52.4 million from $45.9 million in 2001. The
$6.5 million increase was primarily due to the cost of new
facilities and additional facilities from acquisitions.
Equipment expense increased $6.4 million or 18% in 2002
compared to 2001 due to increased depreciation on new technology
equipment and software (eg. e-commerce and imaging).

Advertising and marketing expense amounted to
$17.2 million and $11.9 million for the years ended
December 31, 2002 and 2001, respectively. The
$5.3 million increase was primarily attributable to
acquisitions in 2002 and additional expenses for the
introduction of our products in new market areas.

Amortization of goodwill was $0 and
$11.9 million for the years ended December 31, 2002
and 2001, respectively. In accordance with SFAS No. 142,
the amortization of goodwill was discontinued effective
January 1, 2002 and goodwill must now be reviewed for
impairment at least annually. We perform impairment reviews
quarterly and no adjustments have yet been required.
Amortization of identifiable intangible assets amounted to
$6.5 million and $10.2 million for the years ended
December 31, 2002 and 2001, respectively. The decline was
largely due to our reclassification of unidentifiable intangible
assets associated with branch acquisitions from intangible
assets to goodwill in accordance with SFAS No. 147. SFAS
No. 147 was issued in October 2002 and requires that
unidentifiable intangible assets related to branch acquisitions,
which meet the definition of the acquisition of a business, be
recorded as goodwill and therefore not be amortized but be
subject to impairment reviews. SFAS No. 147 amended SFAS
No. 72, which previously required that these unidentifiable
intangibles be amortized over a term not to exceed the estimated
remaining life of the long-term interest-earning assets
acquired. Banknorth had two branch acquisitions in the 1990s
that were covered by the provisions of SFAS No. 147, with a
total of $34.7 million of unidentifiable intangible assets
remaining as of December 31, 2001. Banknorth adopted SFAS
No. 147 retroactive to January 1, 2002 and
reclassified $34.7 million of intangible assets to goodwill.

Special charges amounted to $14.7 million
and $7.6 million during 2002 and 2001, respectively.
Special charges include expenses related to acquisitions,
charter consolidation costs, branch closing costs and certain
asset write-downs. For a tabular analysis of our special
charges, see Note 11 to the Consolidated Financial
Statements.

In 2002, $6.2 million of previously
capitalized costs related to a branch automation project were
written off. The costs were incurred during the early phases of
a multi-phase project to update all teller and platform
workstations and software in our branch network. These costs
included direct vendor fees, capitalized salaries, hardware and
project specific software. Design concerns and cost overruns
prompted a thorough review of the long-term viability of the
project in its current form. In October 2002, management met
with the lead software vendor to discuss concerns related to
cost overruns and project design. To comply with contract
provisions, shortly after this meeting, the vendor was notified
of our intent to terminate the branch automation contract. In
December 2002, we determined it was not prudent to continue
development and decided to abandon the project. A total of
$9.1 million had been capitalized on this project. The
impairment charge was determined based on a review of all costs
incurred. Management concluded that $6.2 million should be
written-off related to the abandonment of that project and that

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$2.9 million of hardware and off-the-shelf
software programs were of on-going value and could be redeployed
throughout the Bank. This $6.2 million is included as a
separate component of noninterest expense.


Other noninterest expense, which is comprised
primarily of general and administrative expenses, increased
$2.1 million in 2002. See Table 4 for a detail of
other noninterest expenses for each of the years ended
December 31, 2002, 2001 and 2000.

Taxes

Our effective tax rate was 33% in 2002 and 34% in
2001. The decline in the effective tax rate was due primarily to
the adoption of SFAS No. 142 under which goodwill is no
longer amortized for book purposes as of January 1, 2002.
Prior to January 1, 2002, we amortized goodwill that was
not deductible on our tax return.

Extraordinary
Item

During the fourth quarter of 2001, we prepaid
$174.6 million of Federal Home Loan Bank 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

We adopted SFAS No. 133, as amended by SFAS
No. 138, effective January 1, 2001 and recognized an
after-tax loss from the cumulative effect of adoption of
$290 thousand. This was recorded as a net unrealized loss
on forward sale commitments and commitments to originate
rate-locked loans at December 31, 2000, which hedged
residential mortgage loans held for sale.

Comprehensive
Income

Our comprehensive income amounted to
$373.0 million and $313.9 million during 2002 and
2001, respectively. Comprehensive income differed from our net
income in 2002 because of a $77.3 million net unrealized
gain on securities, a $2.1 million net unrealized loss on
cash flow hedges and an $825 thousand unrealized loss on a
minimum pension liability. Our 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. For additional information,
see the Consolidated Statements of Changes in Shareholders
Equity in the Consolidated Financial Statements.

Our available for sale investment portfolio had
net unrealized gains (losses) of $181.3 million,
$62.0 million and ($53.1) million,
($117.5 million, $40.3 million and
($34.5) million net of applicable income tax effects,
respectively) at December 31, 2002, 2001 and 2000,
respectively. The improvement related to lower prevailing
interest rates. For additional information, see Note 4 to
the Consolidated Financial Statements. 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 are Community
Banking, Insurance Brokerage, Investment Planning and Investment
Management. The Community Banking segment represents over 90% of
the combined revenues and income of the consolidated group, and
thus, is the only reporting segment as defined by SFAS
No. 131, Disclosures about Segments of an Enterprise
and Related Information. Insurance Brokerage reflects
commissions on insurance brokerage activities, Investment
Planning reflects commissions from the sale of third party
mutual funds, annuities, stocks and bonds and Investment
Management

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##### Table of Contents



reflects fees from trust and investment
management operations. Selected operating data for these
segments is provided for informational purposes only in
Table 16.


Fourth Quarter Summary

In the fourth quarter of 2002, we had net income
of $77.1 million, or $0.52 per diluted share, as
compared to $61.6 million, or $0.42 per diluted share
in the fourth quarter of 2001. Results for the quarters ended
December 31, 2002 and 2001 were reduced by special charges
(which included merger-related costs, branch consolidation
costs, certain asset write-downs and branch closings). The
results for the fourth quarter ended December 31, 2002 also
included a $6.2 million write-off of certain capitalized
costs incurred in connection with a branch automation project
and net securities gains of $6.7 million. The fourth
quarter of 2001 included $3.0 million of goodwill
amortization, which ceased January 1, 2002 under new
accounting rules.

Annualized return on average equity
(ROE) and return on average assets (ROA)
were 15.75% and 1.35%, respectively for the quarter ended
December 31, 2002 and were 14.45% and 1.23%, respectively,
for the comparable quarter last year.

Results for the fourth quarter of 2002 improved
over the fourth quarter of 2001 due primarily to increased net
interest income, which increased by 6% as a result of purchase
acquisitions and, to a lesser extent, internal growth. The net
interest margin for the quarter ended December 31, 2002 was
3.86%, a decrease of 27 basis points from the fourth quarter
last year. This decrease was primarily due to long-term rates
declining more than short-term rates and the effects of
prepayments on mortgage-related assets. Noninterest income
totaled $84.4 million and $63.6 million, an increase
of $20.8 million, or 33%, for the quarters ended
December 31, 2002 and 2001, respectively. The increase was
primarily due to increases of $6.7 million in net
securities gains, $2.9 million in deposit services income,
$2.9 million in mortgage banking services income and
$2.6 million in insurance brokerage commissions income.
Noninterest expenses increased by 15% due primarily to
acquisitions. The efficiency ratio was 55.68% in the fourth
quarter of 2002 compared to 54.76% in the comparable period last
year. The increase in the efficiency ratio was due in part to
the write-off of the branch automation project. See
Table 17 Fourth Quarter Summary and
Note 25 in the Consolidated Financial Statements for
selected quarterly data for the years ended December 31,
2002 and 2001.

Comparison of 2001 and 2000

Our consolidated total assets increased by
$2.9 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 acquisition of Andover 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 was primarily attributable to net
earnings and the issuance of stock for an acquisition in the
fourth quarter of 2001.

We reported net income of $238.8 million for
2001, or $1.68 per diluted share, compared with net income of
$191.7 million, or $1.32 per diluted share, for 2000.
Return on average assets and return on average equity were 1.29%
and 16.48%, respectively, for 2001 and 1.05% and 15.69%,
respectively, for 2000.

Net interest income on a fully taxable-equivalent
basis totaled $686.3 million during 2001, as compared with
$609.7 million in 2000. The $76.6 million, or 13%, increase
in 2001 was primarily attributable 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
on interest-earning assets. As a result, the net interest margin
increased 39 basis points to 3.99% compared to 3.60% in 2001 and
2000, respectively.

The provision for loan and lease losses was
$41.9 million in 2001 compared to a $23.8 million
provision in 2000. Net charge-offs were $36.9 million in
2001 compared to $25.3 million in 2000. The ratio of the
allowance to nonperforming loans at December 31, 2001 was
252% compared to 249% at December 31, 2000. The allowance for
loan and lease losses represented 1.49% of total loans at
December 31, 2001

20



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compared to 1.42% at December 31, 2000.
Nonperforming assets increased $14.1 million from
$67.1 million, or 0.37% of total assets, at
December 31, 2000 to $81.2 million, or 0.39% of total
assets, at December 31, 2001. This increase was primarily
due to nonaccruing commercial loans and leases acquired in
acquisitions. Accruing loans 90 days past due were
$6.2 million at December 31, 2001, up 4% from the
prior year end.


Noninterest income was $240.5 million and
$211.2 million for the years ended December 31, 2001
and 2000, respectively. Increases of $5.6 million in
deposit services income and $13.6 million in insurance
brokerage commissions more than offset a $10.8 million
decrease in mortgage banking services income related to the sale
of the mortgage servicing rights portfolio. Deposit services
income of $72.6 million reflected 8% growth from 2000. The
53% increase in insurance brokerage commissions reflected our
purchase acquisitions of insurance agencies in Massachusetts and
Connecticut late in the third quarter of 2000.

Noninterest expense was $509.3 million for
2001 compared with $502.5 million for 2000. Excluding special
charges, noninterest expense in 2001 was $501.7 million
compared to $459.5 million in 2000, an increase of $42.2
million, or 9%. The increase in 2001 was primarily due to
increases in salaries and benefits and occupancy expense and as
a result of acquisitions. The efficiency ratio improved to
55.34% during 2001 from 61.67% in 2000 primarily as a result of
the efficiencies created by the integration of acquired
companies, as well as operating improvements.

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 primarily because of a $74.8 million net
unrealized gain on securities and a $274 thousand hedging gain
on cash flow hedges. For additional information, see the
Consolidated Statements of Shareholders Equity in the
Consolidated Financial Statements.

Financial Condition

Our consolidated total assets increased by
$2.3 billion, or 11%, from $21.1 billion at
December 31, 2001 to $23.4 billion at
December 31, 2002. Total average assets were
$21.5 billion and $18.5 billion for the years ended
December 31, 2002 and 2001, respectively. These increases
were primarily due to the acquisitions in 2002 and 2001. See the
acquisitions table under General 
Acquisitions. Shareholders equity totaled
$2.1 billion and $1.8 billion at December 31, 2002 and
2001, respectively.



| |                                                   
| | --------------------------------------------------
| | Investment Securities and Other Earning
    Assets

The securities portfolio is utilized for several
purposes. It serves as a vehicle to manage interest rate and
prepayment risk, generates interest and dividend income from the
investment of excess funds, provides liquidity to meet liquidity
requirements and is used as collateral for public deposits and
wholesale funding sources.

The average balance of the securities portfolio,
which consists of securities available for sale and securities
held to maturity, was $6.4 billion in 2002 and
$5.9 billion in 2001, an increase of $480 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 securities in
the portfolio are collateralized mortgage obligations, which
include securitized residential real estate loans held in
REMICS, and asset-backed securities. The majority of securities
available for sale are rated AAA or equivalently rated. In 2002,
the portfolio was managed to mitigate prepayment risk by
purchasing U. S. Government agency securities as mortgage-backed
securities were paid down. The average yield on securities was
5.52% during the year ended December 31, 2002, compared to
6.29% for the year ended December 31, 2001, which reflects
declines in interest rates during 2002. See Table 5 for a
detail of securities available for sale and held to maturity and
Table 6 for information regarding the contractual
maturity of our debt securities at December 31, 2002.

21



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Securities available for sale are carried at fair
value and had net unrealized gains of $181.3 million and
$62.0 million at December 31, 2002 and 2001,
respectively. See Note 4 to the Consolidated Financial
Statements. These unrealized gains do not impact net income or
regulatory capital but are recorded as adjustments to
shareholders equity, net of related deferred income taxes.
Unrealized gains, net of related deferred income taxes, are a
component of our Comprehensive Income contained in
the Consolidated Statement of Changes in Shareholders
Equity.



| |      
| | -----
| | Loans

Total loans and leases (including loans held for
sale) averaged $13.2 billion during the year ended
December 31, 2002 compared to $11.2 billion for the
previous year, an increase of $2.0 billion, or 18%. This
increase was primarily attributable to acquisitions and growth
in commercial real estate loans. Average loans as a percent of
average earning assets was 67% and 65% for the years ended
December 31, 2002 and 2001, respectively.

Residential real estate loans (including loans
held for sale) averaged $2.6 billion and $2.3 billion
in 2002 and 2001, respectively, including the effects of
acquisitions. While residential real estate loans increased $345
million, acquisitions accounted for $754 million resulting
in a net decrease in the portfolio of $409 million. This
decrease was primarily due to increased refinancing activity and
prepayments in a declining interest rate environment. Mortgage
loans held for sale amounted to $128.6 million and
$117.7 million at December 31, 2002 and 2001,
respectively. The increase in loans held for sale compared to
last year was due primarily to higher origination volumes
resulting from declining interest rates. We are currently
selling substantially all 30-year conforming fixed-rate loans
that we originate.

Commercial real estate loans averaged
$4.3 billion in 2002 and $3.2 billion in 2001, a 33%
increase. Acquisitions accounted for approximately $568 million
of the $1.1 billion increase.

Commercial loans and leases averaged
$2.7 billion in 2002 and $2.3 billion in 2001, an
increase of 14%. Acquisitions accounted for approximately $136
million of the $324 million increase. The remaining
increase in 2002 was largely attributable to additional
opportunities in certain market areas due to broadening our
franchise.

Consumer loans and leases averaged
$3.6 billion in 2002 and $3.4 billion in 2001, an
increase of 7%. Acquisitions accounted for approximately $169
million of the $245 million increase. The growth in
consumer loans was primarily in indirect automobile loans and
home equity loans. Although the internal increase in consumer
loans in 2002 was relatively modest, new loan originations have
been offset by significant prepayment activity as proceeds of
mortgage loans refinancings have been used to pay down consumer
loans.

For a description of the types of loans and
leases in our loan and lease portfolio and a breakdown of our
consumer loans, see Credit Risk.



| |         
| | --------
| | Deposits

Total deposits averaged $14.6 billion during
2002 compared to $12.5 billion during 2001, an increase of 16%.
Acquisitions accounted for approximately $1.8 billion of
the $2.0 billion increase. The deposit mix also changed
favorably in 2002 as certificates of deposit and brokered
deposits (which tend to pay higher rates) declined to 33% of
average deposits during 2002 from 37% of average deposits during
2001. For additional information about changes in the
composition of our deposits, see Table 10.

Average noninterest-bearing deposits increased
21% in 2002 to $2.6 billion from $2.2 billion in 2001.
Acquisitions accounted for approximately $257 million of the
$455 million increase. The remainder of the increase
reflected strong growth in commercial, government and personal
accounts.

Average interest-bearing deposits increased by
$1.6 billion during 2002 to $11.9 billion.
Substantially all of this increase resulted from acquisitions.
Our existing base of interest-bearing deposits did not increase
over the prior year as growth in NOW and money-market accounts
were offset by declines in

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higher-costing certificates of deposits.
Excluding acquisitions, the average balance of NOW and
money-market accounts increased $679 million while the
average balance of certificates of deposit (including brokered
certificates of deposit) declined by $633 million. The
average rate paid on certificates of deposit fell from 5.02% in
2001 to 3.18% in 2002. See Table 11 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). There were no brokered deposits at
December 31, 2002 compared to $72.2 million at
December 31, 2001.


Included within the deposit categories above are
government banking deposits, which averaged $1.4 billion in
2002 and $1.2 billion in 2001. Government banking deposits
include 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

We use both short-term and long-term borrowings
to fund the growth of earning assets in excess of deposit
growth. Short-term borrowings, which include federal funds
purchased, retail securities sold under agreements to repurchase
and other short-term borrowings, amounted to $1.3 billion
at December 31, 2002, up $163 million, or 15%, from
$1.1 billion at December 31, 2001. See Note 12 to the
Consolidated Financial Statements.

At December 31, 2002, we also had a
$110 million unsecured line of credit. The line is
renewable every 364 days and, if used, carries interest at
LIBOR plus 0.625%. The average balance outstanding under this
line of credit during 2002 was $2.1 million.

Long-term debt includes FHLB advances,
subordinated notes, wholesale securities sold under agreements
to repurchase, capital lease obligations and other debt with
terms greater than one year. Long-term debt was
$3.9 billion at December 31, 2002 up from
$3.4 billion at December 31, 2001. The increase in
long-term debt was primarily due to borrowings assumed in
acquisitions.

At December 31, 2002 and 2001, FHLB
borrowings amounted to $2.5 billion and $2.6 billion,
respectively. FHLB collateral 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 4.50% during 2002 as compared
to 5.30% during 2001. Our additional borrowing capacity with the
FHLB at December 31, 2002 was approximately
$2.1 billion. See Note 13 to the Consolidated Financial
Statements.

Subordinated notes consisted of $200 million
of 7.625% subordinated notes due 2011 issued by our banking
subsidiary in 2001. The notes qualify as Tier 2 capital for
regulatory purposes.

At December 31, 2002 and 2001, wholesale
securities sold under repurchase agreements amounted to
$1.2 billion and $571 million, respectively, and were
collaterallized by mortgage-backed securities and U.S.
Government obligations. See Note 13 to the Consolidated
Financial Statements.

At December 31, 2002, through subsidiary
trusts, we had outstanding $295.1 million of capital securities
which qualify as Tier 1 capital for regulatory purposes. See the
Capital section below.

23



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##### Table of Contents



Contractual Obligations and
Commitments

We have entered into numerous contractual
obligations and commitments. The following table summarizes our
contractual cash obligations and other commitments at
December 31, 2002.

|                                  |                      |                        |           |                        |  |           |         |           |  |         |           |           |  |   |         |         |  |   |           |         | 
|--------------------------------- | -------------------- | ---------------------- | --------- | ---------------------- |  | --------- | ------- | --------- |  | ------- | --------- | --------- |  | - | ------- | ------- |  | - | --------- | ------- | 
|                                  |                      |                        |           |                       
|                                  |                      |                        |           | Payments Due By Period
|                                  |                      |                        |           |                       
|                                  |                      |                        |           | Less than              |  |           |         | After    
|Contractual Obligations(1)        |                      | Total                  |           | 1 Year                 |  | 1-3 Years |         | 4-5 Years |  | 5 Years
|                                  |                      |                        |           |                        |  |           |         |           |  |        
|                                  |                      |                       
|                                  |                      | (Dollars in thousands)
|Long-term debt                    |                      | $                      | 2,683,892 |                        |  | $         | 386,846 |           |  | $       | 936,783   |           |  | $ | 513,573 |         |  | $ | 846,690   |        
|Capital lease obligations         |                      |                        | 6,117     |                        |  |           | 82      |           |  |         | 140       |           |  |   | 415     |         |  |   | 5,480     |        
|Repurchase agreements  wholesale |                      |                        | 1,171,049 |                        |  |           | 100,000 |           |  |         | 771,049   |           |  |   | 200,000 |         |  |   | 100,000   |        
|                                  |                      |                        |           |                        |  |           |         |           |  |         |           |           |  |   |         |         |  |   |           |        
|                                  | Total Long-term debt |                        |           | 3,861,058              |  |           |         | 486,928   |  |         |           | 1,707,972 |  |   |         | 713,988 |  |   |           | 952,170 | 
|Capital trust securities          |                      |                        | 295,056   |                        |  |           |        |           |  |         |          |           |  |   |        |         |  |   | 295,056   |        
|Operating lease obligations       |                      |                        | 120,692   |                        |  |           | 20,384  |           |  |         | 33,863    |           |  |   | 25,002  |         |  |   | 41,443    |        
|                                  |                      |                        |           |                        |  |           |         |           |  |         |           |           |  |   |         |         |  |   |           |        
|Total contractual obligations     |                      | $                      | 4,276,806 |                        |  | $         | 507,312 |           |  | $       | 1,741,835 |           |  | $ | 738,990 |         |  | $ | 1,288,669 |        
|                                  |                      |                        |           |                        |  |           |         |           |  |         |           |           |  |   |         |         |  |   |           |        



---



|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | Except for liabilities related to employee
    benefit plans, other liabilities are short term in nature.

|                                       |                                        |                        |           |                                              |  |           |           |           |  |         |         |   |  |   |         |        |  |   |           |        | 
|-------------------------------------- | -------------------------------------- | ---------------------- | --------- | -------------------------------------------- |  | --------- | --------- | --------- |  | ------- | ------- | - |  | - | ------- | ------ |  | - | --------- | ------ | 
|                                       |                                        |                        |           |                                             
|                                       |                                        |                        |           | Amount of Commitment Expiration  Per Period
|                                       |                                        | Total                  |           |                                             
|                                       |                                        | Amounts                |           | Less than                                    |  |           |           | After    
|Other Commitments                      |                                        | Committed              |           | 1 Year                                       |  | 1-3 Years |           | 4-5 Years |  | 5 Years
|                                       |                                        |                        |           |                                              |  |           |           |           |  |        
|                                       |                                        |                       
|                                       |                                        | (Dollars in thousands)
|Lines of credit                        |                                        | $                      | 3,785,433 |                                              |  | $         | 463,722   |           |  | $       | 272,027 |   |  | $ | 128,893 |        |  | $ | 2,920,791 |       
|Standby letter of credit               |                                        |                        | 272,476   |                                              |  |           | 122,105   |           |  |         | 98,048  |   |  |   | 45,003  |        |  |   | 7,320     |       
|Other commitments                      |                                        |                        | 1,519,635 |                                              |  |           | 990,977   |           |  |         | 227,961 |   |  |   | 66,679  |        |  |   | 234,018   |       
|Forward commitments to sell loans      |                                        |                        | 234,651   |                                              |  |           | 234,651   |           |  |         |        |   |  |   |        |        |  |   |          |       
|Interest rate swaps (notional amount): |                                        |                        |           |                                              |  |           |           |           |  |         |         |   |  |   |         |        |  |   |           |       
|                                       | Interest rate swaps with borrowers     |                        |           | 60,325                                       |  |           |           |          |  |         |         |  |  |   |         | 12,304 |  |   |           | 48,021 | 
|                                       | Interest rate swaps with third parties |                        |           | 60,325                                       |  |           |           |          |  |         |         |  |  |   |         | 12,304 |  |   |           | 48,021 | 
|                                       |                                        |                        |           |                                              |  |           |           |           |  |         |         |   |  |   |         |        |  |   |           |       
|Total commitments                      |                                        | $                      | 5,932,845 |                                              |  | $         | 1,811,455 |           |  | $       | 598,036 |   |  | $ | 265,183 |        |  | $ | 3,258,171 |       
|                                       |                                        |                        |           |                                              |  |           |           |           |  |         |         |   |  |   |         |        |  |   |           |       

|                                   |  |                        |        |                                   |  |       |        |       |  |         |       |  |  |   |   |  |  |   |   | 
|---------------------------------- |  | ---------------------- | ------ | --------------------------------- |  | ----- | ------ | ----- |  | ------- | ----- |  |  | - | - |  |  | - | - | 
|                                   |  |                        |        |                                  
|                                   |  |                        |        | Amount of Commitment Expiration 
|                                   |  |                        |        | Per Period                       
|                                   |  | Total                  |        |                                  
|                                   |  | Amounts                |        | Less than                         |  | 1-3   |        | 4-5   |  | After  
|Derivative Financial Instruments   |  | Committed              |        | 1 Year                            |  | Years |        | Years |  | 5 Years
|                                   |  |                        |        |                                   |  |       |        |       |  |        
|                                   |  |                       
|                                   |  | (Dollars in thousands)
|Foreign currency forward contracts |  | $                      | 22,275 |                                   |  | $     | 14,859 |       |  | $       | 7,416 |  |  | $ | 0 |  |  | $ | 0 | 
|                                   |  |                        |        |                                   |  |       |        |       |  |         |       |  |  |   |   |  |  |   |   | 

See Note 19 to the Consolidated Financial
Statements for more information regarding the nature and
business purpose and the importance of all off-balance sheet
arrangements.

Risk Management

The primary goal of our risk management program
is to determine how certain existing or emerging issues in 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 and management believe that
there are seven applicable risk categories,
consisting of credit, interest rate, liquidity, transaction,
compliance, strategic 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 on a regular basis and then reported to the board with an
accompanying explanation as to the

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##### Table of Contents



existence of any differences. The risk program
includes risk identification, measurement, control and
monitoring.


Our board of directors has established the
overall strategic direction. It approves our overall risk
policies and oversees our overall risk management process. The
board has established 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.

Credit Risk Management



| |        
| | -------
| | General

The Board Risk Management Committee monitors our
credit risk management. Our strategy for credit risk management
includes stringent, centralized policies and uniform
underwriting criteria for all loans. The strategy also includes
diversification on a geographic, industry and customer level,
regular credit examinations and quarterly management review of
large loans and loans with a deterioration of credit quality. We
maintain an internal rating system that provides a mechanism to
regularly monitor the credit quality of our loan portfolio. The
rating system is intended to identify and measure the credit
quality of lending relationships. For consumer loans, we utilize
standard credit scoring systems to assess consumer credit risks
and to price consumer products accordingly. We strive to
identify potential problem loans early, take any necessary
charge-offs promptly and maintain adequate reserve levels. See
Results of Operations  Provision and Allowance
for Loan and Lease Losses and Note 1 to the
Consolidated Financial Statements.

Our residential loan portfolio accounted for 17%
of the total loan portfolio at December 31, 2002 and 21% at
December 31, 2001. Our residential loans are generally
secured by single-family homes (one-to-four units) and have a
maximum loan to value ratio of 80%, unless the excess is
protected by mortgage insurance. At December 31, 2002,
0.24% of our residential loans were nonperforming, as compared
to 0.32% at December 31, 2001, as nonperforming residential
real estate loans decreased by $2.6 million while the total
residential loan portfolio decreased by $244.9 million. Net
charge-offs to average residential loans outstanding for the
year ended December 31, 2002 was (.01%.)

Our commercial real estate loan portfolio
accounted for 34% of the total loan portfolio at
December 31, 2002 and 32% at December 31, 2001. 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 upstate New York. At
December 31, 2002, 0.37% of our commercial real estate
loans were nonperforming, as compared to 0.42% at
December 31, 2001. Net charge-offs to average commercial
real estate loans outstanding for the year ended
December 31, 2002 was .03%.

Our commercial business loan and lease portfolio
accounted for 21% of the total loan portfolio at
December 31, 2002 compared to 19% at December 31,
2001. 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. Through a subsidiary, we also offer direct
equipment leases, which amounted to $102.9 million at
December 31, 2002. We do not emphasize the purchase of
participations in syndicated commercial loans. At
December 31, 2002, we had $205 million of outstanding
participations in syndicated commercial loans and had an
additional $295 million of unfunded commitments related to
these participations. At December 31, 2002, 1.10% of our
commercial business loans were nonperforming, as compared to
1.64% at December 31, 2001. Net charge-offs to average
commercial business loans and leases outstanding for the year
ended December 31, 2002 was .58%.

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Consumer loans and leases accounted for 28% of
our total loan portfolio at December 31, 2002 and 2001. At
December 31, 2002, 0.23% of our consumer loans were
nonperforming, as compared to 0.27% at December 31, 2001.
Net charge-offs to average consumer loans outstanding for the
year ended December 31, 2002 was .61%. The following table
lists our consumer loans by type as of December 31, 2002
and 2001:

|                                               |  |                        |           |       |  |        |        |       |  |   |           |  |  |  |        |  
|---------------------------------------------- |  | ---------------------- | --------- | ----- |  | ------ | ------ | ----- |  | - | --------- |  |  |  | ------ | -
|                                               |  |                       
|                                               |  | December 31,          
|                                               |  |                       
|                                               |  |                        |           |      
|                                               |  | 2002                   |           | 2001 
|                                               |  |                        |           |      
|                                               |  |                        |           | % of  |  |        |        | % of 
|                                               |  | Amount                 |           | Total |  | Amount |        | Total
|                                               |  |                        |           |       |  |        |        |      
|                                               |  |                       
|                                               |  | (Dollars in thousands)
|Home equity loans                              |  | $                      | 1,554,264 |       |  |        | 39.72  | %     |  | $ | 1,292,724 |  |  |  | 36.61  | %
|Automobile and other vehicle loans and leases  |  |                        | 1,478,228 |       |  |        | 37.77  |       |  |   | 1,287,731 |  |  |  | 36.47  |  
|Mobile home loans                              |  |                        | 171,715   |       |  |        | 4.39   |       |  |   | 161,521   |  |  |  | 4.57   |  
|Vision, dental, and orthodontia fee plan loans |  |                        | 172,861   |       |  |        | 4.42   |       |  |   | 153,035   |  |  |  | 4.33   |  
|Education loans                                |  |                        | 135,386   |       |  |        | 3.46   |       |  |   | 148,653   |  |  |  | 4.21   |  
|Other                                          |  |                        | 400,834   |       |  |        | 10.24  |       |  |   | 487,849   |  |  |  | 13.81  |  
|                                               |  |                        |           |       |  |        |        |       |  |   |           |  |  |  |        |  
|Total                                          |  | $                      | 3,913,288 |       |  |        | 100.00 | %     |  | $ | 3,531,513 |  |  |  | 100.00 | %
|                                               |  |                        |           |       |  |        |        |       |  |   |           |  |  |  |        |  

See Table 7 for information about the
composition of our loan portfolio for the last five years, Table
8 for information about the scheduled contractual amortization
of certain parts of our loan portfolio at December 31, 2002
and Table 10 for information about the geographic
distribution of our commercial real estate loans and commercial
business loans and leases at December 31, 2002 and 2001.

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 0.29% at
December 31, 2002 and 0.39% at December 31, 2001.
Total nonperforming assets as a percentage of total loans and
other nonperforming assets was 0.49% and 0.64% at
December 31, 2002 and 2001, respectively. See
Table 15for 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
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 they become 120 days past due or
are in the 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. 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, 2002, we had
$3.4 million of accruing loans which were 90 days or
more delinquent, as compared to $6.2 million and
$6.0 million of such loans at December 31, 2001 and
2000, respectively.

We also may place loans on nonaccrual and,
therefore, nonperforming status 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.

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Net
Charge-offs

Net charge-offs were $38.7 million during
2002, as compared to $36.9 million in 2001. Net charge-offs
represented 0.29% and 0.33% of average loans and leases
outstanding in 2002 and 2001, respectively. See Table 14for net charge-offs by loan type for the past three years
and Table 12for more information concerning
charge-offs and recoveries during the past five years.



| |                        
| | -----------------------
| | Potential Problem Loans

In addition to nonperforming loans as discussed
in the Credit Risk Management section above, we also
have loans that are 30 to 89 days delinquent and still
accruing. These loans amounted to $139 million at
December 31, 2002. These loans and delinquency trends are
considered in the evaluation of the allowance for loan and lease
losses and the related determination of the provision for loan
and lease losses.

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 our board of directors and monitored
periodically by the Board Risk Committee. 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 and state presidents.



| |            
| | -----------
| | 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 by far 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 and deposit gathering. 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 premiums paid on securities and capitalized
mortgage servicing rights, (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 our 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 our
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 assumptions relate 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 assets

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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 cope with 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, the majority of assumptions are derived 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 investment securities and borrowed funds. When
appropriate, we consider interest rate instruments such as
interest-rate swaps, interest rate floors, interest rate caps
and interest rate corridor agreements, among other instruments.
At December 31, 2002, the only such instruments which we
had were forward commitments related to hedging our mortgage
banking operations and swaps and caps offered to commercial
borrowers through our commercial borrower derivative hedging
program. We believe that our exposure to commercial customer
derivatives is minimal because these contracts are secured by
loan collateral and are matched with a similar fixed-rate swap
product. The program is designed to retain variable-rate
commercial loans while allowing the commercial borrowers to
synthetically fix the loan rate by entering into a
variable-to-fixed interest rate swap. Since its inception in
2002, we have recorded a notional amount of approximately
$60 million in derivative contracts with commercial
borrowers. It is anticipated that, over time, customer interest
rate derivatives will reduce the interest rate risk inherent in
our longer-term, fixed-rate commercial business and commercial
real estate loans.

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 approximately 75% to 80% 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 2002 and 2001 of
residential mortgage loans held for sale and related average
hedge positions are summarized below:

|                                                         |  |                         |         |      |  |   |         | 
|-------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | 
|                                                         |  |                        
|                                                         |  | Year Ended December 31,
|                                                         |  |                        
|                                                         |  | 2002                    |         | 2001
|                                                         |  |                         |         |     
|                                                         |  |                        
|                                                         |  | (Dollars in thousands) 
|Residential mortgage loans held for sale                 |  | $                       | 85,337  |      |  | $ | 110,186 | 
|Rate-locked loan commitments                             |  |                         | 94,397  |      |  |   | 88,206  | 
|Forward sales contracts                                  |  |                         | 158,092 |      |  |   | 143,609 | 
|Purchased mortgage-backed security/ treasury
    options |  |                         | 13,333  |      |  |   | 24,167  | 

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, 2002 and 2001. However, the gradual 2% falling
rate scenario was slightly outside guidelines at
December 31, 2002 and 2001. ALCO voted to approve the
guidelines exception because a gradual 2% decreasing rate
scenario was deemed unlikely based on the current level of
interest rates. ALCO currently is more focused on the gradual
decreasing 1% rate scenario than on the gradual decreasing 2%
scenario and on strategies that prove beneficial to income
should rates decline or the yield curve flatten. Strategies
under review include

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swapping or restructuring existing fixed-term
borrowings and buying interest rate floors related to wholesale
funding arrangements.


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 |       | 100 Basis Point |  | 100 Basis Point |       | 200 Basis Point
|                  |  | Rate Increase   |       | Rate Increase   |  | Rate Decrease   |       | Rate Decrease  
|                  |  |                 |       |                 |  |                 |       |                
|December 31, 2002 |  |                 | 3.40% |                 |  |                 | 2.15% |                 |  |  | (2.64 | )% |  |  | (6.22 | )%
|                  |  |                 |       |                 |  |                 |       |                 |  |  |       |    |  |  |       |   
|December 31, 2001 |  |                 | 2.73% |                 |  |                 | 1.71% |                 |  |  | (2.45 | )% |  |  | (5.37 | )%
|                  |  |                 |       |                 |  |                 |       |                 |  |  |       |    |  |  |       |   

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, most deposit 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 total adjustable earning assets will
reprice more quickly than will total adjustable cost
liabilities. 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.

The most significant factors affecting market
risk exposure of net interest income during the year ended
December 31, 2002 were (i) the shape of the U.S.
Government securities and interest rate swap yield curve,
(ii) changes in the composition of the investment
portfolio, (iii) changes in the composition of mortgage
assets and prepayment speeds of mortgage assets,
(iv) reduction of deposit interest expense, and
(v) changes in the wholesale borrowings portfolio
structure. Since December 2001, the yield curve fell
significantly in both the 5-year and 10-year terms
(approximately 160 and 121 basis points, respectively). As a
result, projected mortgage and loan prepayments increased
throughout 2002 as interest rates reached levels not seen in
40 years. Because of historically low rates and increased
loan cash inflows, effective duration estimates for loans and
mortgage-backed securities became much shorter in 2002 than in
2001, thus increasing asset sensitivity. Asset liability
management actions taken throughout 2002 helped to reduce asset
sensitivity and included the purchase of investments with more
structured cash flows and floating rate wholesale borrowings
with embedded caps and floors. The above table reflects the net
impact of these changes. The relatively small net change in the
estimated sensitivity of our net interest income to changes in
interest rates during 2002 was a result of these factors and
asset liability management actions. We remain asset sensitive
and project net interest income to increase if short and long
interest rates move symmetrically higher.

In connection with the acquisition of Andover in
2001, we acquired mortgage servicing rights with a fair value of
$8.8 million. As a result of prepayments and valuation
adjustments, mortgage servicing rights declined from
$8.5 million at December 31, 2001 to $3.6 million
at December 31, 2002. Mortgage servicing rights represented
0.51% of the underlying balance of loans serviced for others at
December 31, 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.

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.

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Liquidity

Our Board Risk Management Committee establishes
policies and analyzes and manages liquidity to ensure that
adequate funds are available to meet normal operating
requirements in addition to unexpected customer demands for
funds, such as high levels of deposit withdrawals or loan
demand, in a timely and cost-effective manner. The most
important factor in the preservation of liquidity is maintaining
public confidence that facilitates the retention and growth of a
large, stable supply of core deposits and wholesales funds.
Ultimately, public confidence is generated through profitable
operations, sound credit quality and a strong capital position.
Liquidity management is viewed from a long-term and a short-term
perspective, as well as from an asset and liability perspective.
We monitor liquidity through a regular review of loan and
deposit maturities, yield and rate scenarios and loan and
deposit forecasts to minimize funding risk. Other factors
affecting a banks ability to meet liquidity needs include
variations in the markets served and general economic
conditions. We have various funding sources available to us on a
parent-only basis as well as through our banking subsidiary, as
outlined below.

On a parent-only basis, our commitments and debt
service requirements at December 31, 2002 consisted
primarily of junior subordinated debentures (including accrued
interest) issued to four subsidiaries totaling
$295.1 million which mature starting in 2027. See
Capital and Notes 14 and 23 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. At December 31,
2002, our subsidiary bank had $364.2 million available for
dividends that could be paid without prior regulatory approval.
See also 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 Subsidiary

For the Bank, liquidity represents the ability to
fund asset growth, accommodate deposit withdrawals and meet
other contractual obligations and commercial commitments. See
Contractual Obligations and Commitments above.

In addition to traditional retail deposits, the
Bank 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.

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, 2002, the Bank had in the
aggregate $3.2 billion of immediately accessible
liquidity, defined as cash that could be raised within
1-3 days through collateralized borrowings or security
sales. This represented 20% of deposits, as compared to a policy
minimum of 10% of deposits.

Also as of December 31, 2002, the Bank 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, 2002, the ratio of
immediately accessible liquidity to
potentially volatile funds was 207%, 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.

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For additional information regarding off-balance
sheet risks and commitments, see Note 19 to the
Consolidated Financial Statements.


We have a shelf registration on file with the
Securities and Exchange Commission 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. We had
$800 million remaining on this shelf registration statement
as of December 31, 2002.

In addition, at December 31, 2002, we also
had a $110 million unsecured line of credit. The line is
renewable every 364 days and, if used, carries interest at
LIBOR plus 0.625%.

Capital

We are committed to managing capital for
shareholder benefit and maintaining protection for depositors
and creditors. At December 31, 2002 and 2001, our
shareholders equity totaled $2.1 billion and
$1.8 billion, respectively, or 8.81% and 8.49% of total
assets, respectively. In addition, through subsidiary trusts, we
had outstanding at December 31, 2002 $295.1 million of
capital securities as follows:

|                                 |  |          |           |        |  |        |         |          |  |  |       |   |  |  |           | 
|-------------------------------- |  | -------- | --------- | ------ |  | ------ | ------- | -------- |  |  | ----- | - |  |  | --------- | 
|                                 |  | Issuance |           |        |  | Stated |         | Maturity
|Name                             |  | Date     |           | Amount |  | Rate   |         | Date    
|                                 |  |          |           |        |  |        |         |         
|Peoples Heritage Capital Trust I |  |          | 1/31/1997 |        |  | $      | 61,556  |          |  |  | 9.06  | % |  |  | 2/1/2027  | 
|Banknorth Capital Trust I        |  |          | 5/1/1997  |        |  |        | 30,000  |          |  |  | 10.52 | % |  |  | 5/1/2027  | 
|Ipswich Statutory Trust I        |  |          | 2/22/2001 |        |  |        | 3,500   |          |  |  | 10.20 | % |  |  | 2/22/2031 | 
|Banknorth Capital Trust II       |  |          | 2/22/2002 |        |  |        | 200,000 |          |  |  | 8.00  | % |  |  | 4/1/2032  | 
|                                 |  |          |           |        |  |        |         |          |  |  |       |   |  |  |           | 
|                                 |  |          |           |        |  | $      | 295,056 |          |  |  |       |   |  |  |           | 
|                                 |  |          |           |        |  |        |         |          |  |  |       |   |  |  |           | 

The capital securities qualify as Tier 1
capital for regulatory purposes. A total of $333.5 million
of capital trust securities were originally issued, of which
$38.4 million had been repurchased by us as of
December 31, 2002.

The changes in shareholders equity included
net income for the year ended December 31, 2002 of
$298.6 million and a $77.3 million net unrealized gain
on securities available for sale, which were partially offset by
$154.1 million of stock repurchases (6,350,100 shares)
and $85.9 million in dividends to shareholders. In
addition, we issued shares of our common stock with an aggregate
value of $102.9 million in connection with acquisitions in
2002.

In February 2002, our board authorized
8 million shares to be repurchased in the open market. As
of December 31, 2002, a total of 7.3 million shares
were available for repurchase under existing Board
authorizations.

Capital guidelines issued by the Federal Reserve
Board require us to maintain certain ratios. We manage various
capital ratios to exceed well capitalized capital
levels in accordance with capital guidelines approved by our
board of directors. Our Tier 1 Capital, as defined by the
Federal Reserve Board, was $1.6 billion or 7.13% of average
assets at December 31, 2002, compared to $1.4 billion
or 7.14% of average assets at December 31, 2001. 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 15 to the Consolidated
Financial Statements.

The Bank is also subject to federal regulatory
capital requirements. At December 31, 2002, the Bank was
deemed to be well capitalized under the regulations
of the Office of the Comptroller of Currency of the United
States and in compliance with applicable capital requirements.
See Note 15 to the Consolidated Financial Statements.

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Critical Accounting Policies

We consider the following to be our critical
accounting policies due to the potential impact on our results
of operations and the carrying value of certain of our assets
based on any changes in judgments and assumptions required to be
made by us in the application of these policies.



| |                                        
| | ---------------------------------------
| | Allowance for Loan and Lease
    Losses

We maintain an allowance for loan and lease
losses at a level, which we believe, is sufficient to cover
potential charge-offs on loans and leases deemed to be
uncollectible based on continuous review of a variety of
factors. These factors consist of the character and size of the
loan portfolio, business and economic conditions, loan growth,
charge-off experience, delinquency trends, nonperforming loan
trends, portfolio migration data and other asset quality
factors. The primary means of adjusting the level of this
allowance is through provisions for loan and lease losses, which
are established and charged to income on a quarterly basis.
Although we use available information to establish the
appropriate level of the allowance for loan and lease losses,
future additions to the allowance may be necessary because our
estimates of the potential losses in our loan and lease
portfolio are susceptible to change as a result of changes in
the factors noted above. Any such increases would adversely
affect our results of operations. At December 31, 2002, our
allowance for loan and lease losses amounted to
$208.3 million, and during 2002, 2001 and 2000 our
provisions for loan and lease losses amounted to $44.3, $41.9
and $23.8 million, respectively. See also Credit Risk
Management below.

For the commercial business loans and leases and
the commercial real estate loans portfolios, we evaluate
specific loan status reports on certain loans rated
substandard or worse in excess of a specified dollar
amount. On an ongoing basis, an independent loan review function
reviews classified loans to ensure the accuracy of the loan
classifications. Estimated reserves for each of these credits
are determined by reviewing current collateral value, financial
information, cash flow, payment history and trends and other
relevant facts surrounding the particular credit. In addition,
the appraisal function reviews the reasonableness of the third
party appraisals. Provisions for losses on the remaining
commercial 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.

Accounting
for Acquisitions and Review of Goodwill and Other Intangible
Assets

In connection with acquisitions of other
companies, we generally record as assets on our financial
statements both goodwill, an intangible asset which is equal to
the excess of the purchase price which we pay for another
company over the estimated fair value of the net assets
acquired, and identifiable intangible assets such as core
deposit intangibles, non-compete agreements and customer lists.
Due to a change in an accounting standard, since January 1,
2002 we are no longer required to amortize the amount of our
goodwill through a charge to expense over the period of its
expected life, and instead regularly evaluate whether the
carrying value of our goodwill has become impaired, in which
case we reduce its carrying value through a charge to our
earnings. Goodwill is evaluated for impairment at the reporting
unit level, and there is goodwill recorded in the following
reporting units: Community Banking, Insurance Brokerage and
Investment Management. Core deposit and other identifiable
intangible assets are amortized to expense over their estimated
useful lives and are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. The valuation techniques used
by us to determine the carrying value of tangible and intangible
assets acquired in acquisitions and the estimated lives of
identifiable intangible assets involve estimates for discount
rates, projected future cash flows and time period calculations,
all of which are susceptible to change based on changes in
economic conditions and other factors. Any changes in the
estimates which we use to

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determine the carrying value of our goodwill and
identifiable intangible assets or which otherwise adversely
affects their value or estimated lives would adversely affect
our results of operations. At December 31, 2002, our
goodwill and identifiable intangible assets amounted to $660.7
and $34.5 million, respectively, and during 2002, 2001 and
2000 our amortization expense amounted to $6.5 million,
$22.1 million and $21.0 million, respectively (which
reflects our cessation of the amortization of goodwill).


Accounting
for Pension Plans

We use a December 31 measurement date to
determine our pension expense and related financial disclosure
information. In accordance with SFAS No. 87, we set the
discount rate for our retirement plans by reference to
investment grade bond yields. We use Moodys published AA
yield for long-term corporate bonds for the month of December as
an index, and our discount rate is set within 25 basis points of
the index. Moodys AA yield dropped from 7.19% for December
2001 to 6.63% for December 2002. Similarly, we evaluate the
expected long-term rate of return on the assets held in our
defined benefit pension plan based on market and economic
conditions, the Plans asset allocation and other factors.
As a consequence of our most recent annual review, we reduced
the discount rate for all of our employee benefit plans from
7.25% as of December 31, 2001 to 6.75% as of
December 31, 2002 and reduced our expected rate of return
on our pension plan assets from 9.0% for 2002 to 8.5% for 2003.
Pension expense is very sensitive to changes in the discount
rate and the expected return on assets. For example, a change in
the discount rate by 0.25% (while holding other assumptions
constant) would result in a $1.0 million change in our
annual pension expense, and a change in the expected rate of
return by 0.25% (while holding other assumptions constant) would
result in a $.4 million change in our annual pension
expense.

As with the computations on pension expense, cash
contribution requirements to the pension plan are sensitive to
changes in the assumed discount rate and the assumed rate of
return on plan assets. We have traditionally contributed the
maximum tax-deductible amount to the pension plan each year, and
we do not anticipate that any increases in contribution
requirements generated by recent poor stock market performance
will have a material impact on future cash flows.

Unrecognized actuarial losses (which occur when
investment returns are less than expected) amounted to $25 and
$18 million in 2002 and 2001, respectively, and will
continue to be amortized into pension expense in future periods.
For a discussion of pension expense in recent periods and a
projected increase in pension expense in 2003 as a result of
these changes in our pension plan estimates, see Results
of Operations  Comparison of 2002 and
2001  Noninterest Expense.

Impact of New Accounting Standards

In January 2003,the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51. This Interpretation
addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interest in
variable interest entities created or obtained after
January 31, 2003. The Interpretation requires certain
disclosures in financial statements issued after
January 31, 2003 if it is reasonably possible that we will
consolidate or disclose information about variable interest
entities when the Interpretation becomes effective. We do not
expect that the provisions of this Interpretation will have a
material impact on our financial condition or results of
operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation to provide alternative methods of
transition when companies elect to change from the intrinsic
method to the fair value method of accounting for stock-based
employee compensation, including stock options. In addition, the
Statement amends the disclosure requirement of SFAS No. 123
to require prominent disclosures in both annual and interim
financial statements about the fair value based method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. The statement is
effective for fiscal years ended after December 15, 2002
and the disclosures to be provided in interim financial reports
will be required for interim periods beginning after
December 15,

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##### Table of Contents



2002. We currently use the intrinsic method of
accounting for stock options and have not yet determined if we
will change from the intrinsic value method to the fair value
method of accounting for employee stock options. For additional
information regarding our accounting for stock compensation,
including a tabular presentation of the effects on our net
income and earnings per share had we utilized the fair value
method of accounting for stock options and other stock
compensation, see Stock Compensation Plans in
Note 1 to the Consolidated Financial Statements under
Item 8.


In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This Interpretation
requires the recording at fair value the issuance of guarantees
which would include the issuance of standby letters of credit.
The disclosure provisions of this Interpretation were
implemented by us as of December 31, 2002 and the initial
recognition and measurement provisions will be implemented
beginning January 1, 2003. Adoption of the Interpretation
is not expected to materially affect our financial condition,
results of operations, earnings per share or cash flows. See
also Note 19 to the Consolidated Financial Statements.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires the recognition of
certain costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an
exit or disposal plan. This Statement is to be applied
prospectively to exit or disposal activities initiated after
December 31, 2002. Adoption of this standard is not
expected to materially affect our financial condition, results
of operations, earnings per share or cash flows.

In April 2002, the FASB issued SFAS No. 145
which rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related
income tax effect. Additionally, SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that
have economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions.
We will adopt SFAS 145 in 2003. Upon adoption, we must
reclassify prior period items that do not meet the extraordinary
item classification criteria in Opinion No. 30. In the
fourth quarter of 2001, under the provisions of SFAS No. 4,
we recorded an extraordinary item from the early extinguishment
of debt of $3.9 million after-tax, or $.03 per diluted
share. Upon adoption of SFAS No. 145, this will no longer
qualify for extraordinary treatment and must be reclassified and
included with noninterest expense.

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS
No. 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. The adoption of this standard is not expected to have a
material impact on our financial condition, results of
operations, earnings per share or cash flows.

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.

34



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##### Table of Contents



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.

Table 1  Three-Year Average Balance
Sheets

|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|------------------------------------------------------- |  | ----------------------- | ---------- | -------- |  | ------ | --------- | ------- |  | -------- | ---- | ------ |  | ------- | ---------- | -------- |  | ------ | --------- | - |  |  | ---- | - |  | - | ---------- |  |  | - | --------- | - |  |  | ---- | -
|                                                        |  |                        
|                                                        |  | Year Ended December 31,
|                                                        |  |                        
|                                                        |  |                         |            |          |  |       
|                                                        |  | 2002                    |            | 2001     |  | 2000  
|                                                        |  |                         |            |          |  |       
|                                                        |  | Average                 |            |          |  | Yield/ |           | Average |  |          |      | Yield/ |  | Average |            |          |  | Yield/
|                                                        |  | Balance                 |            | Interest |  | Rate   |           | Balance |  | Interest |      | Rate   |  | Balance |            | Interest |  | Rate  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |       
|                                                        |  |                        
|                                                        |  | (Dollars in thousands) 
|Loans and leases (1)                                    |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Residential real estate mortgages                       |  | $                       | 2,635,952  |          |  | $      | 177,837   |         |  |          | 6.75 | %      |  | $       | 2,290,968  |          |  | $      | 169,962   |   |  |  | 7.42 | % |  | $ | 2,325,791  |  |  | $ | 174,450   |   |  |  | 7.50 | %
|Commercial real estate mortgages                        |  |                         | 4,293,816  |          |  |        | 298,412   |         |  |          | 6.95 | %      |  |         | 3,216,865  |          |  |        | 265,280   |   |  |  | 8.25 | % |  |   | 2,863,464  |  |  |   | 255,447   |   |  |  | 8.92 | %
|Commercial loans and leases                             |  |                         | 2,665,973  |          |  |        | 158,260   |         |  |          | 5.94 | %      |  |         | 2,342,009  |          |  |        | 180,705   |   |  |  | 7.72 | % |  |   | 2,136,255  |  |  |   | 195,003   |   |  |  | 9.13 | %
|Consumer loans and leases                               |  |                         | 3,641,062  |          |  |        | 250,971   |         |  |          | 6.89 | %      |  |         | 3,396,165  |          |  |        | 280,180   |   |  |  | 8.25 | % |  |   | 3,159,779  |  |  |   | 273,547   |   |  |  | 8.66 | %
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Total loans and leases                                  |  |                         | 13,236,803 |          |  |        | 885,480   |         |  |          | 6.69 | %      |  |         | 11,246,007 |          |  |        | 896,127   |   |  |  | 7.97 | % |  |   | 10,485,289 |  |  |   | 898,447   |   |  |  | 8.57 | %
|Investment securities                                   |  |                         | 6,403,807  |          |  |        | 353,576   |         |  |          | 5.52 | %      |  |         | 5,924,001  |          |  |        | 372,788   |   |  |  | 6.29 | % |  |   | 6,405,415  |  |  |   | 434,225   |   |  |  | 6.78 | %
|Federal funds sold and other short-term
    investments |  |                         | 60,257     |          |  |        | 1,064     |         |  |          | 1.77 | %      |  |         | 34,620     |          |  |        | 1,168     |   |  |  | 3.37 | % |  |   | 63,901     |  |  |   | 3,677     |   |  |  | 5.75 | %
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Total earning assets                                    |  |                         | 19,700,867 |          |  |        | 1,240,120 |         |  |          | 6.30 | %      |  |         | 17,204,628 |          |  |        | 1,270,083 |   |  |  | 7.38 | % |  |   | 16,954,605 |  |  |   | 1,336,349 |   |  |  | 7.88 | %
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Noninterest earning assets                              |  |                         | 1,759,852  |          |  |        |           |         |  |          |      |        |  |         | 1,341,081  |          |  |        |           |   |  |  |      |   |  |   | 1,388,621  |  |  |   |           |   |  |  |      |  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Total assets                                            |  | $                       | 21,460,719 |          |  |        |           |         |  |          |      |        |  | $       | 18,545,709 |          |  |        |           |   |  |  |      |   |  | $ | 18,343,226 |  |  |   |           |   |  |  |      |  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Interest-bearing deposits:                              |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Regular savings                                         |  | $                       | 1,743,501  |          |  |        | 15,444    |         |  |          | 0.89 | %      |  | $       | 1,439,551  |          |  |        | 18,921    |   |  |  | 1.31 | % |  | $ | 1,498,197  |  |  |   | 29,750    |   |  |  | 1.99 | %
|Now and money market accounts                           |  |                         | 5,463,179  |          |  |        | 79,384    |         |  |          | 1.45 | %      |  |         | 4,257,428  |          |  |        | 109,998   |   |  |  | 2.58 | % |  |   | 3,811,128  |  |  |   | 128,911   |   |  |  | 3.38 | %
|Certificates of deposit                                 |  |                         | 4,693,518  |          |  |        | 149,028   |         |  |          | 3.18 | %      |  |         | 4,512,284  |          |  |        | 226,437   |   |  |  | 5.02 | % |  |   | 4,521,217  |  |  |   | 244,985   |   |  |  | 5.42 | %
|Brokered deposits                                       |  |                         | 43,311     |          |  |        | 792       |         |  |          | 1.83 | %      |  |         | 151,980    |          |  |        | 8,618     |   |  |  | 5.67 | % |  |   | 118,791    |  |  |   | 7,604     |   |  |  | 6.40 | %
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Total interest-bearing deposits                         |  |                         | 11,943,509 |          |  |        | 244,648   |         |  |          | 2.05 | %      |  |         | 10,361,243 |          |  |        | 363,974   |   |  |  | 3.51 | % |  |   | 9,949,333  |  |  |   | 411,250   |   |  |  | 4.13 | %
|Borrowed funds                                          |  |                         | 4,870,795  |          |  |        | 193,952   |         |  |          | 3.98 | %      |  |         | 4,406,017  |          |  |        | 219,925   |   |  |  | 4.99 | % |  |   | 5,104,043  |  |  |   | 315,487   |   |  |  | 6.18 | %
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Total interest-bearing liabilities                      |  |                         | 16,814,304 |          |  |        | 438,600   |         |  |          | 2.61 | %      |  |         | 14,767,260 |          |  |        | 583,899   |   |  |  | 3.95 | % |  |   | 15,053,376 |  |  |   | 726,737   |   |  |  | 4.83 | %
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Non-interest bearing deposits                           |  |                         | 2,623,135  |          |  |        |           |         |  |          |      |        |  |         | 2,168,387  |          |  |        |           |   |  |  |      |   |  |   | 1,942,148  |  |  |   |           |   |  |  |      |  
|Other liabilities                                       |  |                         | 185,216    |          |  |        |           |         |  |          |      |        |  |         | 160,709    |          |  |        |           |   |  |  |      |   |  |   | 125,324    |  |  |   |           |   |  |  |      |  
|Shareholders equity                                    |  |                         | 1,838,064  |          |  |        |           |         |  |          |      |        |  |         | 1,449,353  |          |  |        |           |   |  |  |      |   |  |   | 1,222,378  |  |  |   |           |   |  |  |      |  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Total liabilities and shareholders equity              |  | $                       | 21,460,719 |          |  |        |           |         |  |          |      |        |  | $       | 18,545,709 |          |  |        |           |   |  |  |      |   |  | $ | 18,343,226 |  |  |   |           |   |  |  |      |  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Net earning assets                                      |  | $                       | 2,886,563  |          |  |        |           |         |  |          |      |        |  | $       | 2,437,368  |          |  |        |           |   |  |  |      |   |  | $ | 1,901,229  |  |  |   |           |   |  |  |      |  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Net interest income (fully-taxable equivalent)          |  |                         |            |          |  |        | 801,520   |         |  |          |      |        |  |         |            |          |  |        | 686,184   |   |  |  |      |   |  |   |            |  |  |   | 609,612   |   |  |  |      |  
|Less: fully-taxable equivalent adjustments              |  |                         |            |          |  |        | (5,003    | )       |  |          |      |        |  |         |            |          |  |        | (6,294    | ) |  |  |      |   |  |   |            |  |  |   | (6,062    | ) |  |  |      |  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Net interest income                                     |  |                         |            |          |  | $      | 796,517   |         |  |          |      |        |  |         |            |          |  | $      | 679,890   |   |  |  |      |   |  |   |            |  |  | $ | 603,550   |   |  |  |      |  
|                                                        |  |                         |            |          |  |        |           |         |  |          |      |        |  |         |            |          |  |        |           |   |  |  |      |   |  |   |            |  |  |   |           |   |  |  |      |  
|Net interest rate spread (fully-taxable
    equivalent) |  |                         |            |          |  |        |           |         |  |          | 3.69 | %      |  |         |            |          |  |        |           |   |  |  | 3.43 | % |  |   |            |  |  |   |           |   |  |  | 3.05 | %
|Net interest margin (fully-taxable equivalent)          |  |                         |            |          |  |        |           |         |  |          | 4.07 | %      |  |         |            |          |  |        |           |   |  |  | 3.99 | % |  |   |            |  |  |   |           |   |  |  | 3.60 | %



---



|    |                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Loans and leases include portfolio loans and
    leases, loans held for sale and nonperforming loans, but unpaid
    interest on nonperforming loans has not been included for
    purposes of determining interest income.

35



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##### Table of Contents



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, 2002 vs. 2001 |         | Year Ended December 31, 2001 vs. 2000
|                                                        |                               | Increase (Decrease) Due to            |         | Increase (Decrease) Due to           
|                                                        |                               |                                       |         |                                      
|                                                        |                               |                                       |         | Rate and                              |   | Total      |          |         |   | Rate and   |         | Total  
|                                                        |                               | Volume (1)                            |         | Rate                                  |   | Volume (2) |          | Change  |   | Volume (1) |         | Rate    |   | Volume (2) |          | Change 
|                                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |        
|                                                        |                               |                                      
|                                                        |                               | (Dollars in thousands)               
|Interest income:                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|Loans and leases                                        |                               | $                                     | 158,666 |                                       |   | $          | (143,949 | )       |   | $          | (25,364 | )       |   | $          | (10,647  | )       |   | $ | 65,194  |        |   | $ | (62,912  | )       |   | $ | (4,602 | )      |   | $ | (2,320   | )      
|Investment securities                                   |                               |                                       | 30,180  |                                       |   |            | (45,615  | )       |   |            | (3,777  | )       |   |            | (19,212  | )       |   |   | (32,640 | )      |   |   | (31,387  | )       |   |   | 2,590  |        |   |   | (61,437  | )      
|Federal funds sold and other short-term
    investments |                               |                                       | 864     |                                       |   |            | (554     | )       |   |            | (414    | )       |   |            | (104     | )       |   |   | (1,684  | )      |   |   | (1,521   | )       |   |   | 696    |        |   |   | (2,509   | )      
|                                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|Total interest income                                   |                               |                                       | 189,710 |                                       |   |            | (190,118 | )       |   |            | (29,555 | )       |   |            | (29,963  | )       |   |   | 30,870  |        |   |   | (95,820  | )       |   |   | (1,316 | )      |   |   | (66,266  | )      
|                                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|Interest expense:                                       |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|Interest-bearing deposits                               |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|                                                        | Regular savings               |                                       |         | 3,982                                 |   |            |          | (6,046  | ) |            |         | (1,413  | ) |            |          | (3,477  | ) |   |         | (1,167 | ) |   |          | (10,188 | ) |   |        | 526    |   |   |          | (10,829 | )
|                                                        | NOW and money market accounts |                                       |         | 31,108                                |   |            |          | (48,109 | ) |            |         | (13,613 | ) |            |          | (30,614 | ) |   |         | 15,085 |   |   |          | (30,489 | ) |   |        | (3,509 | ) |   |          | (18,913 | )
|                                                        | Certificates of deposit       |                                       |         | 9,098                                 |   |            |          | (83,026 | ) |            |         | (3,481  | ) |            |          | (77,409 | ) |   |         | (484   | ) |   |          | (18,085 | ) |   |        | 21     |   |   |          | (18,548 | )
|                                                        | Brokered deposits             |                                       |         | (6,162                                | ) |            |          | (5,836  | ) |            |         | 4,172   |   |            |          | (7,826  | ) |   |         | 2,124  |   |   |          | (867    | ) |   |        | (243   | ) |   |          | 1,014   |  
|                                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|Total interest-bearing deposits                         |                               |                                       | 38,026  |                                       |   |            | (143,017 | )       |   |            | (14,335 | )       |   |            | (119,326 | )       |   |   | 15,558  |        |   |   | (59,629  | )       |   |   | (3,205 | )      |   |   | (47,276  | )      
|Borrowed funds                                          |                               |                                       | 23,192  |                                       |   |            | (44,501  | )       |   |            | (4,664  | )       |   |            | (25,973  | )       |   |   | (43,138 | )      |   |   | (60,738  | )       |   |   | 8,314  |        |   |   | (95,562  | )      
|                                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|Total interest expense                                  |                               |                                       | 61,218  |                                       |   |            | (187,518 | )       |   |            | (18,999 | )       |   |            | (145,299 | )       |   |   | (27,580 | )      |   |   | (120,367 | )       |   |   | 5,109  |        |   |   | (142,838 | )      
|                                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        
|Net interest income (fully taxable equivalent)          |                               | $                                     | 128,492 |                                       |   | $          | (2,600   | )       |   | $          | (10,556 | )       |   | $          | 115,336  |         |   | $ | 58,450  |        |   | $ | 24,547   |         |   | $ | (6,425 | )      |   | $ | 76,572   |        
|                                                        |                               |                                       |         |                                       |   |            |          |         |   |            |         |         |   |            |          |         |   |   |         |        |   |   |          |         |   |   |        |        |   |   |          |        



---



|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Volume increases include the effects of the
    acquisitions of Andover Bancorp, Inc. and MetroWest Bank on
    October 31, 2001, Ipswich Bancshares, Inc. on July 26,
    2002 and Bancorp Connecticut, Inc. on August 31, 2002.
|   
|(2) | Includes changes in interest income and expense
    not due solely to volume or rate changes.                                                                                                                                    

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 period indicated.

|                                                               |  |                                       |         |      |  |      |         |   |  |   |           |  
|-------------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | --------- | -
|                                                               |  |                                      
|                                                               |  | At or For the Year Ended December 31,
|                                                               |  |                                      
|                                                               |  | 2002                                  |         | 2001 |  | 2000
|                                                               |  |                                       |         |      |  |     
|                                                               |  |                                      
|                                                               |  | (In thousands)                       
|Residential mortgages serviced for investors                   |  | $                                     | 701,274 |      |  | $    | 964,027 |   |  | $ | 1,618,610 |  
|                                                               |  |                                       |         |      |  |      |         |   |  |   |           |  
|Residential mortgage sales income                              |  | $                                     | 11,404  |      |  | $    | 9,122   |   |  | $ | 2,811     |  
|Residential mortgage servicing income, net                     |  |                                       | (15     | )    |  |      | 1,364   |   |  |   | 8,414     |  
|Change in impairment reserve for mortgage
    servicing rights |  |                                       |        |      |  |      |        |   |  |   | 2,895     |  
|Valuation adjustment of mortgage servicing rights              |  |                                       | (2,850  | )    |  |      | (62     | ) |  |   | (197      | )
|Gain on sale of mortgage servicing rights                      |  |                                       |        |      |  |      | 706     |   |  |   | 8,040     |  
|                                                               |  |                                       |         |      |  |      |         |   |  |   |           |  
|Mortgage banking services income                               |  | $                                     | 8,539   |      |  | $    | 11,130  |   |  | $ | 21,963    |  
|                                                               |  |                                       |         |      |  |      |         |   |  |   |           |  

36



---



##### Table of Contents



Table 4  Other Noninterest
Expenses

The following table sets for other noninterest
expenses for the periods indicated.

|                                                           |  |                         |        |      |  |      |        |  |  |   |        | 
|---------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                           |  |                        
|                                                           |  | Year Ended December 31,
|                                                           |  |                        
|                                                           |  | 2002                    |        | 2001 |  | 2000
|                                                           |  |                         |        |      |  |     
|                                                           |  |                        
|                                                           |  | (Dollars in thousands) 
|Telephone                                                  |  | $                       | 13,396 |      |  | $    | 11,574 |  |  | $ | 13,261 | 
|Office supplies                                            |  |                         | 10,736 |      |  |      | 9,106  |  |  |   | 9,877  | 
|Postage and freight                                        |  |                         | 9,707  |      |  |      | 9,366  |  |  |   | 9,365  | 
|Miscellaneous loan costs                                   |  |                         | 4,290  |      |  |      | 7,380  |  |  |   | 6,893  | 
|Deposits and other assessments                             |  |                         | 3,541  |      |  |      | 3,460  |  |  |   | 4,118  | 
|Collection and carrying costs of non-performing
    assets |  |                         | 2,713  |      |  |      | 3,511  |  |  |   | 1,140  | 
|Other                                                      |  |                         | 44,975 |      |  |      | 42,840 |  |  |   | 42,977 | 
|                                                           |  |                         |        |      |  |      |        |  |  |   |        | 
|Total                                                      |  | $                       | 89,358 |      |  | $    | 87,237 |  |  | $ | 87,631 | 
|                                                           |  |                         |        |      |  |      |        |  |  |   |        | 

Table 5  Securities Available
for Sale and Held to Maturity

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

|                                              |                         |                        |           |           |  |      |           |           |  |   |           |           | 
|--------------------------------------------- | ----------------------- | ---------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                              |                         |                       
|                                              |                         | December 31,          
|                                              |                         |                       
|                                              |                         | 2002                   |           | 2001      |  | 2000
|                                              |                         |                        |           |           |  |     
|                                              |                         |                       
|                                              |                         | (Dollars in thousands)
|Securities available for sale:                |                         |                        |           |           |  |      |           |           |  |   |           |          
|U.S. Government and federal agencies          |                         | $                      | 1,539,447 |           |  | $    | 531,256   |           |  | $ | 544,392   |          
|Tax-exempt bonds and notes                    |                         |                        | 95,332    |           |  |      | 112,845   |           |  |   | 83,133    |          
|Other bonds and notes                         |                         |                        | 356,551   |           |  |      | 560,090   |           |  |   | 426,199   |          
|Mortgage-backed securities                    |                         |                        | 3,659,334 |           |  |      | 3,577,405 |           |  |   | 3,591,923 |          
|Collateralized mortgage obligations           |                         |                        | 581,357   |           |  |      | 681,366   |           |  |   | 575,091   |          
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|                                              | Total debt securities   |                        |           | 6,232,021 |  |      |           | 5,462,962 |  |   |           | 5,220,738 | 
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Federal Home Loan Bank stock                  |                         |                        | 275,768   |           |  |      | 264,943   |           |  |   | 242,632   |          
|Federal Reserve Bank stock                    |                         |                        | 35,250    |           |  |      | 23,159    |           |  |   | 13,312    |          
|Other equity securities                       |                         |                        | 7,177     |           |  |      | 4,183     |           |  |   | 1,488     |          
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|                                              | Total equity securities |                        |           | 318,195   |  |      |           | 292,285   |  |   |           | 257,432   | 
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Net unrealized gain (loss)                    |                         |                        | 181,251   |           |  |      | 61,991    |           |  |   | (53,059   | )        
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Fair value of securities available for sale   |                         | $                      | 6,731,467 |           |  | $    | 5,817,238 |           |  | $ | 5,425,111 |          
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Securities held to maturity:                  |                         |                        |           |           |  |      |           |           |  |   |           |          
|Collateralized mortgage obligations           |                         | $                      | 216,409   |           |  | $    | 339,623   |           |  | $ | 455,547   |          
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Amortized cost of securities held to maturity |                         | $                      | 216,409   |           |  | $    | 339,623   |           |  | $ | 455,547   |          
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Fair value of securities held to maturity     |                         | $                      | 221,571   |           |  | $    | 340,737   |           |  | $ | 457,110   |          
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Excess of fair value over recorded value      |                         | $                      | 5,162     |           |  | $    | 1,114     |           |  | $ | 1,563     |          
|                                              |                         |                        |           |           |  |      |           |           |  |   |           |          
|Fair value as a % of amortized cost           |                         |                        | 102.4     | %         |  |      | 100.3     | %         |  |   | 100.3     | %        

37



---



##### Table of Contents



Table 6  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, 2002. 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.

|                                     |  |                            |         |              |  |             |      |              |  |        |           |       |  |        |      |       |  |        |           |       |  |  |      |   |  |   |           |  |  |  |      |   |  |   |           |  |  |  |      |  
|------------------------------------ |  | -------------------------- | ------- | ------------ |  | ----------- | ---- | ------------ |  | ------ | --------- | ----- |  | ------ | ---- | ----- |  | ------ | --------- | ----- |  |  | ---- | - |  | - | --------- |  |  |  | ---- | - |  | - | --------- |  |  |  | ---- | -
|                                     |  |                           
|                                     |  | Amortized Cost Maturing in
|                                     |  |                           
|                                     |  |                            |         |              |  |             |      |              |  |       
|                                     |  | Less Than 1                |         |              |  | More than 5 |      | More than 10 |  |       
|                                     |  | Year                       |         | 1 to 5 Years |  | to 10 Years |      | Years        |  | Total 
|                                     |  |                            |         |              |  |             |      |              |  |       
|                                     |  | Amount                     |         | Yield        |  | Amount      |      | Yield        |  | Amount |           | Yield |  | Amount |      | Yield |  | Amount |           | Yield
|                                     |  |                            |         |              |  |             |      |              |  |        |           |       |  |        |      |       |  |        |           |      
|                                     |  |                           
|                                     |  | (Dollars in thousands)    
|Available for Sale:                  |  |                            |         |              |  |             |      |              |  |        |           |       |  |        |      |       |  |        |           |       |  |  |      |   |  |   |           |  |  |  |      |   |  |   |           |  |  |  |      |  
|U.S. Government and federal agencies |  | $                          | 62,581  |              |  |             | 2.71 | %            |  | $      | 1,202,902 |       |  |        | 3.72 | %     |  | $      | 273,964   |       |  |  | 4.33 | % |  | $ |          |  |  |  |     |   |  | $ | 1,539,447 |  |  |  | 3.78 | %
|Tax-exempt bonds and notes           |  |                            | 72,111  |              |  |             | 3.10 | %            |  |        | 8,031     |       |  |        | 4.47 | %     |  |        | 5,204     |       |  |  | 4.56 | % |  |   | 9,986     |  |  |  | 5.51 | % |  |   | 95,332    |  |  |  | 3.55 | %
|Other bonds and notes                |  |                            | 9,710   |              |  |             | 5.35 | %            |  |        | 136,351   |       |  |        | 5.46 | %     |  |        | 28,104    |       |  |  | 6.87 | % |  |   | 182,386   |  |  |  | 6.18 | % |  |   | 356,551   |  |  |  | 5.94 | %
|Mortgage-backed securities           |  |                            | 4,348   |              |  |             | 4.88 | %            |  |        | 20,514    |       |  |        | 5.62 | %     |  |        | 1,007,355 |       |  |  | 5.50 | % |  |   | 2,627,117 |  |  |  | 5.68 | % |  |   | 3,659,334 |  |  |  | 5.63 | %
|Collateralized mortgage obligations  |  |                            | 3,951   |              |  |             | 6.64 | %            |  |        | 802       |       |  |        | 7.54 | %     |  |        | 236,445   |       |  |  | 5.02 | % |  |   | 340,159   |  |  |  | 5.81 | % |  |   | 581,357   |  |  |  | 5.50 | %
|                                     |  |                            |         |              |  |             |      |              |  |        |           |       |  |        |      |       |  |        |           |       |  |  |      |   |  |   |           |  |  |  |      |   |  |   |           |  |  |  |      |  
|Total                                |  | $                          | 152,701 |              |  |             | 3.23 | %            |  | $      | 1,368,600 |       |  |        | 3.93 | %     |  | $      | 1,551,072 |       |  |  | 5.24 | % |  | $ | 3,159,648 |  |  |  | 5.72 | % |  | $ | 6,232,021 |  |  |  | 5.15 | %
|                                     |  |                            |         |              |  |             |      |              |  |        |           |       |  |        |      |       |  |        |           |       |  |  |      |   |  |   |           |  |  |  |      |   |  |   |           |  |  |  |      |  
|Held to Maturity:                    |  |                            |         |              |  |             |      |              |  |        |           |       |  |        |      |       |  |        |           |       |  |  |      |   |  |   |           |  |  |  |      |   |  |   |           |  |  |  |      |  
|Collateralized mortgage obligations  |  |                            |        |              |  |             |     |              |  |        |          |       |  |        |     |       |  |        |          |       |  |  |     |   |  | $ | 221,571   |  |  |  | 7.09 | % |  | $ | 221,571   |  |  |  | 7.09 | %
|                                     |  |                            |         |              |  |             |      |              |  |        |           |       |  |        |      |       |  |        |           |       |  |  |      |   |  |   |           |  |  |  |      |   |  |   |           |  |  |  |      |  

Table 7  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,          
|                                     |                                    |                       
|                                     |                                    |                        |            |           |  |        |        |       |   |       
|                                     |                                    | 2002                   |            | 2001      |  | 2000   |        | 1999  |   | 1998  
|                                     |                                    |                        |            |           |  |        |        |       |   |       
|                                     |                                    |                        |            | % of      |  |        |        | % of  |   |        |            | % of      |  |        |        | % of  |   |        |            | % of     
|                                     |                                    | Amount                 |            | Loans     |  | Amount |        | Loans |   | Amount |            | Loans     |  | Amount |        | Loans |   | Amount |            | Loans    
|                                     |                                    |                        |            |           |  |        |        |       |   |        |            |           |  |        |        |       |   |        |            |          
|                                     |                                    |                       
|                                     |                                    | (Dollars in thousands)
|Residential real estate loans        |                                    | $                      | 2,382,197  |           |  |        | 16.95  | %     |   | $      | 2,627,125  |           |  |        | 20.66  | %     |   | $      | 2,248,714  |           |  |  | 20.73  | %     |   | $ | 2,270,417 |           |  |  | 23.04  | %     |   | $ | 3,088,864 |           |  |  | 31.13  | %    
|Commercial real estate loans:        |                                    |                        |            |           |  |        |        |       |   |        |            |           |  |        |        |       |   |        |            |           |  |  |        |       |   |   |           |           |  |  |        |       |   |   |           |           |  |  |        |      
|                                     | Permanent first mortgage loans     |                        |            | 4,151,674 |  |        |        | 29.54 | % |        |            | 3,509,311 |  |        |        | 27.60 | % |        |            | 2,663,775 |  |  |        | 24.56 | % |   |           | 2,493,492 |  |  |        | 25.30 | % |   |           | 2,078,725 |  |  |        | 20.94 | %
|                                     | Construction and development loans |                        |            | 640,375   |  |        |        | 4.55  | % |        |            | 584,728   |  |        |        | 4.60  | % |        |            | 291,388   |  |  |        | 2.69  | % |   |           | 202,825   |  |  |        | 2.06  | % |   |           | 204,372   |  |  |        | 2.06  | %
|                                     |                                    |                        |            |           |  |        |        |       |   |        |            |           |  |        |        |       |   |        |            |           |  |  |        |       |   |   |           |           |  |  |        |       |   |   |           |           |  |  |        |      
|                                     | Total                              |                        |            | 4,792,049 |  |        |        | 34.09 | % |        |            | 4,094,039 |  |        |        | 32.20 | % |        |            | 2,955,163 |  |  |        | 27.25 | % |   |           | 2,696,317 |  |  |        | 27.36 | % |   |           | 2,283,097 |  |  |        | 23.00 | %
|                                     |                                    |                        |            |           |  |        |        |       |   |        |            |           |  |        |        |       |   |        |            |           |  |  |        |       |   |   |           |           |  |  |        |       |   |   |           |           |  |  |        |      
|Commercial business loans and leases |                                    |                        | 2,968,474  |           |  |        | 21.12  | %     |   |        | 2,462,653  |           |  |        | 19.37  | %     |   |        | 2,308,904  |           |  |  | 21.29  | %     |   |   | 1,924,201 |           |  |  | 19.53  | %     |   |   | 1,836,412 |           |  |  | 18.50  | %    
|Consumer loans and leases            |                                    |                        | 3,913,288  |           |  |        | 27.84  | %     |   |        | 3,531,513  |           |  |        | 27.77  | %     |   |        | 3,332,881  |           |  |  | 30.73  | %     |   |   | 2,963,721 |           |  |  | 30.07  | %     |   |   | 2,716,764 |           |  |  | 27.37  | %    
|                                     |                                    |                        |            |           |  |        |        |       |   |        |            |           |  |        |        |       |   |        |            |           |  |  |        |       |   |   |           |           |  |  |        |       |   |   |           |           |  |  |        |      
|Total loans receivable               |                                    | $                      | 14,056,008 |           |  |        | 100.00 | %     |   | $      | 12,715,330 |           |  |        | 100.00 | %     |   | $      | 10,845,662 |           |  |  | 100.00 | %     |   | $ | 9,854,656 |           |  |  | 100.00 | %     |   | $ | 9,925,137 |           |  |  | 100.00 | %    
|                                     |                                    |                        |            |           |  |        |        |       |   |        |            |           |  |        |        |       |   |        |            |           |  |  |        |       |   |   |           |           |  |  |        |       |   |   |           |           |  |  |        |      

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Table 8  Scheduled Contractual
Amortization of Certain Loans and Lease at December 31,
2002

The following table sets forth the scheduled
contractual amortization of our construction and development
loans and commercial business loans and leases at
December 31, 2002, 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           |   | Commercial     |  |      
|                                                   |                                   | and Development        |   | Business Loans |  |      
|                                                   |                                   | Loans                  |   | and Leases     |  | Total
|                                                   |                                   |                        |   |                |  |      
|                                                   |                                   |                       
|                                                   |                                   | (Dollars in thousands)
|Amounts due:                                       |                                   |                        |   |                |  |       |   |           |  |  |   |          
|                                                   | Within one year                   |                        | $ | 187,304        |  |       | $ | 1,490,205 |  |  | $ | 1,677,509 | 
|                                                   | After one year through five years |                        |   | 281,424        |  |       |   | 1,186,866 |  |  |   | 1,468,290 | 
|                                                   | Beyond five years                 |                        |   | 171,647        |  |       |   | 291,403   |  |  |   | 463,050   | 
|                                                   |                                   |                        |   |                |  |       |   |           |  |  |   |          
|                                                   | Total                             |                        | $ | 640,375        |  |       | $ | 2,968,474 |  |  | $ | 3,608,849 | 
|                                                   |                                   |                        |   |                |  |       |   |           |  |  |   |          
|Interest rate terms on amounts due after one year: |                                   |                        |   |                |  |       |   |           |  |  |   |          
|                                                   | Fixed                             |                        | $ | 175,724        |  |       | $ | 674,124   |  |  | $ | 849,848   | 
|                                                   | Adjustable                        |                        |   | 277,347        |  |       |   | 804,145   |  |  |   | 1,081,492 | 

Table 9  Commercial Loans by
State

The following table presents commercial loans by
geographical area at the dates indicated.

|              |       |                        |           |                     |  |                        |           |           |  |      |         |           |  |   |         |           |  |   |           |           |  |   |           |           | 
|------------- | ----- | ---------------------- | --------- | ------------------- |  | ---------------------- | --------- | --------- |  | ---- | ------- | --------- |  | - | ------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|              |       |                        |           |                     |  |                       
|              |       | Commercial Real Estate |           | Commercial Business |  | Total Commercial Loans
|              |       | December 31,           |           | December 31,        |  | December 31,          
|              |       |                        |           |                     |  |                       
|              |       | 2002                   |           | 2001                |  | 2002                   |           | 2001      |  | 2002 |         | 2001     
|              |       |                        |           |                     |  |                        |           |           |  |      |         |          
|              |       |                       
|              |       | (Dollars in thousands)
|Massachusetts |       | $                      | 2,174,534 |                     |  | $                      | 1,811,387 |           |  | $    | 982,078 |           |  | $ | 877,183 |           |  | $ | 3,156,612 |           |  | $ | 2,688,570 |          
|Maine         |       |                        | 868,091   |                     |  |                        | 781,191   |           |  |      | 640,258 |           |  |   | 533,392 |           |  |   | 1,508,349 |           |  |   | 1,314,583 |          
|New Hampshire |       |                        | 703,743   |                     |  |                        | 634,032   |           |  |      | 461,079 |           |  |   | 403,056 |           |  |   | 1,164,822 |           |  |   | 1,037,088 |          
|Vermont       |       |                        | 594,849   |                     |  |                        | 562,482   |           |  |      | 419,291 |           |  |   | 412,454 |           |  |   | 1,014,140 |           |  |   | 974,936   |          
|Connecticut   |       |                        | 286,658   |                     |  |                        | 145,816   |           |  |      | 265,503 |           |  |   | 94,460  |           |  |   | 552,161   |           |  |   | 240,276   |          
|New York      |       |                        | 164,174   |                     |  |                        | 159,131   |           |  |      | 200,265 |           |  |   | 142,108 |           |  |   | 364,439   |           |  |   | 301,239   |          
|              |       |                        |           |                     |  |                        |           |           |  |      |         |           |  |   |         |           |  |   |           |           |  |   |           |          
|              | Total |                        | $         | 4,792,049           |  |                        | $         | 4,094,039 |  |      | $       | 2,968,474 |  |   | $       | 2,462,653 |  |   | $         | 7,760,523 |  |   | $         | 6,556,692 | 
|              |       |                        |           |                     |  |                        |           |           |  |      |         |           |  |   |         |           |  |   |           |           |  |   |           |          

Table 10  Change in Deposit
Balances by Category of Deposit

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

|                                  |                |                        |           |                  |  |      |           |            |  |         |           |            |  |   |          |           |  |  |         |       |  
|--------------------------------- | -------------- | ---------------------- | --------- | ---------------- |  | ---- | --------- | ---------- |  | ------- | --------- | ---------- |  | - | -------- | --------- |  |  | ------- | ----- | -
|                                  |                |                        |           |                 
|                                  |                | December 31,           |           | 2002-2001 Change
|                                  |                |                        |           |                 
|                                  |                | 2002                   |           | 2001             |  | 2000 |           | Amount     |  | Percent
|                                  |                |                        |           |                  |  |      |           |            |  |        
|                                  |                |                       
|                                  |                | (Dollars in thousands)
|Demand deposits                   |                | $                      | 2,974,199 |                  |  | $    | 2,603,339 |            |  | $       | 2,114,600 |            |  | $ | 370,860  |           |  |  | 14.25   | %    
|Money market access/ NOW accounts |                |                        | 6,091,429 |                  |  |      | 5,129,626 |            |  |         | 3,975,318 |            |  |   | 961,803  |           |  |  | 18.75   | %    
|Savings accounts                  |                |                        | 1,940,195 |                  |  |      | 1,604,556 |            |  |         | 1,386,286 |            |  |   | 335,639  |           |  |  | 20.92   | %    
|Certificates of deposit           |                |                        | 4,658,778 |                  |  |      | 4,811,357 |            |  |         | 4,461,983 |            |  |   | (152,579 | )         |  |  | (3.17   | %)   
|Brokered deposits                 |                |                        |          |                  |  |      | 72,171    |            |  |         | 169,069   |            |  |   | (72,171  | )         |  |  | (100.00 | %)   
|                                  |                |                        |           |                  |  |      |           |            |  |         |           |            |  |   |          |           |  |  |         |      
|                                  | Total deposits |                        | $         | 15,664,601       |  |      | $         | 14,221,049 |  |         | $         | 12,107,256 |  |   | $        | 1,443,552 |  |  |         | 10.15 | %
|                                  |                |                        |           |                  |  |      |           |            |  |         |           |            |  |   |          |           |  |  |         |      

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Table 11  Maturity of
Certificates of Deposits of $100,000 or more at
December 31, 2002

The following table sets forth the scheduled
maturity of certificates of deposit of $100,000 or more at
December 31, 2002.

|                    |  |                        |           |         |  |  |     |  
|------------------- |  | ---------------------- | --------- | ------- |  |  | --- | -
|                    |  |                       
|                    |  | December 31, 2002     
|                    |  |                       
|                    |  | Balance                |           | Percent
|                    |  |                        |           |        
|                    |  |                       
|                    |  | (Dollars in thousands)
|3 months or less    |  | $                      | 328,467   |         |  |  | 30  | %
|Over 3 to 6 months  |  |                        | 269,627   |         |  |  | 25  | %
|Over 6 to 12 months |  |                        | 190,495   |         |  |  | 17  | %
|More than 12 months |  |                        | 302,142   |         |  |  | 28  | %
|                    |  |                        |           |         |  |  |     |  
|                    |  | $                      | 1,090,731 |         |  |  | 100 | %
|                    |  |                        |           |         |  |  |     |  

Table 12  Five-Year Table of
Activity in the Allowance for Loan and Lease Losses

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

|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |        |        | 
|--------------------------------------------------------------------------- | ------------------------------------ | ----------------------- | ---------- | ------ | ------ | ---- | ---------- | ------ | ------ | ---- | ---------- | ------ | ------ | - | --------- | ------ | ------ | - | ---------- | ------ | ------ | 
|                                                                            |                                      |                        
|                                                                            |                                      | Year Ended December 31,
|                                                                            |                                      |                        
|                                                                            |                                      | 2002                    |            | 2001   |        | 2000 |            | 1999   |        | 1998
|                                                                            |                                      |                         |            |        |        |      |            |        |        |     
|                                                                            |                                      |                        
|                                                                            |                                      | (Dollars in thousands) 
|Allowance at the beginning of period                                        |                                      | $                       | 189,837    |        |        | $    | 153,550    |        |        | $    | 155,048    |        |        | $ | 155,098   |        |        | $ | 150,615    |       
|Additions due to acquisitions                                               |                                      |                         | 12,794     |        |        |      | 31,277     |        |        |      |           |        |        |   |          |        |        |   | 2,200      |       
|Charge-offs:                                                                |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|                                                                            | Real estate loans                    |                         |            | 1,152  |        |      |            | 2,893  |        |      |            | 5,394  |        |   |           | 8,698  |        |   |            | 10,233 |       
|                                                                            | Commercial business loans and leases |                         |            | 24,455 |        |      |            | 20,899 |        |      |            | 7,790  |        |   |           | 5,125  |        |   |            | 7,718  |       
|                                                                            | Consumer loans and leases            |                         |            | 26,395 |        |      |            | 21,860 |        |      |            | 21,508 |        |   |           | 22,211 |        |   |            | 20,459 |       
|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|                                                                            |                                      | Total loans charged off |            |        | 52,002 |      |            |        | 45,652 |      |            |        | 34,692 |   |           |        | 36,034 |   |            |        | 38,410 | 
|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|Recoveries:                                                                 |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|                                                                            | Real estate loans                    |                         |            | 239    |        |      |            | 463    |        |      |            | 2,478  |        |   |           | 3,153  |        |   |            | 6,912  |       
|                                                                            | Commercial business loans and leases |                         |            | 8,972  |        |      |            | 4,800  |        |      |            | 2,334  |        |   |           | 3,188  |        |   |            | 4,040  |       
|                                                                            | Consumer loans and leases            |                         |            | 4,119  |        |      |            | 3,510  |        |      |            | 4,563  |        |   |           | 6,068  |        |   |            | 5,966  |       
|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|                                                                            |                                      | Total loans recovered   |            |        | 13,330 |      |            |        | 8,773  |      |            |        | 9,375  |   |           |        | 12,409 |   |            |        | 16,918 | 
|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|                                                                            |                                      | Net charge-offs         |            |        | 38,672 |      |            |        | 36,879 |      |            |        | 25,317 |   |           |        | 23,625 |   |            |        | 21,492 | 
|Provision for loan and lease losses                                         |                                      |                         | 44,314     |        |        |      | 41,889     |        |        |      | 23,819     |        |        |   | 23,575    |        |        |   | 23,775     |       
|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|Allowance at the end of the period                                          |                                      | $                       | 208,273    |        |        | $    | 189,837    |        |        | $    | 153,550    |        |        | $ | 155,048   |        |        | $ | 155,098    |       
|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|Average loans and leases outstanding (excluding
    loans held for sale)    |                                      | $                       | 13,182,785 |        |        | $    | 11,173,723 |        |        | $    | 10,449,753 |        |        | $ | 9,616,914 |        |        | $ | 10,183,379 |       
|                                                                            |                                      |                         |            |        |        |      |            |        |        |      |            |        |        |   |           |        |        |   |            |       
|Ratio of net charge-offs to average loans and
    leases outstanding        |                                      |                         | 0.29       | %      |        |      | 0.33       | %      |        |      | 0.24       | %      |        |   | 0.25      | %      |        |   | 0.21       | %     
|Ratio of allowance to total portfolio loans and
    leases at end of period |                                      |                         | 1.48       | %      |        |      | 1.49       | %      |        |      | 1.42       | %      |        |   | 1.57      | %      |        |   | 1.56       | %     
|Ratio of allowance to nonperforming loans and
    leases at end of period   |                                      |                         | 319.17     | %      |        |      | 252.29     | %      |        |      | 249.13     | %      |        |   | 266.74    | %      |        |   | 206.71     | %     

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|           |                                                                               
|---------- | ------------------------------------------------------------------------------
|Table 13  | 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,          
|                                     |  |                       
|                                     |  |                        |         |               |  |        |        |               |  |       
|                                     |  | 2002                   |         | 2001          |  | 2000   |        | 1999          |  | 1998  
|                                     |  |                        |         |               |  |        |        |               |  |       
|                                     |  |                        |         | Percent of    |  |        |        | Percent of    |  |        |         | Percent of    |  |        |        | Percent of    |  |        |         | Percent of   
|                                     |  |                        |         | Loans in Each |  |        |        | Loans in Each |  |        |         | Loans in Each |  |        |        | Loans in Each |  |        |         | Loans in Each
|                                     |  |                        |         | Category to   |  |        |        | Category to   |  |        |         | Category to   |  |        |        | Category to   |  |        |         | Category to  
|                                     |  | Amount                 |         | Total Loans   |  | Amount |        | Total Loans   |  | Amount |         | Total Loans   |  | Amount |        | Total Loans   |  | Amount |         | Total Loans  
|                                     |  |                        |         |               |  |        |        |               |  |        |         |               |  |        |        |               |  |        |         |              
|                                     |  |                       
|                                     |  | (Dollars in thousands)
|Real estate loans                    |  | $                      | 108,094 |               |  |        | 51.04  | %             |  | $      | 103,271 |               |  |        | 52.86  | %             |  | $      | 81,026  |               |  |  | 47.98  | % |  | $ | 79,147  |  |  |  | 50.40  | % |  | $ | 77,516  |  |  |  | 54.13  | %
|Commercial business loans and leases |  |                        | 63,940  |               |  |        | 21.12  | %             |  |        | 58,090  |               |  |        | 19.37  | %             |  |        | 50,486  |               |  |  | 21.29  | % |  |   | 49,316  |  |  |  | 19.53  | % |  |   | 46,753  |  |  |  | 18.50  | %
|Consumer loans and leases            |  |                        | 36,239  |               |  |        | 27.84  | %             |  |        | 28,476  |               |  |        | 27.77  | %             |  |        | 22,038  |               |  |  | 30.73  | % |  |   | 26,585  |  |  |  | 30.07  | % |  |   | 30,829  |  |  |  | 27.37  | %
|                                     |  |                        |         |               |  |        |        |               |  |        |         |               |  |        |        |               |  |        |         |               |  |  |        |   |  |   |         |  |  |  |        |   |  |   |         |  |  |  |        |  
|                                     |  | $                      | 208,273 |               |  |        | 100.00 | %             |  | $      | 189,837 |               |  |        | 100.00 | %             |  | $      | 153,550 |               |  |  | 100.00 | % |  | $ | 155,048 |  |  |  | 100.00 | % |  | $ | 155,098 |  |  |  | 100.00 | %
|                                     |  |                        |         |               |  |        |        |               |  |        |         |               |  |        |        |               |  |        |         |               |  |  |        |   |  |   |         |  |  |  |        |   |  |   |         |  |  |  |        |  



|           |                                                                         
|---------- | ------------------------------------------------------------------------
|Table 14  | Net Charge-offs as a Percent of Average Loans
    and Leases Outstanding

The following table presents net charge-offs for
the periods indicated.

|                                     |  |                              |        |      |  |      |       |  |  |  |       | 
|------------------------------------ |  | ---------------------------- | ------ | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                     |  |                             
|                                     |  | Net Charge-offs to Average  
|                                     |  | Loans and Leases Outstanding
|                                     |  |                             
|                                     |  | 2002                         |        | 2001 |  | 2000
|                                     |  |                              |        |      |  |     
|Residential real estate mortgages    |  |                              | -0.01% |      |  |      | 0.02% |  |  |  | 0.08% | 
|Commercial real estate mortgages     |  |                              | 0.03%  |      |  |      | 0.06% |  |  |  | 0.04% | 
|Commercial business loans and leases |  |                              | 0.58%  |      |  |      | 0.69% |  |  |  | 0.26% | 
|Consumer loans and leases            |  |                              | 0.61%  |      |  |      | 0.54% |  |  |  | 0.54% | 
|Total                                |  |                              | 0.29%  |      |  |      | 0.33% |  |  |  | 0.24% | 

41



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Table 15  Five-Year Schedule
of Nonperforming Assets

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

|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                             |                                                  |                          
|                                                                                             |                                                  | December 31,             
|                                                                                             |                                                  |                          
|                                                                                             |                                                  | 2002                      |        | 2001   |        | 2000 |        | 1999   |        | 1998
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |     
|                                                                                             |                                                  |                          
|                                                                                             |                                                  | (Dollars in thousands)   
|Nonaccrual loans Residential real estate loans                                               |                                                  | $                         | 5,719  |        |        | $    | 8,311  |        |        | $    | 9,894  |        |        | $ | 17,283 |        |        | $ | 15,503 |       
|                                                                                             | Commercial real estate loans                     |                           |        | 17,649 |        |      |        | 17,124 |        |      |        | 12,155 |        |   |        | 16,754 |        |   |        | 22,481 |       
|                                                                                             | Commercial business loans and leases             |                           |        | 32,693 |        |      |        | 40,341 |        |      |        | 32,583 |        |   |        | 17,027 |        |   |        | 18,736 |       
|                                                                                             | Consumer loans and leases                        |                           |        | 9,194  |        |      |        | 9,470  |        |      |        | 6,329  |        |   |        | 5,951  |        |   |        | 11,455 |       
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                                             |                                                  | Total nonaccrual loans    |        |        | 65,255 |      |        |        | 75,246 |      |        |        | 60,961 |   |        |        | 57,015 |   |        |        | 68,175 | 
|                                                                                             | Troubled debt restructurings                     |                           |        |       |        |      |        |       |        |      |        | 673    |        |   |        | 1,112  |        |   |        | 6,857  |       
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                                             |                                                  | Total nonperforming loans |        |        | 65,255 |      |        |        | 75,246 |      |        |        | 61,634 |   |        |        | 58,127 |   |        |        | 75,032 | 
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Other nonperforming assets:                                                                  |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                                             | Other real estate owned, net of related reserves |                           |        | 100    |        |      |        | 1,861  |        |      |        | 4,074  |        |   |        | 8,154  |        |   |        | 10,354 |       
|                                                                                             | Repossessions, net of related reserves           |                           |        | 3,536  |        |      |        | 2,016  |        |      |        | 1,424  |        |   |        | 2,911  |        |   |        | 3,635  |       
|                                                                                             | Securities available for sale                    |                           |        |       |        |      |        | 2,104  |        |      |        |       |        |   |        |       |        |   |        |       |       
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                                             |                                                  | Total                     |        |        | 3,636  |      |        |        | 5,981  |      |        |        | 5,498  |   |        |        | 11,065 |   |        |        | 13,989 | 
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Total nonperforming assets                                                                   |                                                  | $                         | 68,891 |        |        | $    | 81,227 |        |        | $    | 67,132 |        |        | $ | 69,192 |        |        | $ | 89,021 |       
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Accruing loans 90 days or more overdue                                                       |                                                  | $                         | 3,449  |        |        | $    | 6,227  |        |        | $    | 5,973  |        |        | $ | 12,131 |        |        | $ | 24,450 |       
|                                                                                             |                                                  |                           |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Total nonperforming loans as a percentage of
    total loans                                 |                                                  |                           | 0.46   | %      |        |      | 0.59   | %      |        |      | 0.57   | %      |        |   | 0.59   | %      |        |   | 0.76   | %     
|Total nonperforming assets as a percentage of
    total assets                               |                                                  |                           | 0.29   | %      |        |      | 0.39   | %      |        |      | 0.37   | %      |        |   | 0.37   | %      |        |   | 0.54   | %     
|Total nonperforming assets as a percentage of
    total loans and other nonperforming assets |                                                  |                           | 0.49   | %      |        |      | 0.64   | %      |        |      | 0.62   | %      |        |   | 0.70   | %      |        |   | 0.90   | %     

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Table 16  Business Segment
Reporting

The following table presents selected operating
data for our business segments for the year ended
December 31, 2002.

|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 
|--------------------------------------------------------------------------- |  | ---------------------- | ------- | --------- |  | ---------- | ------ | ---------- |  | ----- | ------ | - |  | - | ------ |  |  | - | ------- | 
|                                                                            |  | Community              |         | Insurance |  | Investment |        | Investment |  |      
|                                                                            |  | Banking                |         | Brokerage |  | Planning   |        | Management |  | Total
|                                                                            |  |                        |         |           |  |            |        |            |  |      
|                                                                            |  |                       
|                                                                            |  | (Dollars in thousands)
|Net interest income (expense)                                               |  | $                      | 796,859 |           |  | ($         | 341    | )          |  | ($    | 12     | ) |  | $ | 11     |  |  | $ | 796,517 | 
|Provision for loan and lease losses                                         |  |                        | 44,314  |           |  |            |       |            |  |       |       |   |  |   |       |  |  |   | 44,314  | 
|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 
|Net interest income (expense) after
    provision for loan and lease losses |  |                        | 752,545 |           |  |            | (341   | )          |  |       | (12    | ) |  |   | 11     |  |  |   | 752,203 | 
|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 
|Noninterest income                                                          |  |                        | 184,802 |           |  |            | 44,840 |            |  |       | 11,571 |   |  |   | 33,295 |  |  |   | 274,508 | 
|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 
|Salaries and benefits                                                       |  |                        | 260,948 |           |  |            | 27,285 |            |  |       | 8,021  |   |  |   | 15,131 |  |  |   | 311,385 | 
|Occupancy and equipment                                                     |  |                        | 87,727  |           |  |            | 3,587  |            |  |       | 494    |   |  |   | 1,547  |  |  |   | 93,355  | 
|Data processing/affiliate charges                                           |  |                        | 35,039  |           |  |            | 635    |            |  |       | 742    |   |  |   | 4,286  |  |  |   | 40,702  | 
|Advertising and marketing                                                   |  |                        | 16,436  |           |  |            | 287    |            |  |       | 200    |   |  |   | 316    |  |  |   | 17,239  | 
|Special charges                                                             |  |                        | 14,691  |           |  |            |       |            |  |       |       |   |  |   |       |  |  |   | 14,691  | 
|Other                                                                       |  |                        | 87,158  |           |  |            | 4,861  |            |  |       | 917    |   |  |   | 2,592  |  |  |   | 95,528  | 
|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 
|Total non-interest expense                                                  |  |                        | 501,999 |           |  |            | 36,655 |            |  |       | 10,374 |   |  |   | 23,872 |  |  |   | 572,900 | 
|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 
|Income before taxes and amortization of
    intangibles                     |  |                        | 435,348 |           |  |            | 7,844  |            |  |       | 1,185  |   |  |   | 9,434  |  |  |   | 453,811 | 
|Amortization of intangibles                                                 |  |                        | 6,360   |           |  |            | 132    |            |  |       |       |   |  |   |       |  |  |   | 6,492   | 
|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 
|Pre-tax income                                                              |  | $                      | 428,988 |           |  | $          | 7,712  |            |  | $     | 1,185  |   |  | $ | 9,434  |  |  | $ | 447,319 | 
|                                                                            |  |                        |         |           |  |            |        |            |  |       |        |   |  |   |        |  |  |   |         | 

43



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Table 17  Fourth Quarter
Summary

The following table presents operating results
for the quarter ended December 31, 2002 and 2001.

|                                                                |                                      |                                                                 |         |      |   |   |         |      |       |  
|--------------------------------------------------------------- | ------------------------------------ | --------------------------------------------------------------- | ------- | ---- | - | - | ------- | ---- | ----- | -
|                                                                |                                      |                                                                
|                                                                |                                      | Three Months Ended December 31,                                
|                                                                |                                      |                                                                
|                                                                |                                      | 2002                                                            |         | 2001
|                                                                |                                      |                                                                 |         |     
|                                                                |                                      |                                                                
|                                                                |                                      | (Dollars in thousands,                                         
|                                                                |                                      | except per share data)                                         
|Condensed Income Statement                                      |                                      |                                                                 |         |      |   |   |         |     
|Net interest income                                             |                                      | $                                                               | 199,563 |      |   | $ | 188,458 |     
|Provision for loan and lease losses                             |                                      |                                                                 | 10,829  |      |   |   | 13,378  |     
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|Net interest income after loan and lease loss
    provision     |                                      |                                                                 | 188,734 |      |   |   | 175,080 |     
|Noninterest income (excluding securities
    transactions)      |                                      |                                                                 | 77,736  |      |   |   | 63,560  |     
|Net securities gains                                            |                                      |                                                                 | 6,705   |      |   |   | 39      |     
|Noninterest expenses (excluding special charges)                |                                      |                                                                 | 154,868 |      |   |   | 136,016 |     
|Special charges (1)                                             |                                      |                                                                 | 3,258   |      |   |   | 2,007   |     
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|Income before income taxes                                      |                                      |                                                                 | 115,049 |      |   |   | 100,656 |     
|Income tax expense                                              |                                      |                                                                 | 37,911  |      |   |   | 35,152  |     
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|Net income before extraordinary item                            |                                      |                                                                 | 77,138  |      |   |   | 65,504  |     
|Extraordinary item-early extinguishment of debt,
    net of tax |                                      |                                                                 |        |      |   |   | 3,897   |     
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|Net income                                                      |                                      | $                                                               | 77,138  |      |   | $ | 61,607  |     
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|Per Common Share                                                |                                      |                                                                 |         |      |   |   |         |     
|Basic earnings per share:                                       |                                      |                                                                 |         |      |   |   |         |     
|                                                                | Net income before extraordinary item |                                                                 | $       | 0.52 |   |   | $       | 0.45 |      
|                                                                |                                      | Extraordinary item-early extinguishment of debt,
    net of tax |         |      |  |   |         |      | (0.03 | )
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|                                                                |                                      | $                                                               | 0.52    |      |   | $ | 0.42    |     
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|Diluted earnings per share:                                     |                                      |                                                                 |         |      |   |   |         |     
|                                                                | Net income before extraordinary item |                                                                 | $       | 0.52 |   |   | $       | 0.45 |      
|                                                                |                                      | Extraordinary item-early extinguishment of debt,
    net of tax |         |      |  |   |         |      | (0.03 | )
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|                                                                |                                      | $                                                               | 0.52    |      |   | $ | 0.42    |     
|                                                                |                                      |                                                                 |         |      |   |   |         |     
|Financial Ratios                                                |                                      |                                                                 |         |      |   |   |         |     
|Return on average assets (2)                                    |                                      |                                                                 | 1.35    | %    |   |   | 1.23    | %   
|Return on average equity (2)                                    |                                      |                                                                 | 15.75   | %    |   |   | 14.45   | %   
|Net interest margin (fully-taxable equivalent) (2)              |                                      |                                                                 | 3.86    | %    |   |   | 4.13    | %   
|Noninterest income as a percent of total income                 |                                      |                                                                 | 29.73   | %    |   |   | 25.23   | %   
|Efficiency ratio (3)                                            |                                      |                                                                 | 55.68   | %    |   |   | 54.76   | %   



---



|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Special charges consist of merger charges,
    charter consolidation costs, asset write-downs and branch
    closing costs where applicable.
|   
|(2) | Annualized.                                                                                                                                 
|   
|(3) | Represents noninterest expenses as a percentage
    of net interest income and noninterest income.                                          

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.

44



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|        |                                                                                                                    
|------- | -------------------------------------------------------------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Notes
    to Consolidated Financial Statements December 31, 2002 and
    2001

BANKNORTH GROUP, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |           |            | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | --------- | ---------- | - | ---------- | --------- | ---------- | 
|                                                                                                                                       |                                                                                                                                                 |                                           
|                                                                                                                                       |                                                                                                                                                 | December 31,                              
|                                                                                                                                       |                                                                                                                                                 |                                           
|                                                                                                                                       |                                                                                                                                                 | 2002                                       |            | 2001     
|                                                                                                                                       |                                                                                                                                                 |                                            |            |          
|                                                                                                                                       |                                                                                                                                                 |                                           
|                                                                                                                                       |                                                                                                                                                 | (In thousands, except number              
|                                                                                                                                       |                                                                                                                                                 | of shares and per share data)             
|Assets                                                                                                                                 |                                                                                                                                                 |                                            |            |           |            |   |            |          
|Cash and due from banks                                                                                                                |                                                                                                                                                 | $                                          | 690,250    |           |            | $ | 650,588    |          
|Federal funds sold and other short-term
    investments                                                                                |                                                                                                                                                 |                                            | 79,753     |           |            |   | 270,623    |          
|Securities available for sale, at market value                                                                                         |                                                                                                                                                 |                                            | 6,731,467  |           |            |   | 5,817,238  |          
|Securities held to maturity, market value
    $221,571 in 2002 and $340,737 in 2001                                                    |                                                                                                                                                 |                                            | 216,409    |           |            |   | 339,623    |          
|Loans held for sale, market value $135,799 in
    2002 and $117,674 in 2001                                                            |                                                                                                                                                 |                                            | 128,622    |           |            |   | 117,674    |          
|Loans and leases                                                                                                                       |                                                                                                                                                 |                                            | 14,056,008 |           |            |   | 12,715,330 |          
|                                                                                                                                       | Less: Allowance for loan and lease losses                                                                                                       |                                            |            | 208,273   |            |   |            | 189,837   |           
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|                                                                                                                                       |                                                                                                                                                 | Net loans and leases                       |            |           | 13,847,735 |   |            |           | 12,525,493 | 
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|Premises and equipment                                                                                                                 |                                                                                                                                                 |                                            | 271,677    |           |            |   | 237,440    |          
|Goodwill                                                                                                                               |                                                                                                                                                 |                                            | 660,684    |           |            |   | 409,340    |          
|Identifiable intangible assets                                                                                                         |                                                                                                                                                 |                                            | 34,474     |           |            |   | 57,293     |          
|Mortgage servicing rights                                                                                                              |                                                                                                                                                 |                                            | 3,598      |           |            |   | 8,484      |          
|Bank owned life insurance                                                                                                              |                                                                                                                                                 |                                            | 380,405    |           |            |   | 321,113    |          
|Other assets                                                                                                                           |                                                                                                                                                 |                                            | 373,867    |           |            |   | 321,677    |          
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|                                                                                                                                       |                                                                                                                                                 | Total assets                               |            | $         | 23,418,941 |   |            | $         | 21,076,586 | 
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|Liabilities and Shareholders
    Equity                                                                                               |                                                                                                                                                 |                                            |            |           |            |   |            |          
|Deposits:                                                                                                                              |                                                                                                                                                 |                                            |            |           |            |   |            |          
|                                                                                                                                       | Savings accounts                                                                                                                                |                                            | $          | 1,940,195 |            |   | $          | 1,604,556 |           
|                                                                                                                                       | Money market access and NOW accounts                                                                                                            |                                            |            | 6,091,429 |            |   |            | 5,129,626 |           
|                                                                                                                                       | Certificates of deposit (including certificates
    of $100 or more of $1,090,731 in 2002 and $1,133,699 in 2001)                               |                                            |            | 4,658,778 |            |   |            | 4,811,357 |           
|                                                                                                                                       | Brokered deposits                                                                                                                               |                                            |            |          |            |   |            | 72,171    |           
|                                                                                                                                       | Noninterest-bearing deposits                                                                                                                    |                                            |            | 2,974,199 |            |   |            | 2,603,339 |           
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|                                                                                                                                       |                                                                                                                                                 | Total deposits                             |            |           | 15,664,601 |   |            |           | 14,221,049 | 
|Short term borrowings                                                                                                                  |                                                                                                                                                 |                                            | 1,276,467  |           |            |   | 1,091,219  |          
|Long term debt                                                                                                                         |                                                                                                                                                 |                                            | 3,861,058  |           |            |   | 3,417,413  |          
|Company obligated, mandatorily redeemable
    securities of subsidiary trusts holding solely parent junior
    subordinated debentures |                                                                                                                                                 |                                            | 295,056    |           |            |   | 93,756     |          
|Other liabilities                                                                                                                      |                                                                                                                                                 |                                            | 258,274    |           |            |   | 464,034    |          
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|                                                                                                                                       |                                                                                                                                                 | Total liabilities                          |            |           | 21,355,456 |   |            |           | 19,287,471 | 
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|Commitments and contingencies                                                                                                          |                                                                                                                                                 |                                            |            |           |            |   |            |          
|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, 168,892,284 issued in 2002 and
    165,123,674 issued in 2001 |                                            |            | 1,689     |            |   |            | 1,651     |           
|                                                                                                                                       | Paid-in capital                                                                                                                                 |                                            |            | 1,059,778 |            |   |            | 958,764   |           
|                                                                                                                                       | Retained earnings                                                                                                                               |                                            |            | 1,269,422 |            |   |            | 1,056,678 |           
|                                                                                                                                       | Unearned compensation                                                                                                                           |                                            |            |          |            |   |            | (1,017    | )         
|                                                                                                                                       | Treasury stock at cost (18,313,517 shares in 2002
    and 13,903,074 shares in 2001)                                                            |                                            |            | (382,350  | )          |   |            | (267,529  | )         
|                                                                                                                                       | Accumulated other comprehensive income                                                                                                          |                                            |            | 114,946   |            |   |            | 40,568    |           
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|                                                                                                                                       |                                                                                                                                                 | Total shareholders equity                 |            |           | 2,063,485  |   |            |           | 1,789,115  | 
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          
|                                                                                                                                       |                                                                                                                                                 | Total liabilities and shareholders equity |            | $         | 23,418,941 |   |            | $         | 21,076,586 | 
|                                                                                                                                       |                                                                                                                                                 |                                            |            |           |            |   |            |          

See accompanying notes to Consolidated Financial
Statements.

45



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##### Table of Contents



BANKNORTH GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME

|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |         |           | 
|------------------------------------ | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------- | ------- | --------- | ---- | ------- | ------- | --------- |  | ------- | ------- | --------- | 
|                                     |                                                                                     |                                                                                                 
|                                     |                                                                                     | Year Ended December 31,                                                                         
|                                     |                                                                                     |                                                                                                 
|                                     |                                                                                     | 2002                                                                                             |         | 2001    |           | 2000
|                                     |                                                                                     |                                                                                                  |         |         |           |     
|                                     |                                                                                     |                                                                                                 
|                                     |                                                                                     | (In thousands, except per share data)                                                           
|Interest and dividend income:        |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     | Interest and fees on loans and leases                                               |                                                                                                  | $       | 882,190 |           |      | $       | 892,197 |           |  | $       | 894,449 |          
|                                     | Interest and dividends on securities                                                |                                                                                                  |         | 352,927 |           |      |         | 371,592 |           |  |         | 435,838 |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Total interest and dividend income                                                               |         |         | 1,235,117 |      |         |         | 1,263,789 |  |         |         | 1,330,287 | 
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|Interest expense:                    |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     | Interest on deposits                                                                |                                                                                                  |         | 244,648 |           |      |         | 363,974 |           |  |         | 411,250 |          
|                                     | Interest on borrowed funds                                                          |                                                                                                  |         | 193,952 |           |      |         | 219,925 |           |  |         | 315,487 |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Total interest expense                                                                           |         |         | 438,600   |      |         |         | 583,899   |  |         |         | 726,737   | 
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Net interest income                                                                              |         |         | 796,517   |      |         |         | 679,890   |  |         |         | 603,550   | 
|Provision for loan and lease losses  |                                                                                     |                                                                                                  | 44,314  |         |           |      | 41,889  |         |           |  | 23,819  |        
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Net interest income after provision for loan and
    lease losses                                |         |         | 752,203   |      |         |         | 638,001   |  |         |         | 579,731   | 
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|Noninterest income:                  |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     | Deposit services                                                                    |                                                                                                  |         | 82,139  |           |      |         | 72,634  |           |  |         | 67,053  |          
|                                     | Insurance brokerage commissions                                                     |                                                                                                  |         | 44,439  |           |      |         | 39,360  |           |  |         | 25,748  |          
|                                     | Merchant and electronic banking income, net                                         |                                                                                                  |         | 38,081  |           |      |         | 32,411  |           |  |         | 29,318  |          
|                                     | Trust and investment management services                                            |                                                                                                  |         | 32,453  |           |      |         | 34,060  |           |  |         | 35,436  |          
|                                     | Loan fee income                                                                     |                                                                                                  |         | 21,893  |           |      |         | 14,501  |           |  |         | 8,316   |          
|                                     | Bank-owned life insurance                                                           |                                                                                                  |         | 20,002  |           |      |         | 18,392  |           |  |         | 17,701  |          
|                                     | Investment planning services                                                        |                                                                                                  |         | 11,572  |           |      |         | 8,286   |           |  |         | 6,998   |          
|                                     | Mortgage banking services                                                           |                                                                                                  |         | 8,539   |           |      |         | 11,130  |           |  |         | 21,963  |          
|                                     | Net securities gains (losses)                                                       |                                                                                                  |         | 7,282   |           |      |         | 1,329   |           |  |         | (15,456 | )        
|                                     | Other noninterest income                                                            |                                                                                                  |         | 8,108   |           |      |         | 8,402   |           |  |         | 14,111  |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     |                                                                                                  | 274,508 |         |           |      | 240,505 |         |           |  | 211,188 |        
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|Noninterest expenses:                |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     | Salaries and employee benefits                                                      |                                                                                                  |         | 311,385 |           |      |         | 261,317 |           |  |         | 230,184 |          
|                                     | Data processing                                                                     |                                                                                                  |         | 40,702  |           |      |         | 38,670  |           |  |         | 37,607  |          
|                                     | Occupancy                                                                           |                                                                                                  |         | 52,422  |           |      |         | 45,921  |           |  |         | 39,198  |          
|                                     | Equipment                                                                           |                                                                                                  |         | 40,933  |           |      |         | 34,572  |           |  |         | 31,740  |          
|                                     | Advertising and marketing                                                           |                                                                                                  |         | 17,239  |           |      |         | 11,907  |           |  |         | 12,009  |          
|                                     | Amortization of goodwill                                                            |                                                                                                  |         |        |           |      |         | 11,061  |           |  |         | 10,466  |          
|                                     | Amortization of identifiable intangible assets                                      |                                                                                                  |         | 6,492   |           |      |         | 11,023  |           |  |         | 10,550  |          
|                                     | Special charges                                                                     |                                                                                                  |         | 14,691  |           |      |         | 7,614   |           |  |         | 43,007  |          
|                                     | Write-off of branch automation project                                              |                                                                                                  |         | 6,170   |           |      |         |        |           |  |         |        |          
|                                     | Other noninterest expenses                                                          |                                                                                                  |         | 89,358  |           |      |         | 87,237  |           |  |         | 87,631  |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     |                                                                                                  | 579,392 |         |           |      | 509,322 |         |           |  | 502,392 |        
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|Income before income tax expense     |                                                                                     |                                                                                                  | 447,319 |         |           |      | 369,184 |         |           |  | 288,527 |        
|                                     | Applicable income tax expense                                                       |                                                                                                  |         | 148,681 |           |      |         | 126,202 |           |  |         | 96,793  |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Net income before extraordinary item and
    cumulative effect of change in accounting principle |         |         | 298,638   |      |         |         | 242,982   |  |         |         | 191,734   | 
|                                     | Extraordinary item  early
    extinguishment of debt, net of tax                   |                                                                                                  |         |        |           |      |         | (3,897  | )         |  |         |        |          
|                                     | Cumulative effect of change in accounting
    principle, net of tax                 |                                                                                                  |         |        |           |      |         | (290    | )         |  |         |        |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Net income                                                                                       |         | $       | 298,638   |      |         | $       | 238,795   |  |         | $       | 191,734   | 
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|Basic earnings per share:            |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     | Net income before extraordinary item and
    cumulative effect of accounting change |                                                                                                  | $       | 2.01    |           |      | $       | 1.73    |           |  | $       | 1.33    |          
|                                     | Extraordinary item, net of tax                                                      |                                                                                                  |         |        |           |      |         | (0.03   | )         |  |         |        |          
|                                     | Cumulative effect of change in accounting
    principle, net of tax                 |                                                                                                  |         |        |           |      |         |        |           |  |         |        |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Net income                                                                                       |         | $       | 2.01      |      |         | $       | 1.70      |  |         | $       | 1.33      | 
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|Diluted earnings per share:          |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     | Net income before extraordinary item and
    cumulative effect of accounting change |                                                                                                  | $       | 1.99    |           |      | $       | 1.71    |           |  | $       | 1.32    |          
|                                     | Extraordinary item, net of tax                                                      |                                                                                                  |         |        |           |      |         | (0.03   | )         |  |         |        |          
|                                     | Cumulative effect of change in accounting
    principle, net of tax                 |                                                                                                  |         |        |           |      |         |        |           |  |         |        |          
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     |                                                                                     | Net income                                                                                       |         | $       | 1.99      |      |         | $       | 1.68      |  |         | $       | 1.32      | 
|                                     |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|Weighted average shares outstanding: |                                                                                     |                                                                                                  |         |         |           |      |         |         |           |  |         |        
|                                     | Basic                                                                               |                                                                                                  |         | 148,213 |           |      |         | 140,473 |           |  |         | 144,270 |          
|                                     | Diluted                                                                             |                                                                                                  |         | 149,829 |           |      |         | 141,802 |           |  |         | 145,194 |          

See accompanying notes to Consolidated Financial
Statements.

46



---



##### Table of Contents



BANKNORTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |         | 
|---------------------------------------------------------------------------------------- | -------------------- | -------------- | ----- | ------- |  | -------- | --------- | -------- |  | -------- | --------- | ----------------- |  | ----- | ------ | - |  | - | -------- | - |  | - | -------- | - |  | - | --------- | ------- | 
|                                                                                         |                      |                |       |         |  |          |           | Unearned |  |          |           | Accumulated Other |  |      
|                                                                                         |                      | Par            |       | Paid-in |  | Retained |           | Compen-  |  | Treasury |           | Comprehensive     |  |      
|                                                                                         |                      | Value          |       | Capital |  | Earnings |           | sation   |  | Stock    |           | Income (Loss)     |  | Total
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |      
|                                                                                         |                      |               
|                                                                                         |                      | (In thousands)
|Balances at December 31, 1999                                                            |                      | $              | 1,496 |         |  | $        | 617,523   |          |  | $        | 787,238   |                   |  | $     | (2,751 | ) |  | $ | (85,838  | ) |  | $ | (125,394 | ) |  | $ | 1,192,274 |        
|Net income                                                                               |                      |                |      |         |  |          |          |          |  |          | 191,734   |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 191,734   |        
|Unrealized gains on securities, net of
    reclassification adjustment and taxes         |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   | 90,657   |   |  |   | 90,657    |        
|Minimum pension liability, net of tax                                                    |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   | 250      |   |  |   | 250       |        
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|                                                                                         | Comprehensive income |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           | 282,641 | 
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|Cancellation of treasury shares at acquisition                                           |                      |                | (1    | )       |  |          | (2,206    | )        |  |          |          |                   |  |       |       |   |  |   | 2,207    |   |  |   |         |   |  |   |          |        
|Treasury stock issued for employee benefit plans                                         |                      |                |      |         |  |          |          |          |  |          | (10,790   | )                 |  |       |       |   |  |   | 30,486   |   |  |   |         |   |  |   | 19,696    |        
|Treasury stock purchased                                                                 |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   | (96,585  | ) |  |   |         |   |  |   | (96,585   | )      
|Issuance and distribution of restricted stock                                            |                      |                |      |         |  |          | (119      | )        |  |          | (195      | )                 |  |       |       |   |  |   | 484      |   |  |   |         |   |  |   | 170       |        
|Amortization of employee restricted stock                                                |                      |                |      |         |  |          | (390      | )        |  |          |          |                   |  |       | 992    |   |  |   |         |   |  |   |         |   |  |   | 602       |        
|Common stock issued for acquisitions                                                     |                      |                | 1     |         |  |          | 1,324     |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 1,325     |        
|Decrease in unearned compensation  ESOP                                                 |                      |                |      |         |  |          | 1,122     |          |  |          |          |                   |  |       | 405    |   |  |   |         |   |  |   |         |   |  |   | 1,527     |        
|Payment of fractional shares                                                             |                      |                |      |         |  |          | (20       | )        |  |          |          |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (20       | )      
|Cash dividends paid                                                                      |                      |                |      |         |  |          |          |          |  |          | (70,773   | )                 |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (70,773   | )      
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|Balances at December 31, 2000                                                            |                      |                | 1,496 |         |  |          | 617,234   |          |  |          | 897,214   |                   |  |       | (1,354 | ) |  |   | (149,246 | ) |  |   | (34,487  | ) |  |   | 1,330,857 |        
|Net income                                                                               |                      |                |      |         |  |          |          |          |  |          | 238,795   |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 238,795   |        
|Unrealized gains on securities, net of
    reclassification adjustment and taxes         |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   | 74,781   |   |  |   | 74,781    |        
|Unrealized gains on cash flow hedges, net of
    reclassification adjustment and taxes   |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   | 274      |   |  |   | 274       |        
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|                                                                                         | Comprehensive income |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           | 313,850 | 
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|Premium on repurchase of trust preferred
    securities                                  |                      |                |      |         |  |          | (71       | )        |  |          |          |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (71       | )      
|Treasury stock issued for employee benefit plans                                         |                      |                |      |         |  |          | 297       |          |  |          | (6,811    | )                 |  |       |       |   |  |   | 32,662   |   |  |   |         |   |  |   | 26,148    |        
|Treasury stock purchased                                                                 |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   | (151,546 | ) |  |   |         |   |  |   | (151,546  | )      
|Issuance and distribution of restricted stock                                            |                      |                |      |         |  |          | (161      | )        |  |          | (243      | )                 |  |       |       |   |  |   | 601      |   |  |   |         |   |  |   | 197       |        
|Common stock issued for acquisitions                                                     |                      |                | 155   |         |  |          | 339,804   |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 339,959   |        
|Decrease in unearned compensation  ESOP                                                 |                      |                |      |         |  |          | 1,668     |          |  |          |          |                   |  |       | 337    |   |  |   |         |   |  |   |         |   |  |   | 2,005     |        
|Payment of fractional shares                                                             |                      |                |      |         |  |          | (7        | )        |  |          |          |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (7        | )      
|Cash dividends                                                                           |                      |                |      |         |  |          |          |          |  |          | (72,277   | )                 |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (72,277   | )      
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|Balances at December 31, 2001                                                            |                      |                | 1,651 |         |  |          | 958,764   |          |  |          | 1,056,678 |                   |  |       | (1,017 | ) |  |   | (267,529 | ) |  |   | 40,568   |   |  |   | 1,789,115 |        
|Net income                                                                               |                      |                |      |         |  |          |          |          |  |          | 298,638   |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 298,638   |        
|Unrealized gains on securities, net of
    reclassification adjustment net of tax        |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   | 77,257   |   |  |   | 77,257    |        
|Unrealized losses on cash flow hedges, net of
    reclassification adjustment net of tax |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   | (2,054   | ) |  |   | (2,054    | )      
|Minimum pension liability, net of tax                                                    |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   | (825     | ) |  |   | (825      | )      
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|                                                                                         | Comprehensive income |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           | 373,016 | 
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|Treasury stock issued for employee benefit plans                                         |                      |                |      |         |  |          | (6,989    | )        |  |          |          |                   |  |       |       |   |  |   | 37,395   |   |  |   |         |   |  |   | 30,406    |        
|Treasury stock purchased                                                                 |                      |                |      |         |  |          |          |          |  |          |          |                   |  |       |       |   |  |   | (154,054 | ) |  |   |         |   |  |   | (154,054  | )      
|Issuance and distribution of restricted stock                                            |                      |                |      |         |  |          | (963      | )        |  |          |          |                   |  |       |       |   |  |   | 1,838    |   |  |   |         |   |  |   | 875       |        
|Common stock issued for acquisitions                                                     |                      |                | 38    |         |  |          | 102,829   |          |  |          |          |                   |  |       |       |   |  |   |         |   |  |   |         |   |  |   | 102,867   |        
|Decrease in unearned compensation  ESOP                                                 |                      |                |      |         |  |          | 6,137     |          |  |          |          |                   |  |       | 1,017  |   |  |   |         |   |  |   |         |   |  |   | 7,154     |        
|Cash dividends                                                                           |                      |                |      |         |  |          |          |          |  |          | (85,894   | )                 |  |       |       |   |  |   |         |   |  |   |         |   |  |   | (85,894   | )      
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        
|Balances at December 31, 2002                                                            |                      | $              | 1,689 |         |  | $        | 1,059,778 |          |  | $        | 1,269,422 |                   |  | $     |       |   |  | $ | (382,350 | ) |  | $ | 114,946  |   |  | $ | 2,063,485 |        
|                                                                                         |                      |                |       |         |  |          |           |          |  |          |           |                   |  |       |        |   |  |   |          |   |  |   |          |   |  |   |           |        

See accompanying notes to Consolidated Financial
Statements.

47



---



##### Table of Contents



BANKNORTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ----------------------- | ---------- | ---------- | - | ---- | -------- | ---------- | - | - | -------- | ----------- | -
|                                                                                                                                                                                     |                                                                                                              |                        
|                                                                                                                                                                                     |                                                                                                              | Year Ended December 31,
|                                                                                                                                                                                     |                                                                                                              |                        
|                                                                                                                                                                                     |                                                                                                              | 2002                    |            | 2001       |   | 2000
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |     
|                                                                                                                                                                                     |                                                                                                              |                        
|                                                                                                                                                                                     |                                                                                                              | (In thousands)         
|Cash flows from operating activities:                                                                                                                                                |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|Net income                                                                                                                                                                           |                                                                                                              | $                       | 298,638    |            |   | $    | 238,795  |            |   | $ | 191,734  |            
|Adjustments to reconcile net income to net cash
    provided by operating activities:                                                                                                |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|                                                                                                                                                                                     | Provision for loan and lease losses                                                                          |                         |            | 44,314     |   |      |          | 41,889     |   |   |          | 23,819      |  
|                                                                                                                                                                                     | Depreciation and amortization                                                                                |                         |            | 61,322     |   |      |          | 50,036     |   |   |          | 32,730      |  
|                                                                                                                                                                                     | Write-off of branch automation project                                                                       |                         |            | 6,170      |   |      |          |           |   |   |          |            |  
|                                                                                                                                                                                     | Amortization of goodwill and other intangibles                                                               |                         |            | 6,492      |   |      |          | 22,084     |   |   |          | 21,016      |  
|                                                                                                                                                                                     | Net decrease (increase) in deferred tax
    assets                                                           |                         |            | 12,522     |   |      |          | 6,940      |   |   |          | (3,445      | )
|                                                                                                                                                                                     | ESOP and restricted stock expense                                                                            |                         |            | 7,154      |   |      |          | 2,005      |   |   |          | 1,527       |  
|                                                                                                                                                                                     | Issuance and amortization of restricted stock
    units                                                      |                         |            | 875        |   |      |          | 197        |   |   |          | 772         |  
|                                                                                                                                                                                     | Net (gains) losses realized from sales of
    securities and loans                                           |                         |            | (9,456     | ) |      |          | (1,325     | ) |   |          | 10,726      |  
|                                                                                                                                                                                     | Net (gains) losses realized from sales of
    loans held for sale (a component of mortgage banking services) |                         |            | (12,577    | ) |      |          | (11,066    | ) |   |          | 915         |  
|                                                                                                                                                                                     | Earnings from bank owned life insurance                                                                      |                         |            | (20,002    | ) |      |          | (18,392    | ) |   |          | (17,701     | )
|                                                                                                                                                                                     | Net decrease (increase) in mortgage
    servicing rights                                                     |                         |            | 5,487      |   |      |          | 23,451     |   |   |          | 29,499      |  
|                                                                                                                                                                                     | Proceeds from sales of loans held for sale                                                                   |                         |            | 863,560    |   |      |          | 911,347    |   |   |          | 308,191     |  
|                                                                                                                                                                                     | Residential loans originated and purchased for
    sale                                                      |                         |            | (865,068   | ) |      |          | (966,824   | ) |   |          | (277,919    | )
|                                                                                                                                                                                     | Net decrease (increase) in interest and
    dividends receivable and other assets                            |                         |            | (71,742    | ) |      |          | 21,924     |   |   |          | (26,003     | )
|                                                                                                                                                                                     | Net increase (decrease) in other liabilities                                                                 |                         |            | 63,619     |   |      |          | (22,278    | ) |   |          | (10,396     | )
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|Net cash provided by operating activities                                                                                                                                            |                                                                                                              |                         | 391,308    |            |   |      | 298,783  |            |   |   | 285,465  |            
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|Cash flows from investing activities:                                                                                                                                                |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|                                                                                                                                                                                     | Proceeds from sales of securities available for
    sale                                                     |                         |            | 1,001,605  |   |      |          | 717,514    |   |   |          | 278,984     |  
|                                                                                                                                                                                     | Proceeds from maturities and principal repayments
    of securities available for sale                       |                         |            | 2,263,728  |   |      |          | 1,779,234  |   |   |          | 958,835     |  
|                                                                                                                                                                                     | Purchases of securities available for sale                                                                   |                         |            | (4,110,201 | ) |      |          | (1,905,296 | ) |   |          | (231,383    | )
|                                                                                                                                                                                     | Proceeds from maturities and principal repayments
    of securities held to maturity                         |                         |            | 123,214    |   |      |          | 115,924    |   |   |          | 98,510      |  
|                                                                                                                                                                                     | Net (increase) decrease in loans and leases                                                                  |                         |            | (545,822   | ) |      |          | (22,466    | ) |   |          | (1,045,822  | )
|                                                                                                                                                                                     | Proceeds from sales of loans                                                                                 |                         |            | 104,366    |   |      |          | 39,303     |   |   |          | 34,234      |  
|                                                                                                                                                                                     | Net additions to premises and equipment                                                                      |                         |            | (65,562    | ) |      |          | (41,759    | ) |   |          | (32,235     | )
|                                                                                                                                                                                     | Purchase of bank owned life insurance                                                                        |                         |            | (40,000    | ) |      |          |           |   |   |          |            |  
|                                                                                                                                                                                     | Proceeds from policy coverage on bank owned life
    insurance                                               |                         |            |           |   |      |          | 3,690      |   |   |          | 1,213       |  
|                                                                                                                                                                                     | Payment for acquisitions, net of cash acquired                                                               |                         |            | (12,074    | ) |      |          | 14,877     |   |   |          | (22,274     | )
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|Net cash provided (used) by investing
    activities                                                                                                                                 |                                                                                                              |                         | (1,280,746 | )          |   |      | 701,021  |            |   |   | 40,062   |            
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|Cash flows from financing activities:                                                                                                                                                |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|                                                                                                                                                                                     | Net increase (decrease) in deposits                                                                          |                         |            | 375,074    |   |      |          | 113,271    |   |   |          | 396,755     |  
|                                                                                                                                                                                     | Net increase (decrease) in securities sold
    under repurchase agreements                                   |                         |            | 729,645    |   |      |          | 583,929    |   |   |          | (316,195    | )
|                                                                                                                                                                                     | Proceeds from Federal Home Loan Bank borrowings                                                              |                         |            | 10,092     |   |      |          | 5,737,151  |   |   |          | 12,799,452  |  
|                                                                                                                                                                                     | Payments on Federal Home Loan Bank borrowings                                                                |                         |            | (325,849   | ) |      |          | (6,921,371 | ) |   |          | (13,449,029 | )
|                                                                                                                                                                                     | Net increase (decrease) in other borrowings                                                                  |                         |            | (37,340    | ) |      |          | (29,772    | ) |   |          | 6,441       |  
|                                                                                                                                                                                     | Issuance of subordinated long-term debt                                                                      |                         |            |           |   |      |          | 197,982    |   |   |          |            |  
|                                                                                                                                                                                     | Proceeds from issuance (repurchase) of
    securities of subsidiary trusts                                   |                         |            | 193,150    |   |      |          | (5,090     | ) |   |          |            |  
|                                                                                                                                                                                     | Treasury stock issued for employee benefit plans                                                             |                         |            | 30,406     |   |      |          | 26,141     |   |   |          | 21,001      |  
|                                                                                                                                                                                     | Purchase of treasury stock                                                                                   |                         |            | (154,054   | ) |      |          | (151,546   | ) |   |          | (96,585     | )
|                                                                                                                                                                                     | Cash dividends paid to shareholders                                                                          |                         |            | (85,894    | ) |      |          | (72,277    | ) |   |          | (70,773     | )
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|Net cash (used) provided by financing
    activities                                                                                                                                 |                                                                                                              |                         | 735,230    |            |   |      | (521,582 | )          |   |   | (708,933 | )          
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|(Decrease) increase in cash and cash equivalents                                                                                                                                     |                                                                                                              |                         | (154,208   | )          |   |      | 478,222  |            |   |   | (383,406 | )          
|Cash and cash equivalents at beginning of period                                                                                                                                     |                                                                                                              |                         | 871,211    |            |   |      | 392,989  |            |   |   | 776,395  |            
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|Cash and cash equivalents at end of period                                                                                                                                           |                                                                                                              | $                       | 717,003    |            |   | $    | 871,211  |            |   | $ | 392,989  |            
|                                                                                                                                                                                     |                                                                                                              |                         |            |            |   |      |          |            |   |   |          |            
|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                                                                                |                         | $          | 1,693,715  |   |      | $        | 3,025,847  |   |   | $        | 13,534      |  
|                                                                                                                                                                                     | Less liabilities assumed                                                                                     |                         |            | 1,355,197  |   |      |          | 2,521,054  |   |   |          | 12,263      |  



---

For the years ended December 31, 2002, 2001
and 2000, interest of $434,685, $596,315 and $712,843 and income
taxes of $104,810, $121,592 and $92,970 were paid, respectively.
During 2000 $3,094 of investment securities were transferred to
securities available for sale.

See accompanying notes to Consolidated Financial
Statements.

48



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##### Table of Contents



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. (Banknorth) and its
subsidiaries conform to accounting principles generally accepted
in the United States of America and to general practice within
the banking industry. Banknorth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
Banknorths direct and indirect subsidiaries located in
Maine, New Hampshire, Massachusetts, Connecticut, Vermont and
New York. Banknorth and its subsidiaries are subject to
regulation of, and periodic examination by, the Office of the
Comptroller of Currency and the Federal Reserve Board and the
Superintendent of the Maine Bureau of Financial Regulations,
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 and its subsidiaries. Banknorths
principal operating subsidiary is Banknorth, NA (the
Bank). 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 Banknorth 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, accounting for
acquisitions and review of goodwill and intangible assets, and
accounting for pension plans.

Cash and Cash
Equivalents

Banknorth is required to comply with various laws
and regulations of the Federal Reserve Board which require that
Banknorth 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. 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

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. Banknorth does not have a trading portfolio.

Premiums and discounts are amortized and accreted
over the term of the securities on a method that approximates
the interest method. 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. Loans are considered impaired when
it is probable that Banknorth 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
and approved by the Board Risk Committee 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 economic conditions, loan growth, charge-off
experience, delinquency trends, nonperforming loan trends,
portfolio migration data and other asset quality factors.

For the commercial business loan and lease and
the commercial real estate loan portfolios, we evaluate 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.

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
because estimates 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 Banknorths
allowance for loan and lease losses. Such agencies may require
Banknorth 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 who
have provided positive consent allowing the Bank to be the
beneficiary of such policies. Increases in the cash value of the
policies, as well as insurance proceeds received, are recorded
in other noninterest income, and are not subject to income
taxes. The cash value is included in assets. Banknorth 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; generally 25 to
40 years for premises and 3 to 7 years for equipment.

Costs of software developed for internal use,
such as those related to software licenses, programming,
testing, configuration and integration, are capitalized and
included in premises 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, generally five to seven years. Capitalized costs of
software developed for internal use are reviewed on an ongoing
basis for compliance with accounting standards. In addition,
management periodically reviews capitalized costs for
impairment. Significant judgment is exercised in these
impairment reviews including the periodic evaluation of the
cost/benefit analyses of software projects under development and
the determination of the remaining useful life of completed
software projects.

Goodwill and
Identifiable Intangible Assets

Banknorths acquisition strategy has
historically used both the pooling-of-interest and purchase
method of accounting for acquisitions. Effective July 1,
2001, the purchase method of accounting is the only acceptable
accounting method. For acquisitions accounted for under the
purchase method, assets acquired and liabilities assumed must be
recorded based on their estimated fair value, which in many
instances involves estimates based on third party valuations,
discounted cash flows or other valuation techniques. Certain
liabilities such as employee severance, facility closings and
contract terminations may be accrued as part of the cost of
acquisition. Purchase acquisitions typically result in goodwill
or other intangible assets which are subject to ongoing periodic
impairment tests. Goodwill is evaluated for impairment at least
annually using several fair value techniques, including market
capitalization, discounted future cash flows and multiples of
revenues/earnings. The valuation techniques contain estimates
such as discount rate, projected future cash flows and time
period in their calculations. Furthermore, the determination of
which intangible assets have finite lives is subjective, as is
the determination of the amortization period for such intangible
assets. Goodwill is evaluated for impairment

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

at the reporting unit level, and there is
goodwill recorded in the following reporting units: Community
Banking, Insurance Brokerage and Investment Management.

Identifiable intangible assets consists of core
deposit intangibles, noncompete agreements and customer lists
and are amortized over their estimated useful lives on a method
that approximates the amount of economic benefits to Banknorth.
They are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. The useful lives are shown below:

|                         |  |  |              | 
|------------------------ |  |  | ------------ | 
|Core deposit intangibles |  |  | 7  10 years | 
|Noncompete agreements    |  |  | 1  3 years  | 
|Customer lists           |  |  | 1  8 years  | 

Impairment of
Long-Lived Assets Other than Goodwill

Banknorth reviews long-lived assets, including
premises and equipment and other intangible assets for
impairment at least annually or 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. Banknorth
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 Banknorth enters into for the purpose of reducing
the market risk associated with originating loans for sale
should interest rates change. Forward commitments to sell are
recorded at fair value and are included with loans held for
sale. Commitments to originate rate-locked loans are also
accounted for at fair value and are classified in 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,
Banknorth has generally sold residential loans and the related
servicing rights on a flow basis.

Mortgage servicing rights are amortized on a
method that approximates the estimated weighted average life of
the underlying loans serviced for others. Amortization is
recorded as a charge against mortgage service fee income, a
component of mortgage banking services income. Banknorth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, Banknorth obtains third party valuations based on loan
level data including 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.

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Derivative
Financial Instruments

Effective January 1, 2001, Banknorth adopted
Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS 133 sets accounting and
reporting standards for derivative instruments and hedging
activities and requires that all derivatives be recognized on
the balance sheet at fair value. Banknorth recognized an
after-tax loss of $290 thousand from the cumulative effect
of adoption of this accounting standard.

Starting January 1, 2001, Banknorth
recognizes all derivatives on the balance sheet at fair value.
On the date the derivative is entered into, Banknorth designates
whether the derivative is part of a hedging relationship (cash
flow or fair value hedge). Banknorth formally documents
relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for
undertaking hedge transactions. Banknorth 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.

From time to time Banknorth may use certain
hedging strategies which include the use of derivative financial
instruments. The primary objective of Banknorths hedging
strategies is to reduce net interest rate exposure arising from
Banknorths asset and liability structure and mortgage
banking activities. Banknorth 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. Banknorth also purchases 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.

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 related forecasted transaction affects
earnings, generally within 60 to 90 days. Banknorth
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.

In 2002, Banknorth began offering commercial
customers interest rate swap and cap products to enable these
customers to synthetically fix the interest rate on variable
interest rate loans. These pay variable, receive fixed interest
rate swaps on our books are offset by entering into simultaneous
pay fixed, receive variable rate swaps with a third party
broker/dealer. Both of these swap products are marked to market
and are carried on our balance sheet at fair value.



| |                                                          
| | ---------------------------------------------------------
| | Pension,
    401(k), and Other Employee Benefit
    Plans

Banknorth has non-contributory defined benefit
pension plans that cover most employees. The benefits are based
on years of service and the employees career average
earnings. Banknorth 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.

Banknorth uses a December 31 measurement
date to determine its pension expense and related financial
disclosure information. In accordance with SFAS No. 87, the
discount rate is set for the retirement plans by reference to
investment grade bond yields. Banknorth uses Moodys
published AA yield for long-term corporate bonds for the month
of December as an index, and the discount rate is set within 25
basis points of the index. Moodys AA yield dropped from
7.19% for December 2001 to 6.63% for December 2002. Similarly,
the expected long-term rate of return on the assets held in our
defined benefit pension plan was evaluated based on market and
economic conditions, the Plans asset allocation and other
factors. As a consequence of the most recent annual review, the
discount rate for all of our

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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

employee benefit plans was reduced from 7.25% as
of December 31, 2001 to 6.75% as of December 31, 2002
and the expected rate of return on the pension plan assets was
reduced from 9.0% for 2002 to 8.5% for 2003. Pension expense is
very sensitive to changes in the discount rate and the expected
return on assets.

Significant actuarial losses (which occur when
investment returns are less than expected) resulted during 2002
and 2001 when one-year investment returns were substantially
lower than the long-term assumption as a result of declines in
the stock market. These actuarial losses amounted to
approximately $25 million and $18 million in 2002 and
2001, respectively. The unrecognized actuarial loss will
continue to be amortized into earnings in future periods.
Continued volatility in pension expense is expected as assumed
investment returns vary from actual.

Banknorth maintains Section 401(k) savings
plans for substantially all of its employees. Employees are
eligible to participate in the 401(k) Plan on the first day
of the month following their date of hire. Under the plans,
Banknorth 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 Banknorth, at
its discretion, for the benefit of participating employees.

Banknorth previously sponsored a Profit Sharing
Employee Stock Ownership Plan (the ESOP) which was
designed to invest primarily in Banknorth common stock. The ESOP
was merged into the 401(k) Plan effective January 1,
2001. Banknorth previously sponsored a leveraged employee stock
ownership plan which was merged with and into the ESOP. The debt
of the ESOP was fully paid in the fourth quarter of 2002.

Stock
Compensation Plans

Statement of Financial Accounting Standards 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 underlying stock at the grant date (or other
measurement date) over the amount an employee must pay to
acquire the stock upon exercise of the stock option. Banknorth
has elected to continue with the accounting methodology in
Opinion No. 25 and, as a result, must make pro forma
disclosures 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 and the effects of the Employee Stock
Purchase Plan. Had Banknorth determined cost based on the fair
value at the grant date for its stock options and

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

expense related to the employee stock purchase
plan under SFAS No. 123, its net income would have been
reduced to the pro forma amounts indicated as follows:

|                                                                                                                                                    |  |                         |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                                    |  |                        
|                                                                                                                                                    |  | Year Ended December 31,
|                                                                                                                                                    |  |                        
|                                                                                                                                                    |  | 2002                    |         | 2001 |  | 2000
|                                                                                                                                                    |  |                         |         |      |  |     
|Net Income, as reported                                                                                                                             |  | $                       | 298,638 |      |  | $    | 238,795 |   |  | $ | 191,734 |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |  |                         | (7,806  | )    |  |      | (5,218  | ) |  |   | (4,708  | )
|                                                                                                                                                    |  |                         |         |      |  |      |         |   |  |   |         |  
|Proforma net income                                                                                                                                 |  | $                       | 290,832 |      |  | $    | 233,577 |   |  | $ | 187,026 |  
|                                                                                                                                                    |  |                         |         |      |  |      |         |   |  |   |         |  
|Earnings per share                                                                                                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Basic  As reported                                                                                                                                 |  | $                       | 2.01    |      |  | $    | 1.70    |   |  | $ | 1.33    |  
|Proforma                                                                                                                                            |  | $                       | 1.96    |      |  | $    | 1.66    |   |  | $ | 1.30    |  
|Diluted  As reported                                                                                                                               |  | $                       | 1.99    |      |  | $    | 1.68    |   |  | $ | 1.32    |  
|Proforma                                                                                                                                            |  | $                       | 1.94    |      |  | $    | 1.65    |   |  | $ | 1.29    |  

Investments
in Limited Partnerships

Banknorth 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
Banknorths market area while the small business investment
limited partnerships are primarily providing seed money to small
businesses also in Banknorth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 Banknorth 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
Banknorth does not exercise significant influence,
Banknorths investment is accounted for under the cost
method and the carrying value is periodically evaluated for
other than temporary impairment. Except for fixed capital or
loan commitments agreed to in advance, the partnerships have no
recourse to Banknorth.

Income
Taxes

Banknorth 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.
Management exercises significant judgment in evaluating the
amount and timing of recognition of the resulting tax
liabilities and assets, including projections of future taxable
income. These judgments and estimates are reviewed on a regular
basis as regulatory and business factors change.

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

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 were converted into common stock using the treasury stock
method.

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. Banknorth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 January 2003,the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51. This Interpretation
addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interest in
variable interest entities created or obtained after
January 31, 2003. The Interpretation requires certain
disclosures in financial statements issued after
January 31, 2003 if it is reasonably possible that
Banknorth will consolidate or disclose information about
variable interest entities when the Interpretation becomes
effective. Banknorth does not expect that the provisions of this
Interpretation will have a material impact on its financial
condition or results of operations.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation to provide alternative methods of
transition when companies elect to change from the intrinsic
method to the fair value method of accounting for stock-based
employee compensation, including stock options. In addition, the
Statement amends the disclosure requirement of SFAS No. 123
to require prominent disclosures in both annual and interim
financial statements about the fair value based method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. The statement is
effective for fiscal years ended after December 15, 2002
and the disclosures to be provided in interim financial reports
will be required for interim periods beginning after
December 15, 2002. We currently use the intrinsic method of
accounting for stock options and have not yet determined if we
will change from the intrinsic value method to the fair value
method of accounting for employee stock options.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This Interpretation
requires the recording at fair value the issuance of guarantees
which would include the issuance of standby letters of credit.
The disclosure provisions of this Interpretation have been
implemented as of December 31, 2002 and the initial
recognition and measurement provisions will be implemented
beginning January 1, 2003. Adoption of the Interpretation
is not expected to materially affect our financial condition,
results of operations, earnings per share or cash flows. As of
December 31, 2002, the approximate fair value of the
premium guarantees on the standby letters of credit was $890
thousand. See also Note 19 to the Consolidated Financial
Statements.

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires the recognition of
certain costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an
exit or disposal plan. This Statement is to be applied
prospectively to exit or disposal activities initiated after
December 31, 2002. Adoption of this standard is not
expected to materially affect our financial condition, results
of operations, earnings per share or cash flows.

In April 2002, the FASB issued SFAS No. 145
which rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related
income tax effect. Additionally, SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that
have economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions.
We will adopt SFAS 145 in 2003. Upon adoption, we must
reclassify prior period items that do not meet the extraordinary
item classification criteria in Opinion No. 30. In the
fourth quarter of 2001, under the provisions of SFAS No. 4,
we recorded an extraordinary item from the early extinguishment
of debt of $3.9 million after-tax, or $.03 per diluted
share. Upon adoption of SFAS No. 145, this will no longer
qualify for extraordinary treatment and must be reclassified and
included with noninterest expense.

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS
No. 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. The adoption of this standard is not expected to have a
material impact on our financial condition, results of
operations, earnings per share or cash flows.

3.     Acquisitions

Acquisitions are an important part of
Banknorths strategic plans. The following table summarizes
acquisitions completed since January 1, 2000. The 2002
acquisitions were accounted for as purchases, and as such, were
included in our results of operations from the date of
acquisition.

Acquisitions
2002  2000

|                                          |  |                                  |             |                  |  |                           |         |              |  |             |       |        |  |          |       |       |  |   |      |  |  |   |       |  |  |  |      |  |  |   |       | 
|----------------------------------------- |  | -------------------------------- | ----------- | ---------------- |  | ------------------------- | ------- | ------------ |  | ----------- | ----- | ------ |  | -------- | ----- | ----- |  | - | ---- |  |  | - | ----- |  |  |  | ---- |  |  | - | ----- | 
|                                          |  |                                  |             |                  |  |                           |         |             
|                                          |  |                                  |             |                  |  | Transaction Related Items
|                                          |  |                                  |             | Balance at       |  |                          
|                                          |  |                                  |             | Acquisition Date |  |                           |         | Other        |  |             |       | Total 
|                                          |  | Acquisition                      |             |                  |  |                           |         | Identifiable |  | Cash        |       | Shares |  | Purchase
|                                          |  | Date                             |             | Assets           |  | Equity                    |         | Goodwill     |  | Intangibles |       | Paid   |  | Issued   |       | Price
|                                          |  |                                  |             |                  |  |                           |         |              |  |             |       |        |  |          |       |      
|                                          |  |                                 
|                                          |  | (Dollars and shares in millions)
|Warren Bancorp, Inc.(1)                   |  |                                  | 12/31/2002  |                  |  | $                         | 466.1   |              |  | $           | 45.3  |        |  | $        | 88.8  |       |  | $ | 4.9  |  |  | $ | 59.8  |  |  |  | 2.7  |  |  | $ | 136.6 | 
|Bancorp Connecticut, Inc.(1)              |  |                                  | 8/31/2002   |                  |  |                           | 661.7   |              |  |             | 61.4  |        |  |          | 98.2  |       |  |   | 8.7  |  |  |   | 161.2 |  |  |  |     |  |  |   | 154.2 | 
|Ipswich Bancshares, Inc.(1)               |  |                                  | 7/26/2002   |                  |  |                           | 318.0   |              |  |             | 13.9  |        |  |          | 23.1  |       |  |   | 4.8  |  |  |   | 19.9  |  |  |  | 0.9  |  |  |   | 40.1  | 
|Andover Bancorp, Inc.(1)                  |  |                                  | 10/31/2001  |                  |  |                           | 1,796.0 |              |  |             | 162.9 |        |  |          | 187.7 |       |  |   | 13.2 |  |  |   |      |  |  |  | 16.5 |  |  |   | 340.0 | 
|Metrowest Bank(1)                         |  |                                  | 10/31/2001  |                  |  |                           | 907.7   |              |  |             | 62.0  |        |  |          | 97.1  |       |  |   | 5.0  |  |  |   | 164.8 |  |  |  |     |  |  |   | 164.8 | 
|Banknorth Group, Inc. (Burlington, VT)(2) |  |                                  | 5/10/2000   |                  |  |                           | 4,633.8 |              |  |             | 343.2 |        |  |          |      |       |  |   |     |  |  |   |      |  |  |  | 42.9 |  |  |   | 579.6 | 
|Insurance agency acquisitions(1)          |  |                                  | 2000  2002 |                  |  |                           | 16.3    |              |  |             | 1.2   |        |  |          | 29.1  |       |  |   | 2.2  |  |  |   | 23.7  |  |  |  | 0.3  |  |  |   | 32.3  | 



---



|    |                             
|--- | ----------------------------
|(1) | Accounted for as a purchase.
|   
|(2) | Accounted for as a pooling. 

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During 2002, Banknorth acquired Ipswich
Bancshares, Inc. (Ipswich), Bancorp Connecticut,
Inc. (Bancorp), Community Insurance Agencies, Inc.
(Community) and Warren Bancorp (Warren).
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed for Ipswich, Bancorp,
CIA and Warren at the date of acquisition. Banknorth expects
that some adjustments of the estimated fair values assigned to
the assets acquired and liabilities assumed will be recorded in
2003, although such adjustments are not expected to be
significant. It is estimated that none of the goodwill will be
deductible for income tax purposes.

|                          |                           |   |           |           | 
|------------------------- | ------------------------- | - | --------- | --------- | 
|Assets:                   |                           |   |           |          
|Investments               |                           | $ | 315,275   |          
|Loans held for sale       |                           |   | 1,377     |          
|Loans and leases, net     |                           |   | 920,909   |          
|Premises and equipment    |                           |   | 9,937     |          
|Mortgage servicing rights |                           |   | 252       |          
|Goodwill                  |                           |   | 215,586   |          
|Other intangibles         |                           |   | 20,571    |          
|Other assets              |                           |   | 209,808   |          
|                          |                           |   |           |          
|                          | Total assets acquired     |   |           | 1,693,715 | 
|                          |                           |   |           |          
|Liabilities:              |                           |   |           |          
|Deposits                  |                           |   | 1,068,478 |          
|Borrowings                |                           |   | 258,911   |          
|Other liabilities         |                           |   | 27,808    |          
|                          |                           |   |           |          
|                          | Total liabilities assumed |   |           | 1,355,197 | 
|                          |                           |   |           |          
|                          | Net assets acquired       |   | $         | 338,518   | 
|                          |                           |   |           |          

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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:

|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |           |           | 
|------------------ | -------------------------------------------------------------------------------------------- | ----------------------------------- | - | ---------- | --------- | ---------- | - | ------- | ------- |  | - | ------- | ------- | - | - | --------- | --------- | 
|                   |                                                                                              |                                     |   | Gross      |           | Gross      |   |        
|                   |                                                                                              | Amortized                           |   | Unrealized |           | Unrealized |   | Market 
|                   |                                                                                              | Cost                                |   | Gains      |           | Losses     |   | Value  
|                   |                                                                                              |                                     |   |            |           |            |   |        
|Available for Sale |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   | December 31, 2002:                                                                           |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |           |          
|                   | U.S. Government obligations and obligations of
    U.S. Government agencies and corporations |                                     | $ | 1,539,447  |           |            | $ | 21,514  |         |  | $ | (13     | )       |   | $ | 1,560,948 |          
|                   | Tax-exempt bonds and notes                                                                   |                                     |   | 95,332     |           |            |   | 2,053   |         |  |   | (7      | )       |   |   | 97,378    |          
|                   | Other bonds and notes                                                                        |                                     |   | 356,551    |           |            |   | 14,796  |         |  |   | (3,192  | )       |   |   | 368,155   |          
|                   | Mortgage-backed securities                                                                   |                                     |   | 3,659,334  |           |            |   | 139,974 |         |  |   | (87     | )       |   |   | 3,799,221 |          
|                   | Collateralized mortgage obligations                                                          |                                     |   | 581,357    |           |            |   | 7,112   |         |  |   | (1,143  | )       |   |   | 587,326   |          
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total debt securities               |   |            | 6,232,021 |            |   |         | 185,449 |  |   |         | (4,442  | ) |   |           | 6,413,028 | 
|                   | Federal Home Loan Bank stock                                                                 |                                     |   | 275,768    |           |            |   | 0       |         |  |   | 0       |         |   |   | 275,768   |          
|                   | Federal Reserve Bank stock                                                                   |                                     |   | 35,250     |           |            |   | 0       |         |  |   | 0       |         |   |   | 35,250    |          
|                   | Other equity securities                                                                      |                                     |   | 7,177      |           |            |   | 415     |         |  |   | (171    | )       |   |   | 7,421     |          
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total equity securities             |   |            | 318,195   |            |   |         | 415     |  |   |         | (171    | ) |   |           | 318,439   | 
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total securities available for sale |   | $          | 6,550,216 |            |   | $       | 185,864 |  |   | $       | (4,613  | ) |   | $         | 6,731,467 | 
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   | December 31, 2001:                                                                           |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |           |          
|                   | U.S. Government obligations and obligations
    of U.S. Government agencies and corporations |                                     | $ | 531,256    |           |            | $ | 6,592   |         |  | $ | (364    | )       |   | $ | 537,484   |          
|                   | Tax-exempt bonds and notes                                                                   |                                     |   | 112,845    |           |            |   | 1,443   |         |  |   | (115    | )       |   |   | 114,173   |          
|                   | Other bonds and notes                                                                        |                                     |   | 560,090    |           |            |   | 8,461   |         |  |   | (10,628 | )       |   |   | 557,923   |          
|                   | Mortgage-backed securities                                                                   |                                     |   | 3,577,405  |           |            |   | 50,935  |         |  |   | (1,321  | )       |   |   | 3,627,019 |          
|                   | Collateralized mortgage obligations                                                          |                                     |   | 681,366    |           |            |   | 7,788   |         |  |   | (1,313  | )       |   |   | 687,841   |          
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total debt securities               |   |            | 5,462,962 |            |   |         | 75,219  |  |   |         | (13,741 | ) |   |           | 5,524,440 | 
|                   | Federal Home Loan Bank stock                                                                 |                                     |   | 264,943    |           |            |   |        |         |  |   |        |         |   |   | 264,943   |          
|                   | Federal Reserve Bank stock                                                                   |                                     |   | 23,159     |           |            |   |        |         |  |   |        |         |   |   | 23,159    |          
|                   | Other equity securities                                                                      |                                     |   | 4,183      |           |            |   | 569     |         |  |   | (56     | )       |   |   | 4,696     |          
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total equity securities             |   |            | 292,285   |            |   |         | 569     |  |   |         | (56     | ) |   |           | 292,798   | 
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total securities available for sale |   | $          | 5,755,247 |            |   | $       | 75,788  |  |   | $       | (13,797 | ) |   | $         | 5,817,238 | 
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|Held to Maturity:  |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   | December 31, 2002:                                                                           |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |           |          
|                   | Collateralized mortgage obligations                                                          |                                     | $ | 216,409    |           |            | $ | 5,162   |         |  |   |        |         |   | $ | 221,571   |          
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total securities held to maturity   |   | $          | 216,409   |            |   | $       | 5,162   |  |   |         |        |   |   | $         | 221,571   | 
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   | December 31, 2001:                                                                           |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |           |          
|                   | Collateralized mortgage obligations                                                          |                                     | $ | 339,623    |           |            | $ | 1,114   |         |  |   |        |         |   | $ | 340,737   |          
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          
|                   |                                                                                              | Total securities held to maturity   |   | $          | 339,623   |            |   | $       | 1,114   |  |   |         |        |   |   | $         | 340,737   | 
|                   |                                                                                              |                                     |   |            |           |            |   |         |         |  |   |         |         |   |   |          

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The amortized cost and market values of debt
securities at December 31, 2002 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, 2002, Banknorth had $830.1 million of
securities available for sale with call provisions.

|                                       |                       |                    |           |                  |  |           |           |           |  |   |         |         |  |   |         |         | 
|-------------------------------------- | --------------------- | ------------------ | --------- | ---------------- |  | --------- | --------- | --------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                       |                       |                    |           |                 
|                                       |                       | Available for Sale |           | Held to Maturity
|                                       |                       |                    |           |                 
|                                       |                       | Amortized          |           | Market           |  | Amortized |           | Market   
|                                       |                       | Cost               |           | Value            |  | Cost      |           | Value    
|                                       |                       |                    |           |                  |  |           |           |          
|December 31, 2002:                     |                       |                    |           |                  |  |           |           |           |  |   |         |         |  |   |         |        
|Due in one year or less                |                       | $                  | 152,701   |                  |  | $         | 153,801   |           |  | $ |        |         |  | $ |        |        
|Due after one year through five years  |                       |                    | 1,368,600 |                  |  |           | 1,394,984 |           |  |   |        |         |  |   |        |        
|Due after five years through ten years |                       |                    | 1,551,072 |                  |  |           | 1,600,383 |           |  |   |        |         |  |   |        |        
|Due after ten years                    |                       |                    | 3,159,648 |                  |  |           | 3,263,860 |           |  |   | 216,409 |         |  |   | 221,571 |        
|                                       |                       |                    |           |                  |  |           |           |           |  |   |         |         |  |   |         |        
|                                       | Total debt securities |                    | $         | 6,232,021        |  |           | $         | 6,413,028 |  |   | $       | 216,409 |  |   | $       | 221,571 | 
|                                       |                       |                    |           |                  |  |           |           |           |  |   |         |         |  |   |         |        

A summary of realized gains and losses on
securities available for sale for 2002, 2001 and 2000 follows:
Included in realized losses for 2001 was a $2.1 million
other than temporary impairment loss on a trust preferred
security.

|     |  |                |       |        |  |   |        | 
|---- |  | -------------- | ----- | ------ |  | - | ------ | 
|     |  |               
|     |  | Gross Realized
|     |  |               
|     |  | Gains          |       | Losses
|     |  |                |       |       
|2002 |  | $              | 9,823 |        |  | $ | 2,541  | 
|2001 |  |                | 4,291 |        |  |   | 2,962  | 
|2000 |  |                | 443   |        |  |   | 15,899 | 

5.     Loans and
Leases

Banknorths lending activities are conducted
principally in New England and upstate New York. The principal
categories of loans in Banknorth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-

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,
|                                     |                                |             
|                                     |                                | 2002         |           | 2001      
|                                     |                                |              |           |           
|Residential real estate loans        |                                |              |           |            |  |  |           |           
|                                     | Permanent first mortgage loans |              | $         | 2,354,001  |  |  | $         | 2,600,650  | 
|                                     | Construction and development   |              |           | 28,196     |  |  |           | 26,475     | 
|                                     |                                |              |           |            |  |  |           |           
|                                     |                                |              | 2,382,197 |            |  |  | 2,627,125 |           
|Commercial real estate loans:        |                                |              |           |            |  |  |           |           
|                                     | Permanent first mortgage loans |              |           | 4,151,674  |  |  |           | 3,509,311  | 
|                                     | Construction and development   |              |           | 640,375    |  |  |           | 584,728    | 
|                                     |                                |              |           |            |  |  |           |           
|                                     |                                |              | 4,792,049 |            |  |  | 4,094,039 |           
|Commercial business loans and leases |                                |              |           |            |  |  |           |           
|                                     | Commercial business loans      |              |           | 2,865,617  |  |  |           | 2,353,933  | 
|                                     | Commercial business leases     |              |           | 102,857    |  |  |           | 108,720    | 
|                                     |                                |              |           |            |  |  |           |           
|                                     |                                |              | 2,968,474 |            |  |  | 2,462,653 |           
|Consumer loans and leases            |                                |              | 3,913,288 |            |  |  | 3,531,513 |           
|                                     |                                |              |           |            |  |  |           |           
|                                     | Total loans and leases         |              | $         | 14,056,008 |  |  | $         | 12,715,330 | 
|                                     |                                |              |           |            |  |  |           |           

Loans and leases include net deferred charges of
$14.5 million at December 31, 2002 and
$7.5 million at December 31, 2001. Deferred charges
included deferred loan origination costs, net of deferred loan
origination fees, and unearned income on leases.

Non-performing Loans

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

|                                                     |                                      |              |        |        |  |   |        |        | 
|---------------------------------------------------- | ------------------------------------ | ------------ | ------ | ------ |  | - | ------ | ------ | 
|                                                     |                                      |             
|                                                     |                                      | December 31,
|                                                     |                                      |             
|                                                     |                                      | 2002         |        | 2001  
|                                                     |                                      |              |        |       
|Nonaccrual loans                                     |                                      |              |        |        |  |   |        |       
|                                                     | Residential real estate mortgages    |              | $      | 5,719  |  |   | $      | 8,311  | 
|                                                     | Commercial real estate loans         |              |        | 17,649 |  |   |        | 17,124 | 
|                                                     | Commercial business loans and leases |              |        | 32,693 |  |   |        | 40,341 | 
|                                                     | Consumer loans and leases            |              |        | 9,194  |  |   |        | 9,470  | 
|                                                     |                                      |              |        |        |  |   |        |       
|Total nonperforming loans                            |                                      | $            | 65,255 |        |  | $ | 75,246 |       
|                                                     |                                      |              |        |        |  |   |        |       
|Accruing loans which are 90 days or more
    overdue |                                      | $            | 3,449  |        |  | $ | 6,227  |       
|                                                     |                                      |              |        |        |  |   |        |       

Interest income that would have been recognized
for 2002 and 2001 if nonperforming loans at December 31,
2002 and 2001 had been performing in accordance with their
original terms approximated $2.9 million in 2002 and
$3.1 million in 2001.

Impaired loans are commercial and commercial real
estate loans which Banknorth believes will probably 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,

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.
Banknorth 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 less cost to sell.

At December 31, 2002 and 2001, total
impaired loans were $50.3 million and $57.5 million,
of which $33.6 million and $53.6 million had related
allowances of $10.9 million and $14.7 million,
respectively. During the years ended December 31, 2002 and
2001, the income recognized related to impaired loans was
$1.8 million and $2.6 million, respectively, and the
average balance of outstanding impaired loans was
$53.3 million and $54.2 million, respectively.
Banknorth 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,
|                                           |  |                        
|                                           |  | 2002                    |         | 2001 |  | 2000
|                                           |  |                         |         |      |  |     
|Balance at beginning of period             |  | $                       | 189,837 |      |  | $    | 153,550 |   |  | $ | 155,048 |  
|Allowance related to business combinations |  |                         | 12,794  |      |  |      | 31,277  |   |  |   |        |  
|Provisions charged to operations           |  |                         | 44,314  |      |  |      | 41,889  |   |  |   | 23,819  |  
|Loans and leases charged off               |  |                         | (52,002 | )    |  |      | (45,652 | ) |  |   | (34,692 | )
|Recoveries                                 |  |                         | 13,330  |      |  |      | 8,773   |   |  |   | 9,375   |  
|                                           |  |                         |         |      |  |      |         |   |  |   |         |  
|Balance at end of period                   |  | $                       | 208,273 |      |  | $    | 189,837 |   |  | $ | 153,550 |  
|                                           |  |                         |         |      |  |      |         |   |  |   |         |  



|   |                       
|-- | ----------------------
|7. | Premises and Equipment

A summary of premises and equipment follows:

|                                          |  |              |          |      |  |   |          |  
|----------------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                          |  |             
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2002         |          | 2001
|                                          |  |              |          |     
|Land                                      |  | $            | 23,079   |      |  | $ | 22,075   |  
|Buildings and leasehold improvements      |  |              | 245,400  |      |  |   | 230,273  |  
|Capital lease on building                 |  |              | 23,475   |      |  |   |         |  
|Furniture, fixtures and equipment         |  |              | 388,903  |      |  |   | 343,030  |  
|                                          |  |              |          |      |  |   |          |  
|                                          |  |              | 680,857  |      |  |   | 595,378  |  
|Accumulated depreciation and amortization |  |              | (408,528 | )    |  |   | (357,938 | )
|Accumulated amortization on capital lease |  |              | (652     | )    |  |   |         |  
|                                          |  |              |          |      |  |   |          |  
|Net book value                            |  | $            | 271,677  |      |  | $ | 237,440  |  
|                                          |  |              |          |      |  |   |          |  

Internally developed software, which is comprised
of $20.9 million of software in use and $8.9 million
of software in development, had a remaining book value of
$21.3 million at December 31, 2002 and is

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

included in furniture, fixtures and equipment
above. A project to develop software to automate teller stations
and customer service platforms was abandoned in December 2002.
As a result, $6.2 million of previously capitalized costs
that have no future benefit were written-off in December 2002.

During 2002, Banknorth entered into a 15-year
lease to occupy 140,000 square feet of office space in the
Greater Portland, Maine area. This lease is being accounted for
as a capital lease. As of December 31, 2002, the gross
amount of premises under the capital lease was
$23.5 million. Amortization of the asset held under the
capital lease is included with depreciation expense. As of
December 31, 2002, the capital lease obligation was
partially offset by a $17.1 million outstanding loan held
by Banknorth on the property. The net obligation under the
capital lease obligation of $6.1 million is included in
other long-term debt.



|   |                                     
|-- | ------------------------------------
|8. | Goodwill and Other Intangible Assets

Banknorth adopted the provisions of SFAS
No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142) effective January 1, 2002.
As of the date of adoption, we had unamortized goodwill totaling
$409.3 million and unamortized identifiable intangible
assets totaling $57.3 million, all of which were subject to
the transition provisions of SFAS No. 141, Business
Combinations and SFAS No. 142. Banknorth has
completed the transitional impairment test on goodwill assets
and has concluded that the amount of recorded goodwill was not
impaired as of January 1, 2002. Banknorth does not
currently have any other indefinite-lived intangible assets
recorded in the consolidated balance sheet. No material
reclassifications or adjustments to the useful lives of
finite-lived intangible assets were made as a result of adopting
the new standards. At December 31, 2002, Banknorth had
$34.5 million in unamortized identifiable intangible assets
consisting of core deposit intangibles, noncompete agreements
and customer lists.

In October 2002, the FASB issued SFAS
No. 147, Acquisitions of Certain Financial
Institutions, an amendment of SFAS Nos. 72 and 144 and FASB
Interpretation No. 9. SFAS No. 147 amends SFAS
No. 72 to exclude from its scope most acquisitions of
financial institutions and to require that such transactions be
accounted for in accordance with SFAS No. 141 and, under
certain circumstances, previously recognized SFAS No. 72
intangible assets be reclassified as goodwill. SFAS No. 147
also amends SFAS No. 144 to include within its
applicability long-term customer-relationship intangible assets
of financial institutions. Banknorth has adopted SFAS
No. 147 effective January 1, 2002 and has reclassified
$34.7 million of SFAS No. 72 intangible assets to
goodwill in accordance with SFAS No. 142.

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The changes in the carrying amount of goodwill
and other intangibles for the years ended December 31, 2001
and 2002 are as follows:

|                                            |      |          |         |              |  |              |        |              |  |   |         |       |  |   |         |       | 
|------------------------------------------- | ---- | -------- | ------- | ------------ |  | ------------ | ------ | ------------ |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                            |      |          |         |              |  | Other        |        | Total       
|                                            |      |          |         | Core Deposit |  | Identifiable |        | Identifiable
|                                            |      | Goodwill |         | Intangibles  |  | Intangibles  |        | Intangibles 
|                                            |      |          |         |              |  |              |        |             
|Balance, December 31, 2000                  |      | $        | 134,875 |              |  | $            | 8,944  |              |  | $ | 41,701  |       |  | $ | 50,645  |      
|Recorded during the year                    |      |          | 285,526 |              |  |              | 16,846 |              |  |   | 1,350   |       |  |   | 18,196  |      
|Amortization expense                        |      |          | (11,061 | )            |  |              | (3,944 | )            |  |   | (7,079  | )     |  |   | (11,023 | )    
|Reduction due to sale of branches           |      |          |        |              |  |              | (525   | )            |  |   |        |       |  |   | (525    | )    
|                                            |      |          |         |              |  |              |        |              |  |   |         |       |  |   |         |      
|Balance, December 31, 2001                  |      |          | 409,340 |              |  |              | 21,321 |              |  |   | 35,972  |       |  |   | 57,293  |      
|Recorded during the year                    |      |          | 215,586 |              |  |              | 14,817 |              |  |   | 5,754   |       |  |   | 20,571  |      
|Reclassification under SFAS No. 147         |      |          | 34,695  |              |  |              |       |              |  |   | (34,695 | )     |  |   | (34,695 | )    
|Other reclassification                      |      |          | 2,214   |              |  |              | (2,214 | )            |  |   |        |       |  |   | (2,214  | )    
|Amortization expense                        |      |          |        |              |  |              | (5,486 | )            |  |   | (1,006  | )     |  |   | (6,492  | )    
|Adjustment of purchase accounting estimates |      |          | (1,151  | )            |  |              |       |              |  |   | 11      |       |  |   | 11      |      
|                                            |      |          |         |              |  |              |        |              |  |   |         |       |  |   |         |      
|Balance, December 31, 2002                  |      | $        | 660,684 |              |  | $            | 28,438 |              |  | $ | 6,036   |       |  | $ | 34,474  |      
|                                            |      |          |         |              |  |              |        |              |  |   |         |       |  |   |         |      
|Estimated Annual Amortization Expense:      |      |          |         |              |  |              |        |              |  |   |         |       |  |   |         |      
|                                            | 2003 |          |         |             |  |              | $      | 3,763        |  |   | $       | 1,892 |  |   | $       | 5,655 | 
|                                            | 2004 |          |         |             |  |              |        | 3,056        |  |   |         | 1,822 |  |   |         | 4,878 | 
|                                            | 2005 |          |         |             |  |              |        | 2,992        |  |   |         | 1,017 |  |   |         | 4,009 | 
|                                            | 2006 |          |         |             |  |              |        | 2,988        |  |   |         | 269   |  |   |         | 3,257 | 
|                                            | 2007 |          |         |             |  |              |        | 2,985        |  |   |         | 269   |  |   |         | 3,254 | 

The components of identifiable intangible assets
follows:

|                                |                                |                   |   |              |        |              |   |        |        |  |   |        |        | 
|------------------------------- | ------------------------------ | ----------------- | - | ------------ | ------ | ------------ | - | ------ | ------ |  | - | ------ | ------ | 
|                                |                                |                  
|                                |                                | December 31, 2002
|                                |                                |                  
|                                |                                | Gross Carrying    |   | Accumulated  |        | Net Carrying
|                                |                                | Amount            |   | Amortization |        | Amount      
|                                |                                |                   |   |              |        |             
|Identifiable intangible assets: |                                |                   |   |              |        |              |   |        |        |  |   |       
|                                | Core deposit intangibles       |                   | $ | 57,087       |        |              | $ | 28,649 |        |  | $ | 28,438 |       
|                                | Other identifiable intangibles |                   |   | 7,023        |        |              |   | 987    |        |  |   | 6,036  |       
|                                |                                |                   |   |              |        |              |   |        |        |  |   |       
|                                |                                | Total             |   | $            | 64,110 |              |   | $      | 29,636 |  |   | $      | 34,474 | 
|                                |                                |                   |   |              |        |              |   |        |        |  |   |       

64



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the reconcilement
of net income and earning per share excluding goodwill and SFAS
No. 72 intangible amortization for the years ended
December 31, 2002, 2001 and 2000:

|                                    |                                     |                         |         |      |  |      |         |        |  |   |         |        | 
|----------------------------------- | ----------------------------------- | ----------------------- | ------- | ---- |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                    |                                     |                        
|                                    |                                     | Year Ended December 31,
|                                    |                                     |                        
|                                    |                                     | 2002                    |         | 2001 |  | 2000
|                                    |                                     |                         |         |      |  |     
|Reported net income                 |                                     | $                       | 298,638 |      |  | $    | 238,795 |        |  | $ | 191,734 |       
|Add back, on a net of tax basis:    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|                                    | Goodwill amortization               |                         |         |     |  |      |         | 10,986 |  |   |         | 10,986 | 
|                                    | SFAS No. 72 Intangible amortization |                         |         |     |  |      |         | 4,666  |  |   |         | 4,666  | 
|                                    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|Adjusted net income                 |                                     | $                       | 298,638 |      |  | $    | 254,447 |        |  | $ | 207,386 |       
|                                    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|Basic earnings per share:           |                                     |                         |         |      |  |      |         |        |  |   |         |       
|                                    | Reported net income                 |                         | $       | 2.01 |  |      | $       | 1.70   |  |   | $       | 1.33   | 
|Add back, on a net of tax basis:    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|                                    | Goodwill amortization               |                         |         |     |  |      |         | 0.08   |  |   |         | 0.08   | 
|                                    | SFAS No. 72 Intangible amortization |                         |         |     |  |      |         | 0.03   |  |   |         | 0.03   | 
|                                    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|Adjusted basic earnings per share   |                                     | $                       | 2.01    |      |  | $    | 1.81    |        |  | $ | 1.44    |       
|                                    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|Diluted earnings per share:         |                                     |                         |         |      |  |      |         |        |  |   |         |       
|                                    | Reported net income                 |                         | $       | 1.99 |  |      | $       | 1.68   |  |   | $       | 1.32   | 
|Add back, on a net of tax basis:    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|                                    | Goodwill amortization               |                         |         |     |  |      |         | 0.08   |  |   |         | 0.08   | 
|                                    | SFAS No. 72 Intangible amortization |                         |         |     |  |      |         | 0.03   |  |   |         | 0.03   | 
|                                    |                                     |                         |         |      |  |      |         |        |  |   |         |       
|Adjusted diluted earnings per share |                                     | $                       | 1.99    |      |  | $    | 1.79    |        |  | $ | 1.43    |       
|                                    |                                     |                         |         |      |  |      |         |        |  |   |         |       

65



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                          
|-- | -------------------------
|9. | Mortgage Servicing Rights

An analysis of mortgage servicing rights for the
years ended December 31, 2002, 2001 and 2000 follows:

|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 
|----------------------------------------------------------------------------- |  | --------- | ------- | --------- |  | ----- | ------ | -------------- |  | - | ------- | - |  | - | --------- | 
|                                                                              |  | Mortgage  |         |           |  |       |        | Balance of    
|                                                                              |  | Servicing |         | Valuation |  |       |        | Loans Serviced
|                                                                              |  | Rights    |         | Allowance |  | Total |        | for Others    
|                                                                              |  |           |         |           |  |       |        |               
|Balance as of December 31, 1999                                               |  | $         | 59,010  |           |  | $     | (6,286 | )              |  | $ | 52,724  |   |  | $ | 4,540,948 | 
|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 
|Mortgage servicing rights capitalized                                         |  |           | 3,977   |           |  |       |       |                |  |   | 3,977   |   |  |   |           | 
|Amortization charged against mortgage servicing
    fee income                |  |           | (8,306  | )         |  |       |       |                |  |   | (8,306  | ) |  |   |           | 
|Reduction of impairment reserve (credit to
    mortgage servicing fee income) |  |           |        |           |  |       | 2,895  |                |  |   | 2,895   |   |  |   |           | 
|Mortgage servicing rights sold                                                |  |           | (28,065 | )         |  |       |       |                |  |   | (28,065 | ) |  |   |           | 
|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 
|Balance as of December 31, 2000                                               |  |           | 26,616  |           |  |       | (3,391 | )              |  |   | 23,225  |   |  | $ | 1,618,610 | 
|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 
|Mortgage servicing rights capitalized                                         |  |           | 559     |           |  |       |       |                |  |   | 559     |   |  |   |           | 
|Mortgage servicing rights acquired through
    purchase acquisitions          |  |           | 8,804   |           |  |       |       |                |  |   | 8,804   |   |  |   |           | 
|Amortization charged against mortgage servicing
    fee income                |  |           | (1,140  | )         |  |       |       |                |  |   | (1,140  | ) |  |   |           | 
|Mortgage servicing rights sold                                                |  |           | (26,355 | )         |  |       | 3,391  |                |  |   | (22,964 | ) |  |   |           | 
|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 
|Balance as of December 31, 2001                                               |  |           | 8,484   |           |  |       |       |                |  |   | 8,484   |   |  | $ | 964,027   | 
|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 
|Mortgage servicing rights capitalized                                         |  |           | 653     |           |  |       |       |                |  |   | 653     |   |  |   |           | 
|Mortgage servicing rights acquired through
    purchase acquisitions          |  |           | 601     |           |  |       |       |                |  |   | 601     |   |  |   |           | 
|Amortization charged against mortgage servicing
    fee income                |  |           | (3,290  | )         |  |       |       |                |  |   | (3,290  | ) |  |   |           | 
|Valuation adjustment                                                          |  |           | (2,850  | )         |  |       |       |                |  |   | (2,850  | ) |  |   |           | 
|Mortgage servicing rights sold                                                |  |           |        |           |  |       |       |                |  |   |        |   |  |   |           | 
|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 
|Balance as of December 31, 2002                                               |  | $         | 3,598   |           |  | $     |       |                |  | $ | 3,598   |   |  | $ | 701,274   | 
|                                                                              |  |           |         |           |  |       |        |                |  |   |         |   |  |   |           | 



|    |             
|--- | ------------
|10. | Income Taxes

The current and deferred components of income tax
expense follow:

|         |         |                         |         |         |  |      |         |         |   |   |        |        |  
|-------- | ------- | ----------------------- | ------- | ------- |  | ---- | ------- | ------- | - | - | ------ | ------ | -
|         |         |                        
|         |         | Year Ended December 31,
|         |         |                        
|         |         | 2002                    |         | 2001    |  | 2000
|         |         |                         |         |         |  |     
|Current  |         |                         |         |         |  |      |         |         |   |   |        |       
|         | Federal |                         | $       | 128,523 |  |      | $       | 125,570 |   |   | $      | 95,015 |  
|         | State   |                         |         | 7,636   |  |      |         | 7,572   |   |   |        | 5,223  |  
|Deferred |         |                         |         |         |  |      |         |         |   |   |        |       
|         | Federal |                         |         | 12,419  |  |      |         | (6,620  | ) |   |        | (4,733 | )
|         | State   |                         |         | 103     |  |      |         | (320    | ) |   |        | 1,288  |  
|         |         |                         |         |         |  |      |         |         |   |   |        |       
|         |         | $                       | 148,681 |         |  | $    | 126,202 |         |   | $ | 96,793 |       
|         |         |                         |         |         |  |      |         |         |   |   |        |       

66



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,
|                                                   |  |                        
|                                                   |  | 2002                    |         | 2001 |  | 2000
|                                                   |  |                         |         |      |  |     
|Computed federal tax expense                       |  | $                       | 156,561 |      |  | $    | 129,214 |   |  | $ | 100,984 |  
|State income tax, net of federal benefits          |  |                         | 5,030   |      |  |      | 4,714   |   |  |   | 4,232   |  
|Benefit of tax-exempt income                       |  |                         | (3,494  | )    |  |      | (4,319  | ) |  |   | (4,553  | )
|Nondeductible merger expenses                      |  |                         |        |      |  |      |        |   |  |   | 3,043   |  
|Amortization of goodwill and other intangibles     |  |                         |        |      |  |      | 3,271   |   |  |   | 3,369   |  
|Low income/rehabilitation credits                  |  |                         | (1,540  | )    |  |      | (1,530  | ) |  |   | (4,362  | )
|Increase in cash surrender value of life insurance |  |                         | (7,000  | )    |  |      | (6,437  | ) |  |   | (6,195  | )
|Other, net                                         |  |                         | (876    | )    |  |      | 1,289   |   |  |   | 275     |  
|                                                   |  |                         |         |      |  |      |         |   |  |   |         |  
|Recorded income tax expense                        |  | $                       | 148,681 |      |  | $    | 126,202 |   |  | $ | 96,793  |  
|                                                   |  |                         |         |      |  |      |         |   |  |   |         |  

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, 2002 and 2001 follow:

|                                   |                                                   |                                      |         |        |         |   |       |        |        | 
|---------------------------------- | ------------------------------------------------- | ------------------------------------ | ------- | ------ | ------- | - | ----- | ------ | ------ | 
|                                   |                                                   |                                     
|                                   |                                                   | December 31,                        
|                                   |                                                   |                                     
|                                   |                                                   | 2002                                 |         | 2001  
|                                   |                                                   |                                      |         |       
|Deferred tax assets                |                                                   |                                      |         |        |         |   |       |       
|                                   | Allowance for loan and lease losses               |                                      | $       | 75,214 |         |   | $     | 69,500 |       
|                                   | Compensation and employee benefits                |                                      |         | 15,788 |         |   |       | 14,603 |       
|                                   | Net tax deferred expenses                         |                                      |         | 7,093  |         |   |       | 4,497  |       
|                                   | Intangible asset                                  |                                      |         | 5,010  |         |   |       | 4,778  |       
|                                   | Other                                             |                                      |         | 3,426  |         |   |       | 1,248  |       
|                                   |                                                   |                                      |         |        |         |   |       |       
|                                   |                                                   | Total gross deferred tax assets      |         |        | 106,531 |   |       |        | 94,626 | 
|                                   |                                                   |                                      |         |        |         |   |       |       
|Deferred tax liabilities           |                                                   |                                      |         |        |         |   |       |       
|                                   | Leases                                            |                                      |         | 10,889 |         |   |       | 12,935 |       
|                                   | Premises and equipment                            |                                      |         | 22,377 |         |   |       | 19,313 |       
|                                   | Partnership investments                           |                                      |         | 7,119  |         |   |       | 6,022  |       
|                                   | Loan origination costs                            |                                      |         | 10,143 |         |   |       | 9,505  |       
|                                   | Purchase accounting                               |                                      |         | 13,239 |         |   |       | 7,618  |       
|                                   | Deferred Income                                   |                                      |         | 20,122 |         |   |       | 3,595  |       
|                                   | Tax bad debt reserve                              |                                      |         | 1,739  |         |   |       | 3,375  |       
|                                   | Unrealized appreciation on securities and hedging |                                      |         | 62,338 |         |   |       | 22,958 |       
|                                   | Other                                             |                                      |         | 1,386  |         |   |       | 1,849  |       
|                                   |                                                   |                                      |         |        |         |   |       |       
|                                   |                                                   | Total gross deferred tax liabilities |         |        | 149,352 |   |       |        | 87,170 | 
|                                   |                                                   |                                      |         |        |         |   |       |       
|Net deferred tax (liability) asset |                                                   | $                                    | (42,821 | )      |         | $ | 7,456 |       
|                                   |                                                   |                                      |         |        |         |   |       |       

Banknorth has determined that a valuation
allowance is not required for any of the deferred tax assets
since it is more likely than not that these assets will be
realized principally through carryback to taxable income in
prior years, and future reversals of existing taxable temporary
differences.

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                     
| | --------------------
| | State Tax Assessment

During 2002, notices to assess tax plus interest
for the years 2001, 2000 and 1999 were received from the
Massachusetts Department of Revenue (DOR) related to
certain banks that we have acquired. To our knowledge, the
acquired banks are among approximately 40 banking
institutions in Massachusetts that have received notices of this
type. The notices relate to four Massachusetts-based banks that
have been acquired by us through December 2002 and had a real
estate investment trust (REIT) in their corporate
structure. These banks have since been combined with Banknorth,
N.A. The DOR contends that dividend distributions from a REIT to
a parent company are fully taxable in Massachusetts. We disagree
with the position of the DOR and contend that Massachusetts law
provides for a 95% dividends-received deduction. Because the
legal issues raised are substantially similar for all of the
financial institutions involved, we have acted together with
those institutions to appeal assessments and to pursue all
available means to defend our position. This appeal is still
pending. The aggregate assessment of tax in connection with our
acquired REITs for 2001, 2000 and 1999 is approximately
$5.9 million, net of Federal benefit. It is our intention
to record this assessment in the first quarter of 2003 as taxes
payable (with an offsetting increase to goodwill previously
recorded by us in connection with these acquisitions) pending
resolution of the appeal.

Codifying the DOR position discussed above, on
March 5, 2003, legislation was signed into Massachusetts
law that retroactively disallows the dividends received
deduction from a REIT effective for tax years ending on or after
December 31, 1999 and, for tax years 2002 and later, gives
the DOR expanded powers for reviewing the business purpose of
transactions that have tax benefits. At the current time we do
not believe that this legislation will have a material adverse
affect on our financial condition, results of operations,
earnings per share or cash flows.

11.     Special
Charges

Special charges include merger-related, charter
consolidation, asset write-downs and branch closing expenses.
The following table summarizes special charges for the years
ended December 31, 2002, 2001 and 2000.

|                                                               |  |                        |       |      |  |      |       |  |  |   |   | 
|-------------------------------------------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- |  |  | - | - | 
|                                                               |  | 2002                   |       | 2001 |  | 2000
|                                                               |  |                        |       |      |  |     
|                                                               |  |                       
|                                                               |  | (Dollars in thousands)
|Andover/ MetroWest Merger Charges                              |  |                        |       |      |  |      |       |  |  |   |   | 
|Personnel costs                                                |  | $                      | 735   |      |  | $    | 1,710 |  |  | $ | 0 | 
|Systems conversion and integration/customer
    communications |  |                        | 4,365 |      |  |      | 1,131 |  |  |   |  | 
|Other costs                                                    |  |                        | 730   |      |  |      | 932   |  |  |   |  | 
|                                                               |  |                        |       |      |  |      |       |  |  |   |   | 
|                                                               |  |                        | 5,830 |      |  |      | 3,773 |  |  |   |  | 
|                                                               |  |                        |       |      |  |      |       |  |  |   |   | 
|Ipswich Merger Charges                                         |  |                        |       |      |  |      |       |  |  |   |   | 
|Personnel costs                                                |  |                        | 62    |      |  |      |      |  |  |   |  | 
|Systems conversion and integration/customer
    communications |  |                        | 1,537 |      |  |      |      |  |  |   |  | 
|Other costs                                                    |  |                        | 301   |      |  |      |      |  |  |   |  | 
|                                                               |  |                        |       |      |  |      |       |  |  |   |   | 
|                                                               |  |                        | 1,900 |      |  |      |      |  |  |   |  | 
|                                                               |  |                        |       |      |  |      |       |  |  |   |   | 

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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ------ | - |  |  | ------ | 
|                                                                                            |  | 2002                   |       | 2001 |  | 2000
|                                                                                            |  |                        |       |      |  |     
|                                                                                            |  |                       
|                                                                                            |  | (Dollars in thousands)
|Bancorp Connecticut Merger Charges                                                          |  |                        |       |      |  |      |        |   |  |  |        | 
|Personnel costs                                                                             |  |                        | 684   |      |  |      |       |   |  |  |       | 
|Systems conversion and integration/customer
    communications                              |  |                        | 1,486 |      |  |      |       |   |  |  |       | 
|Other costs                                                                                 |  |                        | 576   |      |  |      |       |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|                                                                                            |  |                        | 2,746 |      |  |      |       |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|Warren Merger Charges                                                                       |  |                        |       |      |  |      |        |   |  |  |        | 
|Systems conversion and integration/customer
    communications                              |  |                        | 207   |      |  |      |       |   |  |  |       | 
|Other costs                                                                                 |  |                        | 33    |      |  |      |       |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|                                                                                            |  |                        | 240   |      |  |      |       |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|American Merger Charges                                                                     |  |                        |       |      |  |      |        |   |  |  |        | 
|Systems conversion and integration/customer
    communications                              |  |                        | 735   |      |  |      |       |   |  |  |       | 
|Other costs                                                                                 |  |                        | 120   |      |  |      |       |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|                                                                                            |  |                        | 855   |      |  |      |       |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|Banknorth Group, Inc. (Vermont) Merger Charges
    (pooling of interest method acquisition) |  |                        |       |      |  |      |        |   |  |  |        | 
|Personnel costs                                                                             |  |                        |      |      |  |      | 2,329  |   |  |  | 13,050 | 
|Systems conversion and integration/customer
    communications                              |  |                        |      |      |  |      |       |   |  |  | 4,667  | 
|Asset write-downs/facility costs                                                            |  |                        | 29    |      |  |      |       |   |  |  | 12,336 | 
|Reversal of prior accruals                                                                  |  |                        | (125  | )    |  |      |       |   |  |  |       | 
|Gain on regulatory-mandated branch sales                                                    |  |                        | (478  | )    |  |      | (2,906 | ) |  |  |       | 
|Other costs                                                                                 |  |                        |      |      |  |      | 595    |   |  |  | 5,176  | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|                                                                                            |  |                        | (574  | )    |  |      | 18     |   |  |  | 35,229 | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|Charter Consolidation Costs                                                                 |  |                        |       |      |  |      |        |   |  |  |        | 
|Personnel costs                                                                             |  |                        | 778   |      |  |      |       |   |  |  |       | 
|Branch signage                                                                              |  |                        | 872   |      |  |      | 42     |   |  |  |       | 
|Customer notices                                                                            |  |                        | 591   |      |  |      | 244    |   |  |  |       | 
|Forms and documents                                                                         |  |                        | 578   |      |  |      | 385    |   |  |  |       | 
|Other costs                                                                                 |  |                        | 782   |      |  |      | 303    |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|                                                                                            |  |                        | 3,601 |      |  |      | 974    |   |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|Branch closings                                                                             |  |                        |       |      |  |      |        |   |  |  |        | 
|Personnel costs                                                                             |  |                        |      |      |  |      | 48     |   |  |  | 68     | 
|Asset write-downs/lease terminations                                                        |  |                        | 44    |      |  |      | 1,585  |   |  |  | 1,063  | 
|Branch decommissioning costs                                                                |  |                        | 82    |      |  |      | 755    |   |  |  |       | 
|Other costs                                                                                 |  |                        |      |      |  |      |       |   |  |  | 256    | 
|Reversal of prior accruals                                                                  |  |                        | (33   | )    |  |      | (431   | ) |  |  |       | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 
|                                                                                            |  |                        | 93    |      |  |      | 1,957  |   |  |  | 1,387  | 
|                                                                                            |  |                        |       |      |  |      |        |   |  |  |        | 

69



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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                        |  |                        |        |      |  |      |       |  |  |   |        |  
|------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ----- |  |  | - | ------ | -
|                                                        |  | 2002                   |        | 2001 |  | 2000
|                                                        |  |                        |        |      |  |     
|                                                        |  |                       
|                                                        |  | (Dollars in thousands)
|Other Special Charges                                   |  |                        |        |      |  |      |       |  |  |   |        |  
|Write-down of auto lease residuals                      |  |                        |       |      |  |      | 892   |  |  |   | 3,700  |  
|Contract termination  merchant
    processing          |  |                        |       |      |  |      |      |  |  |   | 3,091  |  
|Reversal of accrual remaining from CFX/ SIS
    mergers |  |                        |       |      |  |      |      |  |  |   | (400   | )
|                                                        |  |                        |        |      |  |      |       |  |  |   |        |  
|                                                        |  |                        |       |      |  |      | 892   |  |  |   | 6,391  |  
|                                                        |  |                        |        |      |  |      |       |  |  |   |        |  
|Total Special Charges                                   |  | $                      | 14,691 |      |  | $    | 7,614 |  |  | $ | 43,007 |  
|                                                        |  |                        |        |      |  |      |       |  |  |   |        |  

Merger-related personnel costs on business
combinations accounted for under the purchase method of
accounting includes the costs of maintaining duplicate employees
at the acquired bank during the systems integration period and
related employee benefits and outplacement services. For
business combinations accounted for under the purchase method of
accounting, severance costs are accrued at merger date (and are
included in the determination of goodwill) for those employees
identified to be severed at time of closing. Merger-related
personnel costs on business combinations accounted for under the
pooling of interests method include severance costs, the costs
of maintaining duplicate employees at the acquired bank during
the systems integration period, and related employee benefits
and outplacement services. The approximate number of employees
that were severed in each of the banking acquisitions was:
Andover/ MetroWest  220, Ipswich  30,
Bancorp Connecticut  75, and Banknorth
Vermont  220.

Systems conversions and integration costs and
customer communications costs are recorded as incurred and are
associated with the costs of converting the accounts, records
and data processing equipment of the acquired companies to the
systems maintained by Banknorth, as well as the costs of
required notices to customers of the acquired bank concerning
the acquisition and conversion of their accounts to Banknorth
systems.

Asset write-downs/facility costs relate primarily
to branch closings and acquisitions accounted for under the
pooling of interests. The costs represent lease termination
costs and impairment of assets for redundant office space,
closed branches and equipment to be disposed of or abandoned.

Charter consolidation costs represent costs
incurred to consolidate the charters of the Companys eight
national bank subsidiaries to a single national bank charter
effective January 1, 2002.

Other special charges include write-downs of
$0.9 million and $3.7 million in 2001 and 2000,
respectively, on the residual values assigned to auto lease
receivables that were acquired in mergers completed prior to
2001. Banknorth ceased making auto leases in 1997. In 2000,
Banknorth incurred a $3.1 million termination charge in
connection with the terminating a contract with a sales and
marketing organization that had helped sign-up new merchants
under our merchant card processing program.

70



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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table presents activity in the
accrual account for special charges for the years ended
December 31, 2002 and 2001, respectively.

|                                       |  |                        |        |             |  |         |       |          |  |                 |        |          |  |   |         |   |  |   |        |   |  |   |       | 
|-------------------------------------- |  | ---------------------- | ------ | ----------- |  | ------- | ----- | -------- |  | --------------- | ------ | -------- |  | - | ------- | - |  | - | ------ | - |  | - | ----- | 
|                                       |  |                        |        |             |  |         |       |          |  | Non-cash Write  |        |         
|                                       |  | Balance                |        | Accrued at  |  | Special |       | Cash     |  | Downs and Other |        | Balance 
|                                       |  | 12/31/01               |        | Acquisition |  | Charges |       | Payments |  | Adjustments     |        | 12/31/02
|                                       |  |                        |        |             |  |         |       |          |  |                 |        |         
|                                       |  |                       
|                                       |  | (Dollars in thousands)
|Andover/MetroWest Merger               |  | $                      | 11,207 |             |  | $       | 0     |          |  | $               | 5,830  |          |  | $ | (16,474 | ) |  | $ | (242   | ) |  | $ | 321   | 
|Ipswich Merger                         |  |                        |       |             |  |         | 1,791 |          |  |                 | 1,900  |          |  |   | (3,155  | ) |  |   | (536   | ) |  |   |      | 
|Southington Bancorp Merger             |  |                        |       |             |  |         | 4,413 |          |  |                 | 2,746  |          |  |   | (4,062  | ) |  |   |       |   |  |   | 3,097 | 
|Warren Merger                          |  |                        |       |             |  |         | 2,250 |          |  |                 | 240    |          |  |   | (438    | ) |  |   |       |   |  |   | 2,052 | 
|American Merger                        |  |                        |       |             |  |         |      |          |  |                 | 855    |          |  |   | (855    | ) |  |   |       |   |  |   |      | 
|Banknorth Group, Inc. (Vermont) Merger |  |                        | 330    |             |  |         |      |          |  |                 | (574   | )        |  |   | 244     |   |  |   |       |   |  |   |      | 
|Charter Consolidation                  |  |                        |       |             |  |         |      |          |  |                 | 3,601  |          |  |   | (2,927  | ) |  |   | (674   | ) |  |   |      | 
|Branch Closings                        |  |                        | 296    |             |  |         |      |          |  |                 | 93     |          |  |   | (310    | ) |  |   | 5      |   |  |   | 84    | 
|                                       |  |                        |        |             |  |         |       |          |  |                 |        |          |  |   |         |   |  |   |        |   |  |   |       | 
|Total                                  |  | $                      | 11,833 |             |  | $       | 8,454 |          |  | $               | 14,691 |          |  | $ | (27,977 | ) |  | $ | (1,447 | ) |  | $ | 5,554 | 
|                                       |  |                        |        |             |  |         |       |          |  |                 |        |          |  |   |         |   |  |   |        |   |  |   |       | 

|                                       |  |                        |        |             |  |         |        |          |  |                 |       |          |  |   |        |   |  |   |        |   |  |   |        |  
|-------------------------------------- |  | ---------------------- | ------ | ----------- |  | ------- | ------ | -------- |  | --------------- | ----- | -------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                       |  |                        |        |             |  |         |        |          |  | Non-cash Write  |       |         
|                                       |  | Balance                |        | Accrued at  |  | Special |        | Cash     |  | Downs and Other |       | Balance 
|                                       |  | 12/31/00               |        | Acquisition |  | Charges |        | Payments |  | Adjustments     |       | 12/31/01
|                                       |  |                        |        |             |  |         |        |          |  |                 |       |         
|                                       |  |                       
|                                       |  | (Dollars in thousands)
|Andover/MetroWest Merger               |  | $                      | 0      |             |  | $       | 13,465 |          |  | $               | 3,773 |          |  | $ | (6,031 | ) |  | $ | 0      |   |  | $ | 11,207 |  
|Banknorth Group, Inc. (Vermont) Merger |  |                        | 4,368  |             |  |         |       |          |  |                 | 18    |          |  |   | (2,158 | ) |  |   | (645   | ) |  |   | 1,583  |  
|Charter Consolidation                  |  |                        |       |             |  |         |       |          |  |                 | 974   |          |  |   | (974   | ) |  |   |       |   |  |   |       |  
|Branch Closings                        |  |                        | 170    |             |  |         |       |          |  |                 | 1,957 |          |  |   | (753   | ) |  |   | (1,078 | ) |  |   | 296    |  
|Other                                  |  |                        | (1,253 | )           |  |         |       |          |  |                 | 892   |          |  |   |       |   |  |   | (892   | ) |  |   | (1,253 | )
|                                       |  |                        |        |             |  |         |        |          |  |                 |       |          |  |   |        |   |  |   |        |   |  |   |        |  
|Total                                  |  | $                      | 3,285  |             |  | $       | 13,465 |          |  | $               | 7,614 |          |  | $ | (9,916 | ) |  | $ | (2,615 | ) |  | $ | 11,833 |  
|                                       |  |                        |        |             |  |         |        |          |  |                 |       |          |  |   |        |   |  |   |        |   |  |   |        |  

12.     Short-term
Borrowings

A summary of short-term borrowings follows:

|                                                            |                                                             |                                       |           |           |  |      |           |           |  |   |           |           | 
|----------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                                            |                                                             |                                      
|                                                            |                                                             | At or for the Year Ended December 31,
|                                                            |                                                             |                                      
|                                                            |                                                             | 2002                                  |           | 2001      |  | 2000
|                                                            |                                                             |                                       |           |           |  |     
|                                                            |                                                             |                                      
|                                                            |                                                             | (Dollars in thousands)               
|Balance outstanding at end of period                        |                                                             |                                       |           |           |  |      |           |           |  |   |           |          
|                                                            | Securities sold under agreements to
    repurchase  retail |                                       | $         | 1,222,466 |  |      | $         | 999,506   |  |   | $         | 824,379   | 
|                                                            | Federal funds purchased                                     |                                       |           | 53,000    |  |      |           | 50,000    |  |   |           | 152,003   | 
|                                                            | Treasury, tax and loan notes                                |                                       |           | 1,001     |  |      |           | 41,713    |  |   |           | 71,665    | 
|                                                            |                                                             |                                       |           |           |  |      |           |           |  |   |           |          
|                                                            |                                                             | $                                     | 1,276,467 |           |  | $    | 1,091,219 |           |  | $ | 1,048,047 |          
|                                                            |                                                             |                                       |           |           |  |      |           |           |  |   |           |          
|Securities sold under agreements to
    repurchase  retail |                                                             |                                       |           |           |  |      |           |           |  |   |           |          
|                                                            | Balance outstanding at end of period                        |                                       | $         | 1,222,466 |  |      | $         | 999,506   |  |   | $         | 824,379   | 
|                                                            | Market value of collateral at end of period                 |                                       |           | 1,614,686 |  |      |           | 1,072,288 |  |   |           | 1,021,141 | 
|                                                            | Amortized cost of collateral at end of period               |                                       |           | 1,563,198 |  |      |           | 1,056,099 |  |   |           | 1,023,869 | 

71



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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                         |  |                                       |           |      |  |      |         |   |  |  |         |  
|-------------------------------------------------------- |  | ------------------------------------- | --------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                         |  |                                      
|                                                         |  | At or for the Year Ended December 31,
|                                                         |  |                                      
|                                                         |  | 2002                                  |           | 2001 |  | 2000
|                                                         |  |                                       |           |      |  |     
|                                                         |  |                                      
|                                                         |  | (Dollars in thousands)               
|Average balance outstanding during the year              |  |                                       | 955,887   |      |  |      | 803,186 |   |  |  | 685,857 |  
|Maximum outstanding at any month end during the
    year |  |                                       | 1,200,524 |      |  |      | 999,506 |   |  |  | 824,379 |  
|Average interest rate during the year                    |  |                                       | 1.40      | %    |  |      | 3.31    | % |  |  | 4.85    | %
|Average interest rate at end of year                     |  |                                       | 1.22      | %    |  |      | 1.72    | % |  |  | 5.26    | %

Retail securities sold under repurchase
agreements generally have maturities of 365 days or less
and are collateralized by mortgage-backed securities and U.S.
Government obligations.

At December 31, 2002, Banknorth also had a
$110 million unsecured line of credit. The line is
renewable every 364 days and, if used, carries interest at
LIBOR plus 0.625%. The average balance outstanding under this
line of credit during 2002 was $2.1 million.

13.     Long-term
Debt

A summary of long-term debt (debt with original
maturities of more than one year) follows:

|                                                               |  |                        |           |      |  |   |           | 
|-------------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | 
|                                                               |  |                       
|                                                               |  | December 31,          
|                                                               |  |                       
|                                                               |  | 2002                   |           | 2001
|                                                               |  |                        |           |     
|                                                               |  |                       
|                                                               |  | (Dollars in thousands)
|Federal Home Loan Bank advances                                |  | $                      | 2,482,582 |      |  | $ | 2,644,105 | 
|Securities sold under agreements to
    repurchase  wholesale |  |                        | 1,171,049 |      |  |   | 571,049   | 
|Subordinated long-term debt 7.625%, due 2011                   |  |                        | 200,000   |      |  |   | 200,000   | 
|Other long-term debt                                           |  |                        | 7,427     |      |  |   | 2,259     | 
|                                                               |  |                        |           |      |  |   |           | 
|Total                                                          |  | $                      | 3,861,058 |      |  | $ | 3,417,413 | 
|                                                               |  |                        |           |      |  |   |           | 

Wholesale securities sold under agreements to
repurchase have maturities greater than one year and are
generally sold to broker/dealers.

The following table presents the maturities of
long-term debt outstanding at the dates indicated:

|         |             |                   |  |                   |           |          |  |           |             |                |  |  |             |  |  |   |           |  |  |  |             |  
|-------- | ----------- | ----------------- |  | ----------------- | --------- | -------- |  | --------- | ----------- | -------------- |  |  | ----------- |  |  | - | --------- |  |  |  | ----------- | -
|         |             |                   |  |                  
|         |             | December 31, 2002 |  | December 31, 2001
|         |             |                   |  |                  
|Maturity |             | Principal         |  |                   |           | Maturity |  | Principal |             |               
|Dates    |             | Amounts           |  | Interest Rates    |           | Dates    |  | Amounts   |             | Interest Rates
|         |             |                   |  |                   |           |          |  |           |             |               
|         | 2003        |                   |  | $                 | 1,170,870 |          |  |           | 1.68  7.14 | %              |  |  | 2002        |  |  | $ | 979,502   |  |  |  | 3.99  7.79 | %
|         | 2004        |                   |  |                   | 1,134,062 |          |  |           | 1.15  6.45 | %              |  |  | 2003        |  |  |   | 365,897   |  |  |  | 3.03  6.52 | %
|         | 2005        |                   |  |                   | 718,134   |          |  |           | 2.32  7.45 | %              |  |  | 2004        |  |  |   | 1,026,817 |  |  |  | 1.76  6.45 | %
|         | 2006        |                   |  |                   | 440,579   |          |  |           | 2.72  6.39 | %              |  |  | 2005        |  |  |   | 310,109   |  |  |  | 3.08  7.15 | %
|         | 2007        |                   |  |                   | 8,199     |          |  |           | 3.45  8.04 | %              |  |  | 2006        |  |  |   | 342,094   |  |  |  | 4.38  6.39 | %
|         | 2008  2022 |                   |  |                   | 389,214   |          |  |           | 2.51  8.14 | %              |  |  | 2007  2021 |  |  |   | 392,994   |  |  |  | 2.10  8.14 | %
|         |             |                   |  |                   |           |          |  |           |             |                |  |  |             |  |  |   |           |  |  |  |             |  
|         |             |                   |  | $                 | 3,861,058 |          |  |           |             |                |  |  |             |  |  | $ | 3,417,413 |  |  |  |             |  
|         |             |                   |  |                   |           |          |  |           |             |                |  |  |             |  |  |   |           |  |  |  |             |  

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.

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

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

qualified assets. During the fourth quarter of
2001, Banknorth 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.

In June 2001, Banknorths subsidiary issued
$200 million of 7.625% subordinated notes due in 2011.
Banknorth 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.



|    |                           
|--- | --------------------------
|14. | Trust Preferred Securities

The following is a summary of the capital trust
securities outstanding as of December 31, 2002:

|                                 |  |          |           |        |  |        |         |          |  |  |       |   |  |  |           | 
|-------------------------------- |  | -------- | --------- | ------ |  | ------ | ------- | -------- |  |  | ----- | - |  |  | --------- | 
|                                 |  | Issuance |           |        |  | Stated |         | Maturity
|Name                             |  | Date     |           | Amount |  | Rate   |         | Date    
|                                 |  |          |           |        |  |        |         |         
|Peoples Heritage Capital Trust I |  |          | 1/31/1997 |        |  | $      | 61,556  |          |  |  | 9.06  | % |  |  | 2/1/2027  | 
|Banknorth Capital Trust I        |  |          | 5/1/1997  |        |  |        | 30,000  |          |  |  | 10.52 | % |  |  | 5/1/2027  | 
|Ipswich Statutory Trust I        |  |          | 2/22/2001 |        |  |        | 3,500   |          |  |  | 10.20 | % |  |  | 2/22/2031 | 
|Banknorth Capital Trust II       |  |          | 2/22/2002 |        |  |        | 200,000 |          |  |  | 8.00  | % |  |  | 4/1/2032  | 
|                                 |  |          |           |        |  |        |         |          |  |  |       |   |  |  |           | 
|                                 |  |          |           |        |  | $      | 295,056 |          |  |  |       |   |  |  |           | 
|                                 |  |          |           |        |  |        |         |          |  |  |       |   |  |  |           | 

There were issuance costs associated with the
issuance of the capital trust securities. The net cost of the
securities, including the amortization of the issuance costs was
8.72% and 9.54% at December 31, 2002 and 2001.

On February 22, 2002, Banknorth Capital
Trust II, a subsidiary of Banknorth issued
$200 million of 8% trust preferred securities to the public
and invested the proceeds from this offering in an equivalent
amount of junior subordinated debentures issued by Banknorth.
The proceeds from the offering to Banknorth, which was net of
$6.8 million of issuance costs, were used for general
corporate purposes. These securities 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.

In connection with the acquisition of Ipswich
Bancshares, Inc. on July 26, 2002, Banknorth assumed the
obligations of Ipswich under Ipswichs outstanding 10.20%
capital securities, of which $3.5 million was outstanding
at September 30, 2002.

Banknorth 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.

15.     Regulatory
Matters

Banknorths subsidiary bank must maintain
noninterest-bearing cash balances on reserve with the Federal
Reserve Bank (FRB). In 2002 and 2001, the average
required reserve balances were $60.0 million and
$49.4 million, respectively.

FRB adopted quantitative measures which assign
risk weightings to assets and off-balance sheet items and also
define and set minimum regulatory capital requirements
(risk-based capital ratios.) Banks are required to have core
capital (Tier 1) of at least 4% of risk-weighted assets,
total capital of at least 8% of risk-weighted assets and a
minimum Tier 1 leverage ratio of 3% of adjusted quarterly
average assets. Tier 1 capital consists principally of
shareholders equity, including qualified perpetual
preferred stock but excluding unrealized gains and losses on
securities available for sale, less goodwill and certain other

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

intangibles. Total capital consists of
Tier 1 capital plus certain debt instruments and the
reserve for credit losses, subject to limitations. Failure to
meet certain capital requirements can initiate certain actions
by regulators that, if undertaken, could have a direct material
effect on the Consolidated Financial Statements. The regulations
also define well-capitalized levels of Tier 1, total
capital and Tier 1 leverage as 6%, 10% and 5%,
respectively. At December 31, 2002 and 2001, Banknorth and
its depository subsidiary were well-capitalized, as
defined, and in compliance with all applicable regulatory
capital requirements. There are no conditions or events since
December 31, 2002 that management believes would cause a
change in Banknorths well-capitalized status.

The following table summarizes Banknorths
and its depository subsidiarys regulatory capital
requirements at December 31, 2002 and 2001.

|                        |                                                       |        |   |                      |  |        |  |       |   |        |   |           |  |  |  |      |   |  |   |         |  |  |  |      |  
|----------------------- | ----------------------------------------------------- | ------ | - | -------------------- |  | ------ |  | ----- | - | ------ | - | --------- |  |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|                        |                                                       |        |   |                      |  |       
|                        |                                                       | Actual |   | Capital Requirements |  | Excess
|                        |                                                       |        |   |                      |  |       
|                        |                                                       | Amount |   | Ratio                |  | Amount |  | Ratio |   | Amount |   | Ratio    
|                        |                                                       |        |   |                      |  |        |  |       |   |        |   |          
|As of December 31, 2002 |                                                       |        |   |                      |  |        |  |       |   |        |   |           |  |  |  |      |   |  |   |         |  |  |  |     
|Banknorth Group, Inc.   |                                                       |        |   |                      |  |        |  |       |   |        |   |           |  |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)               |        | $ | 1,960,869            |  |        |  | 12.15 | % |        | $ | 1,291,616 |  |  |  | 8.00 | % |  | $ | 669,253 |  |  |  | 4.15 | %
|                        | Tier 1 capital (to risk weighted assets)              |        |   | 1,558,974            |  |        |  | 9.66  | % |        |   | 645,808   |  |  |  | 4.00 | % |  |   | 913,166 |  |  |  | 5.66 | %
|                        | Tier 1 leverage capital ratio (to average
    assets) |        |   | 1,558,974            |  |        |  | 7.13  | % |        |   | 874,180   |  |  |  | 4.00 | % |  |   | 684,794 |  |  |  | 3.13 | %
|Banknorth NA            |                                                       |        |   |                      |  |        |  |       |   |        |   |           |  |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)               |        | $ | 1,822,307            |  |        |  | 11.31 | % |        |   | 1,288,562 |  |  |  | 8.00 | % |  |   | 533,745 |  |  |  | 3.31 | %
|                        | Tier 1 capital (to risk weighted assets)              |        |   | 1,421,995            |  |        |  | 8.83  | % |        |   | 644,281   |  |  |  | 4.00 | % |  |   | 777,714 |  |  |  | 4.83 | %
|                        | Tier 1 leverage capital ratio (to average
    assets) |        |   | 1,421,995            |  |        |  | 6.52  | % |        |   | 871,830   |  |  |  | 4.00 | % |  |   | 550,165 |  |  |  | 2.52 | %
|As of December 31, 2001 |                                                       |        |   |                      |  |        |  |       |   |        |   |           |  |  |  |      |   |  |   |         |  |  |  |     
|Banknorth Group, Inc.   |                                                       |        |   |                      |  |        |  |       |   |        |   |           |  |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)               |        | $ | 1,763,236            |  |        |  | 12.23 | % |        | $ | 1,153,369 |  |  |  | 8.00 | % |  | $ | 609,867 |  |  |  | 4.23 | %
|                        | Tier 1 capital (to risk weighted assets)              |        |   | 1,382,903            |  |        |  | 9.59  | % |        |   | 576,685   |  |  |  | 4.00 | % |  |   | 806,218 |  |  |  | 5.59 | %
|                        | Tier 1 leverage capital ratio (to average
    assets) |        |   | 1,382,903            |  |        |  | 7.14  | % |        |   | 775,163   |  |  |  | 4.00 | % |  |   | 607,740 |  |  |  | 3.14 | %
|Banknorth NA*           |                                                       |        |   |                      |  |        |  |       |   |        |   |           |  |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)               |        |   | 1,721,942            |  |        |  | 11.84 | % |        |   | 1,163,958 |  |  |  | 8.00 | % |  |   | 557,984 |  |  |  | 3.84 | %
|                        | Tier 1 capital (to risk weighted assets)              |        |   | 1,361,944            |  |        |  | 9.36  | % |        |   | 581,979   |  |  |  | 4.00 | % |  |   | 779,965 |  |  |  | 5.36 | %
|                        | Tier 1 leverage capital ratio (to average
    assets) |        |   | 1,361,944            |  |        |  | 6.70  | % |        |   | 813,243   |  |  |  | 4.00 | % |  |   | 548,701 |  |  |  | 2.70 | %



---



|  |                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Banknorth NA was formed in January 2002 as a
    result of the consolidation of eight banking charters within
    Banknorth Group. Ratios for 2001 are presented on a proforma
    combined basis.

16.     Shareholders
Equity

In 2002, Banknorth issued 3.8 million shares
in connection with acquisitions. In February 2002,
Banknorths Board of Directors authorized the repurchase of
up to 8 million shares, or approximately 6% of the
outstanding Company common stock in addition to the
13 million share repurchase program authorized in 2001.
During 2002, Banknorth repurchased 6.3 million shares at a
total cost of $154.1 million. A total of 7.3 million
shares remained under this authorization at December 31,
2002.

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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                     
| | --------------------
| | Dividend Limitations

Dividends paid by subsidiaries are the primary
source of funds available to Banknorth for payment of dividends
to its shareholders. Banknorths banking subsidiary is
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 subsidiary to
Banknorth. At December 31, 2002, Banknorth NA had
$364.2 million available for dividends that could be paid
without prior regulatory approval.



| |                        
| | -----------------------
| | Stockholder Rights Plan

In 1989, Banknorth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 15% 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
Banknorth. 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, Banknorth again amended and
restated the Stockholder Rights Plan to reflect its acquisition
of Banknorth.

17.     Accumulated
Other Comprehensive Income, Net

The following table presents the reconciliation
of transactions affecting Accumulated Other Comprehensive Income
included in shareholders equity for the periods indicated.

|                                                                          |  |         |         |            |  |        |         |   |  |   |        |  
|------------------------------------------------------------------------- |  | ------- | ------- | ---------- |  | ------ | ------- | - |  | - | ------ | -
|                                                                          |  | Pre-tax |         |            |  | Net of
|                                                                          |  | Amount  |         | Tax Effect |  | Tax   
|                                                                          |  |         |         |            |  |       
|December 31, 2002                                                         |  |         |         |            |  |        |         |   |  |   |        |  
|Unrealized gain (loss) on securities available
    for sale               |  | $       | 126,028 |            |  | $      | (44,038 | ) |  | $ | 81,990 |  
|Unrealized gain (loss) on cash flow hedges                                |  |         | (9,590  | )          |  |        | 3,355   |   |  |   | (6,235 | )
|Minimum pension liability                                                 |  |         | (1,270  | )          |  |        | 445     |   |  |   | (825   | )
|Reclassification adjustment for gains realized in
    net income          |  |         | (850    | )          |  |        | 298     |   |  |   | (552   | )
|                                                                          |  |         |         |            |  |        |         |   |  |   |        |  
|Net unrealized gains (losses)                                             |  | $       | 114,318 |            |  | $      | (39,940 | ) |  | $ | 74,378 |  
|                                                                          |  |         |         |            |  |        |         |   |  |   |        |  
|December 31, 2001                                                         |  |         |         |            |  |        |         |   |  |   |        |  
|Unrealized gain on securities available for sale                          |  | $       | 116,377 |            |  | $      | (40,732 | ) |  | $ | 75,645 |  
|Unrealized gain (loss) on cash flow hedges                                |  |         | (1,365  | )          |  |        | 478     |   |  |   | (887   | )
|Reclassification adjustment for (gains) losses
    realized in net income |  |         | 457     |            |  |        | (160    | ) |  |   | 297    |  
|                                                                          |  |         |         |            |  |        |         |   |  |   |        |  
|Net unrealized gains (losses)                                             |  | $       | 115,469 |            |  | $      | (40,414 | ) |  | $ | 75,055 |  
|                                                                          |  |         |         |            |  |        |         |   |  |   |        |  
|December 31, 2000                                                         |  |         |         |            |  |        |         |   |  |   |        |  
|Unrealized gain on securities available for sale                          |  | $       | 124,017 |            |  | $      | (43,406 | ) |  | $ | 80,611 |  
|Minimum pension liability                                                 |  |         | 385     |            |  |        | (135    | ) |  |   | 250    |  
|Reclassification adjustment for (gains) losses
    realized in net income |  |         | 15,455  |            |  |        | (5,409  | ) |  |   | 10,046 |  
|                                                                          |  |         |         |            |  |        |         |   |  |   |        |  
|Net unrealized gains (losses)                                             |  | $       | 139,857 |            |  | $      | (48,950 | ) |  | $ | 90,907 |  
|                                                                          |  |         |         |            |  |        |         |   |  |   |        |  

75



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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

18.     Earnings Per
Share

The following table presents a computation of
earnings per share for the periods indicated.

|                                    |         |                                  |         |         |       |      |         |         |       |   |         |         |     | 
|----------------------------------- | ------- | -------------------------------- | ------- | ------- | ----- | ---- | ------- | ------- | ----- | - | ------- | ------- | --- | 
|                                    |         |                                 
|                                    |         | Year Ended December 31,         
|                                    |         |                                 
|                                    |         | 2002                             |         | 2001    |       | 2000
|                                    |         |                                  |         |         |       |     
|                                    |         |                                 
|                                    |         | (In thousands, except           
|                                    |         | per share amounts)              
|Net income                          |         | $                                | 298,638 |         |       | $    | 238,795 |         |       | $ | 191,734 |        
|                                    |         |                                  |         |         |       |      |         |         |       |   |         |        
|Weighted average shares outstanding |         |                                  |         |         |       |      |         |         |       |   |         |        
|                                    | Basic   |                                  |         | 148,213 |       |      |         | 140,473 |       |   |         | 144,270 |    
|                                    |         | Dilutive effect of stock options |         |         | 1,616 |      |         |         | 1,329 |   |         |         | 924 | 
|                                    |         |                                  |         |         |       |      |         |         |       |   |         |        
|                                    | Diluted |                                  |         | 149,829 |       |      |         | 141,802 |       |   |         | 145,194 |    
|                                    |         |                                  |         |         |       |      |         |         |       |   |         |        
|Net income per share:               |         |                                  |         |         |       |      |         |         |       |   |         |        
|                                    | Basic   |                                  | $       | 2.01    |       |      | $       | 1.70    |       |   | $       | 1.33    |    
|                                    | Diluted |                                  |         | 1.99    |       |      |         | 1.68    |       |   |         | 1.32    |    

Weighted average shares outstanding exclude
unallocated ESOP shares which averaged 94 thousand,
283 thousand, and 378 thousand shares in 2002, 2001
and 2000, respectively.



|    |                                                                          
|--- | -------------------------------------------------------------------------
|19. | Commitments, Contingent Liabilities and Other
    Off-Balance Sheet Risks

Banknorth 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, commitments
to invest in real estate limited partnerships, standby letters
of credit, recourse arrangements on serviced loans, forward
commitments to sell loans, foreign currency forward contracts
and commercial loan interest rate swaps. 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 Banknorth has in
particular classes of financial instruments.

Banknorth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. Banknorth 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. Banknorth controls the credit risk of
its forward commitments to sell loans through credit approvals,
limits and monitoring procedures.

76



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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Financial instruments with off-balance sheet risk
at December 31, 2002 and 2001 follow:

|                                                                                                    |                                                                                                                               |                             |   |           |  |  |   |           | 
|--------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | --------------------------- | - | --------- |  |  | - | --------- | 
|                                                                                                    |                                                                                                                               |                            
|                                                                                                    |                                                                                                                               | Contract or Notional Amount
|                                                                                                    |                                                                                                                               | at December 31,            
|                                                                                                    |                                                                                                                               |                            
|                                                                                                    |                                                                                                                               | 2002                        |   | 2001     
|                                                                                                    |                                                                                                                               |                             |   |          
|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 |                             | $ | 5,523,827 |  |  | $ | 4,398,307 | 
|                                                                                                    | Commitments to invest in real estate limited
    partnerships                                                                 |                             |   | 24,863    |  |  |   | 21,520    | 
|                                                                                                    | Commitments to invest in small business
    investments limited partnerships                                                  |                             |   | 15,751    |  |  |   | 15,997    | 
|                                                                                                    | Loans serviced with recourse                                                                                                  |                             |   | 13,103    |  |  |   | 17,226    | 
|Financial instruments with notional or contract
    amounts which exceed the amount of credit risk: |                                                                                                                               |                             |   |           |  |  |   |          
|                                                                                                    | Forward commitments to sell loans                                                                                             |                             |   | 234,651   |  |  |   | 172,504   | 
|                                                                                                    | Foreign currency forward contracts (notional
    amount)                                                                      |                             |   | 22,275    |  |  |   |          | 
|                                                                                                    | Commercial loan swaps (notional amount)                                                                                       |                             |   | 120,650   |  |  |   |          | 

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. Banknorth evaluates each customers
creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by Banknorth upon
extension of credit, is based on managements credit
evaluation of the borrower.

Standby letters of credit are conditional
commitments issued by Banknorth 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.

At December 31, 2002, Banknorth had
$51.8 million of investments in tax advantaged limited
partnerships primarily involved in approved low income housing
investment tax credit projects in Banknorths market area
and commitments to invest up to an additional $24.9 million
in such partnerships. At December 31, 2002, Banknorth had
$14.9 million invested in small business limited
partnerships which primarily provide seed money to businesses in
Banknorths market area and commitments to invest up to an
additional $15.8 million in such partnerships. Investments
in both of the foregoing categories of assets are included under
other assets.

Loans serviced with recourse represent
Banknorths recourse obligations in certain of
Banknorths servicing arrangements with investors for
serviced loan portfolios. In the event of foreclosure on a
serviced loan, Banknorth 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 Banknorth cannot
project future losses, the fair value of this recourse
obligation is deemed to be likewise insignificant.

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

77



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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Foreign currency forward contracts are contracts
that Banknorth enters into as an accommodation for customers
involved in international trade for the future delivery or
purchase of foreign currency at a specified price. For these
customers, Banknorth generally sets aside a percentage of their
available line of credit until the foreign currency contract is
settled. Generally, Banknorth enters into forward foreign
contracts with approved reputable dealers. Risks arise from the
possible inability of the seller and/or our customer to perform
and from any resultant exposure to movement in foreign currency
exchange rates, limiting Banknorths exposure to the
replacement value of the contracts rather than the notional
principal or contract amounts. The foreign exchange contracts
outstanding at December 31, 2002 all mature within two
years.

Commercial loan swaps enable customers to
synthetically convert variable interest rate loans with fixed
rate loans. These pay variable, receive fixed interest rate
swaps on our books are offset by entering into simultaneous pay
fixed, receive variable rate swaps with a third party broker/
dealer. Both of these swap products are marked to market and
carried on our balance sheet at fair value.



| |                  
| | -----------------
| | Legal Proceedings

Banknorth 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 Banknorth and its subsidiaries.



| |                            
| | ---------------------------
| | Operating Lease Obligations

Banknorth leases certain properties used in
operations under terms of operating leases which include renewal
options. Rental expense under these leases approximated
$20.9 million, $19.9 million and $18.1 million
for the years ended 2002, 2001 and 2000, respectively.

The following table sets forth the approximate
future minimum lease payments over the remaining terms of the
leases as of December 31, 2002.

|               |  |   |         | 
|-------------- |  | - | ------- | 
|2003           |  | $ | 20,384  | 
|2004           |  |   | 18,276  | 
|2005           |  |   | 15,587  | 
|2006           |  |   | 13,819  | 
|2007           |  |   | 11,183  | 
|2008 and after |  |   | 41,443  | 
|               |  |   |         | 
|               |  | $ | 120,692 | 
|               |  |   |         | 



|    |                               
|--- | ------------------------------
|20. | Stock-Based Compensation Plans



| |                   
| | ------------------
| | Stock Option Plans

In 1995, Banknorth 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
161,250 shares had been issued upon exercise of the stock
options granted pursuant to this plan through December 31,
2002. Options to purchase 113,500 shares were granted in
2002 at an exercise price of $26.34 per share, options to
purchase 109,750 shares were granted in 2001 at $19.80 per
share and options to purchase

78



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

100,000 shares were granted in 2000 at
$14.13 per share. At December 31, 2002, there were 454,500
shares available for future options under the plan.

Banknorth has adopted or assumed in acquisitions
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, 2002, there
were 1,920,268 additional shares available for grant under the
1996 Option Plan.

The per share weighted-average fair value of all
stock options granted by Banknorth during 2002, 2001 and 2000
was $7.09, $6.10 and $5.23 on the date of the grants using the
Black Scholes option-pricing model with the following average
assumptions:

|                        |  |      |       |       |  |      |       |       |  |  |       |      
|----------------------- |  | ---- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | -----
|                        |  | 2002 |       | 2001  |  | 2000
|                        |  |      |       |       |  |     
|Expected dividend yield |  |      | 2.36  | %     |  |      | 2.48  | %     |  |  | 3.24  | %    
|Risk-free interest rate |  |      | 3.82  |       |  |      | 4.50  |       |  |  | 6.14  |      
|Expected life           |  |      | 5.00  | years |  |      | 5.00  | years |  |  | 5.00  | years
|Volatility              |  |      | 36.26 | %     |  |      | 33.91 | %     |  |  | 38.27 | %    

Activity for all stock option plans during the
three-year period ended December 31, 2002 is summarized as
follows:

|                                 |                                  |           |            |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |            |   |   |       |       | 
|-------------------------------- | -------------------------------- | --------- | ---------- | -------------- | - | --------- | ----- | -------------- |  | --------- | --------- | -------------- | - | - | ----- | ----- |  |  | --------- | ---------- | - | - | ----- | ----- | 
|                                 |                                  |           |            |                |   |          
|                                 |                                  | 2002      |            | 2001           |   | 2000     
|                                 |                                  |           |            |                |   |          
|                                 |                                  |           |            | Weighted       |   |           |       | Weighted       |  |           |           | Weighted      
|                                 |                                  | Number of |            | Average        |   | Number of |       | Average        |  | Number of |           | Average       
|                                 |                                  | Shares    |            | Exercise Price |   | Shares    |       | Exercise Price |  | Shares    |           | Exercise Price
|                                 |                                  |           |            |                |   |           |       |                |  |           |           |               
|Outstanding at beginning of year |                                  |           | 9,655,231  |                |   | $         | 16.90 |                |  |           | 7,195,939 |                |   | $ | 15.00 |       |  |  | 7,691,131 |            |   | $ | 13.72 |      
|                                 | Granted                          |           |            | 3,898,047      |   |           |       | 23.45          |  |           |           | 3,193,168      |   |   |       | 20.81 |  |  |           | 1,632,212  |   |   |       | 16.17 | 
|                                 | Granted in purchase acquisitions |           |            | 714,798        |   |           |       | 12.51          |  |           |           | 1,018,863      |   |   |       | 10.01 |  |  |           |           |   |   |       |      | 
|                                 | Exercised                        |           |            | (1,684,671     | ) |           |       | 12.58          |  |           |           | (1,589,917     | ) |   |       | 11.46 |  |  |           | (1,530,041 | ) |   |       | 8.60  | 
|                                 | Forfeited                        |           |            | (94,986        | ) |           |       | 20.71          |  |           |           | (162,822       | ) |   |       | 18.76 |  |  |           | (597,363   | ) |   |       | 18.66 | 
|                                 |                                  |           |            |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |            |   |   |       |      
|Outstanding at end of year       |                                  |           | 12,488,419 |                |   | $         | 19.23 |                |  |           | 9,655,231 |                |   | $ | 16.90 |       |  |  | 7,195,939 |            |   | $ | 15.00 |      
|                                 |                                  |           |            |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |            |   |   |       |      
|Options exercisable at year end  |                                  |           | 6,729,062  |                |   | $         | 16.46 |                |  |           | 5,935,610 |                |   | $ | 14.98 |       |  |  | 5,118,724 |            |   | $ | 14.46 |      
|                                 |                                  |           |            |                |   |           |       |                |  |           |           |                |   |   |       |       |  |  |           |            |   |   |       |      

79



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##### Table of Contents



BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The range of per share exercise prices for
outstanding and exercisable stock options at December 31,
2002 was as follows:

|                |  |                     |            |                     |  |                  |           |               |  |                  |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | ---------- | ------------------- |  | ---------------- | --------- | ------------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |            |                    
|                |  | Options Outstanding |            | Options Exercisable
|                |  |                     |            |                    
|                |  | Number              |            | Weighted Average    |  |                  |           | Number        |  |                 
|Range of        |  | Outstanding         |            | Remaining           |  | Weighted Average |           | Outstanding   |  | Weighted Average
|Exercise Prices |  | at 12/31/2002       |            | Contractual Life    |  | Exercise Price   |           | at 12/31/2002 |  | Exercise Price  
|                |  |                     |            |                     |  |                  |           |               |  |                 
|up to $5.00     |  |                     | 21,313     |                     |  |                  | 2.1 years |               |  | $                | 3.54  |  |  |  | 24,313    |  |  | $ | 3.83  | 
|$ 5.01  $10.00 |  |                     | 536,304    |                     |  |                  | 2.7       |               |  |                  | 7.62  |  |  |  | 536,304   |  |  |   | 7.62  | 
|$10.01  $15.00 |  |                     | 1,130,555  |                     |  |                  | 3.6       |               |  |                  | 11.82 |  |  |  | 1,130,555 |  |  |   | 11.82 | 
|$15.01  $20.00 |  |                     | 3,802,515  |                     |  |                  | 6.4       |               |  |                  | 17.42 |  |  |  | 3,766,421 |  |  |   | 17.40 | 
|$20.00  $25.00 |  |                     | 6,770,007  |                     |  |                  | 9.2       |               |  |                  | 22.23 |  |  |  | 1,160,969 |  |  |   | 21.31 | 
|over $25.00     |  |                     | 227,725    |                     |  |                  | 9.2       |               |  |                  | 26.26 |  |  |  | 113,500   |  |  |   | 26.34 | 
|                |  |                     |            |                     |  |                  |           |               |  |                  |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 12,488,419 |                     |  |                  | 7.5       |               |  |                  | 19.23 |  |  |  | 6,732,062 |  |  |   | 16.46 | 
|                |  |                     |            |                     |  |                  |           |               |  |                  |       |  |  |  |           |  |  |   |       | 

401(k) Plan

Banknorth and its subsidiaries have
401(k) Plans covering substantially all permanent
employees. Banknorth matches employee contributions based on a
predetermined formula and may make additional discretionary
contributions. Effective January 1, 2001, Banknorth merged
the Profit Sharing Employee Stock Ownership Plan (the
ESOP) into the 401(k) Plan. The total expense for
these plans in 2002, 2001 and 2000 was $7.5 million,
$5.2 million and $5.0 million, respectively.

Employee
Stock Purchase Plan

Banknorth has an Employee Stock Purchase Plan
that is available to employees with one year of service. Under
the plan, shares of Banknorths common stock may be
purchased at six-month intervals at 85% of the lower of the fair
market value on the first or the last business day of each
six-month period, subject to limitations set forth in the plan.
Employees have the right to authorize payroll deductions up to
10% of their salary. During 2002, 2001 and 2000, employees
purchased 180,955 shares, 139,427 shares and
162,537 shares at average prices of $19.24, $17.51 and
$12.48 per share, respectively. The maximum number of
shares which may be issued under the Employee Stock Purchase
Plan is 2,852,000 shares, of which an additional 1,500,000
shares was approved by shareholders in April 2002. As of
December 31, 2002, 1,427,004 shares have been issued out of
this plan with 1,424,996 shares remaining to be issued. The
proforma expense calculated under SFAS No. 123 approximated
$933 thousand, $709 thousand and $813 thousand for
2002, 2001 and 2000, respectively.

Restricted
Stock Plan

In 1990, Banknorth adopted a Restricted Stock
Plan under which up to $10,000 of the annual fee payable to each
non-employee Director of Banknorth and participating
subsidiaries is payable solely in shares of Company common
stock. Shares issued under this plan totaled 5,599, 6,358 and
12,066 in 2002, 2001 and 2000, respectively.

Incentive
Plan

Banknorth has an Incentive Plan covering all full
and part-time employees. Incentives are earned based on
Banknorths, department or individual performance as
measured against targets set in connection with the annual
budget. Each employees incentive potential is a fixed
percentage of their base pay and, for a significant number of
employees, can be modified up or down based on actual
performance versus target.

80



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 2002, shareholders approved the Executive
Incentive Plan under which Banknorth may pay cash incentive
awards to selected officers based on Banknorths
performance over specified periods. The Executive Incentive Plan
is administered by a committee of the Board of Directors. No
awards have yet been made under the Plan.



|    |                                   
|--- | ----------------------------------
|21. | Retirement and Other Benefit Plans

Pension
Plans

Banknorth has a noncontributory defined benefit
plan covering most permanent, full-time employees. Benefits are
based on career average earnings and length of service.
Banknorth 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.
Pension plan assets are invested in stocks, bonds and mutual
funds.

Banknorth has adopted supplemental retirement
plans for certain key officers. These plans were designed to
offset the impact of changes in the pension plans that limit the
benefits for highly-paid employees under qualified pension plans.

Post
Retirement Benefits Other Than Pensions

Banknorth and its subsidiaries sponsor limited
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.

Banknorth 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 Banknorths Consolidated Balance
Sheets at December 31, 2002 and 2001 for the pension plans
(defined benefit and supplemental executive retirement plans)
and other post-retirement benefit plans:

|                                        |  |               |         |                 |  |       |         |      |  |   |        |   |  |   |        |  
|--------------------------------------- |  | ------------- | ------- | --------------- |  | ----- | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                        |  |               |         |                 |  |      
|                                        |  |               |         |                 |  | Other
|                                        |  |               |         | Post-Retirement
|                                        |  | Pension Plans |         | Benefits       
|                                        |  |               |         |                
|                                        |  | 2002          |         | 2001            |  | 2002  |         | 2001
|                                        |  |               |         |                 |  |       |         |     
|Change in benefit obligation            |  |               |         |                 |  |       |         |      |  |   |        |   |  |   |        |  
|Benefit obligation at beginning of year |  | $             | 138,822 |                 |  | $     | 119,866 |      |  | $ | 12,416 |   |  | $ | 11,954 |  
|Service cost                            |  |               | 7,018   |                 |  |       | 5,063   |      |  |   | 99     |   |  |   | 87     |  
|Interest cost                           |  |               | 10,545  |                 |  |       | 9,273   |      |  |   | 1,001  |   |  |   | 883    |  
|Assumption changes                      |  |               | 11,188  |                 |  |       | 8,651   |      |  |   | 1,788  |   |  |   | 441    |  
|Plan amendment                          |  |               | 892     |                 |  |       |        |      |  |   |       |   |  |   |       |  
|Actuarial (gain) loss                   |  |               | 2,855   |                 |  |       | (1,777  | )    |  |   | 1,777  |   |  |   | 20     |  
|Acquisitions                            |  |               | 7,721   |                 |  |       | 5,467   |      |  |   | 307    |   |  |   | 370    |  
|Benefits paid                           |  |               | (9,523  | )               |  |       | (7,721  | )    |  |   | (1,575 | ) |  |   | (1,339 | )
|Expenses paid                           |  |               | (564    | )               |  |       |        |      |  |   |       |   |  |   |       |  
|                                        |  |               |         |                 |  |       |         |      |  |   |        |   |  |   |        |  
|Benefit obligation at end of year       |  | $             | 168,954 |                 |  | $     | 138,822 |      |  | $ | 15,813 |   |  | $ | 12,416 |  
|                                        |  |               |         |                 |  |       |         |      |  |   |        |   |  |   |        |  

81



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                          |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | ------------- | ------- | --------------- |  | ----- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                          |  |               |         |                 |  |      
|                                                                          |  |               |         |                 |  | Other
|                                                                          |  |               |         | Post-Retirement
|                                                                          |  | Pension Plans |         | Benefits       
|                                                                          |  |               |         |                
|                                                                          |  | 2002          |         | 2001            |  | 2002  |         | 2001
|                                                                          |  |               |         |                 |  |       |         |     
|Change in plan assets                                                     |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at beginning of year                            |  | $             | 140,971 |                 |  | $     | 121,019 |      |  | $ |        |   |  | $ |        |  
|Actual return (loss) on plan assets                                       |  |               | (12,576 | )               |  |       | (6,893  | )    |  |   |        |   |  |   |        |  
|Employer contribution                                                     |  |               | 31,587  |                 |  |       | 27,252  |      |  |   | 1,575   |   |  |   | 1,339   |  
|Benefits paid                                                             |  |               | (9,523  | )               |  |       | (7,721  | )    |  |   | (1,575  | ) |  |   | (1,339  | )
|Expenses paid                                                             |  |               | (564    | )               |  |       |        |      |  |   |        |   |  |   |        |  
|Acquisitions                                                              |  |               | 5,007   |                 |  |       | 7,314   |      |  |   |        |   |  |   |        |  
|                                                                          |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at end of year                                  |  | $             | 154,902 |                 |  | $     | 140,971 |      |  | $ |        |   |  | $ |        |  
|                                                                          |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Funded (unfunded) status                                                  |  | $             | (14,052 | )               |  | $     | 2,149   |      |  | $ | (15,813 | ) |  | $ | (12,416 | )
|Unrecognized net actuarial (gain) loss                                    |  |               | 51,115  |                 |  |       | 12,193  |      |  |   | 5,107   |   |  |   | 1,608   |  
|Unrecognized prior service cost                                           |  |               | 1,835   |                 |  |       | 1,130   |      |  |   | 1,215   |   |  |   | 1,354   |  
|Unrecognized net transition obligation                                    |  |               | (882    | )               |  |       | (1,062  | )    |  |   | 4,078   |   |  |   | 4,471   |  
|                                                                          |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Prepaid (accrued) benefit cost                                            |  | $             | 38,016  |                 |  | $     | 14,410  |      |  | $ | (5,413  | ) |  | $ | (4,983  | )
|                                                                          |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Amounts recognized in the statement of financial
    position consist of: |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Prepaid (accrued) benefit cost                                            |  | $             | 52,201  |                 |  | $     | 14,410  |      |  | $ | (5,413  | ) |  | $ | (4,983  | )
|Accrued benefit liability                                                 |  |               | (17,365 | )               |  |       |        |      |  |   |        |   |  |   |        |  
|Intangible asset                                                          |  |               | 1,910   |                 |  |       |        |      |  |   |        |   |  |   |        |  
|Accumulated other comprehensive income                                    |  |               | 1,270   |                 |  |       |        |      |  |   |        |   |  |   |        |  
|                                                                          |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Net amount recognized                                                     |  | $             | 38,016  |                 |  | $     | 14,410  |      |  | $ | (5,413  | ) |  | $ | (4,983  | )
|                                                                          |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Weighted-average assumptions as of
    December 31                        |  |               |         |                 |  |       |         |      |  |   |         |   |  |   |         |  
|Discount rate                                                             |  |               | 6.75    | %               |  |       | 7.25    | %    |  |   | 6.75    | % |  |   | 7.25    | %
|Expected return on plan assets                                            |  |               | 8.50    | %               |  |       | 9.00    | %    |  |   |        |   |  |   |        |  
|Rate of compensation increase                                             |  |               | 4.50    | %               |  |       | 4.50    | %    |  |   |        |   |  |   |        |  

|                                            |  |                         |         |                         |  |      |         |      |  |      |         |      |  |   |       |  |  |   |       |  |  |   |       | 
|------------------------------------------- |  | ----------------------- | ------- | ----------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                            |  |                         |         |                        
|                                            |  | Year Ended December 31, |         | Year Ended December 31,
|                                            |  |                         |         |                        
|                                            |  | 2002                    |         | 2001                    |  | 2000 |         | 2002 |  | 2001 |         | 2000
|                                            |  |                         |         |                         |  |      |         |      |  |      |         |     
|Components of net periodic benefit
    cost |  |                         |         |                         |  |      |         |      |  |      |         |      |  |   |       |  |  |   |       |  |  |   |       | 
|Service cost                                |  | $                       | 7,018   |                         |  | $    | 5,063   |      |  | $    | 5,636   |      |  | $ | 99    |  |  | $ | 87    |  |  | $ | 312   | 
|Interest cost                               |  |                         | 10,545  |                         |  |      | 9,273   |      |  |      | 9,296   |      |  |   | 1,001 |  |  |   | 883   |  |  |   | 1,019 | 
|Expected return on plan assets              |  |                         | (12,373 | )                       |  |      | (10,670 | )    |  |      | (11,018 | )    |  |   |      |  |  |   |      |  |  |   |      | 
|Net amortization and deferral               |  |                         | 77      |                         |  |      | (644    | )    |  |      | (1,842  | )    |  |   | 664   |  |  |   | 534   |  |  |   | 571   | 
|                                            |  |                         |         |                         |  |      |         |      |  |      |         |      |  |   |       |  |  |   |       |  |  |   |       | 
|Net periodic benefit cost                   |  | $                       | 5,267   |                         |  | $    | 3,022   |      |  | $    | 2,072   |      |  | $ | 1,764 |  |  | $ | 1,504 |  |  | $ | 1,902 | 
|                                            |  |                         |         |                         |  |      |         |      |  |      |         |      |  |   |       |  |  |   |       |  |  |   |       | 

The expected return on plan assets equals the
long-term rate of return multiplied by the market related value,
plus the expected contributions, weighted for timing, plus
expected expenses, minus the expected distributions, weighed for
timing.

Interest cost equals the discount rate multiplied
by the projected benefit obligation plus the service cost minus
expected expenses, minus the expected distributions, weighted
for timing.

82



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                    
|--- | -----------------------------------
|22. | Fair Value of Financial Instruments

Banknorth discloses fair value information about
financial instruments 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, Banknorth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 Banknorth.
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.

The following describes the methods and
assumptions used by Banknorth 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 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 Banknorths holdings of a particular
security in one transaction.

Loans and leases.The fair values of portfolio 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 variable-rate consumer 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.

Commitments and letters of credit not included in
the table have contractual values of $5.5 billion and
$4.4 billion at December 31, 2002 and 2001,
respectively. These instruments generate ongoing fees at
Banknorths current pricing levels. Of the commitments at
December 31, 2002, 28% mature within one year.

Mortgage Servicing Rights.The fair value of Banknorths
mortgage servicing rights at December 31, 2002 was based on
a third party valuation analysis which considered the expected
present value of future mortgage servicing income, net of
estimated servicing costs, considering market consensus loan
prepayment predictions at that date.

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 Banknorths
long-term borrowings is estimated by discounting cash flows
based on current rates available to Banknorth 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 financial instruments:

Forward commitments to sell loans held for
sale.The fair value of
Banknorths forward commitments to sell loans reflects the
amount Banknorth would receive or pay to terminate the
commitment at the reporting date. Of the $234.7 million of
forward sales commitments at December 31, 2002, Banknorth
had $128.6 million in loans available to sell at that date
as well as sufficient loan originations subsequent to
December 31, 2002 to fulfill the commitments. Consequently,
Banknorth expects to meet all of its forward sales commitments.

Rate-lock commitments to originate loans held
for sale.The fair values on
commitment to originate residential loans at an agreed upon rate
(rate-locked) are based on the estimated gain or loss that would
be recognized had the underlying loans been funded and sold on
the reporting date (i.e., mark-to-market value).

Commercial loan interest rate swaps.The estimated fair value of these
derivative financial instruments is based on dealer quotes.

Loans serviced with recourse.Under certain of Banknorths
servicing arrangements with investors, Banknorth has
$13.1 million of recourse obligations to those serviced
loan portfolios. In the event of foreclosure on a serviced loan,
Banknorth 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 Banknorth 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 Banknorths significant financial
instruments at December 31, 2002 and 2001 follows:

|        |                                 |          |   |            |  |          |   |            |  |  |   |            |  |  |   |            | 
|------- | ------------------------------- | -------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ---------- |  |  | - | ---------- | 
|        |                                 |          |   |           
|        |                                 | 2002     |   | 2001      
|        |                                 |          |   |           
|        |                                 | Carrying |   | Fair       |  | Carrying |   | Fair      
|        |                                 | Value    |   | Value      |  | Value    |   | Value     
|        |                                 |          |   |            |  |          |   |           
|Assets: |                                 |          |   |            |  |          |   |            |  |  |   |            |  |  |   |           
|        | Cash and cash equivalents       |          | $ | 717,003    |  |          | $ | 717,003    |  |  | $ | 871,211    |  |  | $ | 871,211    | 
|        | Securities  available for sale |          |   | 6,731,467  |  |          |   | 6,731,467  |  |  |   | 5,817,238  |  |  |   | 5,817,238  | 
|        | Securities  held to maturity   |          |   | 216,409    |  |          |   | 221,571    |  |  |   | 339,623    |  |  |   | 340,737    | 
|        | Loans held for sale             |          |   | 128,622    |  |          |   | 135,799    |  |  |   | 117,674    |  |  |   | 117,674    | 
|        | Loans and leases, net           |          |   | 13,847,735 |  |          |   | 14,202,064 |  |  |   | 12,525,493 |  |  |   | 12,861,157 | 
|        | Mortgage servicing rights       |          |   | 3,598      |  |          |   | 3,598      |  |  |   | 8,484      |  |  |   | 8,603      | 

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                   |                                                            |          |  |            |   |          |  |            |   |  |  |           |   |  |  |           |  
|------------------------------------------------------------------ | ---------------------------------------------------------- | -------- |  | ---------- | - | -------- |  | ---------- | - |  |  | --------- | - |  |  | --------- | -
|                                                                   |                                                            |          |  |           
|                                                                   |                                                            | 2002     |  | 2001      
|                                                                   |                                                            |          |  |           
|                                                                   |                                                            | Carrying |  | Fair       |   | Carrying |  | Fair      
|                                                                   |                                                            | Value    |  | Value      |   | Value    |  | Value     
|                                                                   |                                                            |          |  |            |   |          |  |           
|Liabilities:                                                       |                                                            |          |  |            |   |          |  |            |   |  |  |           |   |  |  |          
|                                                                   | Deposits (with no stated maturity)                         |          |  | 11,005,823 |   |          |  | 11,005,823 |   |  |  | 9,408,702 |   |  |  | 9,408,702 |  
|                                                                   | Time deposits                                              |          |  | 4,658,778  |   |          |  | 4,719,291  |   |  |  | 4,812,347 |   |  |  | 4,842,734 |  
|                                                                   | Borrowings                                                 |          |  | 5,432,581  |   |          |  | 5,595,742  |   |  |  | 4,552,388 |   |  |  | 4,601,406 |  
|Financial instruments with off-balance sheet
    notional amounts: |                                                            |          |  |            |   |          |  |            |   |  |  |           |   |  |  |          
|                                                                   | Forward commitments to sell loans                          |          |  | (3,532     | ) |          |  | (3,532     | ) |  |  | 1,011     |   |  |  | 1,011     |  
|                                                                   | Rate-lock commitments to originate loans held for
    sale |          |  | 766        |   |          |  | 766        |   |  |  | (189      | ) |  |  | (189      | )
|                                                                   | Commercial loan interest rate swaps with borrower          |          |  | 1,546      |   |          |  | 1,546      |   |  |  |          |   |  |  |          |  
|                                                                   | Commercial loan interest rate swaps with broker            |          |  | (1,546     | ) |          |  | (1,546     | ) |  |  |          |   |  |  |          |  



|    |                                                          
|--- | ---------------------------------------------------------
|23. | Condensed Financial Information 
    Parent Company Only

Condensed Financial Statements of
Banknorth

|                                     |                                                                              |                                            |   |           |           |  |   |           |           | 
|------------------------------------ | ---------------------------------------------------------------------------- | ------------------------------------------ | - | --------- | --------- |  | - | --------- | --------- | 
|                                     |                                                                              |                                           
|                                     |                                                                              | December 31,                              
|                                     |                                                                              |                                           
|                                     |                                                                              | 2002                                       |   | 2001     
|                                     |                                                                              |                                            |   |          
|Balance Sheets                       |                                                                              |                                            |   |           |           |  |   |          
|Assets:                              |                                                                              |                                            |   |           |           |  |   |          
|                                     | Cash and due from banks                                                      |                                            | $ | 22,879    |           |  | $ | 12,356    |          
|                                     | Interest bearing deposits with subsidiaries                                  |                                            |   | 115,452   |           |  |   | 18,355    |          
|                                     | Securities available for sale                                                |                                            |   | 42,180    |           |  |   | 39,311    |          
|                                     | Investment in subsidiaries                                                   |                                            |   | 2,235,116 |           |  |   | 1,796,728 |          
|                                     | Goodwill and other intangibles                                               |                                            |   | 618       |           |  |   | 9,209     |          
|                                     | Amounts receivable from subsidiaries                                         |                                            |   | 83        |           |  |   | 23,701    |          
|                                     | Other assets                                                                 |                                            |   | 16,917    |           |  |   | 70,609    |          
|                                     |                                                                              |                                            |   |           |           |  |   |          
|                                     |                                                                              | Total assets                               |   | $         | 2,433,245 |  |   | $         | 1,970,269 | 
|                                     |                                                                              |                                            |   |           |           |  |   |          
|Liabilities and shareholders equity |                                                                              |                                            |   |           |           |  |   |          
|                                     | Amounts payable to subsidiaries                                              |                                            |   |          |           |  | $ | 1,029     |          
|                                     | Subordinated debentures supporting mandatory
    redeemable trust securities |                                            |   | 344,424   |           |  |   | 134,021   |          
|                                     | Other liabilities                                                            |                                            |   | 24,511    |           |  |   | 46,104    |          
|                                     | Shareholders equity                                                         |                                            |   | 2,064,310 |           |  |   | 1,789,115 |          
|                                     |                                                                              |                                            |   |           |           |  |   |          
|                                     |                                                                              | Total liabilities and shareholders equity |   | $         | 2,433,245 |  |   | $         | 1,970,269 | 
|                                     |                                                                              |                                            |   |           |           |  |   |          

In connection with the consolidation of its eight
subsidiary bank charters into one charter on January 1,
2002, Banknorth contributed $64.5 million of non-monetary
assets and $4.8 million of liabilities to the banking
subsidiary in 2002. These assets and liabilities were previously
held by the parent company as they related to services provided
across all banks. However, after the consolidation of banking
charters,

85



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

these assets and liabilities were contributed to
the bank in the form of a non-cash capital contribution. The
assets contributed were comprised principally of furniture,
equipment, software and intangible assets. The liabilities
contributed related mainly to accrued expense of telephone, data
processing and marketing costs.

Statements of Income

|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |         | 
|------------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                                      |                                                |                        
|                                                                                      |                                                | Year Ended December 31,
|                                                                                      |                                                |                        
|                                                                                      |                                                | 2002                    |         | 2001    |  | 2000
|                                                                                      |                                                |                         |         |         |  |     
|Operating income:                                                                     |                                                |                         |         |         |  |      |         |         |  |   |         |        
|                                                                                      | Dividends from subsidiaries                    |                         | $       | 112,331 |  |      | $       | 175,793 |  |   | $       | 140,480 | 
|                                                                                      | Net gains (losses) on sales of securities      |                         |         | 648     |  |      |         |        |  |   |         |        | 
|                                                                                      | Other operating income                         |                         |         | 6,456   |  |      |         | 4,989   |  |   |         | 7,909   | 
|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |        
|                                                                                      | Total operating income                         |                         |         | 119,435 |  |      |         | 180,782 |  |   |         | 148,389 | 
|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |        
|Operating expenses:                                                                   |                                                |                         |         |         |  |      |         |         |  |   |         |        
|                                                                                      | Interest on borrowings                         |                         |         | 26,994  |  |      |         | 12,900  |  |   |         | 12,712  | 
|                                                                                      | Amortization of goodwill and other intangibles |                         |         |        |  |      |         | 1,847   |  |   |         | 1,853   | 
|                                                                                      | Special charges                                |                         |         |        |  |      |         | 4,277   |  |   |         | 7,758   | 
|                                                                                      | Write-off of branch automation project         |                         |         | 6,170   |  |      |         |        |  |   |         |        | 
|                                                                                      | Other operating expenses                       |                         |         | 3,603   |  |      |         | 224     |  |   |         | 336     | 
|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |        
|                                                                                      | Total operating expenses                       |                         |         | 36,767  |  |      |         | 19,248  |  |   |         | 22,659  | 
|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |        
|Income before income taxes and equity in
    undistributed net income of subsidiaries |                                                |                         | 82,668  |         |  |      | 161,534 |         |  |   | 125,730 |        
|Income tax benefit                                                                    |                                                |                         | (9,736  | )       |  |      | (4,485  | )       |  |   | (2,319  | )      
|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |        
|Income before equity in undistributed net income
    of subsidiaries                  |                                                |                         | 92,404  |         |  |      | 166,019 |         |  |   | 128,049 |        
|Equity in undistributed net income of subsidiaries                                    |                                                |                         | 206,234 |         |  |      | 72,776  |         |  |   | 63,685  |        
|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |        
|Net income                                                                            |                                                | $                       | 298,638 |         |  | $    | 238,795 |         |  | $ | 191,734 |        
|                                                                                      |                                                |                         |         |         |  |      |         |         |  |   |         |        

The Parent Companys Statement of Changes in
Shareholders Equity are identical to the Consolidated
Statement of Changes in Shareholders Equity and therefore
are not presented here.

86



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Statements of Cash Flows

|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |         |  
|------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------- | ------- | -------- | - | ---- | -------- | -------- | - | - | -------- | ------- | -
|                                                        |                                                                                              |                        
|                                                        |                                                                                              | Year Ended December 31,
|                                                        |                                                                                              |                        
|                                                        |                                                                                              | 2002                    |         | 2001     |   | 2000
|                                                        |                                                                                              |                         |         |          |   |     
|Cash flows from operating activities:                   |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|                                                        | Net income                                                                                   |                         | $       | 298,638  |   |      | $        | 238,795  |   |   | $        | 191,734 |  
|                                                        | Adjustments to reconcile net income to net cash
    (used) provided by operating activities: |                         |         |          |   |      |          |          |   |   |          |         |  
|                                                        | Undistributed net income from subsidiaries                                                   |                         |         | (206,234 | ) |      |          | (72,776  | ) |   |          | (63,685 | )
|                                                        | Amortization of goodwill and other intangibles                                               |                         |         |         |   |      |          | 1,847    |   |   |          | 1,853   |  
|                                                        | Decrease in unearned compensation                                                            |                         |         |         |   |      |          | 2,005    |   |   |          | 1,527   |  
|                                                        | Write-off of branch automation project                                                       |                         |         | 6,170    |   |      |          |         |   |   |          |        |  
|                                                        | (Increase) decrease in amounts receivable from
    subsidiaries                              |                         |         | 23,618   |   |      |          | (19,869  | ) |   |          | 57,705  |  
|                                                        | Decrease (increase) in other assets                                                          |                         |         | (3,969   | ) |      |          | (13,705  | ) |   |          | (15,525 | )
|                                                        | Increase (decrease) in amounts payable to
    subsidiaries                                   |                         |         | (1,029   | ) |      |          | (5,920   | ) |   |          | (21,771 | )
|                                                        | Increase (decrease) in other liabilities                                                     |                         |         | 4,813    |   |      |          | 24,931   |   |   |          | (18,785 | )
|                                                        | Other, net                                                                                   |                         |         |         |   |      |          | 68       |   |   |          | (42     | )
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Net cash provided by operating activities               |                                                                                              |                         | 122,007 |          |   |      | 155,376  |          |   |   | 133,011  |        
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Cash flows from investing activities:                   |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|                                                        | Net decrease (increase) in interest bearing
    deposits with subsidiaries                   |                         |         | (97,097  | ) |      |          | 49,539   |   |   |          | (2,009  | )
|                                                        | Purchase of available for sale securities                                                    |                         |         | (3,037   | ) |      |          | (4,990   | ) |   |          |        |  
|                                                        | Sales of held to maturity securities                                                         |                         |         |         |   |      |          |         |   |   |          | 2,854   |  
|                                                        | Maturity of securities purchased under agreements
    to resell                              |                         |         |         |   |      |          |         |   |   |          | 12,250  |  
|                                                        | Cash acquired in acquisition                                                                 |                         |         | 6,110    |   |      |          | 6,328    |   |   |          |        |  
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Net cash (used) provided by investing activities        |                                                                                              |                         | (94,024 | )        |   |      | 50,877   |          |   |   | 13,095   |        
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Cash flows from financing activities:                   |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|                                                        | Proceeds from line of credit                                                                 |                         |         | 25,000   |   |      |          | 35,000   |   |   |          |        |  
|                                                        | Payment of line of credit                                                                    |                         |         | (25,000  | ) |      |          | (35,000  | ) |   |          |        |  
|                                                        | Proceeds from sale of trust preferred securities                                             |                         |         | 193,150  |   |      |          |         |   |   |          |        |  
|                                                        | Payment of notes payable                                                                     |                         |         | (1,068   | ) |      |          | (356     | ) |   |          | (1,227  | )
|                                                        | Dividends paid to shareholders                                                               |                         |         | (85,894  | ) |      |          | (72,277  | ) |   |          | (70,773 | )
|                                                        | Treasury stock acquired                                                                      |                         |         | (154,054 | ) |      |          | (151,546 | ) |   |          | (96,585 | )
|                                                        | Proceeds from stock issued in connection with
    employee benefit plans                     |                         |         | 30,406   |   |      |          | 26,148   |   |   |          | 21,001  |  
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Net cash (used in) provided by financing
    activities |                                                                                              |                         | (17,460 | )        |   |      | (198,031 | )        |   |   | (147,584 | )      
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Net increase (decrease) in cash due from banks          |                                                                                              |                         | 10,523  |          |   |      | 8,222    |          |   |   | (1,478   | )      
|Cash and due from banks at beginning of year            |                                                                                              |                         | 12,356  |          |   |      | 4,134    |          |   |   | 5,612    |        
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Cash and due from banks at end of year                  |                                                                                              | $                       | 22,879  |          |   | $    | 12,356   |          |   | $ | 4,134    |        
|                                                        |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|Supplemental disclosure information:                    |                                                                                              |                         |         |          |   |      |          |          |   |   |          |        
|                                                        | Interest paid on borrowings                                                                  |                         | $       | 25,229   |   |      | $        | 12,900   |   |   | $        | 12,712  |  

87



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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

24.     Subsequent
Events (unaudited)

On August 22, 2002, Banknorth announced that
it had entered into an agreement to acquire Connecticut-based
American Financial Holdings, Inc (American), parent
company of American Savings Bank. American had $2.8 billion
of consolidated assets and $438.1 million of
shareholders equity at December 31, 2002. Under terms
of the agreement, each outstanding share of common stock of
American will be converted into the right to receive $32.00 in
cash or 1.22 shares of Banknorth common stock, plus cash in lieu
of any fractional share interest, subject to election and
allocation procedures which are intended to ensure that 50% of
the outstanding shares of American common stock will be
converted into the right to receive Banknorth common stock and
50% of the outstanding American common stock will be converted
into cash. The Banknorth and American boards of directors and
the American shareholders have approved the agreement. Banknorth
has received all required regulatory approvals. The acquisition
was completed on February 14, 2003.

25.     Selected
Quarterly Data (unaudited)

|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |        | 
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- | ------ | - | - | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                    |                                                                                                  |         |         |        
|                                                                    |                                                                                                  | 2002    |         | 2001   
|                                                                    |                                                                                                  |         |         |        
|                                                                    |                                                                                                  | Fourth  |         | Third   |  | Second  |         | First   |  | Fourth  |         | Third   |  | Second  |         | First  
|                                                                    |                                                                                                  | Quarter |         | Quarter |  | Quarter |         | Quarter |  | Quarter |         | Quarter |  | Quarter |         | Quarter
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |        
|Interest income                                                     |                                                                                                  | $       | 306,569 |         |  | $       | 313,156 |         |  | $       | 309,387 |         |  | $       | 306,006 |         |  | $ | 314,484 |        |   | $ | 306,125 |        |  | $ | 316,635 |        |  | $ | 326,545 |       
|Interest expense                                                    |                                                                                                  |         | 107,006 |         |  |         | 112,160 |         |  |         | 109,914 |         |  |         | 109,520 |         |  |   | 126,027 |        |   |   | 136,341 |        |  |   | 150,935 |        |  |   | 170,596 |       
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |       
|Net interest income                                                 |                                                                                                  |         | 199,563 |         |  |         | 200,996 |         |  |         | 199,473 |         |  |         | 196,486 |         |  |   | 188,457 |        |   |   | 169,784 |        |  |   | 165,700 |        |  |   | 155,949 |       
|Provision for loan and lease losses                                 |                                                                                                  |         | 10,829  |         |  |         | 10,829  |         |  |         | 10,828  |         |  |         | 11,828  |         |  |   | 13,378  |        |   |   | 12,061  |        |  |   | 9,311   |        |  |   | 7,138   |       
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |       
|Net interest income after provision for loan and
    lease losses   |                                                                                                  |         | 188,734 |         |  |         | 190,167 |         |  |         | 188,645 |         |  |         | 184,658 |         |  |   | 175,079 |        |   |   | 157,723 |        |  |   | 156,389 |        |  |   | 148,811 |       
|Noninterest income                                                  |                                                                                                  |         | 84,441  |         |  |         | 65,505  |         |  |         | 62,986  |         |  |         | 61,576  |         |  |   | 63,599  |        |   |   | 60,551  |        |  |   | 57,597  |        |  |   | 58,756  |       
|Special charges                                                     |                                                                                                  |         | 3,258   |         |  |         | 2,168   |         |  |         | 1,061   |         |  |         | 8,204   |         |  |   | 2,007   |        |   |   |        |        |  |   |        |        |  |   | 5,608   |       
|Noninterest expenses                                                |                                                                                                  |         | 154,868 |         |  |         | 139,409 |         |  |         | 135,730 |         |  |         | 134,693 |         |  |   | 136,015 |        |   |   | 124,632 |        |  |   | 121,827 |        |  |   | 119,233 |       
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |       
|Income before income taxes                                          |                                                                                                  |         | 115,049 |         |  |         | 114,095 |         |  |         | 114,840 |         |  |         | 103,337 |         |  |   | 100,656 |        |   |   | 93,642  |        |  |   | 92,159  |        |  |   | 82,726  |       
|Income tax expense                                                  |                                                                                                  |         | 37,911  |         |  |         | 37,233  |         |  |         | 38,680  |         |  |         | 34,859  |         |  |   | 35,152  |        |   |   | 31,440  |        |  |   | 32,266  |        |  |   | 27,343  |       
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |       
|                                                                    | Net income before extraordinary item and
    cumulative effect of change in accounting principle |         |         | 77,138  |  |         |         | 76,862  |  |         |         | 76,160  |  |         |         | 68,478  |  |   |         | 65,504 |   |   |         | 62,202 |  |   |         | 59,893 |  |   |         | 55,383 | 
|                                                                    | Extraordinary item, net of tax                                                                   |         |         |        |  |         |         |        |  |         |         |        |  |         |         |        |  |   |         | (3,897 | ) |   |         |       |  |   |         |       |  |   |         |       | 
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |       
|                                                                    | Net income before cumulative effect of change in
    accounting principle                        |         |         | 77,138  |  |         |         | 76,862  |  |         |         | 76,160  |  |         |         | 68,478  |  |   |         | 61,607 |   |   |         | 62,202 |  |   |         | 59,893 |  |   |         | 55,383 | 
|Cumulative effect of change in accounting
    principle, net of tax |                                                                                                  |         |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |        |   |   |        |        |  |   |        |        |  |   | (290    | )     
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |       
|Net income                                                          |                                                                                                  | $       | 77,138  |         |  | $       | 76,862  |         |  | $       | 76,160  |         |  | $       | 68,478  |         |  | $ | 61,607  |        |   | $ | 62,202  |        |  | $ | 59,893  |        |  | $ | 55,093  |       
|                                                                    |                                                                                                  |         |         |         |  |         |         |         |  |         |         |         |  |         |         |         |  |   |         |        |   |   |         |        |  |   |         |        |  |   |         |       

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BANKNORTH GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                            |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |   |      |       |      |   |      |      |      |   |      |      |      |   |      |      |      | 
|--------------------------- | ------------------------------------------------------------------------------------------------ | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | ------- | ---- | - | ---- | ----- | ---- | - | ---- | ---- | ---- | - | ---- | ---- | ---- | - | ---- | ---- | ---- | 
|                            |                                                                                                  |         |      |        
|                            |                                                                                                  | 2002    |      | 2001   
|                            |                                                                                                  |         |      |        
|                            |                                                                                                  | Fourth  |      | Third   |      | Second  |      | First   |      | Fourth  |      | Third   |      | Second  |      | First  
|                            |                                                                                                  | Quarter |      | Quarter |      | Quarter |      | Quarter |      | Quarter |      | Quarter |      | Quarter |      | Quarter
|                            |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |        
|Basic earnings per share:   |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |   |      |       |      |   |      |      |      |   |      |      |      |   |      |     
|                            | Net income before extraordinary item and
    cumulative effect of change in accounting principle |         | $    | 0.52    |      |         | $    | 0.52    |      |         | $    | 0.52    |      |         | $    | 0.46    |      |   | $    | 0.45  |      |   | $    | 0.45 |      |   | $    | 0.44 |      |   | $    | 0.39 |     
|                            | Extraordinary item, net of tax                                                                   |         |      |        |      |         |      |        |      |         |      |        |      |         |      |        |      |   |      | (0.03 | )    |   |      |     |      |   |      |     |      |   |      |     |     
|                            | Cumulative effect of change in accounting
    principle, net of tax                              |         |      |        |      |         |      |        |      |         |      |        |      |         |      |        |      |   |      |      |      |   |      |     |      |   |      |     |      |   |      |     |     
|                            |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |   |      |       |      |   |      |      |      |   |      |      |      |   |      |     
|                            |                                                                                                  | Basic   |      | $       | 0.52 |         |      | $       | 0.52 |         |      | $       | 0.52 |         |      | $       | 0.46 |   |      | $     | 0.42 |   |      | $    | 0.45 |   |      | $    | 0.44 |   |      | $    | 0.39 | 
|                            |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |   |      |       |      |   |      |      |      |   |      |      |      |   |      |     
|Diluted earnings per share: |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |   |      |       |      |   |      |      |      |   |      |      |      |   |      |     
|                            | Net income before extraordinary item and
    cumulative effect of change in accounting principle |         | $    | 0.52    |      |         | $    | 0.51    |      |         | $    | 0.51    |      |         | $    | 0.45    |      |   | $    | 0.44  |      |   | $    | 0.45 |      |   | $    | 0.43 |      |   | $    | 0.39 |     
|                            | Extraordinary item, net of tax                                                                   |         |      |        |      |         |      |        |      |         |      |        |      |         |      |        |      |   |      | (0.03 | )    |   |      |     |      |   |      |     |      |   |      |     |     
|                            | Cumulative effect of change in accounting
    principle, net of tax                              |         |      |        |      |         |      |        |      |         |      |        |      |         |      |        |      |   |      |      |      |   |      |     |      |   |      |     |      |   |      |     |     
|                            |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |   |      |       |      |   |      |      |      |   |      |      |      |   |      |     
|                            |                                                                                                  | $       | 0.52 |         |      | $       | 0.51 |         |      | $       | 0.51 |         |      | $       | 0.45 |         |      | $ | 0.41 |       |      | $ | 0.45 |      |      | $ | 0.43 |      |      | $ | 0.39 |     
|                            |                                                                                                  |         |      |         |      |         |      |         |      |         |      |         |      |         |      |         |      |   |      |       |      |   |      |      |      |   |      |      |      |   |      |     

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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
(Banknorth) as of December 31, 2002 and 2001,
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, 2002. These
consolidated financial statements are the responsibility of
Banknorth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, 2002 and 2001, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 8 to the Consolidated
Financial Statements, effective January 1, 2002, Banknorth
adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets and SFAS No. 147,
Acquisitions of Certain Financial Institutions.



|            | 
|----------- | 
|(KPMG LOGO) | 

Boston, Massachusetts

January 13, 2003


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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.




PART III.



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Incorporated by reference to Election of
Directors on pages 2
through           and
Executive Officers who are not Directors on
pages      and           of
our definitive proxy statement, dated March 10, 2003 (the
Proxy Statement).






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Incorporated by reference to Compensation
of Executive Officers and Transactions with Management on
pages      through           of
the Proxy Statement.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Information regarding security ownership of
certain beneficial owners and management is incorporated by
reference to Beneficial Ownership of Common Stock by
Certain Beneficial Owners and Management on
pages      through                of
the Proxy Statement.

Information regarding our equity compensation
plans is incorporated by reference to Equity Compensation
Plan Information on
page      of the Proxy Statement.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

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






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Within 90 days prior to the date of this
annual report, we carried out an evaluation, under the
supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are
effective. There were no significant changes in our internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.

Disclosure controls and procedures are our
controls and other procedures that are designed to ensure that
the information required to be disclosed by us in our reports
filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by us in our reports filed
under the Exchange Act is accumulated and communicated to our
management, including the principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.

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##### Table of Contents






PART IV.






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

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



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Consolidated balance sheets at December 31,
    2002 and 2001                                                                            
|
| | Consolidated statements of income for each of the
    years in the three-year period ended December 31, 2002                             
|
| | Consolidated statements of changes in
    shareholders equity for each of the years in the
    three-year period ended December 31, 2002
|
| | Consolidated statements of cash flows for each of
    the years in the three-year period ended December 31, 2002                         
|
| | Notes to Consolidated Financial Statements                                                                                               
|
| | Independent Auditors Report                                                                                                             

(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                                                                                                                                                                                                           |  |  | (3) | 
|            | 4  | (a)     |  | Specimen Common Stock certificate                                                                                                                                                                                             |  |  | (4) | 
|            | 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 |  |  | (5) | 
|            | 4  | (c)     |  | Instruments defining the rights of security
    holders, including indentures                                                                                                                                                 |  |  | (6) | 
|            | 10 | (a)     |  | Form of Severance Agreement between Banknorth and
    William J. Ryan                                                                                                                                                         |  |  |     | 
|            | 10 | (b)     |  | Form of Severance Agreement between Banknorth and
    each executive officer of Banknorth identified in the Proxy
    Statement, other than William J. Ryan                                                                   |  |  |     | 
|            | 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                                                                                                                                  |  |  | (7) | 
|            | 10 | (d)(2)  |  | Amendment to Supplemental Retirement Agreement
    among Banknorth, its subsidiaries and Peter J. Verrill                                                                                                                     |  |  | (3) | 
|            | 10 | (e)(1)  |  | Supplemental Retirement Agreement among
    Banknorth, its subsidiaries and John W. Fridlington                                                                                                                               |  |  | (8) | 
|            | 10 | (e)(2)  |  | Amendment to Supplemental Retirement Agreement
    among Banknorth, its subsidiaries and John W. Fridlington                                                                                                                  |  |  |     | 
|            | 10 | (f)     |  | Banknorth Group, Inc. Supplemental Retirement
    Plan (which covers each executive officer of Banknorth named in
    the Proxy Statement, other than Messrs. Ryan, Verrill and
    Fridlington)                              |  |  |     | 
|            | 10 | (g)     |  | Amended and Restated Deferred Compensation Plan
    for Non-Employee Directors and Key Employees, effective January
    1, 2003                                                                                               |  |  |     | 

92



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|            |    |         |  |                                                                                                           |  |  |      | 
|----------- | -- | ------- |  | --------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit No. |    | Exhibit |  | Location                                                                                                 
|            |    |         |  |                                                                                                          
|            | 10 | (h)     |  | 1986 Stock Option and Stock Appreciation Rights
    Plan, as amended                                      |  |  | (9)  | 
|            | 10 | (i)     |  | Amended and Restated Employee Stock Purchase Plan                                                         |  |  | (10) | 
|            | 10 | (j)     |  | Amended and Restated Restricted Stock Plan for
    Non-Employee Directors                                 |  |  | (11) | 
|            | 10 | (k)     |  | Amended and Restated 1995 Stock Option Plan for
    Non-Employee Directors                                |  |  | (12) | 
|            | 10 | (l)(1)  |  | Amended and Restated 401(k) Plan, effective
    January 1, 2001                                           |  |  | (12) | 
|            | 10 | (l)(2)  |  | Form of First Amendment to Amended and Restated
    401(k) Plan, dated October 1, 2002                    |  |  |      | 
|            | 10 | (l)(3)  |  | Form of Second Amendment to Amended and Restated
    401(k) Plan, dated December 18, 2002                 |  |  |      | 
|            | 10 | (m)     |  | 1996 Equity Incentive Plan, as amended                                                                    |  |  |      | 
|            | 10 | (n)     |  | Executive Incentive Plan                                                                                  |  |  |      | 
|            | 10 | (o)     |  | Bank of New Hampshire Corporation Executive
    Excess Benefit Plan for Paul R. Shea                      |  |  | (13) | 
|            | 10 | (p)     |  | Supplemental Executive Retirement Plan of
    Evergreen Bancorp, Inc. (which covers only Director Dougan) |  |  | (14) | 
|            | 10 | (q)     |  | 2003 Equity Incentive Plan                                                                                |  |  | (15) | 
|            | 21 |         |  | Subsidiaries of Banknorth Group, Inc.                                                                     |  |  |      | 
|            | 23 |         |  | Consent of KPMG LLP                                                                                       |  |  |      | 
|            | 99 | (a)     |  | Certification of Chief Executive Officer Under 18
    U.S.C. §1350                                        |  |  |      | 
|            | 99 | (b)     |  | Certification of Chief Financial Officer Under 18
    U.S.C. §1350                                        |  |  |      | 



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to Exhibit A to
    the Agreement and Plan of Merger, dated as of October 27,
    1997, between Banknorth and CFX Corporation, which agreement is
    included as Exhibit A to the Prospectus/ Proxy Statement
    included in the Form S-4 Registration Statement
    (No. 333-23991) filed by Banknorth with the SEC on
    December 31, 1997.                                                                     
|
| | (2) | Exhibits are incorporated by reference to
    (i) the proxy statement filed by Banknorth with the SEC on
    March 23, 1998, (ii) the proxy statement filed by
    Banknorth with the SEC on March 22, 2000 and (iii) the
    Form S-4 Registration Statement (No. 333-95587) filed
    by Banknorth with the SEC on January 28, 2000, which
    describes an amendment which changed the name of the registrant
    to Banknorth Group, Inc.
|
| | (3) | Exhibit is incorporated by reference to the
    Form 10-K report filed by Banknorth for the year ended
    December 31, 2000.                                                                                                                                                                                                                                                                                                                  
|
| | (4) | Exhibit is incorporated by reference to the
    Form S-4 Registration Statement (No. 333-95587) filed
    by Banknorth with the SEC on January 28, 2000.                                                                                                                                                                                                                                                                                       
|
| | (5) | Exhibit is incorporated by reference to the
    Form 8-A/A report filed by Banknorth with the SEC on
    July 26, 2000.                                                                                                                                                                                                                                                                                                                        
|
| | (6) | Banknorth has no instruments defining the rights
    of holders of its long-term debt where the amount of securities
    authorized under any such instrument exceeds 10% of the total
    assets of Banknorth and its subsidiaries on a consolidated
    basis. Banknorth hereby agrees to furnish a copy of any such
    instrument to the SEC upon request.                                                                                 
|
| | (7) | Exhibit is incorporated by reference to
    Banknorths Form 10-K report for the year ended
    December 31, 1990.                                                                                                                                                                                                                                                                                                                             
|
| | (8) | Exhibit is incorporated by reference to
    Banknorths Form 10-K report for the year ended
    December 31, 1995.                                                                                                                                                                                                                                                                                                                             
|
| | (9) | Exhibit is incorporated by reference to the
    Form S-4 Registration Statement (No. 33-20243) filed
    by Banknorth with the SEC on February 22, 1988. An
    amendment to the 1986 Stock Option and Stock Appreciation Rights
    Plan is incorporated by reference to the proxy statement filed
    by Banknorth with the SEC on March 24, 1994.                                                                                           

93



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|     |                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Exhibit is incorporated by reference to the proxy
    statement dated March 22, 2002 filed by Banknorth with the
    SEC.                                              
|    
|(11) | Exhibit is incorporated by reference to the
    Form 10-K report filed by Banknorth for the year ended
    December 31, 1996.                                          
|    
|(12) | Exhibit is incorporated by reference to the
    Form 10-K report filed by Banknorth for the year ended
    December 31, 2001.                                          
|    
|(13) | Exhibit is incorporated by reference to the
    Form 10-K report filed by Bank of New Hampshire Corporation
    (File No. 0-9517) for the year ended December 31, 1994.
|    
|(14) | Exhibit is incorporated by reference to the
    Form 10-K report filed by Evergreen Bancorp, Inc. for the
    year ended December 31, 1996.                            
|    
|(15) | Exhibit is incorporated by reference to the proxy
    statement dated March 10, 2003 filed by Banknorth with the
    SEC.                                              

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

(b) Banknorth did not file a Current Report
on Form 8-K during the fourth quarter of the period covered
by this report.

(c) See (a)(3) above for all exhibits filed
herewith and the Exhibit Index.

(d) There are no other financial statements
and financial statement schedules which were excluded from this
report which are required to be included herein.

94



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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.



| |     |                    
| | --- | -------------------
| | By: | /s/ WILLIAM J. RYAN

| |                              
| | -----------------------------
| |                              
| | William J. Ryan              
| | Chairman, President and Chief
| | Executive Officer            

Date: March 7, 2003

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.

|                                                       |  |          |  |                     |  | 
|------------------------------------------------------ |  | -------- |  | ------------------- |  | 
|                                                      
|/s/ GARY G. BAHREGary G. Bahre                         |  | Director |  | Date: March 7, 2003
|                                                      
|/s/ P. KEVIN CONDRONP. Kevin Condron                   |  | Director |  | Date: March 7, 2003
|                                                      
|/s/ GEORGE W. DOUGANGeorge W. Dougan                   |  | Director |  | Date: March 7, 2003
|                                                      
|Allen M. Glick                                         |  | Director |  |                    
|                                                      
|/s/ LUTHER F. HACKETTLuther F. Hackett                 |  | Director |  | Date: March 7, 2003
|                                                      
|/s/ COLLEEN KHOURYColleen Khoury                       |  | Director |  | Date: March 7, 2003
|                                                      
|/s/ DANA S. LEVENSONDana S. Levenson                   |  | Director |  | Date: March 7, 2003
|                                                      
|/s/ JOHN M. NAUGHTONJohn M. Naughton                   |  | Director |  | Date: March 7, 2003
|                                                      
|/s/ MALCOLM W. PHILBROOK, JR.Malcolm W. Philbrook, Jr. |  | Director |  | Date: March 7, 2003
|                                                      
|/s/ ANGELO P. PIZZAGALIAngelo P. Pizzagali             |  | Director |  | Date: March 7, 2003

95



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|                                               |  |                                                                                                                                       |  |                     |  | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------- |  | 
|                                              
|/s/ IRVING E. ROGERS, IIIIrving E. Rogers, III |  | Director                                                                                                                              |  | Date: March 7, 2003
|                                              
|/s/ WILLIAM J. RYANWilliam J. Ryan             |  | Chairman, President and Chief Executive Officer
    (principal executive officer)                                                     |  | Date: March 7, 2003
|                                              
|/s/ CURTIS M. SCRIBNERCurtis M. Scribner       |  | Director                                                                                                                              |  | Date: March 7, 2003
|                                              
|Paul R. Shea                                   |  | Director                                                                                                                              |  |                    
|                                              
|/s/ GERRY S. WEIDEMAGerry S. Weidema           |  | Director                                                                                                                              |  | Date: March 7, 2003
|                                              
|/s/ PETER J. VERRILLPeter J. Verrill           |  | Senior Executive Vice President, Chief Operating
    Officer, Chief Financial Officer and Treasurer (principal
    financial officer) |  | Date: March 7, 2003
|                                              
|/s/ STEPHEN J. BOYLEStephen J. Boyle           |  | Executive Vice President and Controller
    (principal
    accounting officer)                                                        |  | Date: March 7, 2003

96



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##### Table of Contents



SECTION 302 CERTIFICATION OF THE CHIEF
EXECUTIVE OFFICER

I, William J. Ryan, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Banknorth Group, Inc.
    (the Registrant);                                                                                                                                                                                                                                            
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the Registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    Registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the Registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    Registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    Registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    Registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    Registrants auditors and the audit committee of
    Registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the Registrants ability to record, process,
    summarize and report financial data and have identified for the
    Registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the Registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    Registrants other certifying officers and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.



| |                        
| | -----------------------
| | /s/ WILLIAM J. RYAN    
| |                        
| | William J. Ryan        
| | Chief Executive Officer

Date: March 10, 2003

97



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##### Table of Contents



SECTION 302 CERTIFICATION OF CHIEF
FINANCIAL OFFICER

I, Peter J. Verrill, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Banknorth Group, Inc.
    (the Registrant);                                                                                                                                                                                                                                            
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the Registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    Registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the Registrant and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    Registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    Registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    Registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    Registrants auditors and the audit committee of
    Registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the Registrants ability to record, process,
    summarize and report financial data and have identified for the
    Registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the Registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    Registrants other certifying officers and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.



| |                        
| | -----------------------
| | /s/ PETER J. VERRILL   
| |                        
| | Peter J. Verrill       
| | Chief Financial Officer

Date: March 10, 2003

98